Case Law Details
IT authorities are empowered to amend any order passed by them under the Act with a view to rectifying any mistake apparent from the record. A mistake is an omission made not by design but by mischance. A mistake apparent is a mistake that is manifest. In other words, the mistake must be so plain or obvious that it could be realised without a debate or dissertation. The plain meaning of the word apparent is that it must be something which appears to be so ex facie that it is incapable of argument or debate. Therefore, a mistake can be regarded as apparent only when it is a glaring, obvious or self-evident mistake and not something which can be established by a long drawn process of reasoning on points on which there may be two opinions. As the issue in hand is debatable and not obvious or self-evident, therefore, the provisions of section 154 are not applicable to the facts and circumstances of the case.
GAUHATI HIGH COURT
CIT Vs LAKSHMI PRASAD LAHKAR
IT Ref No 21 of 1989, 20th January, 1994
Equivalent Citations – (1996) 220 ITR 100 (Gau)
DR M K SHARMA, J :
The following questions of law have been referred to this Court under the provisions of section 256(1) of the IT Act, 1961, for its opinion :
RA No 134/ (Gau) of 1988 :
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the CIT(Appeals) that the trust, L P Lahkar Family Trust, in which the assessee is a trustee, was a valid one and the income from the trust was not assessable in the hand of the trustee in his individual capacity ?
RA No 135/ (Gau) of 1988 :
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining the order of the CIT(Appeals) that the issue was debatable and as such, action u/s 254 was not called for ?
RA No 136/ (Gau) of 1988 :
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the AAC had correctly directed the ITO to make the protective assessment in the case of the trust as a regular one treating the trust as a valid one ?
2 The broad facts leading to the reference are mentioned hereafter While taking up the assessment proceeding of the trust, namely, Lakshmi Prasad Lahkar Family Trust, the ITO referred to a deed of trust dated 7th July, 1978, by which a private trust was claimed to have been brought into existence The ITO pointed out that the settlor, managing trustee, beneficiaries were members of the same group of family and that the settlor was the cousin brother of the managing trustee and he was also a partner with the managing trustee in the firm, Sibson Construction Co, Tezpur According to the ITO, the provisions ofsection 64 were attracted on the facts of the case and that the income was assessable in the hands of the managing trustee as the money settled on trust was withdrawn from the fund of the firm, wherein the managing trustee was the major partner holding 45% share although the amount was withdrawn from the personal account of the settlor who had no credit on the personal account on the relevant date On the aforesaid facts, the ITO was of the opinion that a circuitous method was adopted to avoid attraction of the provisions ofsection 64 The ITO further held that the shares of the said beneficiaries were unknown as per clause 4 of the deed and that the beneficiaries were not certain as evident from clause 5 of the deed, ie, to say, the beneficiaries were unborn children of the trustees which were uncertain and, therefore, the trust was void for uncertainty On the basis of the aforesaid findings, the ITO concluded that in the absence of the valid trust the income was assessable in the hands of the managing trustee But since the assessee-trust had filed the return, the ITO made the assessment as a protective measure for the AY1979-80 So far the assessment of Shri Lakshmi Prasad Lahkar was concerned, the ITO made the assessment in the status of individual in which amongst others, the income assessed as per order in the case of the assessee-family trust being share income from Kiron Industries was included to the tune of Rs 47,000 for the AY1979-80 Subsequently, the ITO passed an order under the purported exercise of the power u/s 154 dated 18th April, 1982, in which he has noted that after the original assessment was made and on receipt of the copy of the order in the case of Kiron Industries, Tezpur, it was found that Smt Alaka Lahkar, the other partner of the said firm, holding a 25% share, was the wife of the assessee, ie, Shri Lakshmi Prasad Lahkar The ITO, therefore, observed that a mistake apparent from the record had crept in, in not including the income in the name of Smt Alaka Lahkar, in the hands of the assessee u/s 64 Under the aforesaid circumstances, the ITO initiated proceedings u/s 154 of the IT Act and after objection/written submission was filed by the assessee, the ITO held that since the trust was not acceptable as valid one, the objection of the assessee to the effect that Shri Lakshmi Prasad Lahkar was the partner in the said firm in the capacity of the managing trustee of the trust was also not accepted The ITO, thereafter, proceeded accordingly and passed the rectification order including the share income of the wife also in the assessment of Shri Lakshmi Prasad Lahkar
3 Being aggrieved by the aforesaid orders of the ITO, the assessee preferred appeals before the CIT(Appeals) While disposing of the appeals, the CIT noted that the ITO had considered clauses 4 and 5 of the trust deed He had, however, overlooked clause 8 of the trust deed in which it was stated that the trustee would stand possessed of the trust estate in trust and on behalf of sons and daughter of Shri Lakshmi Prasad Lahkar for the time being in equal shares The CIT(Appeals), under the aforesaid circumstances, held that the trust was valid one and the income from the registered firm was not assessable in the hands of the assessee in his individual capacity and, accordingly, he deleted the addition The CIT(Appeals) further held that the stand taken by the ITO regarding Shri Girish Ch Lahkar having no credit with the firm was also not correct which according to the CIT(Appeals) was apparent from the accounts of the partnership firm, Sibson Construction Company, in which there was withdrawal of Rs 26,080 in the capital account of Shri Girish Ch Lahkar Accordingly, the CIT(Appeals) held that this income also was not assessable in the hands of the assessee u/s 64 of the IT Act It may be stated herein that following the aforesaid order of the CIT(Appeals), the AAC in the case of the family trust held that the assessment in the case of the family trust should be treated as regular assessment
