Appeal details
Counselvise Citation
344320114 RSA 2001
Assessee PAN
Bench
Appeal Number
Duration Of Justice
11 year(s) 4 month(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
17-12-2012
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
E
Next Hearing Date
29-10-2012
Assessment Year
1998-1999
Appeal Filed On
10-08-2001
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI E BENC H BEFORE SHRI RAJPAL YADAV , JM & SHRI A.N. PAHUJA, AM ITA NOS.4168/DEL/2000 & 3443/DEL./2001 AYS: 1997-98 & 1998-99 J.C.I.T.,SPECIAL RANGE- 19,ROOM NO.234, C.R. BULDING, IP ESTATE, NEW DELHI V/S . M/S MOHINDER SINGH & CO.,1107, AKASHDEEP BLDG., BARAKHAMBA ROAD,NEW DELHI [PAN/GIR : M-8 ) (APPELLANT) (RESPONDENT) ASSESSEE BY S/SHRI AJAY VOHRA & ROHIT GARG,ARS REVENUE BY S/SHRI G. PRASAD & A.K. SINGH, DRS DATE OF HEARING 30-10-2012 DATE OF PRONOUNCEMENT 17-12-2012 O R D E R A.N.PAHUJA:- THESE TWO APPEALS FILED ON 13.10.2000 & 10.8.200 1 BY THE REVENUE AGAINST TWO SEPARATE ORDERS DATED 28.7.20 00 & 24.5.2001 OF THE LD. CIT(A)-XX, NEW DELHI FOR THE AYS 1997-98 AND 1998- 99 RESPECTIVELY, RAISE THE FOLLOWING GROUND:- I.T.A. NO.4168/DEL./2000[AY 1997-98] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INTEREST RECEIVED OF ` `1,96,72,751/- ON THE BASIS OF ARBITRATION AWARD IS NOT A REVENUE REC EIPT AND NOT TAXABLE IN THE HANDS OF THE ASSESSEE. I.T.A. NO.3443/DEL./2001[AY 1998-99] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN :- ITA NOS.4168/DEL/2000 & 3443/DEL./2001 2 I) HOLDING THAT THE INTEREST ON COMPENSATION RECEIV ED TO THE TUNE OF ` ` 3,33,59,343/- ON THE BASIS OF ARBITRATION AWARD WAS NOT A REVENUE RECEIPT AND THEREFORE NOT TAXABLE IN THE HANDS OF THE ASSESSEE. II) ALLOWING THE DEPRECIATION ON CAR AMOUNTING TO ` `6.62.852/- THOUGH THERE IS NO BUSINESS ACTIVITIES OF THE ASSES SEE. 2. THE APPEAL IN I.T.A. NO.4168/DEL./2000 IN THE AY 1997-98 , EARLIER DISPOSED OF VIDE ORDER DATED 11.3.2004 WAS RECALLED VIDE ORDER DATED 19 TH MAY, 2006 IN M.A. NO.133/DEL./2006.SINCE SIMILAR ISSUES ARE INVOLVED IN THESE TWO APPEALS, ACCORDINGLY, THESE WERE HEARD SIMULTANEOUS LY FOR THE SAKE OF CONVENIENCE AND ARE BEING DISPOSED OF THROUGH THIS COMMON ORDER. 3. FACTS, IN BRIEF, AS PER RELEVANT ORDERS FOR TH E AY 1997-98 ARE THAT RETURN DECLARING INCOME OF ` `2,51,81,700/- FILED ON 31.10.97 BY THE ASSESSEE, A CONSTRUCTION CONTRACTOR, AFTER BEING PROCESSED ON 3 1.3.1998 U/S 143(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT), WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE RECEIVED A SUM OF ` ` 2,05,06,266/- IN TERMS OF AWARD OF AN ARBITRATOR IN CONSEQUENCE OF THE ARBITRATION PROCEEDINGS WITH THE AIRPORT AUTHORITY OF INDIA IN BOMBAY .WHICH WAS INCLUDED IN THE INCOME OF THE FIR M. HOWEVER, AN AMOUNT OF ` ` 1,96,72,751/- RECEIVED BY THE ASSESSEE BY WAY OF IN TEREST WAS NOT INCLUDED IN THE INCOME AND INSTEAD, CREDITED TO THE CAPITAL AMO UNT OF FOUR PARTNERS IN EQUAL AMOUNT. TO A QUERY BY THE AO, THE ASSESSEE EXPLAIN ED THAT THEY ENTERED INTO A NUMBER OF CIVIL CONTRACT WITH AIRPORTS AUTHORITY OF INDIA IN NOVEMBER, 1980. ALL THESE CONTRACTS WERE DELAYED AND THE CLAIM FOR PAYM ENTS OF RUNNING BILLS AND COUNTER CLAIMS FILED BY THE CONTRACTEE AND THE ASSE SSEE FIRM AS PER TERMS OF THE CONTRACT, WERE REFERRED TO A SOLE ARBITRATOR. INTE REST OF ` ` 29,897/- WAS AWARDED BY THE HONBLE BOMBAY HIGH COURT IN A DECREE DATED 6.9 .1995 PASSED BY THE COURT UNDER REFERENCE NO.1 , ALLOWING INTEREST @ 12% P.A. FROM THE DATE OF DECREE TILL ITA NOS.4168/DEL/2000 & 3443/DEL./2001 3 THE PAYMENT WAS MADE. IN THE SECOND AWARD, THE ARB ITRATOR AWARDED ` ` 3 LACS AS COMPENSATION. THE HONBLE HIGH COURT BY A DECREE P ASSED ON 6.9.1995 ALLOWED INTEREST OF ` ` 2,91,000/- @ 12% P.A ON THE AWARDED AMOUNT FROM THE DATE OF DECREE TILL THE PAYMENT WAS MADE. IN REFERENCE NUM BER THREE, THE ARBITRATOR AWARDED ` ` 1,99,35,431/- WITH INTEREST @ 12% PA FROM THE DATE OF DECREE I.E. 6.9.95. THE HONBLE BOMBAY HIGH COURT AWARDED ` ` 1,93,51,854/- TOWARDS INTEREST FROM THE DATE OF DECREE TILL PAYMENT WAS M ADE. THE TOTAL AMOUNT OF INTEREST PAID BY AIRPORT AUTHORITY OF INDIA ON 30. 