Bombay High Court expresses displeasure at the casual manner adopted by ITAT in consideration of appeal; warns the Tribunal against disposing 'matters of vital importance affecting the interest of public in a light hearted or casual manner'

Bombay High Court

The Bombay High Court, in Income Tax Appeal No. 1481 of 2012 filed by the State Bank of India, has expressed its displeasure at the ‘light hearted’ and ‘casual’ manner adopted by the Income Tax Appellate Tribunal in the consideration and disposal of an application filed by the State Bank of India in an appeal before the Tribunal, wherein the Tribunal had passed an order merely reviving the said appeal (Income Tax Appeal No.  3145  of  2009) before it  for  hearing  afresh  on merits  in  relation withdrawal of deduction under Section 36(1)(viia)  of the IT Act, instead of hearing the appeal on all grounds raised by the appeal in the memo of appeal, including invokability  of section 263 of the IT  Act by the Commissioner.

The effect of the order passed in the Miscellaneous Application in the appeal was that the Tribunal would hear the appeal on merits but not allow arguments on the ground challenging the exercise of powers under Section 263 of the IT Act by the Commissioner to be raised after revival of the Appeal.

The Department contended that the SBI did not seek revival of the Appeal so as to challenge the order passed by the Commissioner under Section 263 of the IT Act. It was in these circumstances that a limited order was passed by the Commissioner under Section 263 of the IT Act. 

The Application was filed by the Assessee bringing to the notice of the Tribunal   that   the   ground in respect of withdrawal of deduction under Section 36(1)(viia) of the IT Act of Rs.405,17,20,944/-in relation to standard assets was raised in the the Memo of Appeal.

The Tribunal’s attention was invited by the assessee to para 3 of its earlier order dated 06.06.2012 from which the miscellaneous application arose. The Assessee contended that the Tribunal has merely followed its order for the preceding   assessment for the year 2005­-06 and upheld the order passed by the Commissioner of Income Tax, which is the complaint. 

What the Tribunal was called upon to consider was that the Commissioner in assessment year 2005­-06 had not decided the ground on merits but directed the Assessing Officer to redo the assessment. However for the assessment year 2006-07, the Commissioner of Income Tax had decided the ground on merits. This part of the order, it was contended was vitiated by error apparent on the face of the record. 

A Division Bench of the Bombay High Court comprising of A.A. Sayed and S.C. Dharmadhikari, JJ. held that the Court was not happy in the manner in which the Tribunal has decided the Miscellaneous Application. 

“If the Tribunal was required to devote so much time for assigning reasons in more than five paragraphs in a lengthy eight page order on the Miscellaneous Application so as to correct an obvious mistake by exercising powers under section 254(2) of the IT Act, then, interest of justice would have been sub-served and better had the Tribunal revived the entire Appeal and not partially. If there was a mistake with regard to the claim of deduction, we do not think that the tribunal was justified in directing partial revival of the Appeal…… We do not think that interest of justice and equity is served by non consideration of vital materials by the last fact finding authority, namely the Income Tax Appellate Tribunal. That the Tribunal was required to recall its earlier orders and for the reasons which have been assigned by it would indicate that it failed to apply its mind at the initial stage to the grounds raised in the Appeal and in their entirety. It omitted from consideration crucial documentary material as well. In such circumstances, such partial revival of the Appeal would not meet the ends of justice”, the Bench said. 

Accordingly, the Bench modified the order passed on the Miscellaneous Application and directed the Appeal to be heard on its own merits and in accordance with law, permitting the Assessee to raise all grounds raised in the Memo of Appeal.

The Bench also observed thus:

“This direction issued by us in the exercise of our further appellate and inherent powers should serve as a reminder to the Tribunal that the matters of vital importance affecting the interest of public should not be disposed of in a light hearted or casual manner. The record must be perused in its entirety and properly and minutely. That is the function and which the judicial body is required to perform and oblige to carry out as well. In these circumstances and the unsatisfactory and unhappy manner in which the Miscellaneous Application has been dealt with and decided that we have directed the revival of the Appeal.” 

Granting of a loan by husband to wife does not amount to transfer of asset to make it taxable under the Wealth Tax Act, rules the Income Tax Appellate Tribunal

The Income Tax Appellate Tribunal, Bench at Mumbai on Wednesday, reversed an order of the Commissioner of Income Tax (Appeals) to add Rs 2.28 crore to Bollywood actor Mr. Shah Rukh Khan’s (assessee) net wealth being the amount he had lent his wife as interest free loan to buy flat and jewellery.

 

Bollywood actor, Shah Rukh Khan

Mr. Khan’s wife Gauri had used Rs 1.65 crore of amount loaned to her to buy a house in Delhi and Rs 63 lakh for jewellery. The Commissioner of Income Tax (Appeals) had ordered adding the amount to Mr Khan's net wealth for assessment year 2005-06 on the ground that it amounted to transfer of assets.

It was against the said order of assessment that Mr. Khan preferred an appeal to the Mumbai Bench of the Income Tax Appellate Tribunal

The Mumbai bench of ITAT held on Wednesday that the Commissioner of Wealth Tax (Appeals) was not justified in confirming the addition of Rs 2.28 crore to the actor's net wealth and had erred in holding that the house and jewellery purchased by his wife was an indirect transfer of assets.

Income tax authorities had held that the loan advanced by Shah Rukh Khan was an indirect transfer of assets by the assessee to his wife. Accordingly, the loan amount of Rs 2.28 crore was added to the net wealth of Rs 2.75 crore declared by the actor for assessment year 2005-06.

Mr. Khan’s contention was that that he had extended a loan to his wife which cannot be said to be a transfer of assets. Counsel appearing for Mr. Shah Rukh Khan cited a judgment of the Karnataka High Court to support his argument that the loan given by Mr. Khan to his wife was recorded in the books of account and cannot be treated as transfer of assets from husband to wife.

Income Tax Department on the other hand argued that the loan amounted to indirect transfer of assets within the meaning of section 4(1)(a)(i) of the Wealth Tax Act.

The ITAT, Bench at Mumbai however, held that extending a loan to wife does not fall within the definition of 'Asset' under the provisions of the Wealth Tax Act and therefore it cannot be said that there was a transfer of asset from husband to wife as argued by the Income Tax authorities.

"We are not agreeing with the Assessing Officer since there is no 'transfer of asset' by the assessee rather an asset has been purchased in the form of a residential house after taking an interest free cash loan from the assessee. In our view, there is no transfer of asset by the assessee, as has been canvassed by IT Counsel and also held by IT Assessing Officer and IT Commissioner (Appeals)," ITAT members D Karunakara Rao and Joginder Singh ruled.

Wealth Tax is levied at one per cent on the net wealth (of an assessee) exceeding Rs 30 lakhs in a year. Net Wealth includes residential houses (with one house getting exemption) and jewellery.