4 As regards the order of rectification passed by the ITO u/s 154 of the IT Act, the CIT(Appeals) cancelled the order u/s 154 holding that the assessee was a partner of the firm representing as managing trustee of the family trust and that the matter was debatable and, accordingly, the provisions ofsection 154 of the IT Act were not applicable
5 On further appeals by the Revenue, the Tribunal held that the claim of the assessee was justified to the effect that the trust was a valid one in view of the findings of fact by the CIT(Appeals) in the case of Shri Lakshmi Prasad Lahkar The Tribunal further held that the trustee stood possessed in respect of the settled property on behalf of the beneficiaries In respect of the issue for which action was taken u/s 154 of the IT Act, the Tribunal agreed with the findings of the CIT(Appeals) and accordingly all the three appeals preferred by the Revenue were dismissed
6 Aggrieved by the order of the Tribunal, the Revenue sought and obtained a reference to this Court on the three questions of law referred in paragraph 1 above
7 Of the three questions referred to this Court for opinion the first question itself, in our opinion, comprehends the third question and as such they are being discussed together while the second question is being dealt with separately
8 Before us the Revenue has mainly urged two grounds in respect of the first and third questions referred to us for our opinion, namely, (i) the trust deed is invalid; and (ii) the beneficiaries in the trust deed are indeterminate and uncertain and as such the trust deed fails for uncertainty of the beneficiaries
9 To appreciate the contention urged by the Revenue before us we have perused the terms and conditions of the trust deed including clauses 4, 5 and 8 The contention of the Revenue was that in view of the fact that unborn children of the assessee have been made the beneficiaries from the date of birth the trust was void for uncertainty
Mr Talukdar, learned counsel appearing for the Revenue, has further submitted that the beneficiaries of the trust being uncertain the trust should be taken to be invalid
10 We have carefully perused the different provisions of the trust deed including the relevant clauses, namely, clauses 4, 5 and 8 of the trust deed and also have given our thoughtful consideration to the submissions made on behalf of the Revenue It is well-settled that to constitute a valid trust the author of the trust must indicate with reasonable certainty : (a) the intention on his part to create a trust; (b) the purpose of the trust; (c) the beneficiaries; (d) the trust property; and (e) transfer of property to the trust On consideration to the trust deed of the case in hand we are of the opinion that all the five factors indicated above are present in the trust deed in hand We further find that the intention of the testator as indicated in the trust deed cannot be said to be uncertain, inasmuch as, the trust deed gives the description of the person who is to be benefited It is also well-established that the trust may be created in favour of an unborn person provided it satisfies the conditions laid down insection 13 of the Transfer of Property Act, even though the coming into existence of such a beneficiary is uncertain We also cannot accept the submission of learned counsel appearing for the Revenue that the shares of the beneficiaries were indeterminate as per clause 4 of the trust, inasmuch as clause 8 of the trust deed specifically determines the shares of the beneficiaries which is apparent on a perusal of clause 8 of the trust deed We are, therefore, of the view that the trust, namely, Lakshmi Prasad Lahkar Family Trust, in which the assessee is a trustee, was a valid one and the income from the trust was not assessable in the hands of the trustee, in his individual capacity
11 This takes us to the question as to whether the ITO was justified in the instant case in resorting to the provision of section 154 of the IT Act It is clear that under the provisions of section 154 of the IT Act, the IT authorities are empowered to amend any order passed by them under the Act with a view to rectifying any mistake apparent from the record. A mistake is an omission made not by design but by mischance. A mistake apparent is a mistake that is manifest. In other words, the mistake must be so plain or obvious that it could be realised without a debate or dissertation. The plain meaning of the word apparent is that it must be something which appears to be so ex facie that it is incapable of argument or debate. Therefore, a mistake can be regarded as apparent only when it is a glaring, obvious or self-evident mistake and not something which can be established by a long drawn process of reasoning on points on which there may be two opinions. As the issue in hand is debatable and not obvious or self-evident, therefore, the provisions of section 154 are not applicable to the facts and circumstances of the case
12 In view of out aforesaid findings our answer to the questions referred to us are, therefore, as below :
Question in respect of RA No 134/ (Gau) of 1988 – Yes
Question in respect of RA No 135/ (Gau) of 1988 – Yes
Question in respect of RA No 136/ (Gau) of 1988 – Yes
The reference is thus disposed of by answering all the three questions in the affirmative, in favour of the assessee and against the Revenue We, however, make no order as to costs.
sorry how revenue misunderstands the their own provisions, after all IT Act is not a substantial Act like TP Act,, where as sec 13 is plain and simple there.
in fact revenue is misinterpreting its own sections that causes unfortunate expenses to the tax payers’ moneys which is a revenue to the government,, question arises can revenue go on not properly chartered course of adventure and besides offending the tax payers… will the ministry of finance take note and admonish the upstart officers, after all governance is vital in any meaningful democracy, else wastage of tax payers moneys as also the tax payer when he has to fight protracted litigation. very sorry. kudos to the judge of Gau HC!