7.1996 FOR ` ` 1,96,72,751/- HAS BEEN CLAIMED BY THE ASSESSEE AS EX-GRATIA PAYMENT N OT EXIGIBLE TO TAX. INTER ALIA, THE ASSESSEE RELIED UPON DECISION IN T.N. GOV INDARAJU CHETTY, 66 ITR 465(SC); C.I.T. VS. PERIYAR AND PAREEKANI RUBBERS L TD. 87 ITR 166 (KERALA ); GOVINDA CHOWDHARY & SONS, 109 ITR 497(ORISSA) BESID ES DECISION OF ITAT DELHI BENCH IN THE CASE OF HAZARILAL MARWAH AND SONS, 41 ITD 1 (DELHI) WHILE CONTENDING THAT THE CONTRACT DID NOT ENVISAGE ANY P AYMENT OF INTEREST TO THE CONTRACTOR. HOWEVER, THE AO DID NOT ACCEPT THE SUB MISSIONS OF THE ASSESSEE. WHILE REFERRING TO THE FOLLOWING AMOUNTS IN TERMS O F THE AWARD:- (I) AN AWARD FOR ` ` 2,71,797/- WAS GRANTED FOR DISPUTES BETWEEN THE TWO PARTIES. (II) AWARD NUMBER 2 WAS GIVEN IN LIEU O F PROFIT THAT THE ASSESSEE FIRM WOULD HAVE EARNED IF THE WORK WHICH BELONGED TO MOH INDER SINGH AND COMPANY WAS NOT ENTRUSTED TO OTHER AGENCIES BY IAAI; (III) ` .1,99,35,431 WAS AWARDED TO THE ASSESSEE ON ACCOUNT OF THE FOLLOWING: CLAIM AMOUNT P AYABLE TO THE CLAIMANTS: AS PER FINAL BIII, BALANCE TO BE PAID ON ACCOUNT OF WORK DONE. (FOR RS.3,16,24,243) ` .1,15,46,851.85 CLAIM ON ACCOUNT OF EXTRA RATE FOR QUANTITIES ` .2,08,833.31 BEYOND 30% DEVIATION LIMIT. (FOR RS.20,33,088) PAYMENT DUE TO ON ACCOUNT ESCALATION UNDER THE PRIC E VARIATION CLAUSE 14(B). (FOR RS.76,64,572) ` .20,11,984.74 ITA NOS.4168/DEL/2000 & 3443/DEL./2001 4 PAYMENT DUE UNDER CONTRACT CLAUSE 14(A) FOR LABOUR ` 54,76.302.34 ESCALATION DUE TO STATUTORY ORDER OF THE GOVERN-MEN T. (FOR RS.1,43,14,791) PAYMENT DUE ON ACCOUNT OF MATERIAL PROCURED FOR THE ` .6,91,459.34 WORK AS PER DRAWING AND LYING WITH IAAI STORE. (FOR RS.14,99,958) TOTAL AMOUNT OF AWARD - (I) + (I I) + (I I I) ` .2,05,06,266/- THE AO OBSERVED THAT THE AWARDS WERE GIVEN TO THE ASSESSEE EITHER AS COMPENSATION FOR LOSS OF PROFIT AS IN (I), OR IN RE SPECT OF SETTLEMENT OF DISPUTE BETWEEN THE PARTIES REGARDING NATURE OF WORK DONE A ND RATE PAYABLE FOR WORK AS PER ACTUALS E.G. COLUMN CLADDING, KOTA STONE TILE FLOORING IN PATTERN, YELLOW MARBLE, ETC. AS IN (II) AND AWARD IN RESPECT OF BAL ANCE RELATING TO FINAL BILL, PAYMENT DUE ON ACCOUNT OF ESCALATION UNDER THE CONT RACT, PAYMENT DUE UNDER CONTRACT FOR LABOUR ESCALATION, ETC. SINCE THE AWAR DS HAD BEEN GIVEN TO THE ASSESSEE BY THE ARBITRATOR IN THE ORDINARY COURSE O F BUSINESS AND WAS ON ACCOUNT OF DELAY IN PAYMENT OF BILLS, PRICE ESCALATION, LAB OUR ESCALATION AII GOVERNED BY THE TERMS OF THE CONTRACT I.E. THE AMOUNT BEING CO MPENSATION FOR LOSS OF EARNINGS DURING THE PERIOD THE FUNDS WERE WITHHELD, THE PRO FIT WHICH THE ASSESSEE WOULD HAVE OTHERWISE EARNED DURING THE COURSE OF BUSINESS HAD THE PAYMENTS/SETTLEMENTS BEEN MADE ON TIME HAVING BEEN COMPENSATED BY GRANT OF INTEREST, ACCORDINGLY, THE AO CONCLUDED THAT THE IN TEREST AMOUNT RECEIVED BY THE ASSESSEE WAS ON ACCOUNT OF DELAYED PAYMENT RECEIVED FROM AIRPORT AUTHORITY OF INDIA AND THE INTEREST ON COMPENSATION COULD NOT BE CONSIDERED AS CAPITAL RECEIPT. CONSEQUENTLY, RELYING UPON THE DECISIONS I N GOVINDA CHOWDHARY & SONS 203 ITR 881(SC); ROCKWELL ENGINEERING COMPANY LTD.1 80 ITR 277 (KERALA);ABBASBHOY A. DEHGAMWALLA, 195 ITR 28 (BOMB AY); BISHAMBARNATH SWAROOP NARAIN, 119 ITR 681 (ALLAHABAD) AND WHILE D ISTINGUISHING THE DECISIONS RELIED UPON BY THE ASSESSEE, THE AO BROUGHT TO TAX INTEREST OF ` ` 1,96,72,751/- AS REVENUE RECEIPT. ITA NOS.4168/DEL/2000 & 3443/DEL./2001 5 3.1. FOR SIMILAR REASONS, THE AO BROUGHT TO TAX AN AMOUNT OF ` 3,33,59,343/- IN THE AY 1998-99 IN TERMS OF AWARD IN CONSEQUENCE OF DISPUTE WITH MAHARASHTRA STATE ELECTRICITY BOARD[MSEB]. 4. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN AY 1997-98, HOLDING AS UNDER:- 12. I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED COUNSEL AND I HAVE ALSO PERUSED THE ASSESSMENT ORDER CAREFULLY AN D ALSO GONE THROUGH THE ASSESSMENT RECORD. THE MAIN ISSUE TO B E DECIDED IN THIS CASE IS THAT WHETHER INTEREST AMOUNT OF `1,96, 72,751/- AWARDED BY THE ARBITRATOR AND ENDORSED BY BOMBAY HIGH COURT IS A TAXABLE AMOUNT AS A REVENUE RECEIPT. THE ASSESSING OFFICER HAS TRIED TO MAKE OUT A CASE TO ANSWER THE ABOVE QUESTION IN AFF IRMATIVE. FOR THIS, SHE HAS GONE THROUGH THE SUMMARY OF AWARDS WI TH THE PURPOSE TO UNDERSTAND THE NATURE OF THE AWARD AND C ONSEQUENT PAYMENT OF INTEREST, THE CLAIM AND THE AMOUNT OF AW ARD AND CONSEQUENT PAYMENT OF INTEREST, THE CLAIM AND THE A MOUNT OF AWARD HAS BEEN REPRODUCED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER FOR THE SAKE OF CONVENIENCE, THE SAME IS REPR ODUCED HERE ALSO. [IN ` ] AS PER FINAL BILL. BALANCE TO BE 1,15 .46,851/- PAID ON ACCOUNT OF WORK DONE (FOR ` 3,16,24,243) CLAIM ON ACCOUNT OF EXTRA RATE FOR QUANTI- 02,08 ,833/- TIES BEYOND+30% DEVIATION LIMIT. (FOR ` `20,33,088). PAYMENT DUE TO ON ACCOUNT ESCALATION 20.11.984/ - UNDER THE PRICE VARIATION CLAUSE 14(B). (FOR ` 76,64,332) PAYMENT DUE UNDER CONTRACT CLAUSE 14(A) 54.76,30 2/- FOR LABOUR ESCALATION DUE TO STATUARY ORDER OF THE GOVERNMENT. (FOR ` ` 1,43,14,791/-) PAYMENT DUE ON A/C OF MATERIAL PROCURED 06.91,45 9/- FOR THE WORK AS PER DRAWING AND LYING WITH IAAI STORE.(FOR ` 14,99,958) ITA NOS.4168/DEL/2000 & 3443/DEL./2001 6 TOTAL AMOUNT OF AWARD -(1)+(11)+(111) 2,05 ,06,266/- AND HAS MADE OBSERVATION, THE RELEVANT PORTION OF W HICH IS REPRODUCED BELOW:- THIS IS A CASE WHERE THE AWARDS HAVE BEEN GIVEN TO THE ASSESSEE BY THE ARBITRATOR IN THE ORDINARY COURSE OF BUSINES S AND IS ON ACCOUNT OF DELAY IN BILLS, PRICE ESCALATION, LABOUR ESCALATION ALL GOVERNED BY THE TERMS OF THE CONTRACT. IT IS COMPE NSATION FOR LOSS OF EARNINGS DURING THAT PERIOD FROM THE FUNDS WITHH ELD. THE PROFIT WHICH THE ASSESSEE WOULD HAVE OTHERWISE EARNED DURI NG THE COURSE OF BUSINESS HAD THE PAYMENTS/SETTLEMENTS BEE N MADE ON TIME HAS BEEN COMPENSATED BY GRANT OF INTEREST. SHE HAS ALSO OBSERVED THAT IF THE AMOUNT IS DUE AND IF IT IS NOT PAID AT PROPER TIME, INTEREST IS AWARDED OR PAID FOR SUCH D ELAY, SUCH INTEREST IS ONLY ACCRETION TO THE ASSESSEES RECEIPTS FROM THE CONTRACT. IN HER PERSUIT TO ESTABLISH THE FACT THAT INTEREST RECEIVED IS A A CTUAL RECEIPT, SHE HAS EXTENSIVELY QUOTED THE OBSERVATION OF HONBLE SUPRE ME COURT IN THE CASE OF GOVINDA CHOUDHARY & SONS REPORTED IN 203 ITR 881 . SHE HAS ALSO TRIED TO SUPPORT HER CONCLUSION WITH THE RATIO OF D ECISIONS IN THE CASE OF ROCKWELL ENGINEERING CO. LTD. 180 ITR 277 (KERALA), ABBASBHOY A. DEHGAMWALLA 195 ITR 681 (BOM) AND BISHAMBARNATH SWA ROOP NARAIN 119 ITR 681 (ALL). SHE HAS ALSO TRIED TO JUSTIFY T HE CASE LAWS ON WHICH RELIANCE HAS BEEN PLACED BY THE LEARNED COUNSEL OF THE ASSESSEE AND THIS IS AVAILABLE AT PARAS 8.1, 8.2 AND 8.3 OF THE ASSES SMENT ORDER AND ACCORDINGLY HAS COME TO THE CONCLUSION THAT THE INT EREST RECEIVED BY THE APPELLANT IS A REVENUE RECEIPTS. AT THE OUT SET, I MUST SAY THAT THE ASSESSING OFFICER HAS NOT BEEN ABLE TO INDICATE ANY PROVISIONS EITHER IN THE AGREEMENT ENTERED INTO BETWEEN THE APPELLANT AN D INTERNATIONAL AIRPORT AUTHORITY