Pr. Commissioner Of Income Tax, Alwar v. M/S. Sun Gold Metal (P) Ltd., E-127, Industrial Area, Bhiwadi,Alwar

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 62/2017 Pr. Commissioner Of Income Tax, Alwar ----Appellant Versus M/s. Sun Gold Metal (P) Ltd., E-127, Industrial Area, Bhiwadi,Alwar ----Respondent For Appellant(s) : Mrs. Parinitoo JainFor Respondent(s): Mr. Rajendra Kumar Salecha HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 20/03/2018 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the Revenue. 2.This court while admitting the appeal on 02.01.2018 framedthe following questions of law:- “1) Whether the Tribunal was legally justified indeleting the addition of Rs. 60 lacs made byAssessing Officer as short term capital gain bytreating the liquidated damages as asset u/s2(14) of the I.T. Act? 2) Whether the Tribunal was legally justified indeleting the addition of Rs. 1.80 lacs made bythe Assessing Officer by treating the interestreceived on the liquidated damages as incomefrom other source?” 3.The brief facts of the case are that the assesee filed thereturn income on 31.10.2007 declaring Nil income. Subsequently assessee filed the revised return on 24.10.2008 at Nil income. Inthe revised return, the assessee company claimed expenses ofRs. 60.00 lacs on account of payment of brokerage. However,this amount was added back to the total income being no taxwas deduced at source at the time of making the payment ofbrokerage. The case of the assessee was selected for scrutinythrough CASS and notice u/s 143(2) was issued on 26.08.2008by fixing the date of hearing for 21.09.2008. In compliancethereof, the ld. AR attended the assessment proceedings andbooks of accounts were produced for examination by the AO. 4.The Tribunal has relied upon the decision of this Court inSmt. Sharda Pareek vs. Astt Commissioner of IT andAnother in Income Tax Appeal No.(162/2012) & otherconnected matters decided on 26.04.2017 wherein it hasbeen held as under:- 9.On plain reading of Section 2-(28A), it is veryclear that originally compensation was received bythe claimant was not income but once the amountreceived, it has become capital and interest oncapital is liable to be taxable. In that view of thematter, the issue is required to be answered infavour of the department and against the assessee. 10.The contention of Mr. Kasliwal is that revenueincome of compensation interest is alsocompensation, in our considered opinion, thecontention is misconceived inasmuch as they areentitled benefits only for the compensation, therest of the amount of interest is deferred amount ofcompensation, therefore, the interest income is tobe calculated from the date of application whichwas preferred and they are entitled for the interestfrom the date of application as directed by allcourts but subject to income liable to be taxedevery year. 11.In that view of the matter, the income ofinterest is to be counted on accrual basis year wise. 11.1 The first issue is accordingly answered in favour of the department that interest income istaxable. In the second issue, it is held thattaxability of interest would be attracted on yearwise accrual basis. 11.2 In view of the fact that the tribunal hasfinalized the amount to be paid when the FirstAppeal is decided, we issue the following directionsfor the betterment of assessee/claimant:- (i). Counsel for the assessee will calculate theinterest year wise and will submit the samecalculation to the assessing officer within aperiod of 30 days; (ii) The amount which has been receivedby him will be kept in a separate FDRyear wise and statement of year wisewill be submitted to the AO. 11.1 The first issue is accordingly answered in favour of the department that interest income istaxable. In the second issue, it is held thattaxability of interest would be attracted on yearwise accrual basis. 11.2 In view of the fact that the tribunal hasfinalized the amount to be paid when the FirstAppeal is decided, we issue the following directionsfor the betterment of assessee/claimant:- (i). Counsel for the assessee will calculate theinterest year wise and will submit the samecalculation to the assessing officer within aperiod of 30 days; (ii) The amount which has been receivedby him will be kept in a separate FDRyear wise and statement of year wisewill be submitted to the AO. (iii) It is made clear that FDR interestwill be allowed to be accrued in favourof the assessee and only amount ofinterest kept in FDR will be refunded tothe department within 30 days from thedate of judgment of the First Appealwhich is pending in the High Court, theassessee inform the disposal of theappeal and will deposit the amount. (iv) If the amount is not paid within 30days of the judgment of the High Court,the department will be entitled forstatutory interest prevailing on that dayfrom the date of the judgment of theHigh Court, in first appeal. With the aforesaid observations, the appealsstand disposed of. It is made clear that it will be open for