Income Tax v. Sunil J. Kinariwala, (2003) 259 Itr 10

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 199 of 2005 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTAHONOURABLE MS.JUSTICE H.N.DEVANI ============================================================== ============================================================== COMMISSIONER OF INCOME TAX - Appellant(s) Versus SAUMIL B. KINARIWALA - Opponent(s) ============================================================== Appearance : MR MANISH R BHATTfor Appellant(s) : 1, MRS SWATI SOPARKAR for Opponent(s) : 1, ================================================================== CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 20/12/2005 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1.On 10-10-2005, the Court framed the followingsubstantial question of law. “Whether, on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was justified indeleting the addition of Rs.1,43,768/- being 2.52 % ofshare income from the firm of M/s. Ramniklal JivanlalKinariwala &Co. which had been assigned to various bodiesof individuals ?” 1.Heard Mr. M.R.Bhatt, the learned Senior Standing Counselfor the revenue. It is submitted that the controversyraised by the question stands concluded and answered bythe Apex Court decision in case of Commissioner ofIncome Tax vs. Sunil J. Kinariwala, (2003) 259 ITR 10and hence the question requires to be answered in favourof the appellant-revenue. 2.As against that Mr.T.P. Hemani, appearing on behalf ofthe respondent-assessee placed reliance on a decision ofthe Apex Court in the case of Commissioner of Wealth-Taxvs. Lov S. Kinariwala, (2003) 259 ITR 440 to submit thatonce genuineness of the assignee, namely body ofindividuals was not found to be sham or bogus, for thepurposes of taxing the income, such an entity could notbe treated as non-genuine. He therefore submitted thatin light of the aforesaid decision in Wealth-taxproceedings the appeal requires to be decided in favourof the assessee. In this context he has placed onrecord, with the permission of the Court, Tribunal'sconsolidated order dated 13[th] December, 1996 in ITANos.561 to 573/Ahd/1990 and cognate matters to contendthat Tribunal has recorded findings of fact that thereis no tax evasion by virtue of the assignment inquestion, there is a genuine transaction and the assignee is a genuine entity. 3.Having heard the learned counsel it is apparent that, inthe circumstances of the present case, the genuinenessof the assignee is not disputed by appellant-revenue.The only controversy that survives thereafter is whetherthe assignment results in conferring an overriding titlein favour of the assignee to the exclusion of theassignor assessee. 4.The Apex Court in the case of Commissioner of Income Taxvs. Sunil J. Kinariwala (Supra ) came to the conclusionthat there is a clear distinction between a case where apartner of a firm assigns his share in favour of a thirdperson and a case where a partner constitutes a sub-partnership with his share in the main partnership.After referring to provisions of Section 29 (1) of theIndian Partnership Act, 1932, the Apex Court furtherheld that the assignee became entitled to receive theassigned share of the profits from the firm, not as asub-partner, but as an assignee because no subpartnership had come into existence. There was nodiversion of income by overriding title. 5.It is an accepted position between the parties that thedeed of assignment is identical in all materialparticulars except for the change in the name, date andthe percentage of the share to be assigned. In thesecircumstances, the ratio of the Apex Court decisionapplies with full vigour and the genuineness of theassignee, which is not in dispute, does not operate as adistinguishing feature. In fact, it is common groundbetween the parties that all along the assessee had beenpressing into service the decision of this Courtreported in (1995) 211 ITR 127, and the revenue was 5.It is an accepted position between the parties that thedeed of assignment is identical in all materialparticulars except for the change in the name, date andthe percentage of the share to be assigned. In thesecircumstances, the ratio of the Apex Court decisionapplies with full vigour and the genuineness of theassignee, which is not in dispute, does not operate as adistinguishing feature. In fact, it is common groundbetween the parties that all along the assessee had beenpressing into service the decision of this Courtreported in (1995) 211 ITR 127, and the revenue was trying to distinguish the same. The assessee had at nopoint of time raised any contention to the effect thatthere is any distinction on facts recorded by this Courtin its aforesaid decision and the facts of the presentcase. 6.In these circumstances, applying the ratio of the ApexCourt decision in case of Commissioner of Income Taxvs.Sunil J. Kinariwala (Supra ), the question isanswered in the negative. It is held that the Tribunalwas not justified in deleting the addition of Rs.1,43,768/= being 2.52 % of share income from the firmof M/s. Ramniklal Jivanlal Kinariwala &Company which hadbeen assigned to various bodies of individuals. 7.The appeal is accordingly allowed. There shall be noorder as to costs. ( D.A.MEHTA,J. ) (HARSHA DEVANI, J.) *mithabhai