Y.V. Subba Rao Vs. Commissioner of Income-tax - Court Judgment

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direct taxation - assessment - sections 176, 176 (3a) and 256 of income tax act, 1961 - whether tribunal was right in holding that amount in hand of assessee which he has received only as a trustee on behalf of three firms cannot be assessed at hand of assessee - assessee was a partner in three firms who have executed work and stooped work after completion of work and three firms discontinued to exist - money received by assessee awarded by arbitrator was on behalf of three firms and assessee is only a trustee of firm - only accrual recipients liable to taxed not assessee - held, tribunal was right in holding that money received by assessee only as a trustee on behalf of three firms. - cantonments act[c.a. no. 41/2006]. section 346 & cantonment fund (servants rules, 1937, rules 13, 14 & 15: [h.l. gokhale, ag. cj, p.v. hardas, naresh h. patil, r.m. borde & r.m. savant, jj] jurisdiction of school tribunal constituted under maharashtra employees of private schools (conditions of service) regulations act, (3 of 1978) held, school run by the cantonment board is a primary school and it is not a school recognised by any such board comparable to the divisional board or the state board. the school tribunal constituted under section 8 of the maharashtra act cannot entertain appeals filed under section 9 by the employees working in schools which are established and administered by the cantonment board. teacher employed in the school run by cantonment board being covered under rule 2 (f) of the cantonment fund servants rules, 1937 can file appeal under rules 13, 14 and 15 to authorities provided therein against any order imposing any penalties etc. [deolali cantonment board v usha devidas dongre, 1993 mah. lj 74; 1993 lab ic 1858 overruled]. -- maharashtra employees of private schools (conditions of service) regulations act, 1978 [act no. 3/1978]. sections 9 & 2(21): jurisdiction of school tribunal whether a school run by cantonment board is not a recognised school within the meaning of section 2(21)? - held, the act is enacted to regulate recruitments and conditions of employees in certain private schools and provisions of the act shall apply to all private schools in the state whether receiving any grant-in-aid from the state government or not. private school is defined in section 2(2) of the act as a recognised school established or administered by a management other than the government or a local authority. recognised means recognised by director, the divisional board or state board. thus as far as the first part of the definition of being recognised is concerned, it includes, as stated above, four directors, the divisional boards and four state boards. the second part of this definition which comes after the comma refers to any officer authorised by director or by any of such boards. the question to be examined is whether school run by the cantonment board could be said to be one run by any such boards. a private school has to be recognised by the state or the divisional board or by any officer authorised in that behalf. when this phrase namely: recognised by any officer authorised by the director or by any such boards, is included in the latter part of section 2(21), such boards will be of the level of the state board or the divisional board. the boards referred to in the definition of the word recognised means the boards which deal with education at levels other than that of the level at which primary schools are operating. thus for being recognised, the school has to be recognised by the board and therefore, it has to be operating at a higher level i.e., secondary level. section 2(21) of the act defines the term recognised. the last clause therein is by any of such boards. the term such is defined in oxford dictionary as of the kind or degree indicated or implied by the context. therefore, the term such board will have to mean a divisional board of or the level of divisional board or the state board. the divisional board holds the examination and issues certificates after 10th and 12th standard examinations. the state board advises the state government on policy matters, ensures uniform pattern of secondary and higher secondary education, lays down principles for determining syllabi, prescribes text books, etc. the cantonment board does not discharge any of such duties nor is there any other board or body under the cantonments act discharging any such duties. the duties of the cantonment board are laid down in section 62 and amongst others, clause (xiv) lays down the duties of establishing and maintaining or assisting primary schools only. the cantonment board is not required to enter into the area of secondary education. therefore, school run by the cantonment board is a primary school and it is not a school recognised by any such board comparable to the divisional board or the state board. that being the position, it is not possible to accept it to be a recognised school for being a private school under the act. for the reasons state above, the school tribunal constituted under section 8 of the act cannot entertain appeals filed under section 9 by the employees working in schools which are established and administered by the cantonment board. [deolali cantonment board v usha devidas dongre, 1993 mah.lj 74; 1993 lab ic 1858 overruled]. - in order to effectively carry out the construction, three different partnership firms were constituted which undertook the work in three separate sections.s.v. maruthi, j. 1. the income-tax appellate tribunal, hyderabad bench, referred the following questions of law for the opinion of this court. questions nos. 1 and 2 are referred at the instance of the assessee while question no. 3 is referred at the instance of the revenue.'1. whether, on the facts and in the circumstances of the case, the tribunal is correct in law in holding that the provisions of section 189 are not applicable in assessing the amount of rs. 7,46,471 in the hands of the partnership firms ? 