Case Law Details

Case Name : Sannidhi C. Patel Vs ITO (ITAT Mumbai)
Appeal Number : ITA No.6232/MUM/2011
Date of Judgement/Order : 17/12/2014
Related Assessment Year :
Courts : All ITAT (6764) ITAT Mumbai (1990)

The assessee was given a sum of Rs.25 lakh by Ustad Zakir Hussain (an eminent Tabla Artist) in pursuance of a general Power of Attorney dated 01st March, 2002, for the purpose of making investment with HSBC Bank, portfolio management scheme on his behalf. The said amount was deposited in bank account number 6882 (Bank of Baroda).

The assessee issued a cheque for deposit in HSBC Bank account for investment in portfolio management scheme. The copy of bank pass-book of Ustad Zakir Hussain (SB AC No.67 15 with Bank of Baroda) is available on record (paper book pages 11 to 15) from which is evident that the amount was debited/withdrawn on 09/05/2007 (page-13 of the paper book). Shri Zakir Hussain offered Short Term Capital Gain of Rs.3, 11,884/- (page -17 of the paper book showing computation of total income) and by mentioning a note claimed it exempt u/s 10(34) of the Act as dividend received from Indian companies and mutual funds. We further note that during assessment proceedings, the assessee filed her balance sheet with schedule of investment, details of short term capital gain and confirmation from Zakir Hussain confirming that the impugned amount was given to the assessee for making investment on his behalf. However, the ld. Assessing Officer taking recourse to section 56(2)(vi) of the Act made the addition in respect of Rs. 25 Lakh received by the Assessee from stad Zakir Hussain.

We find that section 56 of the Act deals with income from other sources. Sub-clause (vi) to section 56 (2) was inserted by taxation laws (amendment) Act, 2006, with effect from 01/04/2007. The plain reading of the aforementioned statutory provisions reveals that it is intended to tax a receipt of money without consideration. The impugned amount was received by the assessee for making the investment on behalf of Ustad Zakir Hussain, on the basis of Power of Attorney. Clause -3(Power of Attorney) is reproduced hereunder:

“To make investments in my name or on my behalf of any kind whether of deposits (including fixed deposit in a bank), shares, debentures, bonds, stocks etc., issued by any public/private sector undertakings, corporations, companies etc., and also to apply, buy, sell, transfer or otherwise deal with any kind of securities, shares debentures, fixed deposits, stocks bonds etc, on my behalf.”

In the concluding para of the Power of Attorney, it is stated as under:

“And I do hereby agree that all acts, deeds and things lawfully done by aforesaid Attorney, by virtue of power hereby given shall be constituted as acts, deeds and things done by me and I undertake to ratify and confirm the same.”

If the provisions of the Act and the content of the Power of Attorney are kept in juxtaposition and analyzed then it can be concluded that the mutual funds, purchase and sold by the assessee were made on behalf of Shri Zakir Hussain and there is no evidence to establish that the investment made by the assessee is from the funds of Shri Zakir Hussain as is evident from return of income, balance sheet filed in the case of Ustad Zakir Hussain and the explanation of the assessee was merely brushed aside by the Assessing Officer. No adverse remark has been made by the Assessing Officer in the case of Ustad Zakir Hussain, thus, the adverse observation made in the assessment order is factually incorrect. Rather, the Assessing Officer did not consider the details and evidence filed by the assessee and still if he was having any apprehension regarding the explanation of the assessee nothing prevented him to call for the details from the assessee as well as from Zakir Hussain before resorting to the provisions of section 56(2)(vi) of the Act. Identically, the Hon’ble Punajb & Haryana High Court in the case of CIT vs Saran Pal Singh (HUF) 237 CTR (P & H) 50 held as under:

“The Assessing 0fficer made addition to the returned income on account of amount received as loan which was treated to be receipt within the meaning of section 56(2)(v) of the act. 0n appeal, the CIT(A) set aside such addition which was upheld by the Tribunal. The Tribunal observed in para 9 as under:

“Apart from the aforesaid, insofar as the present case is concerned, there is no dispute regarding the nature and source of the impugned unsecured loans. The nature of the amounts having been received as unsecured loans and the sources thereof, is not in doubt. The assessee had also explained that such unsecured loans have been repaid within a short period and the purpose of raising the loans was also explained before the Assessing 0fficer. The Assessing 0fficer has not doubted any of the aforesaid features of the transaction but has merely observed that since the unsecured loans were raised free of interest, it constituted receipt of money ‘without consideration’ and therefore he proceeded to invoke section 56(2)9v) of the Act. In our considered opinion, the factum of the assessee being liable to repay the impugned unsecured loans, imbibes the same with characteristics of a liability. Merely because the amount of loan has been raised without involving payment of interest, cannot be seen to have vested the impugned amount with characteristics of an income, within the meaning of section 56(2)(v) of the I. T. Act. The existence of the expression without consideration in section 56(2)(v) cannot distract from the fact that in the impugned case, the sum of money received in question carried a liability of its repayment and the same was not received by the assessee with an absolute unfettered right of possession. Therefore, in the  totality of circumstances of the present case, we find no justification to uphold the stand of the Assessing 0fficer and the CIT(A) was justified in deleting the impugned addition. Accordingly, the conclusion of the CIT(A), is affirmed”

We have heard learned counsel for the parties.

Learned counsel for the appellant submits that scope of section 56(2) (v) is very wide which included any amount received by the assessee unless the same was covered by the provisio.

We are unable to accept the submission.

The amount contemplated under section 56(2)(v) of the Act cannot include loan which is shown to have been repaid. In the facts and circumstances of the present case, a concurrent finding of fact has been recorded that the amount received was a short term loan which was duly repaid. The said amount cannot be treated as income of the assessee under section 56(2)(V) of the Act. Thus, no substantial question of law arises.”

If the provisions of the Act, the decision from Hon’ble High Court Punjab & Haryana in Saran Pal Singh (HUF)(supra) are analyzed, there is no doubt about the genuineness of the transaction. The assessee never became the beneficiary of the impugned amount i.e. Rs.25 lakh, thus there is no question of making the addition u/s 56(2)(vi) of the Act. Even otherwise, the amount after liquidating the mutual fund was returned back (Rs.15,58,368/- on 19/10/210 and Rs.10,37,263/- on 22/03/2011) meaning thereby, the amount was returned back along with profit, consequently, the provision of section 56(2)(vi) is not applicable. This ground of the assessee is, therefore, allowed.

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  1. g.balakrishnan says:

    very sad what kind of AOs are there? AOs not understanding their own provisions unnecessarily harass the taxpayer is evident in this is high time for finance ministry of government of india that they should not give postings of AOs who are half baked AOs, unnecessarily offending the honest tax payers too due to these AOs half knowledge of laws so also so called panel counsels or advocates…sooner or later tax payers who are harassed by AOs obviously for some considerations ,would be moved against that means the vicarious liability would fall on the revenue to pay exemplary damages, as none can be protected leave alone the great revenue men…i say all this in the interest of cordial relations the revenue need to maintain with honest tax payers whgo may not grease the hands of these kinds of public servants….sooner the Art 311 also cannot protect these kinds of public servants, that all public servants should and must know.

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