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Vaibhavi Discretionary Family Trust (Def. Corpus) and C/o Seventilal N. Shah & Co. and others Versus Income Tax Officer-12 (2) (1) , Mumbai

2015 (8) TMI 704 - ITAT MUMBAI

Allowability of interest on refunds due and paid to the assessee - eligibility for interest on interest - the assessee was deferred corpus and was beneficiary of M/s. K. Kachradas Patel Specific Family Trust deriving @5% accumulated beneficiary share, as per Schedule-II attached and forming part of the Trust Deed - Held that:- The assessee in the present case had moved an application under section 154 of the Act for granting of interest on refunds due to the assessee under the provisions of sect .....

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red and consequently we direct the AO to grant the said interest to the assessee.

It may be clarified at this juncture that the earlier bunch of appeals decided by the Mumbai Benches of the Tribunal in M/s. Vaibhavi Discretionary Family Trust and others was in respect of the beneficiaries listed in Schedule-I whereas the present bench of appeals relate to beneficiaries listed in Schedule-II on account of deferred corpus where the right to receive the income comes after 18 years. Foll .....

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Decided partly in favour of assessee. - ITA No.7226, 7251, 7259, 7268, 7269, 7258, 7270, 7254, 7262, 7263, 7265, 7266, 7271, 7272, 7253, 7261, 7257, 7260, 7250, 7252, 7255, 7264, 7273, 7274, 7227, 7228, 7229, 7230, 7231, 7232, 7233, 7234, 7235, 7236, 7237, 7238, 7239, 7240, 7241- Mum/2013 - Dated:- 5-8-2015 - 7226, 7251, 7259, 7268, 7269, 7258, 7270, 7254, 7262, 7263, 7265, 7266, 7271, 7272, 7253, 7261, 7257, 7260, 7250, 7252, 7255, 7264, 7273, 7274, 7227, 7228, 7229, 7230, 7231, 7232, 7233, 72 .....

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Act. 2. All the appeals relating to different assessees on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. However, reference is being made to the facts in the case of ITA No. 7226/Mum/2013. 3. The grounds of appeal raised by the assessee in ITA No. 7226/Mum/ 2013 reads as under: - 1) In laws and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in the points of law and facts. 2) In laws a .....

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is not eligible for interest on interest. 4. The issue raised in the present appeal is against the allowability of interest on refunds due and paid to the assessee. The assessee has also raised ground of appeal against allowing interest on interest. 5. The learned A.R. for the assessee at the outset pointed out that the issue raised in the present bunch of appeals is identical and is similar to the issue before the Tribunal in the group of other beneficiaries and is consequently covered by the .....

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ific Family Trust having 0.5% deferred shares in the parent trust, i.e. the list of assessees being deferred corpus, however the issue was identical to other beneficiaries in Schedule-1. 6. The learned D.R. for the Revenue pointed out that no interest was allowable on interest. However, the learned D.R. did not controvert the claim of the learned A.R. for the assessee that the issue is covered by the order of the Tribunal on identical facts. 7. We have heard the rival submissions and carefully p .....

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ubstantive assessment of the income had to be made in the hands of the trust. Consequent thereto the AO Incharge of the assessee completed the assessment under section 143(3) of the Act on protective basis. The trust carried the matter before the Appellate Authorities. However, subsequently the said trust declared the said income under KVSS scheme and paid due taxes thereon. The certificate of income in the hands of M/s. K. Kachradas Patel Specific Family Trust was issued under the KVSS scheme. .....

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(2) of the Act, the assessee moved an application under section 154 of the Act requesting interest on refund of ₹ 40,442/- till 29.02.1988 and interest on refund of ₹ 11,138/- till 28.11.2000. On advance tax, assessee sought interest from 01.04.1984 and on self-assessment tax assessee sought interest from the date of payment, i.e. June, 1984. Further claim was made for issue of compensatory interest. The AO, vide order passed under section 154/155 of the Act dated 02.12.2012 rejected .....

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Specific Family Trust having 0.5% present share in parent Trust . The assessee Trust also derived 0.5% deferred share . For assessment year 1984-85 return was filed with ITO,A-1, Mumbai on 23/6/1984 showing total income of ₹ 1,10,290/- of which taxes were paid at a sum of ₹ 51,580/-. The returned income was accepted vide order dated 27/2/1987 passed under section 143(3) of the Income Tax Act, 1961(the Act). However, the assessment was made on protective basis as the income was assess .....

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ted at Nil. The AO allowed the refund as under: Total taxes paid ₹ 51,580/- Less: Refunded vide order dt. 29/2/88 ₹ 40,442/- Bal. refund due ₹ 11,138/- The Assessing Officer allowed refund of ₹ 11,138/- as per the above calculation The assessee submitted rectification application dated 7/12/2000 seeking following refund: 1) Refund of ₹ 40,442/-, allegedly transferred in the case of Main Trust alongwith due interest. 2) Interest on refund as also interest on interest .....

