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2008 DIGILAW 61 (KAR)

Commissioner of Income Tax v. V. G. Siddartha

2008-01-23

DEEPAK VERMA, K.L.MANJUNATH

body2008
JUDGMENT K.L. Manjunath, J.— Heard the learned Counsel for the parties. 2. This appeal is by the Revenue challenging the order passed by the Income Tax Appellate Tribunal, Bangalore Bench in Case No. 121/Bang/98 dated September 29, 2003, wherein the Tribunal has confirmed the order passed by the Commissioner of Income Tax (Appeals). Though in the appeal memo two questions of law are framed, at the time of hearing the learned Counsel for the parties submit that only the first question would arise for consideration of this Court. Therefore, we are required to answer the following question in this appeal: (1) Whether the authorities below were justified in holding that the parting of part of the profit by the assessee to M/s. Mysore Amalgamated Coffee Estates P. Ltd. amounts to a colourable device adopted by the assessee to avoid tax? 3. The assessee is an individual. He is carrying on the business under the name and style of M/s. Amalgamated Beans Trading Company. For the assessment year 1994-95, he filed the return of income. The same was processed under Section 143(3) of the Income Tax Act. While processing as noticed by the Assessing Officer that the assessee by virtue of an memorandum of understanding stated to have been entered into with M/s. Mysore Amalgamated Coffee Estates P. Ltd. has transferred 45 per cent, of the total income earned from M/s. Amalgamated Beans Trading Company in order to avoid his tax liability and brought the amount transferred'to M/s. Mysore Amalgamated Coffee Estates P. Ltd. to taxation. This order was questioned by the assessee by filing an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) after hearing the parties having noticed that a sum of Rs. 1,30,00,000 was received by the assessee from M/s. Mysore Amalgamated Coffee Estates P. Ltd. and the same has been treated as a seed money for commencement of the business and that the said money was received by the assessee with a specific understanding that out of the income so earned 45 per cent, of the same has to be shared with M/s. Mysore Amalgamated Coffee Estates P. Ltd. which is the financing company. By holding that there is no colourable device adopted by the assessee, the order of the Assessing Officer was set aside and relief was given to the assessee. 4. By holding that there is no colourable device adopted by the assessee, the order of the Assessing Officer was set aside and relief was given to the assessee. 4. Being aggrieved by the order of the Commissioner of Income Tax (Appeals) the Revenue filed an appeal before the Income Tax Appellate Tribunal, Bangalore Bench. The Income Tax Appellate Tribunal, after hearing the parties also came to the conclusion that the money so advanced by M/s. Mysore Amalgamated Coffee Estates P. Ltd. to commence under the name and style of M/s. Amalgamated Bean Trading Company and by virtue of the memorandum of understanding, 45 per cent, of the profit was transferred to the accounts of M/s. Mysore Amalgamated Coffee Estates P. Ltd. and further held that the tax liability payable by an individual is lesser than the tax liability payable by a private limited company and held that the transaction cannot be treated as a colourable or sham transaction and dismissed the appeal of the Revenue. Being aggrieved by the said two orders, the present appeal is filed. 5. Mr. Seshachala, reiterating the grounds urged by the Revenue before the Commissioner of Income Tax (Appeals) and the Tribunal made an attempt to contend that M/s. Mysore Amalgamated Coffee Estates P. Ltd. was not liable to share the loss. The transfer of 45 per cent, of the profit made by the assessee cannot be treated as a real transaction and it has to be treated as a colourable and sham transaction. Therefore, he requests the court to set aside the order passed by both the authorities and he further contends that the authorities did not appreciate the facts of the case properly. 6. Mr. Kulkarni, learned Counsel appearing for the respondent has produced two documents before us today to dispel the arguments advanced by the learned Counsel for the Revenue. They are the balance-sheet of M/s. Amalgamated Bean Coffee Trading Company as on March 31, 1993, to show the capital investment of the proprietary concern of the assessee was received from M/s. Mysore Amalgamated Coffee Estates P. Ltd. amounting to Rs. 1,30,00,000. He has also produced the return filed by M/s. Mysore Amalgamated Coffee Estates P. Ltd. for the assessment year 1994-95 to show the amount received by the said company from the asses-see herein. They are taken on record. 7. 1,30,00,000. He has also produced the return filed by M/s. Mysore Amalgamated Coffee Estates P. Ltd. for the assessment year 1994-95 to show the amount received by the said company from the asses-see herein. They are taken on record. 7. He further contends that when M/s. Mysore Amalgamated Coffee Estates P. Ltd. is also an assessee and assessed to tax, when the return filed by such company is accepted by the Assessing Officer and when the said company had reflected the amount of Rs. 1,30,00,000 paid by it to the assessee herein and the amount of profit received by it from the assessee, the Revenue cannot contend that the transaction as sham transaction. He further contends that the Revenue should not have accepted the return filed by M/s. Mysore Amalgamate Coffee Estates P. Ltd., wherein they have paid excess tax than the tax payable by an individual. In the circumstances, he requests the court to dismiss the appeal of the Revenue. 8. After hearing learned Counsel for the parties, we are of the opinion, if the Revenue on the facts has proved that the transaction between the assessee and M/s. Mysore Amalgamated Coffee Estates P. Ltd. as a colourable transaction, then only we can interfere with the orders passed by the authorities below. If on the facts, the Revenue has failed to prove the alleged sham transaction, we cannot interfere with the concurrent findings of the authorities based on the facts, as the Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal are fact finding authorities. 9. It is not in dispute that the Assessing Officer has not disputed the amount of Rs. 1,30,00,000 paid by M/s. Mysore Amalgamated Coffee Estates P. Ltd. to the assessee herein. According to the Assessing Officer, when M/s. Mysore Amalgamated Coffee Estates P. Ltd. is not liable to share, such business cannot be treated as a joint venture. But, according to the assessee, the said company has advanced a sum of Rs. 1,30,00,000 to the assessee and based on the same business was carried on and in terms of the memorandum of understanding instead of paying the interest, the profit has been shared at the ratio of 55 per cent, and 45 per cent. This fact is not disputed by the Revenue. The transaction between the assessee and the aforesaid company are reflected in the returns filed by both the parties. This fact is not disputed by the Revenue. The transaction between the assessee and the aforesaid company are reflected in the returns filed by both the parties. When the Revenue has accepted the return filed by M/s. Mysore Amalgamated Coffee Estates P. Ltd., we are of the opinion that the Revenue cannot reject the return filed by the assessee, on the ground that it is a sham and colourable transaction. If the transaction is held to be a sham and colourable transaction, the Revenue cannot treat the said transaction as genuine so far as it relates to one assessee and rejected the same in case of the other assessee. When both of them are parties, the transaction of both the parties should have been rejected by the Revenue. 10. In the circumstances, we are of the opinion, on facts the Revenue has failed to establish the transaction as sham and colourable. In the result, we have to answer the question of law framed in the appeal against the Revenue and in favour of the assessee. 11. Accordingly, the appeal is dismissed.