2. whether, on the facts and in the circumstances of the case, the tribunal is correct in holding that the provisions of section 176(3a) of the income-tax act, 1961, are applicable to the facts of the case ? 3. whether, on the facts and in the circumstances of the case, the tribunal, while holding that the provisions of section 176(3a) are applicable, is correct in concluding that the amount of rs. 7,46,471 cannot be assessed in the hands of the assessee-recipient but in the hands of the three firms which actually executed the contract, on the ground that the assessee received the said amount only as a trustee ?' 2. as regards questions nos. 1 and 2, we decline to answer the same as, in spite of service of notice, the assessee is not present either in person or through any counsel.3. as regards question no. 3, the facts in brief are as follows: the assessee is an individual. he was the tenderer for the construction of two aqueducts in lower sileru project. in order to effectively carry out the construction, three different partnership firms were constituted which undertook the work in three separate sections. the three firms were (1) y.v. subba rao company, (2) ramakrishna constructions and (3) srinivasa constructions. in all the three firms, sri y.v. subbarao was a partner. the three firms actually carried out the contract works and filed the income-tax returns in respect of the profits arising to them. the department had accepted that the firms were genuine and had granted registration to them. the construction work was completed by 1976. thereafter, the firms had no contract works. due to certain disputes that arose between the assessee and the electricity department, the matter was referred to the arbitrator. the arbitrator awarded payment of rs. 7,46,471 by his award dated december 19, 1976. the award was also confirmed by the civil court. the assessee received the amount on february 17, 1979. the income-tax officer assessed the amount in the hands of the assessee on the ground that he is the recipient of the amount, while the assessee contended that he is a trustee and the actual recipients of the amount are the three firms which were constituted for the purpose of executing the contract works and which have executed the works. on appeal, the commissioner of income-tax held that the concerned firms have to be assessed separately for the assessment year under consideration and the entire additional contract amount awarded by the arbitrator cannot be treated as the income of the assessee. on further appeal, the tribunal held that the assessee is only a trustee and he received the amount on behalf of the three firms which have executed the works and since the three firms have discontinued the contract work, section 176(3a) of the act applies. however, at the instance of the revenue, question no. 3 as set out in the earlier paragraph was referred for the opinion of this court.4. to consider the question referred for the opinion of this court, it is necessary to refer to section 176(3a) of the income-tax act which reads as follows : 'where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipientand charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance.'5. the finding of the tribunal is that the assessee who was the tenderer entrusted the execution of the work of the three firms of which he was also one of the partners and the three firms actually executed the work and they stopped the work after completion of the contract works and, therefore, the three firms discontinued to exist. the tribunal also held that the receipt of money by the assessee, awarded by the arbitrator, was on behalf of the other three firms which have executed the work and he is only a trustee of the firms and, therefore, only the actual recipients are liable to be taxed and not the assessee who received the money on behalf of the other three firms.6. the finding of the tribunal that there is discontinuance of the work by the three firms is a finding of fact which is based on material placed on the record before the tribunal and it has become final. once there is a discontinuance of the business by the three firms, the amount received after discontinuance shall be deemed to be the income of the recipient and charged to tax in the year of receipt, as, had he received the same before discontinuance he would have been liable to pay tax.7. prior to discontinuance, the three firms are entitled to receive income. it is only on account of the discontinuance of the firms, the assessee has received the amount; therefore, the assessee is only a trustee and the actual recipients are the three firms.8. in view of the above, we agree with the view of the tribunal. it follows, therefore, that question no. 3 referred is to be answered in the affirmative and in favour of the assessee.9. the reference is answered accordingly.