ITO, New Delhi V. M/s. INS Finance & Investment Pvt. Ltd., New Delhi

ITA 616/DEL/2016

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4115 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 05-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR MAHAR
• Keywords: Capital receipt
• Section: 56(2); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI R.S.SYAL, HONBLE VICE PRESIDENT AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO.616/DEL./2016 (ASSESSMENT YEAR : 2011-12) ITO, INS FINANCE & INVESTMENT PVT. LTD. WARD-12(3), VS. A-2/452, SECTOR-8, RO HINI ROOM NO. 420-B, 4 TH FLOOR, C.R.BUILDING, I.P.ESTATE NEW DELHI NEW DELHI (PAN : AABC14418E) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SATYA JEET GOEL, C.A. REVENUE BY : SH. MANOJ KUMAR MAHAR, SR.DR DATE OF HEARING : 11.10.2018 DATE OF ORDER : 11.10.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : 1. THE PRESENT APPEAL IS BEING FILED BY THE REVENU E ON THE FOLLOWING GROUNDS :- 1. ON FACTS AND CIRCUMSTANCES OF THE CASE CIT (APP EAL) HAS ERRED IN HOLDING THAT THE INTEREST INCOME RECEI VED BY THE ASSESSEE IS TO BE TAXED IN THE RESPECTIVE YEARS AFTER HOLDING THE RECEIPT OF RS. 3,19,07,676/- BY THE ASS ESSEE AS INTEREST INCOME ON THE DEPOSIT FOR PURCHASE OF LAND AND HENCE TAXABLE, IGNORING THE CLEAR PROVISIONS OF SEC TION 56(1) OF THE ACT. 2.ON FACTS AND CIRCUMSTANCES OF THE CASE CIT (APPEA L) ITA NO.616/DEL./2016 2 HAS ERRED IN HOLDING THAT THE INTEREST INCOME RECEI VED BY THE ASSESSEE IS TO BE TAXED IN THE RESPECTIVE YEARS RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF RAMA BAI VERSUS CIT 181 ITR 400 IGNORING THE FACT T HAT THE AMOUNT INVOLVED IS NOT IN THE NATURE OF INTERES T ON COMPENSATION OR ENHANCED COMPENSATION. 3.ON FACTS AND CIRCUMSTANCES OF THE CASE AND WITHOU T PREJUDICE TO THE GOA AS PER (1) AND (2) ABOVE, CIT (APPEAL) HAS ERRED IN HOLDING THAT THE INTEREST INC OME RECEIVED BY THE ASSESSEE IS TO BE TAXED IN THE RESP ECTIVE YEARS RELYING ON THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF RAMA BAI VERSUS CIT 181 ITR 400 IGNORIN G THE CLEAR PROVISION OF ACT IN SECTION 145A(B) WHICH CLEARLY LAYS DOWN THAT INTEREST RECEIVED BY AN ASSESSEE ON COMPENSATION OR ENHANCED COMPENSATION AS THE CASE M AY BE, SHALL BE DEEMED TO BE THE INCOME OF THE YEAR IN WHICH IT IS RECEIVED. 