Wp(C)/38174/2003 Of Harrisons Malayalam Ltd-Trust-I v. The Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE B.P.RAY TUESDAY, THE 12TH DAY OF JUNE 2012/22ND JYAISHTA 1934 WP(C).No. 38174 of 2003 (T) --------------------------- PETITIONERS: ------------------- 1. HARRISONS MALAYALAM LTD., TRUST – I, 24/1626, BRISTOW ROAD, WILLINGDON ISLAND, COCHIN – 682003 REPRESENTED BY ITS TRUSTEE, MR.S.BALASUBRAMANIAM. 24/1626, BRISTOW ROAD, WILLINGDON ISLAND, COCHIN – 682003 REPRESENTED BY ITS TRUSTEE, MR.S.BALASUBRAMANIAM. 2. HARRISONS MALAYALAM LTD. TRUST-II, 24/1626, BRISTOW ROAD, WILLINGDON ISLAND, COCHIN – 682003 REPRESENTED BY ITS TRUSTEE, MR.S.BALASUBRAMANIAM. 24/1626, BRISTOW ROAD, WILLINGDON ISLAND, COCHIN – 682003 REPRESENTED BY ITS TRUSTEE, MR.S.BALASUBRAMANIAM. 3. HARRISONS MALAYALAM LTD. TRUST-III, 24/1626, BRISTOW ROAD, WILLINGDON ISLAND, COCHIN – 682003 REPRESENTED BY ITS TRUSTEE, MR.S.BALASUBRAMANIAM. 24/1626, BRISTOW ROAD, WILLINGDON ISLAND, COCHIN – 682003 REPRESENTED BY ITS TRUSTEE, MR.S.BALASUBRAMANIAM. 4. HARRISONS MALAYALAM LTD. TRUST-IV, 24/1626, BRISTOW ROAD, WILLINGDON ISLAND, COCHIN – 682003 REPRESENTED BY ITS TRUSTEE, MR.S.BALASUBRAMANIAM. 24/1626, BRISTOW ROAD, WILLINGDON ISLAND, COCHIN – 682003 REPRESENTED BY ITS TRUSTEE, MR.S.BALASUBRAMANIAM. 5. HARRISONS MALAYALAM LTD. TRUST-V, 24/1626, BRISTOW ROAD, WILLINGDON ISLAND, COCHIN – 682003 REPRESENTED BY ITS TRUSTEE, MR.S.BALASUBRAMANIAM. 24/1626, BRISTOW ROAD, WILLINGDON ISLAND, COCHIN – 682003 REPRESENTED BY ITS TRUSTEE, MR.S.BALASUBRAMANIAM. 6. HARRISONS MALAYALAM LTD. TRUST-VI, 24/1626, BRISTOW ROAD, WILLINGDON ISLAND, COCHIN – 682003 REPRESENTED BY ITS TRUSTEE, MR.S.BALASUBRAMANIAM. 24/1626, BRISTOW ROAD, WILLINGDON ISLAND, COCHIN – 682003 REPRESENTED BY ITS TRUSTEE, MR.S.BALASUBRAMANIAM. WP(C).No. 38174 of 2003 (T) BY ADVS. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.ANIL D. NAIR SMT.PRIYA MAHESH SMT.PRIYA MANJOORAN RESPONDENTS: ---------------------- 1. THE COMMISSIONER OF INCOME TAX, COCHIN. 2. THE JOINT COMMISSIONR OF INCOME TAX, SPECIAL RANGE – II, ERNAKULAM. SPECIAL RANGE – II, ERNAKULAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 12-06-2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: BP WP(C).No. 38174 of 2003 (T) APPENDIX PETITIONR'S EXHIBITS: EXT.P1: TRUE COPY OF THE INTIMATIONS/ORDERS ISSUED BY THE 2ND RESPONDENT TO THE 1ST PETITIONER DT 30/9/1998, DESPATCHED ON 05/11/1998. RESPONDENT TO THE 1ST PETITIONER DT 30/9/1998, DESPATCHED ON 05/11/1998. EXT.P1(a): TRUE COPY OF THE INTIMATIONS/ORDERS ISSUED BY THE 2ND RESPONDENT TO THE 2ND PETITIONER DT 30/9/1998, DESPATCHED ON 05/11/1998. RESPONDENT TO THE 2ND PETITIONER DT 30/9/1998, DESPATCHED ON 05/11/1998. EXT.P1(b): TRUE COPY OF THE INTIMATIONS/ORDERS ISSUED BY THE 2ND RESPONDENT TO THE 3RD PETITIONER DT 30/09/1998, DESPATCHED ON / 5/11/1998. RESPONDENT TO THE 3RD PETITIONER DT 30/09/1998, DESPATCHED ON / 5/11/1998. EXT/P1(C): TRUE COPY OF THE INTIMATIONS/ORDERS ISSUED BY THE 2ND RESPONDENT TO THE 4TH PETITIONER DATED 30/9/1998, DESPATCHED ON 5/11/1998. RESPONDENT TO THE 4TH PETITIONER DATED 30/9/1998, DESPATCHED ON 5/11/1998. EXT.P1(d): TRUE COPY OF THE INTIMATIONS/ORDERS ISSUED BY TH E 2ND RESPONDENT TO THE 5TH PETITIONER DT 30/9/1998, DESPATCHED ON RESPONDENT TO THE 5TH PETITIONER DT 30/9/1998, DESPATCHED ON 