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TMI Blog2019 (8) TMI 806X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances of the case, the Appellate Tribunal is right in law in holding that the exclusion of payment to charities by applying the principle of diversion of income by overriding title cannot be allowed? 3. Whether, the Appellate Tribunal is right in law in not allowing the sum of Rs. 8,02,500/- being expenditure incurred in connection with the sale alleging that there is no evidence when the evidence in support was on record and the expenditure is allowable u/s 48(i) of the Act? 4. Whether, the order of the Appellate Tribunal upholding the order of the Commissioner u/s 263 passed on incorrect appreciation of facts and understanding of law is perverse and deserves to be quashed? 3.The assessee is a non-resident individual and during the assessment year under consideration (2012-13) derived income from capital gains and interest income assessed under the head 'other sources'. The assessee's father owned land and residential house at Bangalore and died on 11.06.2011 leaving his last will and testament dated 30.10.2008. The assessee's father appointed an executor to execute the directions contained in the will. In terms of the recitals in the will, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel appearing for the appellant/assessee assisted by Mr.R.Kumar, learned counsel and Mr.Karthik Ranganathan, learned Senior Standing Counsel appearing for the respondent/revenue. 5.Substantial Questions of law 1 and 4 can be bunched together as it pertains to the jurisdiction of the CIT to invoke Section 263 of the Act. For deciding the Substantial Question of law No.2, certain factual aspects need to be looked into, more particularly, the intention of the testator in his will and testament dated 30.10.2008. The Substantial Question of law No.3 is with regard to the expenses claimed by the assessee which was disallowed by the Tribunal on the ground of lack of proof. As noticed above, the assessment was completed by the Assessing Officer by order dated 25.09.2014. The order was passed under Section 143(3) of the Act after the assessee's case was selected for scrutiny and notice under Section 143(2) of the Act was issued on 23.08.2013. The Assessing Officer issued notice to the assessee under Section 142(1) of the Act along with questionnaire dated 12.05.2014. In response to the said notice, the assessee submitted the details including the last will and testament executed by h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have noted the manner in which the Assessing Officer proceeded with the assessment. To be noted the assessment was under Section 143(3) of the Act. The Assessing Officer issued notice under Section 142(1) of the Act along with the questionnaire which had been complied with by the assessee by submitting necessary particulars along with documents which includes the last will and testament of his father dated 30.10.2008. After examining the same, the Assessing Officer accepted the stand taken by the assessee towards expenses. The CIT while issuing the show cause notice did not rely upon any independent material nor on any interpretation of law but on perusal of the records was of the view that the expenditure cannot be allowed as deduction. Along with the filled in questionnaire, the assessee had filed the copy of the last will and testament of his father, sale deed of the Bangalore property and the legal opinion given by the learned counsel for the assessee. After perusal of the same, the Assessing Officer has taken a stand and passed the order. Therefore, it cannot be stated that the Assessing Officer did not apply his mind to the issue, after all the Assessing Officer cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling for all documents from the assessee, one of which is the last will and testament executed by the assessee's father. Therefore, we are of the clear view that this is not a case where the Commissioner could have invoked the power under Section 263 of the Act. For all the above reasons, the Substantial Questions of Law 1 and 4 are answered in favour of the assessee. 7.It is the argument of Mr.Karthik Ranganathan, learned Senior Standing Counsel for the revenue that the will dated 30.10.2008 clearly states that the assessee's father has bequeathed the entire sale consideration received from the sale of the Bangalore property to the assessee, the second son born to his first wife. It is the submission that the sale consideration has been received by the assessee from and out of which payments were effected to the charitable institutions, etc and therefore the payments can neither to be considered as diversion by overriding title nor expenditure incurred wholly and exclusively in connection with the transfer. In this regard, the learned counsel has drawn the attention of this Court to the findings of the Tribunal, wherein the Tribunal referred to the decision of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wife vacates the same. The Tribunal found fault with the assessee for having sold the property much earlier. The sale deed dated 10.11.2011 clearly records that the step mother of the assessee had in unequivocal terms agreed for the sale and she vacated from the property and also granted No objection for transfer of "Katha" of the Bangalore property. Therefore, the interpretation given by the Tribunal is wholly erroneous. In paragraph 21 of the impugned order passed by the Tribunal, it has been stated that "the entire sale consideration received from the sale of immovable property absolutely to his second son i.e. Kumar Rajaram and thereafter he said he has to distribute the sale proceeds after paying property taxes if found due and shall make payment out of the sale consideration and also said how to distribute the sale consideration". We find that the word 'thereafter' used in paragraph 21 of the order of the Tribunal nowhere occurs in paragraph 7 of the will dated 30.10.2008. However, the testator's direction to sell the property was to the executor of the will and there was a specific direction to the executor to pay specific sums of money to the charitable institu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the asset. That apart, the case on hand requires to be interpreted based on the intention of the testator for which purpose we have read the will dated 30.10.2008 as a whole to gather the intention of the testator which is clear and lucid. The testator bequeathed only portion of the sale consideration left over after effecting payments directed to be made by him. If the executor failed to honour the commitments then the sale itself would be invalid. Furthermore, in the recitals in the sale deed dated 10.11.2011, it has been clearly mentioned about the payments effected to all the charitable organisations which are all through bankers cheques drawn in the name of the concerned organisations by the purchaser. 11.The Hon'ble Supreme in the case of Provat Kumar Mitter vs. Commissioner of Income Tax [(1961) 41 ITR 624(SC)] held that the fundamental principle is that an application of income is allocation of one's own income after it accrues or has arisen, although such application may be under a contract or obligation, whereas diversion of income is that which diverts away or deflects before it accrues to or reaches the assessee, and it is received by him only for the be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not entitled to the entire sale consideration. In fact if the interpretation of the CIT and the Tribunal were to be accepted, we would be rewriting the last will and testament. The testator did not bequeath the Bangalore property but bequeathed part of the sale consideration which was left behind after meeting the commitments mentioned in the will to be truly and faithfully performed by the executor of the will. Thus, we can safely conclude that the major portion of the sale consideration on being received from the purchase of the property stood diverted before it reached the assessee and under the will there was no obligation cast upon the assessee to receive the sale consideration and distribute the same in the manner desired by the testator. For the above reasons, we answer the Substantial Question of law No.2 in favour of the assessee. 13.The Substantial Question of law No.3 is with regard to the expenditure claimed by the assessee. The assessee had produced documents before the Assessing Officer who had scrutinized the same and accepted the genuinity of the claim and granted the benefit. The CIT disallowed the expenses on the ground that the Assessing Officer did not make an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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