1. This appeal of the assessee is directed against CIT's order dated 29-3-1996 passed under Section 263 of the I.T.Act.
1. "On the facts and in the circumstances of the case, the Ld.
Commissioner of Income-tax was not justified in usurping Jurisdiction Under Section 263 of the Income-tax Act, 1961.
2. On the facts and in the circumstances of the case, the Ld.Commissioner of Income-tax was not justified in enhancing the total income as determined by the Assessing Officer by Rs. 73,593/- by treating the capital gain on sale of units as short term capital gain instead of as long term capital gain as returned by your Appellant." 3. The assessment in this case was completed by the AO Under Section 143(3) on 31-1-94 determining the assessee's total income at Rs. 5,01,740/-. On the perusal of records, it was noted by the CIT that the assessee had disclosed long term capital gains of Rs. 42,395/- on the sale of units of UTI and in the assessment completed Under Section 143(3), the long term capital gains offered by the assessee were accepted. The CIT found on the perusal of records that capital assets being units of UTI, were held by the assessee for a period of less than 3 years. According to the ld.CIT since the units of UTI were not the shares held in a company, the concessional period of one year holding was not applicable to the assessee to treat the gains as long term capital gains. The ld.CIT referred to the definition of short term capital asset as existing at the relevant time in Section 2(42A) and held that the capital gains were assessable as short term capital gains and not as long term capital gains since the assets were held for a period of less than 3 years by the assessee.
4. The arguments given by the assessee before the CIT are summed up as under- i) The income received from the units of UTI is a dividend received from an Indian company by virtue of provisions of Section 32(3) of UTI Act, 1963.
ii) CBDT issued Circular No. 567 dated 19-7-1990 in connection with the deduction Under Section 80L and clarified that income received from the units of UTI is a dividend received from an Indian company by virtue of the provisions of Section 32(3) of UTI Act, 1963.
iii) A legal fiction has been created by Section 32(3) of UTI Act and this fiction has to be carried to its logical conclusion.
iv) By Finance Act 1994 proviso to Section 2(42A) has been amended w.e.f. A.Y. 1995-96. Though the assessment year under appeal is 1991-92 yet the amendment is only clarificatory in nature and is applicable to the past years with equal force.
v) The decision of the AO in treating the units of UTI as shares in a company is an entirely possible legal view and hence in view of the various judical pronouncements, CIT had no jurisdiction to revise the assessment order.
The Id. CIT rejected the contentions of the assesseee by observing as under- " Even on merit, taking of unit of Unit Trust of India as share in the relevant assessment i.e. 1991-92 is not correct at all. Nowhere in the Income-tax Act, the units of the Unit Trust of India has been considered as shares. It is only in the UTI Act, 1963 that the income received by the unit-holder has been deemed as income by way of dividend. The provisions of the UTI Act has been properly incorporated in the provisions of the Income-tax Act Under Section 80L where the income received by the unit-holder is taken at par with income received by way of dividend from Indian Company. This fiction created in this context has been taken to its logical conclusion. It cannot be carried further than what it is clearly intended for. The amendment carried out in the provisions of Section 2(42A) clearly establishes that the units are not shares relevant of the assessment year concerned and that they are to be treated differently from the shares. The explanatory note to the Finance Act, 1994 clearly establishes that." The ld.CIT further observed that AO did not make any enquiry whatsoever and also did not discuss at all the point at issue in the body of the order before accepting the submissions of the assessee that the gains were long term capital gains.
5. The ld.counsel of the assessee reiterated before us the arguments given before the CIT and relied upon the following decisions which were filed in the form of paper-book :-Gurupad Khandappa Magdum and Ors. v. Hirabai Kaahndappa Magdum and Ors.