5/11/1998. EXT.P1(b): TRUE COPY OF THE INTIMATIONS/ORDERS ISSUED BY THE 2ND RESPONDENT TO THE 3RD PETITIONER DT 30/09/1998, DESPATCHED ON / 5/11/1998. RESPONDENT TO THE 3RD PETITIONER DT 30/09/1998, DESPATCHED ON / 5/11/1998. EXT/P1(C): TRUE COPY OF THE INTIMATIONS/ORDERS ISSUED BY THE 2ND RESPONDENT TO THE 4TH PETITIONER DATED 30/9/1998, DESPATCHED ON 5/11/1998. RESPONDENT TO THE 4TH PETITIONER DATED 30/9/1998, DESPATCHED ON 5/11/1998. EXT.P1(d): TRUE COPY OF THE INTIMATIONS/ORDERS ISSUED BY TH E 2ND RESPONDENT TO THE 5TH PETITIONER DT 30/9/1998, DESPATCHED ON RESPONDENT TO THE 5TH PETITIONER DT 30/9/1998, DESPATCHED ON 5/11/1998. EXT.P1(e): TRUE COPY OF THE INTIMATIONS/ORDERS ISSUED BY THE 2ND RESPONDENT TO THE 6TH PETITIONER DT 30/9/1998, DESPATCHED ON 5/11/1998. RESPONDENT TO THE 6TH PETITIONER DT 30/9/1998, DESPATCHED ON 5/11/1998. EXT.P2: TRUE COPY OF THE ORDER PASSED BY THE 2ND RESPONDENT TO THE 1ST PETITIONER, DT 1/7/99, NO.46-018-AZ-6706 1ST PETITIONER, DT 1/7/99, NO.46-018-AZ-6706 EXT.P2(a): TRUE COPY OF THE ORDER PASSED BY THE 2ND RESPONDENT TO THE 2NT PETITIONER, DT 1/7/99, NO.46-018-AZ-6707 THE 2NT PETITIONER, DT 1/7/99, NO.46-018-AZ-6707 EXTP2(b): TRUE COPY OF THE ORDER PASSED BY THE 2ND RESPONDENT TO THE 3RD PETITIONER, DT 1/7/99, NO.46-018-AZ-6708 3RD PETITIONER, DT 1/7/99, NO.46-018-AZ-6708 EXT.P2(c): TRUE COPY OF THE ORDER PASSED BY THE 2ND RESPONDENT TO THE 4TH PETITIONER, DT 1/7/99, NO.46-018-AZ-6709. 4TH PETITIONER, DT 1/7/99, NO.46-018-AZ-6709. EXT.P2(d): TRUE COPY OF THE ORDER PASSED BY THE 2ND RESPONDENT TO THE 5TH PETITIONER, DT 1/7/99, NO.46-018-AZ-6710 5TH PETITIONER, DT 1/7/99, NO.46-018-AZ-6710 EXT.P2(e): TRUE COPY OF THE ORDER PASSED BY THE 2ND RESPONDENT TO THE 6TH PETITIONER, DT 1/7/99, NO.46-018-AZ-6711. 6TH PETITIONER, DT 1/7/99, NO.46-018-AZ-6711. WP(C).No. 38174 of 2003 (T) EXT.P3: TRUE COPY OF THE REVISION APPLICATIONS, U/S.164 OF THE I.T.ACT, 1ST PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. 1ST PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. EXT.P3(a): TRUE COPY OF THE REVISION APPLICATIONS, U/S.164 OF THE I.T.ACT, 2ND PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. 2ND PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. EXT.P3(b): TRUE COPY OF THE REVISION APPLICATIONS, U/S.164 OF THE I.T.ACT, 3RD PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. 3RD PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. EXT.P3(c): TRUE COPY OF THE REVISION APPLICATIONS, U/S.164 OF THE I.T.ACT, 4TH PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. 4TH PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. EXT.P3(d): TRUE COPY OF THE REVISION APPLICATIONS, U/S.164 OF THE I.T.ACT, 5TH PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. 5TH PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. EXT.P3(e): TRUE COPY OF THE REVISION APPLICATIONS, U/S.164 OF THE I.T.ACT, 6TH PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. 6TH PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. EXT.P3(d): TRUE COPY OF THE REVISION APPLICATIONS, U/S.164 OF THE I.T.ACT, 5TH PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. 5TH PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. EXT.P3(e): TRUE COPY OF THE REVISION APPLICATIONS, U/S.164 OF THE I.T.ACT, 6TH PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. 