Rajasthan H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in directing to delete the additions of Rs. 84,769 and Rs. 22,127 from the income of the assesseefirm, when the Tribunal has given finding that the said amount was income of the assessee-firm ?

JUDGMENT

RAJESH BALIA, J. :

Heard learned counsel for the Revenue. None has appeared for the respondent in spite of service having been effected before 15th May, 1998.

2. The Tribunal, Jaipur Bench, Jaipur, on an application moved by the CIT, Jodhpur, under s. 256 (1) of the IT Act, 1961, has referred the following question of law arising out of its order in ITA No. 1773 and 1817/Jp of 1991, relating to the asst. yr. 1989-90 for the opinion of this Court : “Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in directing to delete the additions of Rs. 84,769 and Rs. 22,127 from the income of the assessee firm, when the Tribunal has given finding that the said amount was income of the assessee-firm ?”

3. The facts as found by the Tribunal are that the respondent-assessee is a registered firm engaged in the business of dealing of agricultural commodities and Adat. While the AO found that the assessee had made purchases of cotton bales on behalf of five persons, namely, Ved Prakash Garg, Ms. Surinder Kaur, Smt. Kaushalya Devi Garg, Smt. Neelam Rani and Sri Lala Ganeshiram, the AO has computed the profit in each transaction which comes to Rs. 1,08,471 and has held that the assessee diverted profits in different sums stated in the assessment order to the aforesaid persons, added the same to the income of the assessee which amounted in total Rs. 1,08,471. These additions were confirmed by the CIT(A).

The Tribunal though found that all the transactions are clear cases of diversion of profits but held that so far as additions made in respect of Ved Prakash Garg, Smt. Neelam Rani, Mst. Surinder Kaur are concerned since these three persons have respectively been assessed to tax in respect of the income held to be diverted to them, though it belonged to the assessee, the firm cannot be asked to pay tax second time in respect of the very same income. In view of this, the Tribunal deleted the addition of Rs. 84,769 on applying the principle that no income can be taxed twice. The other addition made by the AO in the sum of Rs. 22,127 as a case of diversion of profit to one Sri Ram Sethi was also deleted on the very same ground of principle of double tax.

These questions arose out of the assessee’s appeal No. 1817/Jp of 1991. The appeal filed by the Revenue ITA No. 1773/Jp of 1991, being on a different issue is not relevant for our purposes. However, to put the record straight, the Tribunal rejected the appeal of the Revenue and partly allowed the appeal of the assessee as aforesaid.

We are of the opinion that in view of the decision of the Supreme Court in Jain Brothers vs. Union of India (1970) 77 ITR 107 (SC) : TC 33R.762 it can be no more in doubt that the assessment of different persons in respect of the very same income will not absolve one from liability to be taxed de hors the finding recorded in one proceeding with reference to the finding recorded in somebody else’s assessment. If in the case of A it has been found that A has earned income, then the obligation on A to be assessed and pay tax on the income earned by him cannot be assessed because B has wrongly, by mistake or design suffered tax on it. If B has wrongly been assessed, it is for B to pursue his remedies on which we express no opinion.

In the present case, it has been found by the Tribunal that the income actually belongs to the assessee. Therefore, there was no impediment in levying tax on the income of the assessee irrespective of the fact whether some other persons have already submitted the returns in respect of the income and have also been assessed on the basis of declaration submitted by them. We are not concerned with the remedies which the other person may follow.

Accepting the assessee’s contention would result in the startling consequence of accepting that where a person designedly diverts his profits to other persons to reduce his tax burden, he can escape his actual tax burden by inducing such other persons to suffer taxation on the income so directed voluntarily.

We, therefore, hold that the Tribunal was not justified in directing to delete the additions of Rs. 84,769 and Rs. 22,127 from the income of the assessee-firm which the Tribunal has found to be the income of the assessee-firm and not of the other persons named above. Accordingly, we answer the question referred to us in the negative, i.e., against the assessee and in favour of the Revenue.

[Citation : 250 ITR 689]