theAssessing Officer to calculate the amount yearwise and accordingly refund the amount by wayof FDR in the name of claimant only. 5.She relied upon the decision of Supreme Court of India in Commissioner of Income Tax, West Bengal-II,Calcutta vs. Hindustan Housing and LandDevelopment Trust Ltd. [1986] 161 ITR 524, (SC):wherein it has been held as under:- The legal position was explained in further detailby the Gujarat High Court in TopandasKundanmal v. Commissioner of Income-tax,GujaratMANU/GJ/0029/1976: [1978]114ITR237(Guj) . The High Court wascalled upon to decide without the right to receivethe enhanced compensation under the LandAcquisition Act accrued or arose to the assesseewhen he sought a reference under Section 18 ofthe Act or when the award was made by the CivilJudge although an appeal was pending againstthat award. The learned Judges referred to thenature of an award made by the Collector, andadverting to the opinion of this Court in HarishChandra Raj Singh v. The Deputy LandAcquisition Officer and Anr. MANU/SC/0386/1961: [1962]1SCR676 that the award made by theCollector was merely an offer or tender of thecompensation determined by the Collector to theowner of the property on the acquisition, theHigh Court observed: ... the legal position which emerges is thatthere is no liability in praesenti to pay anenhanced compensation till it is judiciallydetermined by the final court since the entirequestion, namely, whether the offer made bythe Land Acquisition Officer is inadequate andthe claimant is entitled to an additionalcompensation and if yes, at what rate is in fluxtill the question is set at rest finally, we do notthink that any enforceable right to a particularamount of compensation arises. The offermade by Land Acquisition Officer, by his award,if not accepted by a claimant would not resultautomatically in a liability to pay additionalcompensation as claimed by party aggrieved.There is no doubt a liability to paycompensation as offered by the LandAcquisition Officer. But that is far from sayingthat liability is a liability to pay additionalcompensation or enhanced compensation asclaimed by a party aggrieved. If there is anexisting liability, the mere fact that thepayment is postponed to the future would notdetract that liability from becoming a debt butthe liability to pay unliquidated damages oradditional compensation which are inchoate orcontingent would not create a debt. Khan Bahadur Ahmed Alladin & Sons(supra) and Topandas Kundanmal (supra)were relied on by the Gujarat High Court inAdditional Commissioner of Income-tax, Gujarat v. New Jehangir Vakil Mills Co. Ltd.MANU/GJ/0025/1979: [1979]117ITR849(Guj) for reaffirming thatit was on the final determination of theamount of compensation that the right tosuch income in the nature of compensationwould arise or accrue and till then therewas no liability in praesenti in respect ofthe additional amount of compensationclaimed by the owner of the land. 6. It is unnecessary to refer to all the casescited before us. It is sufficient to point out thatthere is a clear distinction between cases suchas the present one, where the right to receivepayment is in dispute and it is not a questionof merely quantifying the amount to bereceived, and cases where the right to receivepayment is admitted and the quantificationonly of the amount payable is left to bedetermined in accordance with settled oraccepted principles. We are of opinion that theHigh Court is right in the view taken by it and,therefore, this appeal must be dismissed.” 6.She also relied upon the decision of this Court inCommissioner of Income Tax, Kota vs. M/s MittalBrothers & Co. 72-73, Chitrakooth Nagar, SawaiMadhopur decided on 12.09.2017 wherein, it has been held as under:- 11.He further contended that while consideringthe case, the tribunal has rightly held in favour ofthe assessee observing as under:- “After considering the orders of the AOand ld. CIT(A) we find that ld. CIT(A) hasrightly deleted both the additions. As perDistrict Curt order, Award was given infavour of the assessee for Rs.91,20,054/-.This award contains two items i.e.Rs.30,46,914/- for work+Rs.60,24,042/-for interest. It is a matter of fact that thisaward was awarded by District Court for adispute of contract work which was relatedto assessment year 1981-82. The entireorder of the District Court is challenged held as under:- 11.He further contended that while consideringthe case, the tribunal has rightly held in favour ofthe assessee observing as under:- “After considering the orders of the AOand ld. CIT(A) we find that ld. CIT(A) hasrightly deleted both the additions. As perDistrict Curt order, Award was given infavour of the assessee for Rs.91,20,054/-.This award contains two items i.e.Rs.30,46,914/- for work+Rs.60,24,042/-for interest. It is a matter of fact that thisaward was awarded by District Court for adispute of contract work which was relatedto assessment year 1981-82. The entireorder of the District Court is challenged