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TMI Blog2013 (6) TMI 575X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the trust is to carry on activity of a venture capital fund and to raise resources through schemes to make portfolio investments. The Petitioner floated the DHFL Real Estate Management Fund - 1 (Dream Fund - 1) which is a close ended fund with a focus in the Indian real estate and allied sectors. A private placement memorandum is circulated to target investors such as institutional investors and ultra high net worth individuals with whom separate contribution agreements are entered into in respect of the scheme. Clause 15.1 of the deed of trust provides as follows : "15. Revocation of Contributions by 75% Majority Consent 15.1 Save as otherwise provided in the Contribution Agreement of the respective Scheme, the Contributors shall be entitled to revoke the Contributions to a Scheme, at any time during the term of that Scheme, in accordance with the terms and conditions set out in the Scheme Documents of that Scheme, for any reason, including but not limited to circumstances resulting from any adverse tax consequences (for either the Trust or the Contributors) or any direction of any statutory authority, provided that no such revocation shall take effect unless the consent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income received by the contributors from the fund had been included in the total income of the contributors and was offered to tax by the contributors, it was not open to the department to proceed to tax the same income again in the hands of the fund. Against the order of the CIT (A) for Assessment Year 2008-09, the Revenue is in appeal before the Tribunal. 6. In the meantime, the Assessing Officer passed an order on 29 December 2011 for Assessment Year 2009-10 treating the Petitioner as an AOP and brought to tax the income of that year. 7. On 18 May 2012 a notice had been issued by the Assessing Officer under Section 148 for Assessment Year 2008-09. The notice has been issued to "the AOP of the contributors of M/s. DHFL Venture Capital Fund" at the address of the Petitioner. The reasons on the basis of which the assessment is sought to be reopened for Assessment Year 2008-09 are as follows : "During the course of assessment proceedings of M/s DHFL Venture Capital Fund it was noticed that, as per the Trust deed dated 19.08.2005 furnished by the assessee, the body of contributors having minimum 75% of the units had the power to revoke the amount transferred by the contributors to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Assessment Year 2008- 09 is by a notice within four years of the end of the relevant Assessment Year, the jurisdictional condition for the reopening of an assessment is that there must be a reason to believe that income had escaped assessment. In the present case, ex facie, the reasons disclosed by the Assessing Officer would show that the reopening is contingent on a potential escapement of income in the event that the provisions of Sections 61 to 63 are attracted as has been claimed by the Petitioner during the course of the assessment proceedings for Assessment Year 2008-09. Whether or not the provisions of Sections 61 to 63 are attracted, is a matter which is pending determination before the Tribunal. Before the Tribunal the case of the Revenue is that the income is taxable in the hands of the Petitioner as an AOP. In the circumstances, the notice reopening the assessment on the ground that there is independently an AOP of the contributories of the trust is contingent on the Revenue failing in the appeal before the Tribunal. A reopening under Section 148 is impermissible on a contingency that would arise if the Revenue were to fail in appeal before the Tribunal, because the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Revenue, should the Tribunal come to the conclusion in the appeal pending for Assessment Year 2008-09 that the income cannot be brought to tax in the hands of the Petitioner. The modality of adopting a protective assessment is accepted in income tax law and a protective assessment can even be made by taking recourse to the provisions of Section 148; (iv)The entire scheme constitutes a collective investment under which all the contributories have pooled their resources together thereby forming an AOP of the contributories to whom a notice has been issued under Section 148. A reading of the scheme and of the individual contributories' agreements would indicate that the contributories have come together in a collective venture and constituted an AOP. The rival submissions now fall for consideration. 11. The maintainability of the Petition at the behest of the Petitioner is sought to be questioned on the ground that the notice under Section 148 has not been issued to the Petitioner, but to an AOP formed of the contributories of the Petitioner. In our view, it would not be possible to accede to this submission. The Petitioner is directly and vitally affected by the issuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Sections 61 to 63 being attracted to the transactions between the contributors and the Petitioner as has been claimed by the Petitioner. At the cost of repetition, it would be appropriate to emphasize the following extract from the reasons which have been disclosed to the Petitioner : "In view of the above, the income arising from the contributions made by the contributors to DHFL Venture Capital Fund is taxable in the hand of Body of contributors whose members being companies and individuals is "Association of Persons of the contributors" if provisions of section 61 to 63 are attracted to the transactions between contributors and DHFL Venture Capital Fund as has been claimed by the DHFL Venture Capital Fund during the assessment proceedings for AY 2008-09 as per letter dated 25.12.2010. Therefore, the income of Rs.32,83,77,906/- arising from investment of contributions of the contributors to DHFL, which has been claimed as exempt in the hands of the DHFL Venture Capital Fund, has to be assessed as income in the hands of the "AOP of the contributors" of DHFL Venture Capital Fund." (emphasis supplied) 14. The reasons for the reopening of the assessment clearly postulate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g from the investment of contributions of the contributors to the Venture Capital Fund which has been claimed as exempt in the hands of the Petitioner should be assessed as income in the hands of the AOP of the contributors of the Petitioner "on a protective basis". Again it has been stated that the issue of taxing the AOP of the contributors of the Petitioner "has arisen from the submission of the Petitioner before the appellate authorities" where the Petitioner has contended that the transactions amount to a revocable transfer and that the income which would arise should be taxed in the hands of the individual contributors. The reopening of an assessment under Section 148 on the basis of a submission which is raised before the appellate authority by the assessee is clearly impermissible because what Section 147 requires is a formation of a reason to believe by the Assessing Officer. In the present case, there is clearly a want of compliance with the jurisdictional condition. The Assessing Officer has not formed a reason to believe that income has escaped assessment since the reopening is based purely on a contingency that may arise upon a particular outcome before the appellate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the relevant Assessment Year, but where it is not clear or unambiguous as to who has received the income. Such a protective assessment is carried out in order to ensure that income may not escape taxation altogether particularly in cases where the Revenue has to be protected against the bar of limitation. But equally while a protective assessment is permissible a protective recovery is not allowed. However, such an exercise which is permissible in the case of a regular assessment must necessarily yield to the discipline of the statute where recourse is sought to be taken to the provisions of Section 148. Protective assessments have emerged as a matter of departmental practice which has found judicial recognition. Any practice has to necessarily yield to the rigour of a statutory provision. Hence, when recourse is sought to be taken to the provisions of Section 148, there has necessarily to be the fulfillment of the jurisdictional requirement that the Assessing Officer must have reason to believe that income has escaped assessment. To accept the contention of the Revenue in the present case would be to allow a reopening of an assessment under Section 148 on the ground that the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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