4.ON FACTS AND CIRCUMSTANCES OF THE CASE AND WITHOU T PREJUDICE TO THE GOA AS PER (1) AND (2) ABOVE, CIT (APPEAL) HAS ERRED IN HOLDING THAT THE INTEREST INC OME RECEIVED BY THE ASSESSEE IS TO BE TAXED IN THE RESP ECTIVE YEARS RELYING ON THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF RAMA BAI VERSUS CIT 181 ITR 400 IGNORIN G THE CLEAR PROVISION OF ACT IN SECTION 145A(B) WHICH WAS INTRODUCED TO OVERCOME THE HARDSHIP CAUSED BY THE A BOVE CITED DECISION OF THE HONBLE SUPREME COURT AS IS E VIDENT FROM THE EXPLANATORY NOTE TO FINANCE ACT, 2009 (PAR A 46 OF CIRCULAR NO. 05/2010, DATED 3RD JUNE, 2010 (COPY ATTACHED.) ITA NO.616/DEL./2016 3 2. AT THE OUTSET, THE LD. AR HAS DRAWN OUR ATTENTIO N TO THE DECISION OF THE TRIBUNAL PASSED IN THE CASE OF THE ASSESSEE IN ITA NO. 505/DEL/2016 WHERE IN THE TRIBUNAL IN PARAGRAPHS 10, 11 AND 12 H ELD AS UNDER : WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION S AND PERUSED THE ORDERS OF LOWER AUTHORITIES. ADMITTEDLY , ASSESSEE IS NOT IN BUSINESS OF REAL ESTATE. BRIEF FACTS SHOW S THAT ASSESSEE COMPANY PARTICIPATED IN THE AUCTION CARRIE D OUT BY PUNJAB NATIONAL BANK, CHANDIGARH ON 5.12.2006 THROU GH DEBT RECOVERY TRIBUNAL IN RESPECT OF PROPERTY MORTG AGED BY M/S. SANMATI RICE MILLS AS A SECURITY FOR BORROWED FUND. THE ASSESSEE WAS DECLARED THE HIGHEST BIDDER AT RS. 10.07 CRORES. THE ASSESSEE DEPOSITED THE ABOVE SUM WITH D RT IN STIPULATED TIME AS PER TERMS AND CONDITIONS OF THE BIDDER AUCTION. THE DEBT RECOVERY TRIBUNAL ALSO ISSUED THE CERTIFICATE OF SALE TO THE ASSESSEE ON 02.03.2007. SUBSEQUENTLY THE ORDER OF THE DEBT RECOVERY TRIBUNA L WAS CHALLENGED BEFORE DEBT RECOVERY APPELLANT TRIBUNAL (DRAT) AND ORDERS DATED 25.06.2009 WAS PASSED WHERE IN IT WAS PAGE | 4 ITA NO. 505/DEL/2016 & 3099/DEL /2016 ASSESSMENT YEAR: 2011-12 INS FINANCE & INVESTMENT P LTD VS ITO ORDERED THAT THE POSSESSION TAKEN BY THE ASS ESSEE OF THE AUCTIONED PROPERTY BE RETURNED BACK TO THE ORIG INAL BORROWER. THE ASSESSEE CHALLENGED THE ABOVE ORDER B EFORE THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN CWP NUMBER 1470 OF 2010. THE HON'BLE HIGH COURT DIRECTE D PUNJAB NATIONAL BANK TO RETURN THE WHOLE SUM DEPOSI TED ALONG WITH INTEREST ACCRUED THEREON. CONSEQUENTLY, THE DRT RECOVERED THE MONEY FROM PUNJAB NATIONAL BANK AND REFUNDED THE SAME TO THE APPELLANT. SO ASSESSEE WAS REPAID ORIGINALLY AUCTION AMOUNT AS WELL AS A FURTHER SUM OF RS 31907676/- . THE PUNJAB NATIONAL BANK BY MAKING THE REPAYMENT DEDUCTED THE TAX AT SOURCE IN RESPECTIVE YEARS AND ISSUED CERTIFICATES IN FAVOUR OF DRT. FURTHERMO RE, THE ASSESSEE FILED A CIVIL SUIT IN THE COURT OF CIVIL J UDGE SR. ITA NO.616/DEL./2016 4 DIVISION, CHANDIGARH FOR RECOVERY OF DAMAGES. IT IS STATED THAT THE ABOVE SUM WAS ACCEPTED FROM PUNJAB NATIONA L BANK SUBJECT TO LEGAL RIGHT OF THE PETITIONER TO CH ALLENGE THE COMPROMISE ARRIVED BETWEEN THE BORROWER AND THE BAN K. THEREFORE, IT WAS STATED THAT THE DISPUTE HAD NOT R EACHED ANY FINALITY AND