Itta/97/2003 Of The Commissioner Of Income Tax v. M/S. R.s.rangadas

HON’BLE SRI JUSTICE L. NARASIMHA REDDYAND HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A Nos. 68, 97 AND 168 OF 2003 02-09-2014 BETWEEN M/s. R.S. Rangadas, Hyderabad …Appellant And ACIT, Circle 2(1), Hyderabad …..Respondent HON’BLE SRI JUSTICE L. NARASIMHA REDDYANDHON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A Nos. 68, 97 AND 168 OF 2003 COMMON JUDGMENT:(per the Hon'ble Sri Justice L. Narasimha Reddy) These three appeals are in relation to the same assesseeand arise out of a common order passed by the Hyderabad Bench‘A’ of the Income Tax Appellate Tribunal (for short, ‘the Tribunal’). For the sake of convenience, the parties are referred to asarrayed in ITTA No. 68 of 2003. The appellant is a civil contractor. He executes the civil works mostly awarded by the Government. For the assessmentyear 1995-96, he filed return on 31-10-1995 and through an orderdated 22-12-1995 under Section 143(3) of the Income Tax Act,1961 (for short, ‘the Act’), the assessing officer has determinedthe total income as Rs.14,43,390/-. However, the assessingofficer issued notice under Section 148 of the Act proposing toreopen the assessment. It was mentioned that the appellantreceived a sum of Rs.2,02,975/- as interest on a sum ofRs.32,00,000/-, which was deposited in compliance with the orderof a Court, in the proceedings pertaining to arbitration. Theexplanation offered by the appellant was not found satisfactory andthe amount of Rs.2,02,975/- was brought under the purview of tax. In relation to the returns submitted for the assessment year1996-97, the appellant made a mention about deposit ofRs.32,00,000/- in his favour. The reason for not showing the sameas income is that the amount is still under dispute. Another sumreceived by the appellant was Rs.3,31,33,750/- towards 50% ofthe amount covered by the award dated 09-08-1993. As regards this also, his plea was that the amountwas received by him by furnishing bank guarantee, and it cannotbe treated as income, since the dispute is pending. The assessing officer treated 10% of the amount receivedtowards 50% of the awards as income and levied tax. Theappellant filed ITA Nos. 320 and 321/AC2(1)/CIT(A)-V/96-97 beforethe Commissioner of Income Tax (Appeals-V), Hyderabad. Through common order dated 28-11-1997, the Commissioner dismissed both the appeals. Thereupon, the appellant filed I.T.ANos.93 and 94/Hyd/1998 before the Tribunal. Through thecommon order dated 29-07-2002, the Tribunal dismissed I.T.A No.93 of 1998 upholding the view taken by the assessing officer aswell as the Commissioner about the taxability of the interestreceived on the amount deposited towards 50% of the amountcovered by the award. ITTA No. 168 of 2003 is filed against thesame. So far as ITA No. 94 of 2003 is concerned, the Tribunalallowed the same taking the view that part of the amount awardedby the Arbitrator ought not to have been taxed during theconcerned financial year and it becomes taxable only on cessationof dispute. While the appellant filed ITTA No. 68 of 2003 notsatisfied with the view taken by the Tribunal, the department i.e.,the respondent filed ITTA No. 97 of 2003 against the same. Thus,these three appeals have arisen out of a common order. Heard Sri A.V. Krishna Koundinya, learned Senior Counselfor the appellant and Sri J.V. Prasad, learned Senior Counsel forthe respondent. Though the appellant raised a strong plea that the order ofassessment for the year 1995-96 ought not to have been reopenedby issuing a show cause notice under Section 148 of the Act, weare not impressed by that argument. The reason cited by theassessing officer for reopening of the assessment is valid andreferable to the facts that can be verified from the record. Heard Sri A.V. Krishna Koundinya, learned Senior Counselfor the appellant and Sri J.V. Prasad, learned Senior Counsel forthe respondent. Though the appellant raised a strong plea that the order ofassessment for the year 1995-96 ought not to have been reopenedby issuing a show cause notice under Section 148 of the Act, weare not impressed by that argument. The reason cited by theassessing officer for reopening of the assessment is valid andreferable to the facts that can be verified from the record. The controversy is in two parts. The first is as to whetherthe amount deposited by a party to the award in compliance withthe directions issued by a Court in which the award is underchallenge can be treated as the income of the other party i.e.,assessee for the assessment year during which such deposit wasmade. The second is whether the interest that has accrued on thedeposits so made and received by the assessee can be treated ashis income for the assessment year in which it was received. The assessing officer sought to treat 10% of the amountdeposited towards 50%of the amount covered by the award asincome with reference to the year in which the deposit was made. The appellate commissioner affirmed the same. The Tribunal hastaken the view that the amount so deposited would becometaxable only on cessation of the legal dispute, and can be broughtunder tax in the concerned assessment year. When the deposits are made in compliance with thedirections issued by the Court during the pendency of the dispute,it is difficult to treat the amount so deposited as the exclusiveproperty or income of any particular assessee. Even where thepermission is accorded for withdrawal of the same, it is alwayssubject to the outcome of the proceedings before the Courts. There exits every likelihood of a view being taken by the Court,contrary to the claim of the party, who is permitted to receive theamount; and he being required to refund it, if the final outcomegoes against him. When such is the uncertainty and contingentnature of the amounts, it is difficult to treat it as income of the concerned assessee. The judgment of the Supreme Court in Commissioner of Income Tax v. Hindustan Housing & Land Development Trust Ltd.,[[1]]is directly on the point. The amounts referable to thatcase are in the form of enhanced compensation payable under theLand Acquisition Act, 1894. The Supreme Court observed: “….the legal position which emerges is that thereis no liability in praesenti to pay an enhancedcompensation till it is judicially determined by the finalcourt since the entire question, namely, whether theoffer made by the Land Acquisition Officer is inadequateand the claimant is entitled to an additionalcompensation and if yes, at what rate is in flux till thequestion is set at rest finally, we do not think that anyenforceable right to a particular amount ofcompensation arises. The offer made by the LandAcquisition Officer, by his award, if not accepted by aclaimant would not result automatically in a liability topay additional compensation as claimed by a partyaggrieved.” The same principle applies to the present case also. Therewas followed by various High Courts in the subsequent years. In FGP Ltd. vs. Commissioner of Income Tax[[2]], the Bombay HighCourt dealt with the amounts deposited in the legal proceedingspertaining to an arbitration award. After referring to the precedentson the subject, the Bombay High Court observed: “In the instant case, there is no real accrual of income. There is dispute between the parties for the relevantassessment year which was pending in arbitration. It isonly on the arbitral proceedings coming to an end and award being passed and income received by theassessee it will be liable to be assessed.” That very situation obtained in the instant case. Therefore,ITTA No. 68 of 2003 is liable to be allowed and ITTA No. 97 of2003 is liable to be dismissed. FGP Ltd. vs. Commissioner of Income Tax[[2]], the Bombay HighCourt dealt with the amounts deposited in the legal proceedingspertaining to an arbitration award. After referring to the precedentson the subject, the Bombay High Court observed: “In the instant case, there is no real accrual of income. There is dispute between the parties for the relevantassessment year which was pending in arbitration. It isonly on the arbitral proceedings coming to an end and award being passed and income received by theassessee it will be liable to be assessed.” That very situation obtained in the instant case. Therefore,ITTA No. 68 of 2003 is liable to be allowed and ITTA No. 97 of2003 is liable to be dismissed. Coming to the second aspect: It has already beenmentioned that the appellant was undertaking civil works andsome of the disputes that arose in relation thereto have beenreferred to arbitration. In the respective awards, the arbitratorshave quantified the amount to be paid to the appellant. Naturally,the matters landed before the Court and in compliance with thedirections issued by the concerned Courts, 50% of the amountcovered by the awards was deposited. While in one case, it wasRs.32,00,000/-, in the other case it was Rs.3,3137,750/-. Theappellant was permitted to withdraw such amounts on furnishingbank guarantee. The amount of Rs.32,00,000/- remained indeposit for quite some time and the appellant received the accruedinterest being Rs.2,02,975/-. Tax is levied thereon. It is not in dispute that the appellant has received a sum ofRs.2,02,975/- as interest on the amount which was depositedtowards 50% of the amount covered by the award. Whatever bethe legal character of the amount in deposit, the interest that hasaccrued thereon and received by the assessee undoubtedlybecomes income. The appellant has not even pleaded that theCourt which directed the deposit of the amount has imposed anycondition to the effect that even the withdrawal of the interest would be subject to outcome of the proceedings. Though anendorsement was made in the return that the amount receivedtowards interest on the amount deposited in the legal proceedingscannot be treated as income and though an order in terms thereofwas passed, the assessing officer reopened the same at a laterpoint of time by issuing notice under Section 148 of the Act. Thereis no uncertainty surrounding the amount of interest received bythe appellant. It constituted his income without any reservationswhatever. The Tribunal has taken the correct view of the matterand ITTA No. 168 of 2003 deserves to be dismissed. In the result, ITTA No. 68 of 2003 is allowed and ITTA Nos.97 and 168 of 2003 are dismissed. The miscellaneous petitions filed in these appeals shall alsostand disposed of. There shall be no order as to costs. ___________________________ L. NARASIMHA REDDY, J 02-09-2014ksNote:LR copy to be marked. B/O ks ____________________________ CHALLA KODANDA RAM, J [1](1986) 161 ITR 524(1986) 161 ITR 524 [2](2010) 326 ITR 444(2010) 326 ITR 444