OF INDIA OR AWARD ORDER OF BOMBAY HIGH COURT TO SHOW THAT THE PAYMENT OF INTEREST WAS STIPULATED BEFORE HAND. THE PERUSAL OF THE AGREEMENT AND THE AWARD ORDER CLEARLY SHOWS THA T THERE IS NO STIPULATION FOR PAYMENT OF INTEREST. THE ASSESSING OFFICER HAS AGAIN AND AGAIN MENTIONED IN THE ORDER THAT THE PAYMENT WAS G IVEN TO THE ASSESSEE ON ACCOUNT OF DELAY IN PAYMENT OF AMOUNT DUE. IT I S NOT UNDERSTOOD ON WHAT BASIS THE ASSESSING OFFICER HAS COME TO THE CO NCLUSION THAT CERTAIN AMOUNTS WERE NOT REDUCED DUE TO THE ASSESSEE AND WH OSE PAYMENTS WERE DELETED AND FOR THAT DELAY PAYMENT HAS BEEN PA ID. THIS IS TOTALLY UNSUPPORTED BY ANY MATERIAL ON THE RECORD. VARIOUS OBSERVATIONS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HA S BEEN EXPLAINED BY THE LEARNED COUNSEL SUCCESSFULLY. FURTHER, I FIND T HAT THE ASSESSING OFFICER HAS GIVEN A LOT OF STRESS ON OBSERVATIONS OF HONBL E SUPREME COURT IN THE CASE OF GOVINDA CHOWDHRY & SONS REPORTED IN 203 ITR 881 CONTAINED AT PARA 6 OF THE ASSESSMENT ORDER. ON THE OTHER HAND, THE LEARNED COUNSEL ITA NOS.4168/DEL/2000 & 3443/DEL./2001 7 HAS ALSO REFERRED TO THE SAME CASE BUT RELIED ON TH E OBSERVATION WHICH IS CONTAINED AT PARA 5 OF THE ORDER WHICH HAS BEEN QUO TED ABOVE AND AS SUBMITTED CORRECTLY THAT THE HONBLE SUPREME COURT HAS NOT EXPRESSED CONSIDERED OPINION ON THE QUESTION BEFORE THEM. IN THE CASE OF GOVINDA CHOWDHARY & SONS, TWO FOLLOWING QUESTIONS WERE REFE RRED TO THE HIGH COURT. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, A SUM OF `2,77,692/- AWARDED TO THE ASSESSEE AS INTEREST WAS RIGHTLY HELD TO BE REVENUE RECEIPT? 2. IF THE ANSWER TO QUESTION NO.1 IS IN AFFIRMATIVE WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AFORESAID SUM OF `2,77,692/- WAS RIGHTLY SEPARATED FROM THE OTHER AM OUNT UNDER THE HEAD AWARD AND TAX IN FULL. 13. SINCE THE HIGH COURT ANSWERED THE FIRST QUESTI ON IN FAVOUR OF THE ASSESSEE THAT IT IS NOT A REVENUE RECEIPT. THE SECOND QUESTION WAS NOT ANSWERED BY THE HIGH COURT. WHEN THE MATTER CA ME BEFORE THE SUPREME COURT, THE FIRST QUESTION WHETHER THE INTER EST AMOUNT WAS REVENUE RECEIPT WAS TAKEN UP FOR ADJUDICATION AND I N THE MEANTIME, THE LEARNED COUNSEL OF THE ASSESSEE CONCEDED THAT THE I NTEREST AMOUNT MAY BE TAXED AS RECEIPT. THEREFORE, THE HONBLE SUPREM E COURT REFRAINED FROM GIVING ANY CONSIDERED OPINION ON THE FIRST QUESTION . SINCE THE ANSWER TO THE FIRST QUESTION BECAME AFFIRMATIVE NATURALLY THE HONBLE SUPREME COURT HAD TO DEAL WITH THE SECOND QUESTION WHETHER THAT A MOUNT OF INTEREST CAN BE SEPARATED AND TAXED AS INCOME FROM OTHER SOURCES . WHILE DECIDING THIS QUESTION, THE HONBLE SUPREME COURT HAD MADE T HE OBSERVATIONS AT PARA 6 OF THE ORDER WHICH HAVE BEEN QUOTED BY THE L EARNED ASSESSING OFFICER. THUS, IT CAN BE SAFELY CONCLUDED THAT THE OBSERVATION OF HONBLE SUPREME COURT PRESSED INTO SERVICE BY THE ASSESSING OFFICER AND REPRODUCED AT PAGE 5 OF THE ASSESSMENT ORDER CAN BE SAID THAT THESE OBSERVATIONS ARE NOT RELEVANT SO FAR THE ISSUE TO B E DECIDED IS CONCERNED. UNDER SUCH CIRCUMSTANCES, HONBLE COURT HAVE HELD T HAT THE DECISION OF COURT IS AN AUTHORITY FOR THE FACTS OF THE CASE ON WHICH DECISION IS GIVEN. SIMILARLY, ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. LATE BEGUM BAND ALLAODDIN REPORTED IN 204 ITR HAS OBSERVE D THAT A DECISION OF THE SUPREME COURT TAKES ITS COLOUR FROM THE QUESTION IN VOLVED IN THE CASE AND WHILE APPLYING THE DECISION TO A LATTER CASE, THE C OURT MUST CAREFULLY TRIED TO ASCERTAIN TWO PRINCIPLES LAID DOWN BY THE DECISI ON OF THE SUPREME COURT. IT IS NOT PROPER TO PICK OUT WORDS OR SENTE NCES FROM THE JUDGMENT DIVORCED FROM THE CONTEXT. THEREFORE, I DO NOT AGR EE WITH THE ASSESSING