6TH PETITIONER FILED BEFORE THE 1ST RESPONDENT, DATED SEPTEMPER, 1999. EXT.P4: TRUE COPY OF THE ORDER ISSUED BY THE 1ST RESPONDENT DT 24/1/2001 TO THE 1ST PETITIONER. 24/1/2001 TO THE 1ST PETITIONER. EXT.P4(a): TRUE COPY OF THE ORDER ISSUED BY THE 1ST RESPONDENT DT 24/1/2001 TO THE 2ND PETITIONER. 24/1/2001 TO THE 2ND PETITIONER. EXT.P4(b): TRUE COPY OF THE ORDER ISSUED BY THE 1ST RESPONDENT DT 24/1/2001 TO THE 3RD PETITIONER. 24/1/2001 TO THE 3RD PETITIONER. EXT.P4(c): TRUE COPY OF THE ORDER ISSUED BY THE 1ST RESPONDENT DT 24/1/2001 TO THE 4TH PETITIONER. 24/1/2001 TO THE 4TH PETITIONER. EXT.P4(d): TRUE COPY OF THE ORDER ISSUED BY THE 1ST RESPONDENT DT 24/1/2001 TO THE 5TH PETITIONER. 24/1/2001 TO THE 5TH PETITIONER. EXT.P4(e): TRUE COPY OF THE ORDER ISSUED BY THE 1ST RESPONDENT DT 24/1/2001 TO THE 6TH PETITIONER. 24/1/2001 TO THE 6TH PETITIONER. EXT.P5: TRUE COPY OF TRUST DEED OF THE 1ST PETITIONER DT 27TH MARCH, 1984. MARCH, 1984. EXT.P5(a): TRUE COPY OF TRUST DEED OF THE 2ND PETITIONER DT 27TH MARCH, 1984. MARCH, 1984. WP(C).No. 38174 of 2003 (T) EXT.P5(b): TRUE COPY OF TRUST DEED OF THE 3RD PETITIONER DT 27TH MARCH, 1984. MARCH, 1984. EXT.P5(c): TRUE COPY OF TRUST DEED OF THE 4TH PETITIONER DT. 27TH MARCH, 1984. MARCH, 1984. EXT.P5(d): TRUE COPY OF TRUST DEED OF THE 5TH PETITIONER DT. 27TH MARCH, 1984. MARCH, 1984. EXT.P5(e): TRUE COPY OF TRUST DEED OF THE 4TH PETITIONER DT. 27TH MARCH, 1984. MARCH, 1984. EXT.P6: TRUE COPY OF THE ASSESSMENT ORDER FOR THE YEAR 1996-97 DT. 18/2/2002 ISSUED BY THE DEPUTY COMMISSIONR OF INCOME -TAX TO THE PETITIONER 18/2/2002 ISSUED BY THE DEPUTY COMMISSIONR OF INCOME -TAX TO THE PETITIONER EXT.P7: TRUE COPY OF THE APPELLATE ORDER ISSUED BY THE COMMISSIONR OF INCOME-TAX (APPEALS) TO THE PETITIONER DTD. 31/1/2003. OF INCOME-TAX (APPEALS) TO THE PETITIONER DTD. 31/1/2003. EXT.P8: TRUE COPY OF THE TRIBUNAL'S ORDER ISSUED BY THE TRIBUNAL DT 3/12/2003 TO THE PETITIONER 3/12/2003 TO THE PETITIONER RESPONDENT'S EXHIBITS: NIL //TRUE COPY// BP P.A. TO JUDGE B.P.RAY, J. - - - - - - - - - - - - - - - - - - - - - - - W.P.(C).No.38174 Of 2003 - - - - - - - - - - - - - - - - - - - - - - -Dated this the 12[th] day of June, 2012. JUDGMENT Petitioner trusts being represented by their trustees have filed this writ petition with the following prayers: “i) call for the records leading to Exts.P2 series and Exts.P4series orders of the 2[nd] and 1[st] respondents and quash thesame by the issuance of a writ of certiorari or such otherwrit, order or direction; EXT.P8: TRUE COPY OF THE TRIBUNAL'S ORDER ISSUED BY THE TRIBUNAL DT 3/12/2003 TO THE PETITIONER 3/12/2003 TO THE PETITIONER RESPONDENT'S EXHIBITS: NIL //TRUE COPY// BP P.A. TO JUDGE B.P.RAY, J. - - - - - - - - - - - - - - - - - - - - - - - W.P.(C).No.38174 Of 2003 - - - - - - - - - - - - - - - - - - - - - - -Dated this the 12[th] day of June, 2012. JUDGMENT Petitioner trusts being represented by their trustees have filed this writ petition with the following prayers: “i) call for the records leading to Exts.P2 series and Exts.P4series orders of the 2[nd] and 1[st] respondents and quash thesame by the issuance of a writ of certiorari or such otherwrit, order or direction; ii) issue a writ of mandamus or such other writ, order ordirection, directing the 2[nd] respondent to re-compute theincome tax