RANCHOD DISCRETIONARY FAMILY TRUST,MUMBAI vs. ITO 12(2)(1), MUMBAI

It is undisputed fact that in view of the substantial assessability of the income in the hands of the main Trust no income is assessable in the hands of these assessees. Thus, it is the case of the assessee that whatever tax is refunded to the assessee, the assessee is entitled to get interest on the said refund under the provisions of section 244(1A) of the Act. It is the case of the assessee that on similar facts and circumstances in the cases of other beneficiaries there is decision of Special Bench, which is dated 7/7/2006, copy of which is filed at pages 33 to 63 of the paper book and it was decided by the Special Bench that the beneficiaries are entitled to get the interest. The Special Bench while deciding this issue in favour of the assessee has considered the provisions of KVSS 1998 and after considering those provisions it was held that interest was rightly granted to the assessee. In the cases before Special Bench initially such interest was granted by the AO which was withdrawn by the CIT u/s.263 and it was held that interest was rightly granted by the AO. Reference was made to the following observations of the Special Bench. 27.We heard both sides in detail and considered the matter in the light of the earlier orders of the different benches of the Tribunal on the subject and the plethora of materials placed before us along with assessment, appeal and revision orders. 28.the first issue that came up for consideration is whether the dispute regarding the issue involved in these appeals were continued to exist at that point, of time. We find that this question is quite academic. The Main Trusts have sought settlement of their substantive assessments under KVSS which have been accepted and acted upon by the department. That itself showed that the controversy continued and existed at that point of time and there is no doubt that the issue was pending before the High Court in Reference juri iction. Therefore, to make the matter clear ,we state that the Commissioner of Income-tax was not correct in holding that such a controversy did not exist. 29.We further find that the answer to the controversy cropped up in these cases is available in the relevant instructions issued by the CBDJ in the context of Kar Vivad Samadhan Scheme, 1998.We have already seen the relevant question and answer to the question. The CBDT has stated in unequivocal terms that declarations are to be made in respect of substantive assessments. The Board has clarified that the protective demand is not subject to recovery unless it is finally upheld. The Board has further explained that once the declaration in a substantive case or year is accepted, the tax arrear in protective case / year would no longer be valid and will be rectified by suitable orders in the normal course. In the present case substantive assessments have been made by the department in the hands of Main Trusts.Protective assessments have been made in the case of beneficial trusts. Main Trusts have settled the dispute under KVSS. They have paid the tax under KVSS in respect of the assessment completed in their hands on substantive basis. Therefore, in the light of the circular, the corresponding protective assessments made in the hands of beneficial trusts would fade away and the demand raised in those protective assessment would no longer be valid. When the assessment is not subsisting and the demand is not valid, the amount paid by the assessee along with the return subject to protective assessment becomes refundable to the assessee. Therefore, we are of the considered opinion that the assessing officer has rightly accepted the prayers of the assessees and passed appropriate orders excluding the incomes which have already been considered in the hands of the Main Trusts under KVSS. Therefore, obviously, the assessing officer is justified in following the consequential procedure and making refund to the assessees.

One of the basic principles of taxation is that the income shall not be taxed twice. In the present case, the income under dispute is the same considered in the hands of the Main Trusts and also considered in the hands of the beneficial trusts. Kar Vivad Samadhan Scheme, 1998 was introduced by Government of India to settle the pending litigations at different levels and collect the tax once for all and reach finalities in the matters connected thereto. Even though KVSS was a special scheme, the KVSS did not propose to tax any income twice. Whether under the regular provisions of the Income-tax Act or under the scheme of KVSS what is to be assessed and subjected to tax is the real income once for all. KVSS does not create any artificiality. A case of double taxation of the same income cannot be endorsed under the KVSS. In other words, the Kar Vivad Samadhan Scheme, 1998 does 3

Therefore, we also find that the assessing officer has rightly granted interest to the assessees on refunds due to them.” XXXXXXXXXXXXXXXXXXX 3.5.It was further submitted that in one of the cases interest has already been granted by the Revenue and said grant of interest has not been reversed. Reference in this regard was made to the case of M/s.Vruti Discretionary Family Trust, in respect of which AO disallowed the application of the assessee for grant of interest and Ld. CIT(A) restored the matter back to the file of AO to allow the interest as per law and AO vide his order dated 11/2/2010 has allowed such interest. Reference in this regard was made to the papers filed in the paper book as follows: (1.) Rectification application of the assessee from pgs. 106 to 108 (2.) Order passed by Ld. CIT(A) dated 19/9/2008 page 109 to 110 of the paper book. (3.) Order giving effect by the AO dated 11/2/2010 pages 111 of the paper book. (4.) Notice of demand under section 156 granting interest of Rs.40,238/- page 112 of the paper book. (5.) Computation of such interest at pages 113 to 114 of the paper book. 3.6.Thus, it was pleaded by Ld. AR that in view of above submissions the necessary relief should be granted to the assessee. In this manner ground No.2 and 3 were argued by Ld. AR. 4.So far as it relates to Ground No.4, it was submitted by AR that since Revenue has deprived the assessee for long time for granting the interest or refund without any just cause, assessee should also be held entitled for receiving interest on interest. 5.On the other hand, after narrating the facts, it was submitted by Ld. DR that AO has rightfully denied interest to the assessee and referring to the order passed by Ld. CIT(A) it was submitted by Ld. DR that it has been clearly held by Ld. CIT(A) that according to the facts of the case it cannot be said that refund is due to the assessee as a result of any amount having not been paid in pursuance of any order of assessment since, in order under section 143(3) only protective assessment was made by the AO, with the undisputed position of the AO being that income on which the tax was paid by the assessee did not belong to it and hence, the assessee was not liable to the demand on the income of the main Trust. Since the assessee has disclosed the income as its own and had paid the tax on its own volition, and in order to protect interest of Revenue the AO only made the protective assessment. No enforceable demand was created on the assessee. According to well settled position of law, in protective assessment demand is only contingent demand and not legally enforceable and thus, in reality assessee did not pay tax in pursuance of any order of assessment. Ld. DR further referred to the decision of Hon’ble Supreme Court in the case of Modi Industries Ltd. vs. CIT, 216 ITR 759 referred to in para-6.2.3 of order of Ld. CIT(A) pleaded that the meaning of regular assessment in section 214, would be that a tax payer is entitled to claim interest on the excess amount advance tax paid only with reference to assessed tax determined on regular assessment and further no interest can be claimed under section 214 beyond the date of regular assessment. In this manner Ld. DR pleaded that interest has rightly been denied by Ld. CIT(A). 6.So far as it relates to ground No.4, it was submitted by Ld. DR that according to decision of Hon’ble Supreme Court in the case of CIT vs. Gujarat Flouro Chemicals, 358 ITR 291 (SC)w.e.f. 1/4/1989 the interest which can be granted to the assessee on refund as per section 244A would be the interest provided in that section and no other interest on such statutory interest can be provided. Thus, it was pleaded by Ld. DR that there is no provision according to which assessee can be granted interest on interest.