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sessee is a sum of ₹ 51,580/-. As per income tax computation form dated 28/11/2000, copy of which has been filed at pages 10 to 11 of the paper book. It is in pursuance to order passed under section 155(2) of the Act and as per said computation a refund of ₹ 40,442/- was granted vide order dated 29/02/1988 and balance amount of ₹ 11,138/- was refunded to the assessee. The assessee is seeking interest on the aforementioned refund of 40,442/- upto the date 29/2/1988 and for a sum .....

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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 inte .....

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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 jurisdiction. Therefore, to m .....

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essments. 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 cas .....

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ng 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. 30. One of the basic princ .....

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o 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 not empower the income-tax department to tax the same income more than once. This must be made very clear. 31. What are the simple fact .....

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and the substantive assessments made in the hands of the Main Trusts have been accepted by the assessee, what would be the Position of the corresponding protective assessments made in the hands of the beneficiary trusts? The protective assessments would have become invalid as a result of which the Revenue would refund the amount of tax if any paid by the beneficiary trusts while filing the returns of income in their individual capacities. There cannot be any dispute on this proposition. Is it p .....

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, 1995. In either case the protective assessments become invalid whereby no demand can be enforced against those protective assessments. The consequence is that if the assessees have paid any amount of tax along with their returns considered for protective assessments, such taxes have to be refunded to them. 32. We do not find much force on the reliance placed by the learned standing counsel on the decision of the Gujarat High Court in the case of Saurashtra Cement & Chemical Industries vs. .....

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he Main Trusts. Therefore, nothing remains thereafter to be assessed in the hands of the beneficiary trusts, as far as the income of Main Trust is concerned. Moreover, a case of assessment can be contemplated in the pre5ent cases because the stand taken by the assessees is that the, income of the Main Trusts has to be assessed in the hands of the individual beneficiary trusts. It is on the basis of that proposition that the returns were filed by the beneficiary trusts. While returns were filed b .....

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mits tax thereon u/s 140A, in fact, an assessment is being contemplated even though it is a selfassessment . Later on, when it is found that the income covered by the said return is not taxable the tax paid by the assessee in pursuance of that return has to be returned by the Revenue. Therefore, refund of tax is a must in this case. The proposition made by the CIT against the refund of tax is not proper. 33. Regarding the grant of interest also, the position is very clear. As already observed in .....

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eficiary trusts have filed their individual returns of income disclosing the benefits received from the main trusts also. But when KVSS was pronounced by the Government of India, it was for the assessees to decide whether to take benefit out of that or not. Therefore, it is only when KVSS was promulgated, the assessee had an occasion to make a move and settle the dispute. So also the proceedings were locked up in different appellate forums. Therefore, there is no merit in the argument of the Rev .....

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l and Others, 64 Cases, Tax Appeal Nos. 573 to 618 and 1216 to 1233 of 2007 and Janak Pramodbhai Patel and Others 6 cases, Tax Appeal Nos. 182 & 204 of 2002 with Tax Appeal Nos. 27 of 30 of 2004. Copy of this order is filed at pages 64 to 96 of the paper book. 3.5 So far as it relates to findings of their Lordships on grant of interest our attention was invited to the following observations: As regards grant of interest on refund, we find that Tribunal was justified in holding that refund sh .....

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or 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 .....

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reads as under: - 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 .....

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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 .....

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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. 11. The Tribunal, on consideration of the issues held as under: 7. We have heard both the parties and their contentions have carefully been considered. In the present cases assessees are common to the assessees with r .....

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enged 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 .....

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ification 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 posit .....

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round 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. 12. The issue arising in the present appeal before us is identical to the issue before the Tribunal. A per .....

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e said refunds under the provisions of section 244(1)(a) of the Act. As referred to by the Tribunal, similar issue arose before the Special Bench in the case of Punitaben Karsanbhai Patel Oral Specific Deferred Family Trust in ITA No. 2157/Mum/2003 & others, and vide order dated 07.07.2006 (copy of which is placed on pages 37 to 66 of the paper book) it was held that the assessee was entitled to get the refund. In the facts of the case before the Special Bench the AO had initially granted in .....

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ers (64 cases) dated 26.06.2008 (copy paced at pages 68 to 100 of the paper book). The Hon'ble High Court held that the assessee was entitled to grant of interest on refunds as held by the Special Bench of the Tribunal. The said order of the Hon'ble Gujarat High Court has not been reversed by the higher forum and nothing to that extent was pointed by any of the Authorised Representatives. Further, in the case of M/s. Vaibhavi Discretionary Family Trust the matter was restored by the CIT( .....

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