vii) Davies Jenkis and Co. Ltd. v. Davies (Inspector of Taxes) 72 ITR 444 viii) ITO ,District II Kanpur and Ors. v. Mani Ram and Ors. 72 ITR 203 (SC) The ld.counsel by referring to the decision of Supreme Court in the case of Apollo Tyres Limited v. CIT (255 ITR 273) contended that the issue that units of UTI have to be treated as shares within the meaning of provisions of Section 32(3) of UTI Act stands covered against the assessee. But the ld.counsel pointed out that judgment of Supreme Court (supra) is dated 2^nd May, 2002 and the CIT passed his order Under Section 263 on 29-3-1996 and hence on the date on which the CIT exercised jurisdiction Under Section 263, the legal fiction created by the provisions of Section 32(3) of UTI Act should be carried to its logical conclusion and the units of the UTI should be treated as shares for the purpose of determining whether the gain derived by sale of such units was short term capital gain or long term capital gain. Apart from the decisions already relied upon, the ld.counsel relied upon the latest decision of Calcutta High Court in the case of GEO Miller and Company Ltd. v. CIT and Ors. (262 ITR 237) and contended that subsequent exposition of law by Supreme Court does not render the assessment order already made a mistake apparent from record.
6. On the other hand, the ld.DR contended that the units of the UTI are not shares within the meaning of the proviso to Section 2(42A). The ld.DR contended that proviso to Section 2(42A) was made applicable to the units of UTI by the Finance act, 1994 w.e.f. 1-4-95 and hence for the year under consideration the amended proviso will not be applicable. Hence the units of UTI were required to be held for 36 months so as to enable the assessee to claim the long term capital gains on making the sales thereof. The ld.DR contended that if such units were held for a period of less than 36 months, the gains derived by the assessee will only be short term capital gains. The ld.DR contended that the assessee had claimed the gains as long term capital gains and the AO in the assessment order accepted them as such and hence the order of the AO was erroneous in so far as it was prejudicial to the interest of revenue. Hence, according to the ld.DR, provisions of Section 263 were rightly invoked by the ld.CIT. The ld.DR further contended that no two views are possible and the only one valid view is that units are not shares within the meaning of proviso of Section 2(42A). Hence, according to the ld.DR, the decisions relied upon by the ld.counsel of the assessee are distinguishable in facts and are not applicable to the instant case. The ld. DR relied upon the following decisions -CIT v. South India Shipping Corporation Ltd. ii) CIT v. Manjunatheshwar Packing Products and Camphor Works 231 ITR 53 (SC) iii) Escorts Ltd. And Anr. v. Union of India and Ors. 199 ITR 43 (SC) 7. We have given a careful consideration to the rival submissions in the light of the material placed before us. We are of the opinion that even though Section 32(3) of the Unit Trust of India Act, 1963 creates a fiction to make the UTI a deemed company and distribution of income received by the unitholder a deemed dividend for the purposes of the Income-tax Act, by virtue of those provisions it cannot be said that the section also makes the unit of the UTI a deemed share. The deeming provision in Section 32(3) should be confined only to deeming the UTI a company and the income form units a dividend. In the absence of any specific deeming provision in regard to the units as shares, it would be erroneous to extend the provisions of Section 32(3) for the purpose of holding the unit as a share for the year under consideration.
However, with effect form assessment year 1995-96 the position will be different in view of the amendment to the proviso to Section 2(42A).
With effect from A.Y. 1995-96 onwards the units of UTI have been equated with shares held in a company and they have to be held for more than 12 months only to enable them to come within the category of long term capital asset. As the AO had wrongly accepted the capital gains as long term capital gains, we are of the opinion that the order of the AO was erroneous in so far as it was prejudicial to the interest of revenue and hence the ld.CIT had rightly invoked the provisions of Section 263. We are inclined to accept the contention to the ld.DR that no two views are possible and units were not shares within the meaning of proviso to Section 2(42A) for the year under consideration. We are also not inclined to accept the contention of the ld.counsel of the assessee that the decision in the case of Apollo Tyres Ltd. (255 ITR 273) having been pronounced by the Supreme Court after the passing of order Under Section 263, the proposition of law as pronounced by the Supreme Court will not be applicable to the year under consideration.
In fact, even without referring to the Supreme Court's aforecited decision, proceedings Under Section 263 could be initiated and were rightly initiated by the CIT. We, therefore, hold that no interference is called for in the CIT's order passed gains, whereas the AO taxed these gains as long term capital gains. Hence, the order of the AO was erroneous in so far as it was prejudicial to the interest of revenue.
The decisions relied upon by the ld.counsel of the assessee are not applicable due to the peculiar facts of the instant case. We, therefore, hold that there is no substance in the appeal of the assessee. The same is, therefore, dismissed.