We have heard both the parties and their contentions have carefully been considered. In the present cases assessees are common to the assessees with regard to whom, earlier Special Bench had decided the issue that assessee is entitled to interest on the refund. Special Bench order was on the merits of the issue as well as on the validity or otherwise of section 263 of the Act which was invoked by the CIT to deny these assesses benefit of interest which was already granted by the AO. Special Bench has decided this issue in favour of the assessee and relevant observation of Special Bench have already been reproduced above. 7.1.The Revenue challenged the aforementioned order of Special Bench before Hon’ble Gujarat High Court and Gujarat High Court has not only upheld the decision of Special Bench on the issue regarding grant of interest but Hon’ble High Court has also directed Revenue authorities that they should not drag the assesseess to unnecessary avoidable litigation. In spite of such a warning given by the Court to the Revenue, the Department again in the present cases has dragged these assessees in litigation for non-granting of the interest. The relevant observations of their Lordships of Gujarat High Court have already been reproduced. It is made clear that the facts of the present cases and those which were decided by the Special Bench and Hon’ble Gujarat High Court are pari-materia and this fact was not disputed by the Revenue. The AO has adopted a view which is contrary to the decision of Special Bench and the decision of the Hon’ble Gujarat High Court and as he has again made the disallowance by rejecting the rectification application of the assessee.Thus, the conduct of the AO is against the decision rendered by Special Bench. Similarly, Ld. CIT(A) has disregarded the Special Bench by simply holding that the same would not be applicable. According to Ld. CIT(A) the said order was in respect of section 244A.We don’t find any justification in such disregard shown by Ld. CIT(A). Therefore, in the facts & circumstances of the case, such conduct of the Revenue is neither according to the accepted position of law settled by the higher judicial forums nor it is appreciable for the reason that Hon’ble Gujarat High Court has already directed the Revenue not to drag the assessee in unnecessary avoidable litigation. 7.2.The issue regarding grant of interest to the assessees is clearly covered by the decision of the Special Bench as well as Hon’ble Gujarat High Court which have not been contended to be reversed or modified.Therefore, we direct the Revenue to grant the interest to the assessee and Ground No.2 & 3 are allowed.” 7.3.Before parting with Ground Nos. 2 & 3 of the assessee’s appeal, we may mention here that it is a proper case where cost can be imposed on the Department in favour of the assessee for not following the directions of Hon’ble Gujarat High Court (supra), but keeping in view that no such request was made by Ld. AR, we restrain ourselves to award such cost. 8.Now coming to Ground No.4, this issue has now been settled by Hon’ble Supreme Court by the decision relied upon by Ld. DR.Therefore, we hold that assessee is not entitled to interest on interest. 9.In the result, appeals filed by these assessees are partly allowed in the manner aforesaid. 4.We further find that on 7.9.2015,the Tribunal had decided 35 appeals of the same group wherein identical grounds were raised in ITA 6090 – 6124/Mum/2013 AY 84-85. In that matter the order of the Tribunal dated 25/3/2015 was followed.Respectfully following the above,we hold that the conduct of the Assessing Officer(AO)is against the decision of the Special Bench and Hon'ble Gujarat High Court,that the issue regarding grant of interest to the assessee is covered by the Hon’ble Court.Therefore,AO is directed to grant interest to the assessee.Ground Nos. 2 -4 are allowed in favour of the assessee. Following the order of the Tribunal dated.25.03.2015(supra),we decide Ground No.5 against the assessee.

Follwing the above order for ITA/4712/Mum/2014,we allow all the other appeals in favour of the assessee-trusts in part. As a result appeals filed by the all the assessees stand partly allowed . फलतः सभी िनधा"रितय" "ारा दािखल क" ग" अपील" अंशतः मंजूर क" जाती ह". Order pronounced in the open court on 24th November, 2015. 6

Respondent /""यथ" 3.The concerned CIT(A)/संब" अपीलीय आयकर आयु!, 4.The concerned CIT /संब" आयकर आयु! 5.DR “ G” Bench, ITAT, Mumbai /िवभागीय "ितिनिध, ए खंडपीठ,आ.अ."याया.मुंबई 6.Guard File/गाड" फाईल स"यािपत "ित //// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst.