ITO(IT)-2(2)(1), MUMBAI, MUMBAI V. PRIYA NIRANJAN HIRANANDANI, MUMBAI

ITA 2522/MUM/2023

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The case involves Priya Hiranandani, a non-resident investor, who derived income from investments in Indian portfolio companies and mutual funds, and had entered into a Business Association Agreement (BAA) with Niranjan Hiranandani and Darshan Hiranandani. Disputes over the BAA led to arbitration, resulting in an award for the assessee, which was contested in the Bombay High Court. The court's decision favored the assessee, leading to tax disputes over the received amounts. The Income Tax Officer (ITO) taxed these amounts, which were contested and partially overturned by the CIT(A). Both parties appealed to the Tribunal, which considered the implications of the DTVSV scheme on the taxability of the received amounts.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 37444 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2018-2019
• Laws Referred To: Direct Tax Vivad se Viswas Scheme, 2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J.D. MISTRY; SUSHMA NAGARAJ MAANSI
• Keywords: Capital receipt; Capital Gains

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SMT BEENA PILLAI, JM & MS PADMAVATHY S, AM I.T.A. No. 2285/Mum/2023 (Assessment Year: 2019-20) Priya Hiranandani C/o Price Waterhouse & Co. LLP (Toral Desai), Nesco IT Building III, 8th Floor, Nesco-IT Park, Nesco Complex, Gate No.3, Western Express Highway, Goregaon (East), Mumbai-400063. PAN : AAAPH2877A Vs. ITO (International Taxation), Ward-2(2)(1), Air India Building Nariman Point, Mumbai-400021. Appellant) : Respondent) I.T.A. No. 2521/Mum/2023 (Assessment Year: 2017-18) I.T.A. No. 2522/Mum/2023 (Assessment Year: 2018-19) I.T.A. No. 2523/Mum/2023 (Assessment Year: 2019-20) ITO (International Taxation), Ward-2(2)(1), Room No. 1725, 17th Floor, Air India Building Nariman Point, Mumbai-400021. Vs. Priya Niranjan Hiranandani 501, 5th Floor, Supreme Business Park, Hiranandani Powai, Mumbai-400076. PAN : AAAPH2877A Appellant) : Respondent) Appellant /Assessee by : Shri J.D. Mistry, Sr. Adv. Revenue / Respondent by : Ms. Sushma Nagaraj / Maansi Bhavnani / Pooja Das, DR 2 ITA Nos.2285 & 2521 to 2523/Mum/2023 Priya Hiranandani & Anr. Date of Hearing : 23.01.2025 Date of Pronouncement : 27.01.2025 O R D E R Per Bench: These appeals by the Revenue and the assessee are arising out of the consolidated order of the Commissioner of Income Tax (Appeals)-56, Mumbai, (in short \"the CIT(A)\") dated 27.04.2023 for Assessment Year (AY) 2017-18, 2018- 19 & 2019-20. 2. The assessee is a non-resident deriving income majorly from investments made in Indian Portfolio Companies and Mutual Funds in the form of interest, dividend income and Capital Gains on sale of investments. The assessee filed the return of income for the impugned AYs as per details given below: AY Date of filing of return of income Income returned 2017-18 31.01.2018 Rs. 2,64,46,250/- 2018-19 31.08.2018 Rs. 18,58,49,430/- 2019-20 31.08.2019 Rs. 68,13,970/- 3. The assessee has entered into a Business Association Agreement (BAA) dated 14.05.2006 with Mr. Niranjan Hiranandani along with Mr. Darshan Hiranandani. The BAA laid down that the parties intent to jointly enter the business of construction, development in the Indian Real Estate Market and set out the structure through which such opportunities could be pursued. Dispute arose between the parties on the terms of BAA and arbitration proceedings were initiated by the assessee against the other two parties to the BAA for breach of relevant clauses of the BAA in February 2010 and the arbitral tribunal in its final award of 3 ITA Nos.2285 & 2521 to 2523/Mum/2023 Priya Hiranandani & Anr. May 2016 quantified the assessee's economic loss and awarded principal damage and pre-award interest. Aggrieved by the said award Mr. Niranjan Hiranandani and Mr. Darshan Hiranandani, contested the said order before the Hon'ble Bombay High Court. The Hon'ble Bombay High Court vide its interim order dated 14.10.2015 granted interim stay of the award with a direction to deposit a sum of Rs. 370,00,00,000/- with a liberty to the assessee to withdraw the said sum upon furnishing the bank guarantee on returnable basis in case the matter is decided against the assessee. Mr. Niranjan Hiranandani and Mr. Darshan Hiranandani complied with the directions of the Hon'ble High Court and deposited the sum of Rs. 370,00,00,000/-. The assessee withdrew the amount by furnishing a bank guarantee and placed the amount so withdrawn in fixed deposits in Central Bank of India. The dispute was