Commissioner Of Income Tax, Chennai v. T. Jayachandran

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 21.06.2021 CORAM THE HON'BLE MR.JUSTICE M. DURAISWAMYANDTHE HON'BLE MRS.JUSTICE R.HEMALATHA Tax Case Appeal Nos.920 to 922 of 2013& M.P.Nos.1, 1 of 2013 in TCA.Nos.921 & 922 of 2013 Commissioner of Income Tax,Chennai ... Appellant in all the TCAsVs. T. Jayachandran,Prop.M/s.Chandrakala & Co.,167, Thambu Chetty Street,Chennai – 600 001. ... Respondent in all the TCAs Common Prayer: Appeals filed under Section 260A of the Income TaxAct, 1961 against the orders of the Income Tax AppellateTribunal, Madras "D" Bench, dated 01.07.2013 passed inITA.Nos.759, 760 & 761/Mds/2013 for the assessment years 1991-92, 1992-93 and 1993-94, against the order of the Commissionerof Income Tax (Appeals)-IX, 121, Mahatma Gandhi Road, Chennai600 034 and made in ITA No.369, 370 and 371/05-06, dated28.12.2012 in GIR.No/PAN-8577-J for the Assessment Years 1991-92to 1993-94 and against the order of the Assistant Commissionerof Income Tax, Business Circle VIII, 1[st] Floor, KannammaiBuilding, No.611, Annasalai, Chennai 600 006, dated 22.07.2005. For Appellant : Mr.M. Swaminathanin all the TCAs Senior Standing Counsel assisted by Mrs.V.Pushpa For Respondent : Mr.M.P.Senthil Kumar in all the TCAs These appeals filed by the assessee under Section 260A ofthe Income Tax Act, 1961 ('the Act' for brevity), are directedagainst the orders dated 01.07.2013 passed by the Income TaxAppellate Tribunal, Madras "D" Bench, ('the Tribunal' for https://hcservices.ecourts.gov.in/hcservices/ brevity) in ITA.Nos.759, 760 & 761/Mds/2013 for the assessmentyears 1991-92, 1992-93 and 1993-94. 2. The Assessee (respondent) is an individual andProprietor of M/s.Chandrakala & Co., a Stock Broker registeredwith the Madras Stock Exchange. During the assessment years1991-92, 1992-93 and 1993-94, the Assessing Officer disallowedthe payments made by the assessee to Public Sector Undertakings.On an appeal, the Income Tax Appellate Tribunal vide its orderin ITA.No.s.2585/94 and 255 & 2297/Mds/96 dated 05.01.2005confirmed the additions made by the Assessing Officer.Thereafter, the Assessing Officer initiated penaltyproceedings and levied minimum penalties of Rs.8,25,32,755/-,Rs.1,40,55,563/- and Rs.17,68,928/- respectively for theassessment years 1991-92, 1992-93 and 1993-94 vide orders dated22.07.2005 under Section 271 (1) (c ) of the Act holding thatthe assessee furnished inaccurate particulars of income. 3. Aggrieved over the above orders passed by the AssistantCommissioner of Income Tax, appeals were filed by the assesseein ITA.Nos.369, 370 & 371/2005-06 before the Commissioner ofIncome Tax (Appeals). The appeals were allowed on 28.12.2012.Thereafter, the Revenue filed appeals before the Income TaxAppellate Tribunal. In the meanwhile, the Deputy Commissioner ofIncome Tax, Chennai, also filed a Civil Appeal in C.A.No.4341 of2018 (arising out of Special Leave Petition (c ) No.22112/2013before the Hon'ble Supreme Court against the order of this HighCourt dated 29.10.2012 in Tax Appeal No.368 of 2005 wherein theDivision Bench of this court allowed the appeal filed by therespondent/assessee, by absolving the additional tax liabilityimposed by the Assessing Officer on 25.01.1996. 4. Since the Income Tax Appellate Tribunal confirmed theorder of Commissioner of Income Tax (Appeals), the presentappeals are filed by the Revenue on the following substantialquestion of law :- (i) Whether under the facts and circumstancesof the case, the Hon'ble Income Tax AppellateTribunal right in law in upholding the order of theCommissioner of Income Tax (Appeals) deleting thelevy of penalty under Section 271 (1) (c )? 5.. We have heard Mr.M. Swaminathan, learned SeniorStanding counsel assisted by learned counsel Mrs.V.Pushpa, andMr.M.P.SenthilKumar,learnedcounselfortherespondent/assessee. 4. Since the Income Tax Appellate Tribunal confirmed theorder of Commissioner of Income Tax (Appeals), the presentappeals are filed by the Revenue on the following substantialquestion of law :- (i) Whether under the facts and circumstancesof the case, the Hon'ble Income Tax AppellateTribunal right in law in upholding the order of theCommissioner of Income Tax (Appeals) deleting thelevy of penalty under Section 271 (1) (c )? 5.. We have heard Mr.M. Swaminathan, learned SeniorStanding counsel assisted by learned counsel Mrs.V.Pushpa, andMr.M.P.SenthilKumar,learnedcounselfortherespondent/assessee. 6. Counsels on both sides contended that the Hon'bleSupreme Court dismissed the appeals filed by the revenue and theobservations and conclusion of the Hon'ble Supreme Court inCivil Appeal No.4341 of 2018 arising out of Special LeavePetition (c ) No.22112 of 20123 are extracted hereunder: “10) The answer to the short question whetherthe alleged interest payable to the PSUs can beassessed as an income of the Respondent depends onthe determination of true nature of relationshipbetween the Indian Bank and the Respondent withregard to the transactions in question and thecapacity in which he held the amount of14,73,91,000/-. Now, coming to the question ofrelationship between the Indian Bank and theRespondent, the normal settlement process inGovernment securities is that during transactionbanks make payments and deliver the securitiesdirectly to each other. The broker’s only functionis to bring the buyer and seller together and helpthem to negotiate the terms for which he earns acommission from both the parties. He does not handleeither cash or securities. In this respect, thebroker functions like the broker in the inter bankforeign exchange market. The conduct of theRespondent in the transaction in question cannot betermed to be strictly within the normal course ofbusiness and the irregularities can be noticed fromthe manner in which the whole transactions wereconducted. However, the same cannot be basis forholding the Respondent liable for tax with regard tothe sum in question and what is required to be seenis whether there accrued any real income to theRespondent or not. 11) It is required to be seen in what capacitythe Respondent held the said amount-independently oron behalf of the Indian Bank. The Assessing Officer,while passing order dated 25.01.1996, has held thatthere exists no agreement between the Respondent andthe Indian Bank about the payment of additionalinterest to the PSUs and there was no overridingtitle in respect of the additional interest for thePSUs. However, the position in this regard is verymuch settled that an agreement need not be inwriting but can be oral also and the same can beinferred from the conduct of the parties. 11) It is required to be seen in what capacitythe Respondent held the said amount-independently oron behalf of the Indian Bank. The Assessing Officer,while passing order dated 25.01.1996, has held thatthere exists no agreement between the Respondent andthe Indian Bank about the payment of additionalinterest to the PSUs and there was no overridingtitle in respect of the additional interest for thePSUs. However, the position in this regard is verymuch settled that an agreement need not be inwriting but can be oral also and the same can beinferred from the conduct of the parties. 12) Further, while considering the claim of theRespondent and the view of the Assessing Officer,how the bank itself had treated the Respondent, is amatter of relevance. At the outset, learned counselappearing on behalf of the Revenue contended thatthe proceedings under the Income Tax Act areindependent proceedings and the High Court committeda grave error in relying on the findings of thecriminal Court. We do not find any force in thecontention of the appellant herein as the High Courthas not held that the findings of the criminal courtare binding on the Revenue authorities. Rather theHigh Court was of the view that the findings arrivedat by the criminal court can be taken intoconsideration