9911796707
TMI Blog2006 (4) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... o., as well as dividend, interest, director's fees, etc. The assessee had 60 per cent share in the profits and loss of the business in the firm of Jayantilal and Co. 4 By a trust deed dated June 13, 1978, the assessee created a trust known as "Biren Nandish Trust." The beneficiaries of the said trust were (i) Biren S/o Indumati Shantilal Gandhi, his wife, if married and his child or children, if any, (ii) Nandish S/o Indumati Shantilal Gandhi his wife, if married and his child or children, if any (iii) Aditi d/o Indumati Shantilal Gandhi. The trustees of the said trust were the assessee and Indumati Shantilal Gandhi. In the deed of settlement it was mentioned that the trust was created out of love and affection for Biren, Nandish and Aditi. A sum of Rs. 1,000 was settled in the trust. 5 On the next day, that is, on June 14, 1978, the assessee executed a deed of assignment whereby the assessee gifted one-half of his partnership share in the said firm to the aforesaid Biren Nandish Trust. In addition to the gift of the said partnership share, the assessee also gifted a cash amount of Rs. 3,000 out of the amount standing to his credit in the said firm to the trust. 6 For the years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not merely a portion thereof and that unless the entire bundle of rights is transferred, there is no transfer of assets within the meaning of section 60 of the Act. That as the entire income producing asset, namely, the share in the partnership firm, comprising of all the concomitant rights had not been transferred, by virtue of the provisions of section 60 of the Act, the whole of the income was assessable in the hands of the assessee. The Assessing Officer observed that 60 per cent. profit arising to the assessee's share was credited to his account and it was thereafter that 50 per cent. share was credited to the account of the trust. The Assessing Officer found that the decision of the Supreme Court in the case of K. A. Ramachar v. CIT [1961] 42 ITR 25, was applicable to the facts of the case. That, applying of the ratio of the decision of the Supreme Court in the case of CIT v. Sitaldas Tirath das [1961] 41 ITR 367, it cannot be said that the profits were diverted by an overriding title before the accrual to the assessee. The Assessing Officer found that this was a case of application of income and not a case of diversion of income at source and held that the assessee was li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of the gift. That, thereupon, the assessee ceased to have any right, title or interest in the gifted property and the trust is the sole beneficiary thereof. That the trust had a definite enforceable right to claim share in the profit of the assignor. That, the share in the firm was effectively transferred to the assignee and that it was not merely the right to receive the income that was transferred. That in so far as the partnership firm is concerned, it only recognizes the assignor as a partner, hence, the entire share was credited to the account of the assessee. However, in view of the fact that 50 per cent. of the amount credited to the credit of the assessee belongs to the trust, the same was paid over to the trust on the same day by passing an entry to that effect in the books of the firm, thus, discharging his legal obligation. 12. It was further submitted that it was beyond the scope of the powers of the Assessing Officer in the course of assessment proceedings under the Income-tax Act to pronounce upon the validity of the gift. More so, in the light of the fact that the assessee had duly filed gift-tax return in relation to the gift of partnership share and cash gift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en charged to gift-tax as shown in the assessment order dated October 8, 1982, and the income from this assignment has also been charged by the assessment order dated January 22, 1982. For the aforesaid reasons as well as in view of the decision of this court in the case of Nandiniben Narottamdas [1983] 140 ITR 16, the Tribunal dismissed the appeal. 14 Heard, Mr. M. R. Bhatt, learned senior standing counsel for the applicant-Revenue. Though served, there is no appearance on behalf of the respondent-assessee. 15 Mr. Bhatt assailed the order of the Tribunal contending that the Tribunal had erred in holding that by virtue of assignment of 50 per cent. of the assessee's share in the partnership firm, an overriding title was created in favour of the trust whereas the same was merely an application of the assessee's income. It was submitted that there was no transfer of the assets from which the income arises ; that what was transferred was merely a right to share the profit and contribute to the deficit when called upon to do so. It was submitted that share in the partnership without transfer of capital cannot be said to be a transfer of assets. That the transfer in question was a tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. However, he hastened to add that, in view of the decision of the Supreme Court in the case of CIT v. Sunil J. Kinariwala [2003] 259 ITR 10, the said decision would no longer hold the field. That the controversy in issue stands concluded in favour of the Revenue by the said decision of the Supreme Court wherein the court had distinguished between a case where a partner of a firm assigns his share in favour of a third person and a case where a partner constitutes a sub-partnership with his share in the main partnership. That in case of assignment of share the assignee gets no right or interest in the main partnership, except to receive that part of the profits of the firm referable to the assignment and to the assets in the case of dissolution of the firm, whereas a sub-partnership acquires a special interest in the main partnership. That the income from the share of the assessee, which had been assigned in favour of the trust had to be included in the total income of the assessee. It was submitted that in so far as the applicability of the ratio of the decision of the Supreme Court rendered in the case of Murlidhar Himatsingka v. CIT [1966] 62 ITR 323 to the facts of the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment deed dated June 14, 1978, has succeeded in diverting the income from the assessee's share in M/s. Jayantilal & Co. to the Biren Nandish Trust. In other words whether the interest of the trust in the profits received from the partnership is of such a nature as diverts the income from the original partner to the trust. 