THEREFORE, NO INTEREST OR DAMAGES HAVE ACCRUED TO THE ASSESSEE FINALLY. THE ASSESSEE FURTHER RELIE D ON THE DECISION OF GHAZIABAD DEVELOPMENT AUTHORITY VS. DR. N. K. GUPTA 258 ITR 337 WHEREIN IT HAS BEEN HELD THAT MER ELY BECAUSE THE DAMAGES ARE STATED TO BE INTEREST THEY CANNOT BE SUBJECT TO TAX AS INTEREST. WE HAVE ALSO CAREFULLY PERUSED THE ORDER OF THE DEBT RECOVERY TRIBUNAL, CHANDIGARH DAT ED 03.12.2008 WHEREIN IN PARA NO. 22 HAS SET ASIDE THE SALE, AND THE BANK WAS DIRECTED TO REFUND THE SALE CONSID ERATION ORIGINALLY ACCEPTED FROM THE APPELLANT ALONG WITH A NY INTEREST ACCRUED ON IT, WHICH HAS BEEN KEPT IN THE OFFICE OF THE DEBT RECOVERY TRIBUNAL. THEREFORE, THE DEBT REC OVERY TRIBUNAL HAS NOT AWARDED ANY INTEREST TO THE APPELL ANT BUT IT HAS JUST REFUNDED THE MONEY DEPOSITED BY THE ASSESS EE IN AUCTION ALONG WITH ANY INTEREST EARNED BY THE BANK ON THAT SUM IN FAVOUR OF DRT. THE REVENUE COULD NOT SHOW TH AT AT THE TIME OF AUCTION THERE WAS ANY CONDITION OF PAYM ENT OF INTEREST TO THE ASSESSEE IN CASE THE AUCTION IS CAN CELLED. IN FACT AS PER CERTIFICATE OF SALE DATED 02.03.2007 EV EN THE PAGE | 5 ITA NO. 505/DEL/2016 & 3099/DEL /2016 ASSESSMENT YEAR: 2011-12 INS FINANCE & INVESTMENT P LTD VS ITO POSSESSION OF THE PROPERTY WAS ALSO GIVEN CO NFIRMING THE SALE ABSOLUTELY IN FAVOUR OF THE ASSESSEE. EVEN OTHERWISE AS PER THE PROVISIONS OF SECTION 2(28A) OF THE ACT INTEREST MEANS INTEREST PAYABLE IN ANY MANNER IN RESPECT OF MONEY BORROWED OR DEBT INCURRED INCLUDING A DEPOSIT, CLAI M OR OTHER SIMILAR RIGHTS. IN THE PRESENT CASE, THE ABOV E SUM WAS NOT PAYABLE TO THE ASSESSEE BECAUSE OF ANY SUCH DEB T INCURRED. THE ASSESSEE PURCHASED A PROPERTY IN AUCT ION WHICH WAS TRANSFERRED TO ASSESSEE, SUBSEQUENTLY THE SALE WAS CANCELLED, SO ASSESSEE WAS PAID ORIGINAL SUM AND SO ME FURTHER AMOUNT WHICH WAS EARNED BY BANK AS INTEREST ITA NO.616/DEL./2016 5 THEREON FROM THE DATE ASSESSEE PAID TO THE BANK TIL L THE DATE OF ORDER. THEREFORE, ABOVE SUM CANNOT BE CONSIDERED AS INTEREST. NOW, IT IS REQUIRED TO BE EXAMINED THAT W HETHER SUCH SUM RECEIVED BY THE ASSESSEE IS A CAPITAL RECE IPT OR REVENUE IN NATURE. AS HELD BY THE HON'BLE SUPREME C OURT IN CIT VS. SAURASHTRA CEMENT LTD. 325 ITR 422 THAT THE QUESTION WHETHER A PARTICULAR RECEIPT IS CAPITAL OR REVENUE IT IS NOT POSSIBLE TO FORMULATE ANY SINGLE CRITERIA AS DECISIVE IN THE DETERMINATION OF THE QUESTION. IN THE PRESENT C ASE, THE SUM IS RECEIVED BY THE ASSESSEE ON CANCELLATION OF SALE CONTRACT AS PER THE AUCTION OF SANMATI RICE MILLS. FURTHER, THE SUM RECEIVED BY THE ASSESSEE HAD DIRECT NEXUS T O THE CANCELLATION OF ACQUISITION OF THE IMMOVABLE PROPER TY