finally decided by the Hon'ble Bombay High Court vide order dated 18.03.2019 in favour of the assessee by virtue of which the assessee is entitled to the following amounts. AY Particulars Interest Income – Rs. 2017-18 Actual interest on FD created with Central Bank of India (13 February 2017 to 31 March 2017) 2,61,67,896 2018-19 Actual interest on FD created with Central Bank of India (1 April 2017 to 31 March 2018) 18,47,51,359 2019-20 Actual interest on FD created with Central Bank of India (1 April 2018 to 18 March 2019) 18,58,30,161 2019-20 Pre-High Court Order Interest (17 August 2016 to 17 November 2016) 6,46,00,000 2019-20 Interest on amount lying with Prothonotary (17 November 2016 to 18 March 2019) 4,10,63,693 2019-20 Principal damages plus pre-award interest, net of tax, if any 4,40,56,45,664 4. The assessee did not offer the above tabulated amount to tax for the reason that the amount received are in the nature of capital receipts not chargeable to tax. 4 ITA Nos.2285 & 2521 to 2523/Mum/2023 Priya Hiranandani & Anr. The AO made additions as tabulated below while completing the assessments for AY 2017-18, 2018-19 and 2019-20: Nature of income Amount – Rs. Taxable under the head Year of taxability Principal damages plus pre-award interest 4,40,56,45,664 Profits and gains from business and profession AY 2019-20 Pre-High Court Order Interest 17 August 2016 to 17 November 2016 6,46,00,000 Income from other sources AY 2019-20 Interest on amount lying with Prothonotary (17 November 2016 to 18 March 2019) 4,10,63,693 Income from other sources AY 2019-20 Actual interest on FD created with Central Bank of India (13 February 2017 to 31 March 2017) 2,61,67,896 Income from other sources AY 2017-18 Actual interest on FD created with Central Bank of India (1 April 2017 to 31 March 2018) 18,47,51,359 Income from other sources AY 2018-19 Actual interest on FD created with Central Bank of India (1 April 2018 to 18 March 2019) 18,58,30,161 Income from other sources AY 2019-20 5. Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) held that the principal damages plus pre-award interest of Rs. 4,40,56,45,664 as capital receipt not chargeable to tax. The CIT(A) further held that the entire interest totalling to Rs.50,24,13,109 earned by the assessee as tabulated above as taxable in the AY 2019-20 and not as per the additions made by the AO across three AYs i.e. AY 2017-18, 2018-19 and 2019-20. Both the assessee and the revenue are in appeal before the Tribunal against the order of the CIT(A) contending the following issues – i. The appeal filed by the revenue for AY 2017-18 pertains to interest income added by the AO to the tune of Rs. 2,61,67,896/- which the CIT(A) has held as taxable in the year 2019-20. 5 ITA Nos.2285 & 2521 to 2523/Mum/2023 Priya Hiranandani & Anr. ii. The revenue's appeal for AY 2018-19 pertains to the FD interest of Rs. 18,47,51,359/- added by the AO as income which the CIT(A) has held to be the income of AY 2019-20. iii. The appeal by the revenue for AY 2019-20 is with regard to the CIT(A) holding the principal damages plus pre-award interest to the tune of Rs. 440,56,45,664/- as capital receipt not taxable in the hands of the assessee. iv. The assessee's appeal for AY 2019-20 is towards the total interest of Rs. 50,24,13,109/- which is added as income is not taxable since the interest bears the same character as that of the principal damages which is held as capital receipt not taxable. 6. At the outset the ld. AR submitted that the assessee has filed the relevant forms under Direct Tax Vivad se Viswas Scheme, 2024 (DTVSV) for all the years under consideration i.e. AY 2017-18, 2018-19 and 2019-20. The ld. AR further submitted that while submitting Form-1 for AY 2019-20 the assessee has considered the amount of principal and pre-award interest of Rs. 440,56,45,664/- and the entire interest of Rs. 50,24,13,109/- (Page No. 25 & 26 of PB) and that Form-2 determining the amount of tax paid/payable by the assessee has also been issued (page 27 of PB). The ld. AR also submitted that the assessee has discharged the tax liabilities to the tune of Rs. 79,03,72,831/- on the principal and pre-award interest (page 28 of PB) and the tax on the total interest amounting to Rs.18,02,65,824/- is discharged via withholding tax and regular assessment tax (page 29 to 46 of PB). Accordingly the ld AR submitted that the appeals of the revenue for AY 2017-18 and 2018-19 do not survive. The ld. AR further submitted since the assessee's application under DTVSV is accepted the appeal filed for AY 2019-20 by the assessee may be treated as withdrawn and the appeal of the revenue for AY 2019-20 would become infructuous. 