liability of the petitioners by applying the normalrate of tax applicable to Association of Persons for theassessment year 1997-98 in lieu of the maximum marginalrate of tax applicable under Section 164(1) of the Act andby deleting the levy of interest under Section 243 B of theIncome Tax Act. iii) direct the respondents not to initiate any coercive actionagainst the petitioners for demand and recovery of thedifferential tax for the assessment year 1997-98 based onExts.P4 series orders of the 1[st] respondent. iv) grant a stay of all proceedings for demand and recoveryof the differential tax amounts for the assessment year1997-98 based on Exts.P4 series orders of the 1[st]respondent, pending disposal of the writ petition;” 2. The specific case of the petitioners is that the respondents erred in adopting the maximum marginal rate of 40% for the assessment of the petitioners during the assessment year 1997-98. Section 164 of the Income Tax Act deals withdiscretionary trust and the treatment of the trustees of such a trust as representative assessee. Proviso (iv) to Sub-section (1)of Section 164 of the Income Tax Act carves out an exceptionfrom the rigor of Section 164 in cases were the income of theTrust is received by a trustee on behalf of, inter-alia, fundcreated bonafide by a person carrying on a business or professionexclusively for the benefit of persons employed in such businessor profession. The learned counsel for the petitioners submitsthat as the trust in question was an exception to Section 164, themaximum marginal rate could not be applied to the income of theTrust. The learned counsel for the petitioners in respect ofExt.P8, order submits that while disposing of a batch of I.T.As bythe Income Tax Appellate Tribunal, Cochin Bench filed by thepetitioners, the Tribunal allowed all the appeals and held asfollows: “11. Therefore, the only issue to be considered in the present case iswhether the benefit is given to the employee alone or also to anybodyelse. The assessing officer as well as the CIT (Appeals) have decidedagainst the assessee for the reason that the benefits are extended tothe dependents and relatives of the employees also. Now, thequestion to be considered is whether the benefits extended to themembers of the family of the employees in fact amounted to benefitsgiven to the employees alone or not. In all welfare measures,whether under Government or in Public Sector, benefits extended tothe employees means benefits extended to their family membersalso. For example, Government employees are covered by MedicalBenefits Schemes. The schemes are extended not only to thewhether the benefit is given to the employee alone or also to anybodyelse. The assessing officer as well as the CIT (Appeals) have decidedagainst the assessee for the reason that the benefits are extended tothe dependents and relatives of the employees also. Now, thequestion to be considered is whether the benefits extended to themembers of the family of the employees in fact amounted to benefitsgiven to the employees alone or not. In all welfare measures,whether under Government or in Public Sector, benefits extended tothe employees means benefits extended to their family membersalso. For example, Government employees are covered by MedicalBenefits Schemes. The schemes are extended not only