21 For the purpose of determining the controversy in issue it would be necessary to advert to the terms of the deed of assignment to find out the actual nature of the assignment. The deed of assignment, in so far as the same is relevant for the purpose of the present case, reads as under : "Whereas Shri Jayantilal Dahyabhai Patel, party of the first part gifted away one-half of his partnership share out of the said 60 per cent. share abovereferred to in the said partnership of M/s. Jayantilal & Co. to Biren Nandish Trust constituted under the deed of trust dated June 13, 1978. The said Shri Jayantilal in addition to the gift of the said partnership share has also gifted on that day to the said trust a cash amount of Rs. 3,000 out of the amount standing to his credit in the said partnership firm and delivery of the said gift has been given by him to the trustees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd interest in the said properties gifted away by him and that the trust is the sole beneficial owner thereof. 23 Though learned counsel for the applicant-Revenue has strenuously contended that the issue requires to be answered in favour of the Revenue by following and applying the aforesaid decision in the case of CIT v. Sunil J. Kinariwala [2003] 259 ITR 10 (SC), it is not possible to accept the submission for the reasons that follow hereinafter. 24 In the present case, the Tribunal has specifically held that the provisions of section 60 of the Act cannot be invoked and thus directed the Assessing Officer to exclude 50 per cent. share of profits of the Biren Nandish Trust from the income of the assessee. In so far as the second question is concerned viz., the applicability of section 60 of the Act, during the course of hearing a faint attempt was made to contend that the Revenue does not wish to invite a judgment as to the applicability or otherwise of section 60 of the Act and the dispute may be restricted to the issue as to whether there is any overriding title or not. The said contention cannot be accepted for the simple reason that both the issues are interlinked. 25 In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payer of a part of his property in such a way that the income would no longer be received by him, while at the same time, he retains certain powers over, or interest in, the property. The section, therefore, provides that in all cases whereby virtue of a 'transfer' (including any settlement, trust, covenant, agreement or arrangement) income arises to any person and there is no transfer of the assets from which the income arises, the income may be regarded as the income of the transferor and it should be assessed as such. The fiction operates in cases where the asset which produces the income still remains the property of the transferor but the income lawfully belongs to the transferee. Furthermore, it operates, irrespective of whether such transfer is revocable or not and whether it is effected before or after the commencement of the Act. Be it noted, however, that the section is attracted only when there is a valid and effective transfer in favour of a third party as a result of which the income ceases to belong to the transferor. If there is no valid, effective and complete transfer of the right to receive income, the income would continue to accrue to the transferor under the ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of section 60, different considerations must weigh. It is difficult to appreciate, much less to accept the submission. The law declared by the Supreme Court in such clear terms in analogous fact situation governed by similar provisions of law is binding on this court. The Supreme Court is presumed to have applied its mind to the relevant provisions of law then existing, he ever though those provisions, in terms, might not have been referred to in the judgment. In other words, it would be legitimate to presume, nay, we are duty bound to presume, that the decision in Murlidhar's of case [1966] 62 ITR 323 (SC) was rendered after considering implicitly,if not expressly, the parallel provisions of section 16(1)(c). Under sucha circumstances, in our opinion, it is not open to the Revenue to urgethat we should take a different view of the matter. As a result of the foregoing discussion, we come to the conclusion that in the instant case, there was not only a valid and effective gift of the income in favour of the beneficiaries of the Panna, Pratiksha and Mamta Trust but also that the asset giving rise to the income was transferred to those beneficiaries within the meaning of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003] 259 ITR 10, the Supreme Court has specifically recorded that "it is unnecessary to consider the alternative contention based on section 60 of the Act." 28 Examining the issue from a slightly different angle a Full Bench of this High Court in the case of Chhotalal and Co. v. CIT [1984] 150 ITR 276 has after referring to various decisions of the apex court laid down that under the income tax law the Revenue is required to bear in mind the distinction qua, a registered partnership firm and the assessment of the partners of the firm because both of them are separate legal entities for the purpose of the Act. It has been stated (pages 283, 285) "The position, therefore, is well-settled that there is no impediment in a Hindu undivided family becoming a partner of a firm through its representative. Such a partnership will not be invalid or against law, but partnership being a relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all and the relationship of partnership being one that arises from a contract, the persons who come together in the partnership will be recognized as between them as partners. In a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the partner and the obligation of the partner have to be borne in mind, independent of the partner's status and relations vis-a-vis other partners of the firm, and then the confusion that repeatedly occurs can be avoided. The present is a classic case of such a mixed up approach while framing assessment of the partner in his individual capacity. Whatever may be the obligations of the partner qua the other partners of the firm or against third parties as a partner of the firm under the general law of partnership, when he is required to be assessed as an assessee simpliciter the Revenue is required only to look at the income which lawfully accrues to him and is taxable in his hands. At that stage the Revenue is not required to look at his capacity or obligation qua the partnership firm or other partners of the firm. Howsoever limited, legally there is a distinct taxable entity under the Act, viz., a partnership firm, and the Revenue cannot be permitted to import the general principles of partnership law at this stage. Once the Legislature has provided for a particular legislative scheme under the Act, the Revenue cannot ignore the same on the specious plea that under the law, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