6 ITA Nos.2285 & 2521 to 2523/Mum/2023 Priya Hiranandani & Anr. 7. We heard the parties and perused the material on record. The assessee disputed the addition made by the AO Principal damages plus pre-award interest amounting to Rs. 4,40,56,45,664 and interest totalling to Rs. 50,24,13,109/- across AYs 2017-18, 2018-19 & 2019-20. The CIT(A) deleted the addition made towards Principal damages plus pre-award interest and held that the entire interest is taxable in the year 2019-20. We notice that the assessee has filed Form-1 under DTVSV and Form-2 determining the tax paid / payable by the assessee is already issued for AY 2019-20. The relevant Form 2 towards discharge of taxes on both Principal damages plus pre-award interest of Rs. 4,40,56,45,664 and the interest of Rs. 50,24,13,109 is extracted below – 7 ITA Nos.2285 & 2521 to 2523/Mum/2023 Priya Hiranandani & Anr. 8. From the combined perusal of the above forms it is clear that the assessee has paid the tax on the principal and pre-award interest of Rs. 440,56,45,664/- amounting to Rs. 79,03,72,831/- as well as the tax on the total interest of Rs. 50,24,13,109/- amounting to Rs.18,02,65,824/-. Therefore based on the submissions of the ld AR and considering the above facts the appeal filed by the assessee for AY 2019-20 contending the interest addition of Rs. 50,24,13,109/- is dismissed as withdrawn. Further the appeal filed by the revenue contending the 8 ITA Nos.2285 & 2521 to 2523/Mum/2023 Priya Hiranandani & Anr. deletion of addition made towards principal and pre-award interest of Rs. 440,56,45,664/- is also dismissed in view of the fact that the impugned amount is declared by the assessee under DTVSV and that the assessee has paid the tax on the same. 9. The revenue preferred appeals for AY 2017-18 and 2018-19 contending the decision of the CIT(A) that the interest amount of Rs.2,61,67,896/- and Rs. 18,47,51,359/- added by the AO in these AYs respectively as taxable in the year 2019-20. The ld AR in this regard submitted that the said amounts are part of the total interest of Rs. 50,24,13,109/- declared under DTVSV and therefore the appeals of the revenue does not survive. The ld DR though did not dispute the said factual position submitted that the assessee has filed Form 1 for these two AYs and Form-2 has not yet been issued. Accordingly the ld DR submitted that the appeals cannot become infructuous since Form-1 filed by the assessee is pending disposal. The ld AR to counter the said arguments submitted that the time line for determining the tax payable by the authorities has expired as per section 92(1) of DTVSV and therefore the Form-1 filed is automatically become not accepted. 10. We notice that as per the provisions of section 92(1) of DTVSV as extracted below the time line for the designated authority is 15 days for determining the tax payable on the amount declared by the assessee under DTVSV – Time and manner of payment. 92. (1) The designated authority shall, within a period of fifteen days from the 40 date of receipt of the declaration, by order, determine the amount payable by the declarant in accordance with the provisions of this Scheme and grant a certificate to the declarant containing particulars of the tax arrear and the amount payable after such determination, in such form as may be prescribed. 9 ITA Nos.2285 & 2521 to 2523/Mum/2023 Priya Hiranandani & Anr. 11. In assessee's case, it is an undisputed fact that the interest additions made by the AO in AYs 2017-18 and 2018-19 are already included in the interest amount declared under Form 1 for AY 2019-20 and that the assessee has also paid the tax on the said amount as evidenced by the Form-2 as extracted in the earlier part of this order. Further the facts that Form-1 filed by the assessee for AYs 2017-18 & 2018-19 have not been processed by the designated authority within the time limit and that the tax on the amount declared is already paid in AY 2019-20 have not been controverted by the revenue before us. Therefore in our considered view, there is merit in the submission of the ld AR that the appeal filed by the revenue for AYs 2017-18 and 2018-19 do not survive and have become ifructuous. Accordingly the said appeals are dismissed accordingly. 12. In result, the appeals by the Revenue for AYs 2017-18, 2018-19 & 2019-20 are dismissed as infructuous and the appeal of the assessee for AY 2019-20 is dismissed as withdrawn. Order pronounced in the open court on 27-01-2025. Sd/- Sd/- (BEENA PILLAI) (PADMAVATHY S) Judicial Member Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai "