Sh.
S.P. Jaiswal Vs. The Commissioner of Income Tax [1997] INSC 257 (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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