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2007 Supreme(SC) 1432
2007(7) Supreme 562
Supreme Court of india
(From Andhra Pradesh High Court)
S.B. Sinha & Harjit Singh Bedi, JJ.
Administrator, Unit Trust of India — Petitioner
versus
B.M. Malani & Ors. — Respondents
Appeal (civil) 4792 of 2007
(Arising out of SLP (C) No. 209 of 2005)
[With Civil Appeal Nos. 4793-4799/07 @ SLP (C) Nos.18855-18861 of 2005]
Decided on : 11-10-2007
important point
Section 226(3)(vi) cannot be interpreted to mean that the Unit Trust of India was fully authorised to dispose of the units on its own without any notice to the holder of the units.
Headnote:(a)Income Tax Act, 1961 – Section 226(3) – UTI could not have transferred the amount in question without consent of the holder – It is wholly incorrect to contend that the scheme itself provided that repurchase was allowed from 1.9.2001 even without the consent of the respondent. (Para 13)
(b)Income Tax Act, 1961 – Section 226(3) – The provision would be applicable only when a money is due to the assessee from any person – Section 226(3)(vi) cannot be interpreted to mean that the Unit Trust of India was fully authorised to dispose of the units on its own without any notice to the holder of the units. (Para 13 and 18)
(c)Income Tax Act, 1961 – Section 226(3) – The option for repurchase of the units exclusively vested in the respondent – The Income Tax Officer could not have exercised the said option on behalf of the assessee – The Income Tax Department rightly sought to attach the units and did not opt for the repurchase value at that point of time. (Paras 13 and 15)
(1989) 4 SCC 297; 241 ITR 178 – Distinguished.
Facts of the case:
1.Respondent is an assessee of income tax. He was admittedly a defaulter in payment of income-tax. He had invested an amount of 65 lacs in the Monthly Income Plan (III) offered by the Unit Trust of India under Capital Gains Scheme, with an object to seek exemption under Section 84-E of the Act.
2.Appellant received a notice from the Income Tax Department under sub-section (3) of Section 226 of the Income Tax Act in respect of the respondent. In compliance of the notice, the appellant paid a sum of Rs.43,69,083.30 p. to the Department wherefor, the value of the unit at the relevant time was calculated at the rate of Rs. 6.93 p. per unit.
3.Respondent herein filed a writ petition questioning the said action of the appellant in resorting to sale of the said units without his consent.
4.High Court held that the respondent was entitled to the redemption value of the units at the rate of Rs. 10/- per unit after five years.
Findings of the Court:
UTI could not have transferred the amount in question without consent of the holder. Similarly, the Income Tax Officer could not have exercised the said option on behalf of the assessee.
Result : Appeal filed by the Administrator, Unit Trust of India is dismissed and the appeal filed by B.M. Malani allowed with costs.
judgment
S.B. Sinha, J. —
1.Leave granted.
2.Interpretation of sub-section (3) of Section 226 of the Income Tax Act, 1961 (Act) is involved in these appeals which arises out of a judgment and order dated 27.8.2004 passed by the High Court of Judicature of Andhra Pradesh at Hyderabad in Writ Petition No. 2305 of 2002 whereby and whereunder the writ petition filed by B.M. Malani (hereafter referred to as the respondent) was allowed in part.
3.Respondent is an assessee of income tax. He was admittedly a defaulter in payment of income-tax. He had invested an amount of 65 lacs in the Monthly Income Plan (III) offered by the Unit Trust of India under Capital Gains Scheme, the predecessor in interest of the petitioner in the year 1998 with an object to seek exemption under Section 84-E of the Act. The Highlights projected for such an offer were as under :
?“A five year close ended income plan
?The plan offers three options 1) Monthly Income Option, 2) Annual Income Option & 3) Cumulative Option
?The face value of a unit is Rs.10/- and units will be sold at par.
?The Trust shall pay an assured income @ 12.50% p.a. payable monthly under monthly income option and @ 13.25% p.a. payable annually under annual income option, for all the five years of the plan.
?Under the Monthly Income Option, income distribution warrants for the period upto March 1999 will be sent along with the membership advice/unit certificate. Thereafter income warrants payable monthly will be sent in advance for every April-March period.
?Repurchase allowed from 1st September, 2001 at NAV based repurchase price under all the three options.
?Scheme shall be listed on the whole sale debt segment of the NSE within six months from the closure of subscription.
?It is guaranteed that the capital invested in the scheme will be protected on maturity i.e. units will not be redeemed below par. The Development Reserve Fund (DRF) of the Trust will guarantee this capital protection. There is no such guarantee for premature repurchases and the repurchase price in such cases will be as per prevailing NAV. There is scope for capital appreciation as a part of investment will be in equities.
?Tax benefits under Section 80L and Sections 48 and 112 of Income Tax Act, 1961 on income distributed and capital gains from capital appreciation. Capital gains tax exemption under Section 54EA of the Income Tax Act, 1961 subject to lock-in for three years from the date of acceptance.”
4.Appellant received a notice from the Income Tax Department purported to be under sub-section (3) of Section 226 of the Income Tax Act. In compliance of the demand made therein, a sum of Rs. 43,69,083.30 p. was paid to the Department by the appellant wherefor, the value of the unit at the relevant time was calculated at the rate of Rs.6.93 p. per unit.
5.Respondent herein filed a writ petition questioning the said action of the appellant in resorting to sale of the said units without his consent.
6.Admittedly, although the units were transferred, their value had not become due to the assessee on the date on which such notice was given. It was held by the High Court that the respondent was entitled to the redemption value of the units at the rate of Rs.10/- per unit after five years.
7.Appellant is, thus, before us. An appeal has also been filed by the respondent contending that the dividend declared on the said amount also should have been directed to be paid by the High Court.
8.Mr. M.L. Verma, learned senior counsel appearing on behalf of the appellant, would submit that the respondent being a defaulter and the appellant having been holding the units on its behalf, the High Court committed a serious error in passing the impugned judgment. The learned counsel urged that admittedly the units were transferable on the day on which the payments were made and keeping in view the purported tenor of the notice in terms whereof the appellant was to be treated as an assessee-in-default, it had no other option but to make payment.
9.Mr. D