while deciding the question as to therelationship between the parties to the case. Whenthe findings are arrived by a criminal court on theevidence and the material placed on record then inabsence of anything shown to the contrary, thereseems to be no reason as to why these duly provedevidence should not be relied upon by the Court. TheHigh Court has specifically appraised the findingsgiven by the CBI Court in this regard. Therelationship between the Indian Bank and theRespondent is very much clear by the evidence ledduringthecriminalproceedings.TheExecutive Director of the Bank has specificallyspoken about the role of the Respondent as a brokerspecifically engaged by the Bank for the purchase ofsecurities and that the Bank has included theinterest money too in the consideration paid, forthe purpose of taking demand drafts in favour ofPSUs. Further, the evidence led by other bankofficials points out that the price of securitiesitself were fixed by the bank authorities and as pertheir directions the Respondent had purchased thesecurities at the market price and the differentialamount was directed to be used for taking demanddrafts from the bank itself for paying additionalinterest to the PSUs. Further, the letter dated25.03.1994 by the Bank wherein the Bank hadacknowledged the receipt of Demand Drafts taken bythe Respondent gives an unblurred picture about thecapacity of the Respondent in holding the amount inquestion. Consequently, the conduct of the parties,as is recorded in the criminal proceedings showingthe receipt of amount by the broker, the purpose ofreceipt and the demand drafts taken by the broker atthe instance of the bank are sufficient to prove thefact that the Respondent acted as a broker to the Bank and, hence, the additional interest payable tothe PSUs could not be held to be his property orincome. Bank and, hence, the additional interest payable tothe PSUs could not be held to be his property orincome. 13) The income that has actually accrued to theRespondent is taxable. What income has reallyoccurred to be decided, not by reference to physicalreceipt of income, but by the receipt of income inreality. Given the fact that the Respondent hadacted only as a broker and could not claim anyownership on the sum of Rs. 14,73,91,000/- and thatthe receipt of money was only for the purpose oftaking demand drafts for the payment of thedifferential interest payable by Indian Bank andthat the Respondent had actually handed over thesaid money to the Bank itself, we have no hesitationin holding that the Respondent held the said amountin trust to be paid to the public sector units onbehalf of the Indian Bank based on priorunderstanding reached with the bank at the time ofsale of securities and, hence, the said sum of Rs.14,73,91,000/- cannot be termed as the income of theRespondent. In view of the above discussion, thedecision rendered by the High Court requires nointerference.” 7. In view of the dismissal of the appeal filed by theRevenue in respect of the tax payable by the assessee by theHon'ble Supreme Court, the present appeals, which are filedagainst the levy of penalty, are also liable to be dismissed.Hence, following the judgment of the Hon'ble Supreme Court, thequestion of law is decided against the Revenue and in favour ofthe assessee. Accordingly, the appeals are dismissed. No costs.Consequently, connected M.Ps are closed. Sd/- Assistant Registrar(CS VI) //True Copy// gv Sub Assistant Registrar To 1. The Income Tax Appellate Tribunal, Madras "D" Bench Madras "D" Bench 2. The Commissioner of Income Tax Appeals-IX, 121, Mahatma Gandhi Road, Chennai-600 034.3.The Assistant Commissioner of Income Tax, Business Circle-VIII, Ist Floor, Kannammai Building, No.611, Annasalai, Chennai-600 006.+1cc to Mr.M.Swaminathan, Advocate Sr.28773+1cc to Mr.M.P.Senthilkumar, Advocate Sr.28685 Tax Case Appeal Nos.920 to 922 of 2013 & M.P.Nos.1, 1 of 2013 in TCA.Nos.921 & 922/ /2013 jp[cp]srg 10/08/2021