OFFICER THAT THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOVINDA CHOWDHARY & SONS REPORTED IN 203 ITR 881 IS RELEVAN T IN THE CASE OF THE APPELLANT. IN MY ABOVE DECISION, I GET SUPPORT FRO M THE DECISION OF ITAT, ITA NOS.4168/DEL/2000 & 3443/DEL./2001 8 CUTTUCK BENCH, CUTTUCK IN I.T.A. NO.169/90 IN THE C ASE OF J.C. BUDHRAJA VS. INCOME-TAX OFFICER. IN THAT CASE, SIMILAR REFE RENCE TO SUPREME COURT DECISION (SUPRA) WAS REFERRED. THE RELEVANT PORTIO N OF THE JUDGMENT IS REPRODUCED BELOW:- THE LD. DR DREW OUR ATTENTION TO THAT PORTION OF T HE JUDGMENT OF THE SUPREME COURT WHERE IT WAS CONCEDED ON BEHALF OF TH E ASSESSEE THAT HE WAS WILLING TO PROCEED ON THE FOOTING THAT THE PRE- AWARD INTEREST WAS IN THE NATURE OF REVENUE RECEIPT. RELYING ON THIS OBS ERVATION OF THE SUPREME COURT, IT WAS ASCERTAINED BY THE LEARNED DR THAT TH E PRE-AWARD INTEREST IS TAXABLE. WE ARE UNABLE TO GIVE EFFECT TO THIS ARGU MENT. THE SUPREME COURT HAS TAKEN NOTE OF THE CONCESSION MADE ON BEHA LF OF THE ASSESSEE IN THE COURSE OF ARGUMENTS AND HAS NOT RECORDED ANY DE FINITE CONCLUSION OR ANY CONSIDERED OPINION REGARDING THE TAXABILITY OF THE INTEREST. THIS WILL BE CLEAR FROM THE FACT THAT THE COURT ITSELF STATED THAT IN VIEW OF THE CONCESSION THEY EXPRESSED NO CONSIDERED OPINION ON THE QUESTION REGARDING THE ASSESSABILITY OF THE INTEREST. SINCE THE MATTER WAS DECIDED ONLY UPON THE CONCESSION, THE SUPREME COURT CANNOT BE UNDERSTOOD AS HAVING LAID DOWN THE LAW. 15. NOW COMING TO THE ACTUAL NATURE OF THE RECEIPT AFTER GOING THROUGH VARIOUS JUDGMENTS OF VARIOUS HIGH COURTS ON THE ISSUE, IT IS FOUND THAT IT IS ALMOST A SETTLED PROPOSITION THAT IF THE INTEREST IS RECEIVED ON THE BASIS OF CONTRACT OR UNDER STATUTE, THE SAME IS REV ENUE RECEIPT AND IS TAXABLE OTHERWISE NOT. IN THE INSTANT CASE, THE IN TEREST RECEIVED BY THE APPELLANT IS NEITHER CONTRACTUAL OR STATUTORY, THER EFORE, I HOLD THAT THE INTEREST OF `1,96,72,751/- IS NOT TAXABLE IN THE CA SE OF THE ASSESSEE. THE ADDITION MADE ON THIS ACCOUNT IS DELETED. 5. ON FURTHER APPEAL, THE ITAT IN AN EXPARTE ORDER DATED 11/3/2004 RELIED UPON THE DECISION OF HONBLE APEX COURT IN C IT VS. GOVINDA CHOUDHARY AND SONS, 203 ITR 801;& 63 ITR 485(SC); AND ALLOWE D THE APPEAL OF REVENUE. THIS ORDER WAS SUBSEQUENTLY RECALLED IN M.A. NO.133 /DEL/06 ON 19 TH MAY, 2006 AS AFORESAID. 6. IN THE AY 1998-99, THE LD. CIT(A) FOLLOWING HI S DECISION FOR THE AY 1997-98, ALLOWED THE CLAIM OF THE ASSESSEE ,TREATIN G THE AMOUNT OF ` ` 3,33,59,343/- ON ACCOUNT OF INTEREST IN TERMS OF AW ARD IN A DISPUTE BETWEEN THE ASSESSEE AND MSEB, AS A CAPITAL RECEIPT. ITA NOS.4168/DEL/2000 & 3443/DEL./2001 9 7. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR WHILE CARRYING US THROU GH THE FINDINGS OF THE AO RELIED UPON THE DECISION OF HONBLE APEX COURT IN GOVINDA CHOWDHARY & SONS 203 ITR 881 (S.C.), FOLLOWED SUBSEQUENTLY IN CIT VS. B.N. A GGARWAL AND CO. 259 ITR 754 (S.C.). 8. ON THE OTHER HAND, THE LD. AR ON BEHALF OF THE ASSESSEE WHILE REFERRING TO THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF GOVINDA CHOWDHARY & SONS (SUPRA) AND DECISION OF THE HONBL E APEX COURT IN THE SAID CASE, VEHEMENTLY ARGUED THAT SINCE THE RELEVANT CON TRACTS DID NOT ENVISAGE ANY PAYMENT OF INTEREST NOR THE INTEREST WAS PROVIDED I N ANY STATUTE, THE INTEREST AWARDED BY THE ARBITRATOR SOLELY IN HIS DISCRETION COULD NOT BE TREATED AS REVENUE RECEIPT. INTER ALIA, THE LD. AR REFERRED TO DECISI ON IN CIT VS. GHANSHYAM, 315 ITR 1 (SC) RENDERED IN THE CONTEXT OF INTEREST ON COMPE NSATION AWARDED ON THE LAND ACQUISITION. SINCE THE INTEREST WAS AWARDED ON DEC RETAL AMOUNT, THE LD. AR PLEADED THAT IT COULD NOT BE BROUGHT TO TAX AS REVE NUE RECEIPT. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON BY BOTH SIDE S. THE ISSUE BEFORE US IS AS TO WHETHER THE INTEREST AWARDED BY HONBLE BOMBAY H IGH COURT FROM DATE OF DECREE TILL PAYMENT WAS MADE I.E. INTEREST OF ` 1,96,72,751/- PAID BY AIRPORT AUTHORITY OF INDIA ON 30.7.1996 TO THE ASSESSEE ,IS INCOME AND IS LIABLE TO BE INCLUDED IN ITS ASSESSMENT FOR THE AY 1997-98. AS I S APPARENT FROM THE AFORESAID FACTS, THE AO BROUGHT TO TAX INTEREST AMOUNT OF ` ` 1,96,72,751/-IN THE AY 1997-98 & AMOUNT OF ` `3,33,59,343/- IN THE AY 1998-99 AWARDED BY THE ARB ITRATOR AND ENDORSED BY BOMBAY HIGH COURT AS A REVENUE RECEIPT , FOLLOWING THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF GOVINDA CHOUDH ARY & SONS REPORTED IN 203 ITR 881(SC); ROCKWELL ENGINEERING CO. LTD. 180 ITR 277 (KERALA), ABBASBHOY A. DEHGAMWALLA 195 ITR 681 (BOM) AND BISH AMBARNATH SWAROOP NARAIN 119 ITR 681 (ALL). ON APPEAL, THE LD. CIT(A) ,HOWEVER, ALLOWED THE CLAIM OF THE ASSESSEE FOLLOWING THE DECISION OF THE ITAT, CUTTUCK BENCH, CUTTUCK IN ITA NOS.4168/DEL/2000 & 3443/DEL./2001 10 I.T.A. NO.169/90 IN THE CASE OF J.C. BUDHRAJA VS. I NCOME-TAX OFFICER, WHICH IN TURN FOLLOWED THE DECISION IN GOVINDA CHOUDHARY & S ONS VS. CIT,109 ITR 497(ORISSA) REGARDING PRE AWARD INTEREST. WHEREAS I N THE INSTANT CASE INTEREST WAS AWARDED BY HONBLE BOMBAY HIGH COURT FROM DATE OF DECREE TILL PAYMENT WAS MADE I.E .INTEREST OF ` 1,96,72,751/-WAS PAID BY AIRPORT AUTHORITY OF INDI A ON 30.7.1996 TO THE ASSESSEE IN THE AY 1997-98. IN THE AY 1998-99,ISSUE RELATES TO INTEREST OF ` 3,33,59,343/- FOR THE PERIOD 1.8.1980 TO 7.11.1992I .E.DATE OF AWARD AND FROM 8.11.1992 TO THE DATE OF ACTUAL PAYMENT. WE FIND THAT IN THE DECISION RELIED UPON ON BEHALF OF THE ASSESSEE IN GOVINDA CH OWDHARY & SONS (SUPRA),HONBLE ORISSA HIGH COURT WAS CONSIDERING T HE ISSUE OF TAXABILITY OF INTEREST. IN THAT CASE,THE ARBITRATOR HAD CALCULAT ED THE AMOUNT DUE TO THE ASSESSEE FROM THE DATES ON WHICH IT FELL DUE UNDER THE CONTRACT AND AWARDED INTEREST FROM THAT DATE TILL THE DATE OF AWARD .HON BLE HIGH COURT IN THE LIGHT THE RATIO INDICATED IN GOVINDARAJULU CHETTY'S CASE [196 7] 66 ITR 465 (SC), HELD THAT THOUGH THE ARBITRATOR STYLED THE PAYMENT AS INTERES T, IT WAS INDEED AN EX GRATIA PAYMENT BY WAY OF COMPENSATION WORKED OUT THROUGH T HE MEDIUM OF INTEREST AND, THEREFORE, THE AMOUNT COULD NOT BE TREATED AS INCOME EXIGIBLE TO TAX. ON APPEAL BY THE REVENUE, BEFORE THE HONBLE APEX COUR T, LD. COUNSEL ON BEHALF OF THE ASSESSEE CONCEDED THE ANSWER TO THE QUESTION REGARDING TAXATION OF INTEREST AWARDED, IN FAVOUR OF THE REVENUE .THE LD. AR WHILE REFERRING TO DECISION IN GOVINDRAJULU CHETTY'S CASE [1967] 66 ITR 465 (SC) VEHEMENTLY ARGUED BEFORE US THAT WHERE INTEREST HAS BEEN AWARDED UNDER STATU TE OR UNDER CONTRACT, THE SAME IS INCOME EXIGIBLE TO TAX AND WHERE IT IS NOT ATTRIBUTABLE TO EITHER STATUTE OR CONTRACT, BUT HAS BEEN AWARDED ON EX GRATIA BASIS, IT WOULD PARTAKE THE CHARACTER OF COMPENSATION. IT WAS FURTHER ARGUED THAT IN THE INSTANT CASE, INT EREST WAS NOT PAYABLE EITHER BY STATUTE OR BY CONTRACT AND WAS PU RELY DISCRETIONARY. ON THE OTHER HAND ,LD. DR WHILE RELIED UPON DECISION IN B. N. AGGARWAL AND CO.