before the Hon’ble High Court. Copy of theaward given by District Court as well ascopy of petition filed by the RajasthanGovernment before the Hon’ble High Courtare placed on record. We further notedthat even the AO himself admitted at page4 of his order that the dispute is beforeHon’ble High Court and it has beenobserved by AO that it will take yearstogether and for this reason this incomecannot be said that is not assessable inthe year under consideration. It has beenfurther mentioned by AO himself that ifthe Hon’ble High Court decided the issueagainst the assessee, then the assesseecan seek relief in the year of decision. Allthese facts are mentioned in the order ofthe AO at page 4 as mentioned above.This is undisputed fact that entire awardgiven by District Court has beenchallenged before the Hon’ble RajasthanHigh Court which is pending and the ld.CIT(A) has examined this fact extensivelyand then only has held that neither anytrading addition can be made nor anyaddition can be made on account ofinterest. For this purpose reliance isplaced on the decision of Hon’ble ApexCourt in case of Hindustan Housing andLand Development Trust Ltd, 161 ITR 524(SC). For the sake of further clarification,the interest component is not theassessee has earned any interest incomeon account of principal award received byassessee which was deposited in the bankand interest income has accrued to theassessee. In fact, the District Court awardwas for Rs.91 lacs or odd which includedthe interest on the principal and this entireaward has been challenged by theRajasthan Government before the Hon’bleRajasthan High Court. Therefore, thematter is under dispute. Since the matteris under dispute, no addition can be madein the year under consideration in thehands of the assessee as held by theHon’ble Apex Court (supra). In view ofthese facts and circumstances and in viewof the detailed reasoning given by the ld.CIT(A), we confirm his order.” 11.However taking into account that the carryforward loss was not there and in view of thedecision of the Supreme Court in Ghayshyam(supra) as reproduced herein above, we are of the view that the interest actually received wasincome. 12.We restore the order of the AO and the orderof CIT(A) and order of the tribunal is quashed andset aside. 13.It is made clear that ultimately assessee willmake payment in case he lost before the court thesame will be treated as set off expenses. 14.Counsel for appellant contended that in viewof the provision of Section 155 (16) of the IncomeTax Act which reads as under:- “155……. 11.However taking into account that the carryforward loss was not there and in view of thedecision of the Supreme Court in Ghayshyam(supra) as reproduced herein above, we are of the view that the interest actually received wasincome. 12.We restore the order of the AO and the orderof CIT(A) and order of the tribunal is quashed andset aside. 13.It is made clear that ultimately assessee willmake payment in case he lost before the court thesame will be treated as set off expenses. 14.Counsel for appellant contended that in viewof the provision of Section 155 (16) of the IncomeTax Act which reads as under:- “155……. (16) Where in the assessment for any year,a capital gain arising from the transfer of acapital asset, being a transfer by way ofcompulsory acquisition under any law, or atransfer, the consideration for which wasdetermined or approved by the CentralGovernment or the Reserve Bank of India, iscomputed by taking the compensation orconsideration as referred to in clause (a) or,as the case may be, the compensation orconsideration enhanced or further enhancedas referred to in clause (b) of sub-section(5) of section 45, to be the full value ofconsideration deemed to be received oraccruing as a result of the transfer of theasset and subsequently such compensationor consideration is reduced by any court,Tribunal or other authority, the AssessingOfficer shall amend the order of assessmentso as to compute the capital gain by takingthe compensation or consideration as soreduced by the court, Tribunal or any otherauthority to be the full value ofconsideration; and the provisions of section154 shall, so far as may be, apply thereto,and the period of four years shall bereckoned from the end of the previous yearin which the order reducing thecompensation was passed by the court,Tribunal or other authority.” 15.He further contended that the AO is requiredto reassess the income. In our considered opinion, ifthe appellant apply u/s 155 (16), the AO will decidethe same in accordance with law. 15.In that view of the matter, the issue isanswered in favour of the department and againstthe assessee.” 7.In view of the above, the issues are answered in favour ofthe appellant department. The appeal stands allowed. The orderof the Tribunal is quashed and set aside. The matter is remittedback to the Tribunal for deciding the issues as per law prevailingon today. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J B.M.G/Gourav/39