to the particular employee-individual alone; the immediate dependentrelatives of the employee are also entitled for the benefit of suchmedical benefit schemes. In the case of educational benefits scheme,it is obvious that the benefits are in fact meant for the education of the wards of the employees. Educational allowance is not usuallygiven for the employees to pursue educational course. Suchallowances are meant for the children of employees. The expensesrelating to higher education of the employees are usually claimed bythe employers as normal business expenditure. Therefore, in actuallife and practice, the immediate dependent family members of anemployee cannot be disassociated from the employee. There is nocase that the fruits of employment is enjoyed by the concernedemployee individual himself alone. The salary and emolumentsenjoyed by an employee is used by the employee not only for feedinghimself, but also the dependent members of his family. Likewise, thebenefits given to the employees are in fact extension of theemoluments of the employment. We cannot say that the employeealone need to be taken care of medically, and his wife and childrenshould not be taken care. We cannot say that the employee aloneshould be fed and clothed and his dependent family members shouldnot be taken care of in similar manner. Benefits to employees meanbenefits to employees as well as their dependent family members. 13. Therefore, I hold that the assessee-Trust is entitled for theexemption available under proviso (iv) to sub-section (1) of Section164. The lower authorities have therefore erred in levying tax at themaximum marginal rate. The assessee-trust is liable to be taxed inthe status of AOP at the respective normal slab rate. The assesseesucceeds in its appeals.” In that view of the matter, I asked the learned counsel for the income tax department whether the department haspreferred any appeal against Ext.P8 order. On instructions, hesubmits that no appeal has been preferred. Since the Tribunalhas granted relief holding that the petitioners are entitled tobenefit mentioned in Proviso (iv) to Sub-section (1) of Section164 of the Income Tax Act, I set aside the impugned orders, 13. Therefore, I hold that the assessee-Trust is entitled for theexemption available under proviso (iv) to sub-section (1) of Section164. The lower authorities have therefore erred in levying tax at themaximum marginal rate. The assessee-trust is liable to be taxed inthe status of AOP at the respective normal slab rate. The assesseesucceeds in its appeals.” In that view of the matter, I asked the learned counsel for the income tax department whether the department haspreferred any appeal against Ext.P8 order. On instructions, hesubmits that no appeal has been preferred. Since the Tribunalhas granted relief holding that the petitioners are entitled tobenefit mentioned in Proviso (iv) to Sub-section (1) of Section164 of the Income Tax Act, I set aside the impugned orders, Ext.P4 series of orders and remit the matter to the assessingauthority to re-calculate the income tax liability of the petitionersand also to extent the benefit as provided by the Tribunal to thepetitioners and the re-computation shall be completed withinthree months from the date of receipt of a copy of this judgment. B.P.RAY, JUDGE su/-