Sh. S.P. Jaiswal Vs. The Commissioner of Income Tax [1997] INSC 255 (6 March
1997)
ACT:
HEADNOTE:
W I T H CIVIL APPEAL NO. 2586/1983
PATTANAIK. J.
These
appeals by grant of special leave are directed against the judgment of the Punjab and Haryana
High Court, answering the question posed in favour
the Revenue and against the assessee. The Income Tax
Appellate Tribunal (Chandigarh Bench) referred the
following question to the High Court for being answered under Section 256 (1)
of the Income Tax Act, 1961 namely :- "Whether
the Tribunal has been right in law in deleting the addition on account of
interest in respect of the assessee's children and
his wife for the assessment years 1967-68 to 1970-71.?" For the Assessment
Year 1963-64 the assessee brought the reference made
by approaching the High Court under Section 256(2) of the Act to the effect:
"Whether
on the facts and in the circumstances of the case, the add
back of Rs. 15,814/- is justified in law?" The assessee is the Managing Director of the Karnal Distillery Company Limited, Karnal.
As per the books of accounts of the company said assessee
has a deposit of Rs. 1,74,639.00
on 3.4.1962. The aforesaid amount was debited to the credit of Messers Modern Property Dealers, Karnal,
the partnership firm consisting of two sons and daughter of the assessee. The said partners had 1/3rd share each in the
partnership. The aforesaid amount was shown to the credit of three partners in
equal shares, in the books of accounts of Messers
Modern Property Dealers. On 1.4.1963 the aforesaid amount was shown in the
accounts of Messers Modern Property Dealers to have
returned to the assessee and further on the very same
day it was also shown that the assessee gave the said
amount as loan equally to the three partners of the Messrs Modern Property
Dealers. During the Assessment Year 1963-64, the assessee
has shown the interest derived from the aforesaid so-called loan amount in his
return but later on a revised return was filed deleting the aforesaid amount.
The
Assessing Officer, however, came to the conclusion that the interest derived
from the aforesaid amount has to be taken as an income of the assessee and accordingly the assessment order was passed.
The assessee challenged the said order in appeal
before the Income Tax Appellate Commissioner and then in second appeal before
the Tribunal but lost in the forums. The assessee
approached the Tribunal for making a reference under Section 256(1) of the Act
and the Tribunal having declined, the assessee got
the matter referred to by approaching the High Court under Section 256(2) of
the Act.
So far
as the subsequent assessment years however, the Assessing Officer came to the
conclusion that the interest income derived has to be assessed in the hands of
the assessee and infact no
loan had been advanced by the assessee to his
children who were said to be the partner of the firm - Messrs Modern Property
Dealers and the Appellate Assistant Commissioner also confirmed the order of
the Assessing Officer. The Tribunal, however, came to the conclusion that the
transaction dated 1.4.1963 not being benami in
nature, the interest income derived from the said amount cannot be said to be
the income of the assessee, and therefore, the said
amount cannot be taxed in the hands of the assessee.
The Tribunal did consider the earlier order in relation to the assessment year
1963-64 and had held that for that year the assessee
himself having indicated in the return filed that the interest income is his
income was not entitled to later on wriggle out of the same and for this reason
the amount has been taxed in the hands of the assessee.
But the Tribunal did make a reference at the instance of the Revenue on being
moved under Section 256(1) of the Act as already stated. The High Court on
analysis of the entire material came to hold that the transaction cannot be
termed to be benami end will not attract the
provisions Section 60 of the Act. The court then on re-examining the facts and
circumstances under which the amount of Rs. 1,74,639.00 was transferred to the names of two sons and
daughter of the assessee came to hold that the said
transaction cannot be considered to be a genuine loan, and therefore, the
interest derived from the said amount could be taxed in the hands of the assessee under Section 61 of the Act. With this conclusion
the questions posed for different years having been answered in favour of the Revenue and against the assessee,
the assessee has moved this Court.
The assessee appeared in person and ably argued his case. The assessee contended that the transaction in question having
been held to be a loan by the Appellate Tribunal and the said conclusion being on a question of fact, it was not open for
the High Court on a reference being made to interfere with that conclusion on a
question of fact. The assessee also further contended
that any father is entitled to give loan to his children if the children want
to carry on any business even without charging any interest from them and in
such an event the income accruing from such loan amount cannot be taxed in the
hands of the father and the High Court was wholly in error in coming to the
conclusion that it was not a case of genuine loan on the ground that no
interest had been charged. The assessee further urged
that the amount in question having been debited from the accounts of Messrs
Modern Property Dealers and thereafter the assessee
having given the same to the partner of the said Messrs Modern Property Dealers
and said amount ultimately having been refunded to the assessee,
the High Court erred in holding that it was not a loan transaction.