OBTAINED BY HIM IN AUCTION. FURTHER, IT IS CLEAR TH AT EXCESS OF AMOUNT THEN WHAT ASSESSEE DEPOSITED, RECEIVED BY TH E ASSESSEE FOR A BREACH OF A CONTRACT AND HENCE SAME IS A CAPITAL RECEIPT. THE COORDINATE BENCH IN DCIT VS. W INSOME YARNS LIMITED [TS-546-IT-2014 (CHANDIGARH)] [2014] 50 TAXMANN.COM 318 (CHANDIGARH - TRIB.) DECIDES THE ID ENTICAL ISSUE. IN THAT PARTICULAR CASE THE TRANSACTION OF S ALE OF INDUSTRIAL PLOT WAS SET ASIDE BY HON'BLE SUPREME CO URT AND THE ASSESSEE WAS DEPRIVED OF MAKING FUTURE PROFITS ON THE INDUSTRIAL PLOT AND THEREFORE, THE COMPENSATION REC EIVED BY THE ASSESSEE AGAINST SUCH SURRENDER WAS HELD TO BE CAPITAL RECEIPT NOT CHARGEABLE TO TAX. 11. THE LD DR COULD NOT CONTROVERT ABOVE FACTS AND FINDING THAT SUM IS NOT CHARGEABLE TO TAX AS IT IS CAPITAL RECEIPT. LD DR HAS HEAVILY RELIED ON THE PROVISION OF SECTION 56(2) (VIII) OF THE ACT. THE ABOVE SECTION PROVIDES THAT INCOME SHALL BE CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES IF IT IS INCOME BY WAY OF INTEREST RECEIVED ON COMP ENSATION OR ON ENHANCED COMPENSATION REFERRED TO IN CLAUSE ( B) OF SECTION 145A . THE PROVISION OF SECTION 145A PROVIDES THAT ANY INTEREST RECEIVED BY THE ASSESSEE ON COMPENSATI ON OR ENHANCED COMPENSATION SHALL BE CHARGEABLE TO TAX IN THE YEAR IN WHICH IT IS RECEIVED. THEREFORE, PROVISION OF SECTION 145A SPEAKS ABOUT THE TIMING OF TAXABILITY AND SECTION 56 (2) ITA NO.616/DEL./2016 6 (VIII) THE HEAD UNDER WHICH IT IS CHARGEABLE. HOWEV ER, THE CHARACTER OF INCOME SHOULD BE INTEREST ON COMPENSAT ION OR ENHANCED COMPENSATION. IN THE PRESENT CASE, WE HAVE ALREADY HELD THAT IT IS NOT INTEREST BUT COMPENSATI ON. SECTION 56 (2) (VIII) ALSO DOES NOT PROVIDE FOR TAXATION OF COMPENSATION BUT ONLY INTEREST ON SUCH COMPENSATION . IN THE PRESENT CASE, THE ASSESSEE HAS RECEIVED COMPENSATIO N. LD DR ALSO COULD NOT SHOW THAT IF THE AMOUNT RECEIVED IS INTEREST ON COMPENSATION WHAT THE AMOUNT OF COMPENS ATION ITSELF IS. IN VIEW OF THIS, WE REJECT THE CONTENTIO N OF THE REVENUE THAT PROVISION OF SECTION 56 (2) (VIII) APPLIES TO THE IMPUGNED AMOUNT. 12. IN VIEW OF ABOVE DECISION OF COORDINATE BENCH, WHICH HAS CONSIDERED IDENTICAL ISSUE AS PER PRINCIPLES ENUNCI ATED BY THE HON SC , WE RESPECTFULLY FOLLOWING IT HOLD THAT RS. 31907676/- IS A CAPITAL RECEIPT PAGE | 22 ITA NO. 505/DEL/2016 & 3099/DEL /2016 ASSESSMENT YEAR: 2011-12 INS FINANCE & INVESTMENT P LTD VS ITO AND IS NOT CHARGEABLE TO TA X THEREFORE. HENCE, GROUND NO 1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 3. ON THE BASIS OF THE ABOVE, IT WAS SUBMITTED BY T HE LD. AR THAT AS THE INTEREST INCOME RECEIVED BY THE ASSESSEE HAS BEEN HELD TO BE