(SUPRA).IN THIS DECISION HONBLE APEX COURT OBSERVED AS UNDER: IT IS NOW BROUGHT TO OUR NOTICE THAT THE DECISION OF THE ORISSA HIGH COURT IN GOVINDA CHOUDHURY AND SONS V. CIT [1977] 109 ITR 497 WAS BROUGHT TO THIS ITA NOS.4168/DEL/2000 & 3443/DEL./2001 11 COURT IN APPEAL AND HAS SINCE BEEN DISPOSED OF, WHI CH IS REPORTED IN CIT V. GOVINDA CHOUDHURY AND SONS [1993] 203 ITR 881 . IN THE SAID DECISION, IT IS RECORDED THAT LEARNED COUNSEL FOR THE ASSESSEE CONC EDED THAT INTEREST DID CONSTITUTE A REVENUE RECEIPT. THE COURT, HOWEVER, H ELD ON THE OTHER QUESTION (ARISING IN THAT APPEAL) THAT THE SAID AMOUNT OF IN TEREST CANNOT BE TAXED UNDER THE HEA D 'INCOME FROM OTHER SOURCES' WHICH NECESSARILY MEANT THAT IT HAS TO BE TAXED AS A BUSINESS RECEIPT. IT IS TRUE THAT ON THE QUESTION WHETHER THE INTEREST CONSTITUTES INCOME OR NOT, THE SAID DECISION IS BAS ED UPON A CONCESSION BUT WE ARE OF THE OPINION THAT IT WAS A CONCESSION RIGHTLY MADE AND IS CORRECT IN LAW. ACCORDINGLY, WE HOLD THAT INTEREST IS INCOME AND IT HAS TO BE ASSESSED AS A BUSINESS RECEIPT. THE QUESTION REFERRED IS ACCORDIN GLY ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE IN THE ABOVE TERMS . THE APPEALS ARE DISPOSED OF ACCORDINGLY. 9.1 THOUGH THE LD. AR ON BEHALF OF THE ASSESSEE RE LIED UPON THE DECISION IN GHANSHYAM(SUPRA),WE FIND THAT THE QUESTION IN THAT CASE WAS AS TO WHETHER ADDITIONAL AMOUNT UNDER S. 23(1A), SOLATIUM UNDER S . 23(2), INTEREST PAID ON EXCESS COMPENSATION UNDER S. 28 AND INTEREST UNDER S. 34 OF THE 1894 ACT, COULD BE TREATED AS PART OF THE COMPENSATION UNDER S. 45( 5) OF THE 1961 ACT? AND WHAT WAS THE MEANING OF THE WORDS 'ENHANCED COMPENSATION /CONSIDERATION' IN S. 45(5)(B) OF THE 1961 ACT? & WOULD IT COVER 'INTERE ST'? & YEAR OF ITS TAXABILITY. HONBLE APEX COURT HELD THAT INTEREST UNDER S. 28 U NLIKE INTEREST UNDER S. 34 IS AN ACCRETION TO THE VALUE, HENCE IT WAS A PART OF ENHA NCED COMPENSATION OR CONSIDERATION WHICH IS NOT THE CASE WITH INTEREST U NDER S. 34 OF THE 1894 ACT. SO ALSO ADDITIONAL, AMOUNT UNDER S. 23(1A) AND SOLATIU M UNDER S. 23(2) OF THE 1961 (SIC-1894) ACT FORMS PART OF ENHANCED, COMPENSATION UNDER S. 45(5) (B) OF THE 1961 ACT. IN FACT, THIS IS REINFORCED BY THE NEWLY INSERTED CL. (C) IN S. 45(5) BY THE FINANCE ACT, 2003 W.E.F. 1ST APRIL, 2004,HONBLE AP EX COURT CONCLUDED. WE FAIL TO UNDERSTAND AS TO HOW THE OBSERVATIONS MADE BY THE H ONBLE APEX COURT IN THIS DECISION RENDERED IN ALTOGETHER DIFFERENT CONTEXT A ND SETTINGS,COULD BE APPLIED IN THE INSTANT CASE .IN THE CASE BEFORE US, THE ,LD. C IT(A) MERELY RELIED UPON DECISION OF THE ITAT, CUTTUCK BENCH, CUTTUCK IN I. T.A. NO.169/90 IN THE CASE OF J.C. BUDHRAJA VS. INCOME-TAX OFFICER, WHICH IN TURN FOLLOWED THE DECISION IN GOVINDA CHOUDHARY & SONS VS. CIT,109 ITR 497(ORISSA ). THIS DECISION WAS FOLLOWED BY HONBLE HIGH COURT IN CIT VS. B.N. AGGA RWALA AND CO,200 ITR ITA NOS.4168/DEL/2000 & 3443/DEL./2001 12 246,WHICH HAS BEEN SUBSEQUENTLY REVERSED BY HONBLE APEX COURT IN AFORESAID DECISION REPORTED IN 259 ITR 754(SC) WHEREIN HONB LE APEX COURT FOLLOWED THEIR OWN DECISION IN GOVINDA CHOUDHARY & SONS VS. CIT,20 3 ITR 881.HONBLE APEX COURT IN THIS DECISION OBSERVED THAT IT IS TRUE THAT ON THE QUESTION WHETHER THE INTEREST CONSTITUTES INCOME OR NOT, THE SAID DECISI ON IS BASED UPON A CONCESSION BUT WE ARE OF THE OPINION THAT IT WAS A CONCESSION RIGHTLY MADE AND IS CORRECT IN LAW. ACCORDINGLY, WE HOLD THAT INTEREST IS INCOME A ND IT HAS TO BE ASSESSED AS A BUSINESS RECEIPT. IN THIS DECISION A DISPUTE AROSE BETWEEN THE ASSESS EE- CONTRACTOR AND THE GOVERNMENT AND THE ARBITRATOR AW ARDED CERTAIN AMOUNT BY WAY OF COMPENSATION FOR THE WORK DONE AS ALSO INTER EST. INTEREST AWARDED BY ARBITRATOR ON COMPENSATION AMOUNT HAS BEEN HELD TO BE INCOME. THUS, DECISION IN GOVINDA CHOUDHARY & SONS V. CIT [1977] 109 ITR 4 97 (ORI.) HAS BEEN DISAPPROVED. 9.2 IT MAY BE POINTED OUT THAT IN CIT V. BUILDE RS UNION [1995] 211 ITR 993 (ORISSA) AND CIT V. LENKA (A.) AND PARTNERS [1995] 215 ITR 298 (ORISSA), TWO DIFFERENT DIVISION BENCHES OF THE HONBLE ORISSA HI GH COURT IN REFERRING TO THE DECISION OF THE SUPREME COURT ON APPEAL IN THE CASE OF GOVINDA CHOUDHURY'S CASE [1993] 203 ITR 881, HAVE HELD THAT THE EARLIER DECISION OF THAT HIGH COURT WAS NO LONGER A GOOD LAW. FOLLOWING THE RATIO OF TH E SUPREME COURT DECISION IT WAS HELD THAT THE INTEREST OUT OF AWARD WAS TAXABLE . SIMILAR VIEW WAS TAKEN IN CIT VS. MALIK CONSTRUCTION CO.,238 ITR 450(ALL.),WH EREIN HONBLE HIGH COURT HELD NOW, IF THE QUALITY OF THE CLAIM FOR INTEREST IS COMPENSATION, FOR THE REASON THAT THE CLAIMANT HAD BEEN DEPRIVED OF THE USE OF THE MONEY AND HAD NOT HAD HIS MONEY AT THE DUE DATE , IT WOULD BE INCOME IN HIS HANDS. IT MAY BE REGARDED EITHER A S REPRESENTING THE PROFIT HE MIGHT HAVE MADE IF HE HA D HAD THE USE OF THE MONEY IN TIME OR CONVERSELY THE LOSS HE HAD SUFFERED BECAUSE HE HAD NOT HAD THAT USE. ITA NOS.4168/DEL/2000 & 3443/DEL./2001 13 9.3 . IN VIEW OF THE ABOVE DISCUSSION AND THE L EGAL POSITION EMERGING FROM THE AFORESAID DECISIONS , IT MUST BE HELD THAT THE RECE IPT OF PRE-AWARD AND POST-AWARD INTEREST IS A REVENUE RECEIPT ATTRIBUTABLE AND INCI DENTAL TO THE BUSINESS CARRIED ON BY THE ASSESSEE AND IT BEARS THE SAME CHARACTER OF RECEIPTS PAYMENT OF WHICH IT WAS OTHERWISE ENTITLED TO UNDER THE CONTRACT. THE D ISPUTED AMOUNT OF INTEREST IS ONLY AN ACCRETION TO THE ASSESSEE'S RECEIPTS FROM T HE CONTRACT BUSINESS. ACCORDINGLY, WE HAVE NO HESITATION IN REVERSING THE FINDINGS OF THE LD. CIT(A) AND UPHOLDING THE ORDER OF THE AO IN THE ASSESSMENT ORD ERS FOR THESE TWO ASSESSMENT YEARS. CONSEQUENTLY, GROUNDS RAISED BY T HE REVENUE IN THESE TWO APPEALS ARE ALLOWED. 10. AS REGARDS SECOND GROUND IN AY 1998-99, THE AO DISALLOWED DEPRECIATION OF ` 6,62,852/- ON CARS ON THE GROUND THAT THE ASSESSEE NEITHER CLAIMED DEPRECIATION NOR FURNISHED ANY DEPRECIATION CHART ALONG WITH RETURN WHILE NO BUSINESS ACTIVITY WAS CARRIED ON BY THE ASSESSE E. INTER ALIA, THE AO RELIED UPON DECISION IN CIT VS. MACHINE TOOL CORPORATION O F INDIA LTD.,108 CTR 110(KAR.) 11. ON APPEAL, THE LD. CIT(A) WHILE DISTINGUISH ING THE DECISION RELIED UPON BY THE AO, ALLOWED THE CLAIM OF THE ASSESSEE FOR DEPRE CIATION ON CARS ,THESE HAVING BEEN USED FOR THE PURPOSE OF BUSINESS.. 12. THE REVENUE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR SUPPORTED THE ORDER OF T HE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE FINDINGS IN THE IMPUGNED ORDER. 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE ASSESSEE CLAIMED DEPRECIATION ON CARS ,THE ASSESSEE HAVING EARNED BUSINESS INCOME IN TERMS OF ARBITRATION AWAR D. THE LD. CIT(A),ACCORDINGLY, CONCLUDED THAT CARS HAVING BEEN USED FOR THE PURPOS E OF BUSINESS, ARE ENTITLED TO DEPRECIATION. WE FIND FROM THE COMPUTATION OF INCOM E ON THE LAST PAGE OF THE ITA NOS.4168/DEL/2000 & 3443/DEL./2001 14 ASSESSMENT ORDER THAT THE AO DETERMINED INCOME UN DER THE HEAD BUSINESS BESIDES RENTAL INCOME. SINCE THE REVENUE HAVE NOT P LACED BEFORE US ANY MATERIAL, CONTROVERTING THE AFORESAID FINDINGS OF T HE LD. CIT(A) SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INCLINED TO INTERFERE. THEREFORE, GROUND NO.II) IN THE APPEAL OF THE REVENUE FOR THE AY 1998-99 IS DISMISSED. 14. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF RESIDUARY GROUND IN THE APPEAL, ACCORDINGLY THIS GROUND IS DISMISSED. 15.. NO OTHER ARGUMENT OR PLEA HAVE BEEN RAISED BE FORE US. 16. IN THE RESULT, APPEAL OF THE RE VENUE FOR THE AY 1997-98 IS ALLOWED WHILE THAT FOR THE AY 1998-99 IS PARTLY ALLOWED. SD/- SD/ (RAJPAL YADAV) (A.N. PAHUJA) (JUDICIAL MEMBER (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEE 2 J.C.I.T.,SPECIAL RANGE-19,ROOM NO.234, C.R. BULDI NG,NEW DELHI 3. CIT CONCERNED. 4.CIT(A)-XX, NEW DELHI 5. DR, ITAT, E BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT
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