Mr. Rammurthi, the learned senior counsel appearing for the
Revenue on the other hand contended that the very object of Chapter v of the
Act is designed to meet the situation arising out of the tendency on the part
of the taxpayer to endeavour to avoid or reduce the
tax liability by means of settlement. That being the object, the impugned
transaction which was merely a paper adjustment cannot be termed as loan in any
sense and thus attracts the provisions of Section 61 of the Act and
consequently the income accruing therefrom has to be
taxed in the hands of the assessee. In this view of
the matter, the counsel argued, there has been no error in the judgment of the
High Court.
The assessee in support of his contention contended that the
High Court could not have under its advisory jurisdiction under Section 256 of
the Act interfered with the finding of the Tribunal that the transaction was a
loan transaction, relied upon the decision of this Court in the case of COMMISSIONER
OF INCOME-TAX, WEST BENGAL VS. CALCUTTA AGENCY LIMITED. [19 I.T.R. 1991],
wherein this Court had observed:
"The
jurisdiction of the High Court in the matter of income-tax reference made by
the Appellate Tribunal under the Indian Income- tax Act is an advisory
jurisdiction and under the Act the decision of the Tribunal on facts is final,
unless it can be successfuly assailed on the ground
that there was no evidence for the conclusions on facts recorded by the
Tribunal." In that particular case the assessee
has claimed certain exemption under the provisions of the Income Tax Act as it
stood then but at no stage of the assessment proceedings the assessee has established the necessary facts for getting
the exemption in question. The High Court, however, on a reference being made
applying the principles in MITCHELL's case [1927] 1
K.B. 719, assumed certain facts which has not been proved and held that the assessee was entitled to the deductions claimed. This
Court, therefore, held that the High Court had exceeded its jurisdiction.
There
is no dispute with the proposition that a reference can be made to the High
Court under Section 256 of the Act only on the question of law and the court
would answer the said question of law and would not be justified in interfering
on a question of fact. The assessee also relied upon
the decision of this Court in the case of PATNAIK & CO. LTD. VS.
COMMISSIONER OF INCOME-TAX, ORISSA, [161 I.T.R. 365], wherein this Court had
held :- "That the High Court was in error in re-examining the fact and in
coming to the conclusion that the investment made by the assessee
was not connected with the orders placed by the Government with the assessee and therefore the loss was a capital loss."
In that case the Tribunal on consideration of the sequence of events and the
close proximity of the investment made by the assessee
with the receipt of Government orders for motor vehicles had come to the
conclusion that the investment was made to further the sales of the assessee and boost his business and that the investment was
made by way of commercial expediency and as such the loss occurred was a
Revenue loss. But the High Court had interferred with
that conclusion, and therefore, this Court has observed that since the question
referred to the High Court was framed on the assumption that it has to be
decided in the factual matrix delineated by the Tribunal, the High Court was
wrong in re-appreciating the evidence.
The assessee also relied upon the decision of this Court in the
case of COMMISSIONER OF INCOME-TAX, PUNJAB, JAMMU AND KASHMIR, AND
HIMACHAL PRADESH VS. S. RAGHBIR SINGH. [57 I.T.R. 408], wherein the question
for consideration was whether the assessee who has
created a trust in respect of the shares which he has obtained in the partition
of the family could be taxed on the income derived from such settlement under
the provisions of the first proviso to Section 16(1)(c) of the Indian Income
Tax Act.
1922
and this Court came to the conclusion that the assessee
not having obtained any benefit from the trust and the trust having been
created to discharge an obligation that was on the assessee,
the assessee could not have been taxed under Section
16(1)(c) of the Indian Income Tax Act, 1922 as the
income from shares would not be deemed to be the income of the assessee. The aforesaid conclusion of this Court was on
account of the terms and conditions of the trust deed and it was found that the
assets and the income were unmistakably impressed with the obligations arising
out of the trust deed. We fail to understand how this decision is of any
assistance to the assessee in the case in hand.
Mr. Rammurthi, appearing for the Revenue on the other hand
relied upon the decision of this Court in the case of SMT. MOHINI THAPAR VS.
COMMISSIONER OF INCOME-TAX (CENTRAL), CALCUTTA AND OTHERS, [
83 I.T.R. 208], wherein from out of the gifts made by the assessee to his wife the wife had purchased certain shares
and invested the balance amount in deposits and the question for consideration
was whether the income derived by the wife from the said deposits and shares
had to be assessed in the hands of the assessee under
Section 16(3)(1)(iii) of the Income-tax Act, 1922. This Court held that the
transfers in question were direct transfers and the income realised
by the wife was income indirectly received in respect of the transfer of cash
directly made by the assessee, and therefore, there
was a proximate connection between the income and the transfer of assets made
by the assessee and as such the said income has to be
included in the income of the assessee under Section
16(3)(a)(iii) of the Income-tax Act. 1922.