CAPITAL IN NATURE BY THE TRIBUNAL, THEREFORE, ACTIO N OF THE LD. CIT WHEREBY THE LD. CIT HAS ALLOWED THE CLAIM OF THE AS SESSEE AND PERMITTING THE ASSESSEE TO CLAIM INTEREST INCOME AS COMPENSATION IN DIFFERENT YEARS ON PROPORTIONATE / PRO RATA BASIS I S NOT CORRECT. PER CONTRA OF THE LD. DR, HAS SUBMITTED THAT THE DECIS ION OF THE TRIBUNAL RENDERED IN THE CASE OF ITA NO. 505/DEL/2016 (SUPRA ) WAS NOT FINALLY ACCEPTED BY THE REVENUE AND HE FURTHER RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE MATTER OF RAMA BIA VS. CIT. 4. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE P ARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS IS CLE AR FROM THE ITA NO.616/DEL./2016 7 PARAGRAPH 11 (SUPRA) THAT TRIBUNAL HELD IN THE CA SE OF THE ASSESSEE THAT THE INCOME BY WAY OF INTEREST RECEIVED BY THE ASSESSEE WAS IN THE NATURE OF COMPENSATION AND THEREFORE IN VIEW OF THE PROVISION OF SECTION 56(2) (VIII) IS REQUIRED TO BE EXCLUDED FRO M THE TOTAL INCOME. 5. ONCE THE TRIBUNAL IN THE CASE OF THE ASSESSEE, H AD CATEGORICALLY HELD ABOVE, THEN IT IS NOT APPROPRIATE FOR THE BENC H IN THE PRESENT PROCEEDING TO TAKE A CONTRARY VIEW. THEREFORE, IN VIEW OF THE FACTS WHEN THE TRIBUNAL HAD ALREADY HELD THAT THE INCOME RECEIVED BY WAY OF INTEREST WAS COMPENSATION IN NATURE AD CLAUSE FA LLS WITHIN (VIII) OF SECTION 56(2) THEN THE RECEIPT OF INCOME CANNOT BE TREATED AS INTEREST AND WOULD NOT BE LIABLE FOR TAXATION, HENCE THE FIN DING RECORDED BY CIT WHEREBY CIT HAS GRANTED PROPORTIONATE ADJUSTMEN T OF INTEREST IN VARIOUS YEARS, BECOME, IRRELEVANT & INFRUCTUOUS ON THE BASIS OF FINDING I.E. INCOME WAS CAPITAL IN NATURE, HAD ALREADY BEEN REVERSED BY THE TRIBUNAL. 6. IN VIEW OF ABOVE, WE FIND NO MERIT IN THE APPEAL OF THE REVENUE AND ACCORDINGLY THE APPEAL OF THE REVENUE IS DISMIS SED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN OPEN COURT ON 11 TH OCTOBER, 2018. SD/- SD/- (R.S.SYAL) (LA LIET KUMAR) VICE PRESIDENT JUDICIAL MEMBER DATED 11/10/ 2018 BR COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXVI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. ITA NO.616/DEL./2016 8 AR, ITAT NEW DELHI. DATE OF DICTATION 11.10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 11 .10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 11.10.2018 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 11.10.2018 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .10.2018 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS .10.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT .10.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .10.2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER