S.P. JAISWAL VS COMMISSIONER OF INCOME-TAX
1997 P T D 2130
[224 I T R 619]
[Supreme Court of India]
Present: S. C. Agrawal and G. B. Pattanaik, JJ
S. P. JAISWAL
Verses
COMMISSIONER OF INCOME-TAX
Civil Appeals Nos. 2587 to 2592 of 1983, decided on 06/03/1997.
(Appeals by special leave from the judgment and order dated May 21, 1979, of the Punjab and Haryana High Court in I.T.R. Nos. 65 of 1974 and 98 to 103 of 1977).
(a) Income-tax------
----Total income---Inclusions---Transfer of assets ---Assessee having deposit with company---Deposit transferred at assessee's instance to credit of firm constituted by assessee's children---Book entries showing return of sum by firm and transfer in names of assessee's children---Not genuine loan transactions---Interest on deposit taxable in assessee's hands---Indian Income Tax Act, 1961, S. 61.
The appellant was the managing director of a company, and had a deposit of Rs.1,74,639 with the company. On April. 3, 1962, on the appellant's instructions, the sum was deposited to the credit of a firm constituted by two sons and a daughter of the appellant, each of them having a one-third share in the firm. The sum was shown to the credit of the three partners in equal shares in the firm's books. On April 1, 1963, the sum was shown in the firm's books to have been returned to the appellant, and on the same day, the sum was advanced as loan equally to the three partners of the firm. For the assessment year 1963-64, the appellant had shown the interest derived on the sum in question in his return, but later filed a revised return excluding it. The Income-tax Officer, for the assessment year 1963-64 as well as for subsequent years, included the interest on the sum in question in the appellant's total income. The Tribunal held that the transaction 'not being beamy, the interest could not be said to be the income of the appellant, but confirmed the inclusion for the assessment year 1963-64 alone, in view of the original return filed by the appellant for that year. The High Court, on references, held that the transfer of the sum of Rs.1,74,639 in the names of the appellant's sons and daughter was not a genuine loan and that, therefore, the interest on the sum transferred had to be taxed in the appellant's Lands under section 61 of the Income Tax Act, 1961. On appeals to the Supreme Court, contending 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 to the High Court on a reference to interfere with that conclusion of fact:
Held, dismissing the appeals and affirming the decision of the High Court, that admittedly, the transaction between the appellant and the partners of the firm constituted by his children and the so-called return of money on April 1, 1963, in the books of account of the firm, and retransfer of the sum in the names of the children in the books of the firm was nothing but a paper device designedly made to reduce the tax burden of the appellant. By no stretch of imagination could it be held a loan transaction by the appellant in favour of the children. The High Court, in the circumstances, could not be said to have exceeded its advisory jurisdiction in answering the question posed. The fact that the appellant's children had been taxed in respect of the income accruing from the amount was of no relevance.
A. G. Chamberlain v. IRC (1943) 25 TC 317 (HL) rel.
Chapter V, of the Income Tax Act, 1961, is designed to discourage the tendency of the taxpayer to avoid or reduce his tax liability by disposal 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 interest in, the property or its income.
S. P. Jaiswal v. CIT (1981) 130 ITR 643 affirmed.
CIT v. Calcutta Agency Ltd. (1951) 19 ITR 191 (SC); CIT v. Pelleti Sridevamma (Smt.) (1995) 216 ITR 826 (SC); CIT v. Prem Bhai Parekh (1970) 77 ITR 27 (SC); CIT v. Raghbir Singh (S.) (1965) 57 ITR 408 (SC); ITO v. Ch. Atchaiah (1996) 218 ITR 239 (SC); Mitchell v. B. W. Noble Ltd. (1927) 1 KB 719; Mohini Thapar (Smt.) v. CIT (1972) 83 ITR 208 (SC); Patnaik & Co. Ltd. v. CIT (1986) 161 ITR 365 (SC) and Tulsidas Kilachand v. CIT (1961) 42 ITR 1 (SC) ref.
(b) Income-tax----
----Reference---High Court---Advisory jurisdiction---Transfer of deposit by book entries in favour of assessee's children ---Tribunar holding transaction not benami and interest not income of assessee---High Court holding transfers not genuine---Advisory jurisdiction not exceeded---Indian Income Tax Act, 1961, Ss. 61 & 256.
Appellant in person.
J. Ramamurthi, Senior Advocate (T. C. Sharma, Dhruv Mehta, C. Radha Krishna and B. Krishna Prasad, Advocates with him) for Respondent.
JUDGMENT
G. B. PATTANAIK, J. ---These appeals by grant of special leave are directed against the judgment of the Punjab and Haryana High Court (see (1981) 130 ITR 643), answering the question posed in favour of 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 account of the company, the said assessee had a deposit of Rs.1,74,639 on April 3, 1962. The aforesaid amount was debited to the credit of Modern Property Dealers, Karnal, the Partnership firm consisting of two sons and a daughter of the assessee. The said partners had a 1/3rd share each in the partnership. The aforesaid amount was shown for the credit of the three partners in equal shares, in the books of account of Modern Property Dealers. On April 1, 1963, the aforesaid amount was shown in the accounts of Modern Property Dealers to have been 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 Modern Property Dealers. During the assessment year 1963-64, the assessee had 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 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 in fact no loan had been advanced by the assessee to his children who were said to be the partners of the firm--?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 April 1, 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 had 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 an analysis of the entire material came to hold that the transaction cannot be creed to be benami and will not attract the provisions of section 60 of the Act. The Court then, on re-examining the facts and circumstances under which the amount of Rs.1,74.639 was transferred to the names of the 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 appeal 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 to 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 a 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 Modern Property Dealers and thereafter the assessee having given the same to the partners of the said Modern Property Dealers and the said amount ultimately having been refunded to the assessee, the High Court erred in holding that it was not a loan transaction.
Mr. Ramamurthi, 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, tile income accruing there from has to be taxed in the hands of the assessee. In this view of the matter, 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 CIT v. Calcutta Agency Limited (1951) 19 ITR 191, wherein this Court had observed (headnote):
"The jurisdiction of the High Court in the matter of income-tax references 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 successfully assailed on the ground that there was no evidence for the conclusions on facts recorded by the Tribunal. "
In that particular case the assessee had claimed a certain exemption under the provisions of the Income-tax Act as it stood then, but at no stage of the assessment proceedings the assessee had 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 KB 719, assumed certain facts, which had 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 ors a 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. v. CIT (1986) 161 ITR 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 rind the close proximity of the investment made by the assessee with the receipt of Government order 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 which occurred was a revenue loss. But the High Court had interfered with that conclusion, and, therefore, this Court had observed that since the question referred to the High Court was framed on the assumption that it had 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 if the case of CIT v. S. Raghbir Singh (1965) 57 ITR 408, wherein the question for consideration was whether the assessee who had created a trust in respect of the shares which he had 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. Ramamurthi; appearing for the Revenue, on the other hand, relied upon the decision pf this Court in the case of Smt. Mohni Thapar v. CIT (1972) 83 ITR 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)(a)(iii) -of the Indian 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 Indian Income-tax Act, 1922.
Mr. Ramamurthi also relied upon the decision in the case of CIT v. Smt. Pelleti Sridevamma (1995) 216 ITR 826 (SC), 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 ITR 27 (SC). But in the case on 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 the course of his argument had 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. Ramamurthi, 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 Castro in the case of I.T.O. v. Ch. Atchaiah (1996) 218 I.T.R. 239, wherein this Court observed as under at page 243:
"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. Ramamurthi, 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 bands of the father, but he reiterated that in the case on 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 A.G. Chamberlain v. CIT (1943) 25 TC 317, 329(HL):
"This legislation ....designed to overtake and circumvent a growing tendency on the part of taxpayers 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 disembarked himself should, notwithstanding, be treated as still his income and taxed in his hands accordingly. "
And this Court in the case of Tulsidas Kilachand v. CIT (1961) 42 ITR 1 had held that the aforesaid observations apply to the provisions of the Indian Income-tax Act and section 16 thereof which has been enacted with the intent and for the same purpose. Chapter V of the Income-tax Act, 1961, is also designed for the same purpose, and, therefore, the aforesaid observations in Chamberlain's case (1943) 25 TC 317 (HL) 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 April 1, 1963, in the books of account of the firm of the children and retransfer of the same amount in the names of the children in the books of account 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 cannot be held to be a loan nor can the High Court in the circumstances 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.
M.B.A./1370/FC ??????? ??????????????????????????????????????????????????????????????????????? Appeals dismissed.