Mr. Rammurthi also relied upon the decision in the case of
COMMISSIONER OF INCOME-TAX VS. SMT. PELLETI SRIDEVAMMA, [216 I.T.R. 826], but
in the said case Clause (iv) of Section 64(1) of the Income Tax Act, 1961 came
up for consideration as to whether in computing the total income of an
individual all income which arises directly or indirectly to a minor child can
be included or not. It is in that connection this Court had explained the true
meaning of the expression that the income must be proximate as observed in PREM
BHAI PAREKH'S case, [1970] 77 I.T.R. 27 (SC). But in the case in hand we are
not really concerned with Section 64(1) of the Act and the case is, therefore,
of no direct assistance.
The assessee in course of his argument has also contended that
the interest income which the children derived from the
amount of loan transaction in their favour have
already been taxed in their hands, and therefore, the same cannot be taxed
twice. Mr. Rammurthi, however, repelling the
aforesaid contention had urged that under the Income-Tax Act the Assessing
Officer has the right to tax the right person namely the person who is liable
to be taxed according to law with respect to a particular income and merely
because a wrong person has been taxed with respect to a particular income the
Assessing Officer is not precluded from taxing the right person with respect to
that income. In this connection, he placed reliance on the observation of this
Court in the case of INCOME-TAX OFFICER VS. CH. ATCHAIAH, [218 I.T.R. 239),
wherein this Court observed as under :- "We are
of the opinion that under the present Act, the Income-tax Officer has no option
like the one he had under the 1922 Act. He can, and he must, tax the right
person and the right person alone. By "right person", we mean the
person who is liable to be taxed, according to law, with respect to a
particular income. The expression "wrong person" is obviously used as
the opposite of the expression "right person". Merely because a wrong
person is taxed with respect to a particular income, the Assessing Officer is
not precluded from taxing the right person with respect to that income. This is
so irrespective of the fact which course is more beneficial to the
Revenue." In view of the aforesaid decision of this Court, the assessee's contention that the children of the assessee have been taxed in respect of the income accruing
from the amount is of no relevance. It may be stated at this stage that Mr. Rammurthi, appearing for the Revenue fairly stated that
there is no bar for a father to advance loan to his children for carrying on
their business and such loan or the income arising from such loan cannot be
taxed in the hands of the father but he reiterated that in the case in hand in
fact no loan had been advanced and it was merely a paper device invented by the
assessee to reduce the tax liability. It would be
apt, at this stage to quote the observations of Lord Macmillan in the case of
CHAMBERIAIN VS. INLAND REVENUE COMMISSIONERS, [(1943) 25 Tax Cas. 317, 329]:- "This legislation ....... is designed
to overtake and circumvent a growing tendency on the part of taxpayer to endeavour to avoid or reduce tax liability by means of
settlements. Stated quite generally, the method consisted in the disposal by
the taxpayer of part of his property in such a way that the income should no
longer be receivable by him, while at the same time he retained certain powers
over, or interests in, the property or its income. The Legislature's counter
was to declare that the income of which the taxpayer had thus sought to
disembarrass himself should, notwithstanding, be treated as still his income
and taxed in his hands accordingly." And this Court in
the case of TULSIDAS KILACHAND AND OTHERS VS. COMMISSIONER OF
INCOME-TAX, BOMBAY CITY, [42
I.T.R. 1] had held that the aforesaid observations apply to the provisions of
Indian Income Tax Act and Section 16 thereof which has been enacted with the
intent and for the same purpose. Chapter V of the Indian Income Tax Act, 1961
is also designed for the same purpose, and therefore, the aforesaid
observations in Chamberlain's case (supra) would also apply.
Admittedly,
the transaction between the assessee and the partners
of the firm constituted by his children, and the so-called return of money on
1.4.1963 in the books of accounts of the firm of the children and re-transfer
of the same amount in the names of the children in the books of accounts of the
assessee's firm is nothing but a paper device
designedly made to reduce the tax burden of the assessee
and by no stretch of imagination can be held to be loan transaction by the assessee in favour of his
children.
This
is also apparent from the inconsistent stand taken by the children in the
affidavits filed in this Court. Such a paper transaction intended merely to
reduce the tax liability and cannot be held to be a loan nor the
High Court in the circumstance can be said to have exceeded its advisory
jurisdiction in answering the question posed. In our considered opinion, there
is no error in the judgment of the High Court requiring interference by this
Court. The appeals are accordingly dismissed but in the circumstances there
will be no order as to costs.
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