Delhi High Court
Paragon Constructions (I) (P) Ltd. vs Commissioner Of Income Tax And Anr. on 28 September, 2004
Equivalent citations: (2004)192CTR(DEL)418, [2005]274ITR413(DELHI)
Author: Badar Durrez Ahmed
Bench: Badar Durrez Ahmed
JUDGMENT B.C. Patel, C.J.
1. The appellant has approached this Court against the order made by the Tribunal Under Section 260A of the IT Act, 1961 (hereinafter referred to as "the Act"). At the request of the learned counsel appearing for the parties, the appeals are taken up for final disposal.
2. For the asst. yrs. 1991-92 and 1992-93 Tribunal disposed of the appeals against the assessed. In the appeal for asst. yr. 1992-93 the question of law which arises is as under :
"Whether the Tribunal was right in law in holding that interest amounting to Rs. 6,63,275 accrued to the assessed during the previous year relevant to asst. yr. 1992-93 was includible in its total income ?"
A similar question arises for the asst. yr. 1991-92.
3. In the instant case it appears that there was a contract between the appellant and the New Delhi Municipal Commissioner {for short "NDMC"). There were disputes about implementation of the contract in time and the default committed by NDMC. We need not discuss these issues, suffice it to say that ultimately the matter was referred to the arbitrator and the arbitrator by his award dt. 27th Aug., 1987, held that NDMC shall pay to the appellant a sum of Rs. 33,45,669.24 with simple interest as specified in the award.
4. The appellant moved the High Court praying that the arbitrator be directed to file the original award for making the award a rule of the Court. Against the award, objections were filed by NDMC. In those proceedings NDMC deposited the amount in the Court without prejudice to its objections to the award in order to avoid further interest. By an order dt. 23rd March, 1988, the High Court directed that the amount of Rs. 49,61,856.64 be paid to the petitioner (appellant herein) subject to its furnishing a bank guarantee of a nationalised bank within one month for restitution and to the effect that if the respondent succeeds, the petitioner shall refund the amount to the respondent along with interest.
5. The amount was withdrawn on furnishing a bank guarantee and the same was deposited in fixed deposit account with the bank. The AO held that the interest accrued on the amount so deposited is a taxable income for the years under consideration. Before appeals were preferred before the Tribunal, the High Court decided the issue in favor of the appellant during the financial year that ended on 31st March, 1995. The appellant offered the principal sum awarded, namely, Rs. 33,45,669 and interest accrued thereon totalling to Rs. 61,46,020 for tax for the asst. yr. 1995-96. These amounts were duly brought to tax in the previous year relevant to asst. yr. 1995-96. These facts are not in dispute before us.
6. The Tribunal, however, held that since the assessed was following the mercantile system, it was liable to pay tax on the interest which was earned by it in the relevant year and not in the year of determination by the High Court. This question, raised by the assessed, is not required to be examined in much detail, since this High Court in a case, namely, Director of FT (Exemption) v. Goyal Charitable Trust (1995) 215 LTR 672 (Del), had an occasion to examine a similar question which was as under;
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in dismissing the Departmental appeal and holding that the interest accrued on compensation could be assessable only after the enhanced compensation had been finally determined with the interest earned by the assessed during the year under consideration and had nothing to do with the compensation/enhanced compensation ?"
7. In the aforesaid case the Division Bench, after considering the decision of the Supreme Court in the case of CIT v. Hindustan Housing & Land Development Trust Ltd. (1986) 161 ITR 524 (SC), and a decision of this Court in Harish Chandra & Ors. v. CW (1985) 154 ITR 478 (Del) held as under:
"We have given our anxious consideration to the submissions made by counsel for the parties. On a consideration of the record we find that the assessed-trust was allowed to withdraw the enhanced compensation deposited in the Court by furnishing a bank guarantee for the amount of compensation as also for the future interest which is the subject-matter in the present case. In view of the aforesaid fact, we are of the opinion that the right to receive the future interest as also the enhanced compensation by the assessed is still unsettled inasmuch as the assessed has been directed to withdraw the future interest also along with the enhanced compensation on furnishing a security for restitution. Accordingly, the withdrawal of the interest portion by the assessed is contingent inasmuch as there is a possibility of the said amount being returned by the assessed in the event of the acceptance of the appeal of the Government.
It is thus apparent that the principles laid down by the apex Court [see (1986) 162 ITR 524 (SC)] and by this Court [see (1985) 154 ITR 478 (Del)] are also applicable to the facts and circumstances of the present case."
8. We may quote the relevant portion of the Supreme Court decision in the case of CIT v. Hindustan Housing & Land Development Trust Ltd. (supra) as under:
"In the present case, although the award was made by the arbitrator on 29th July, 1955, enhancing the amount of compensation payable to the assessed, the entire amount was in dispute in the appeal filed by the State Government. Indeed, the dispute was regarded by the Court as real and substantial, because the assessed was not permitted to withdraw the sum of Rs. 7,36,691 deposited by the State Government on 25th April, 1956, without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There was no absolute right to receive the amount at that stage, If the appeal was allowed in its entirety, the right to payment of the enhanced compensation would have fallen altogether."
9. The Andhra Pradesh High Court in the case of Khan Bahadur Ahmed Alladin & Sons v. CW held that :
"Income-tax is not levied on a mere right to receive compensation; there must be something tangible, something in the nature of a debt, something in the nature of an obligation to pay an ascertained amount. Till such time, no income can be said to have accrued.......On the date when the Collector awarded the compensation, it is only that amount which had accrued or was deemed to accrue, whether in fact paid or not. But by no stretch of the words in Section 4(l)(b)(i), could it be said that the right to enhanced compensation which has not yet been accepted by the proper forum, namely, the Court, has also become payable on the date when the original compensation became payable, for being included in that year of assessment. The enhanced compensation accrues only when it becomes payable, i.e., when the Court accepts the claim."
This decision has been approved by the apex Court in the case of CIT v. Hindustan Housing & Land Development Trust Ltd. (supra).
10. The learned counsel for the Revenue submitted that in view of the Supreme Court decision in Babulal Narottamdas & Ors. v. CTT , the interest which was earned by the assessed is required to be charged in the relevant year and not on the date when the Court made the order finally. In that case what was deferred was not the accrual of the right, but date of payment. As such, the right to receive the remuneration could not be said to have arisen on the date of the judgment of the High Court. The instant case is not one where merely the date of payment is deferred. Here, the entire right to receive the same was in question and jeopardy. The right accrued to the assessed when the award was affirmed by the High Court. Therefore, the aforesaid decision sought to be relied on by the learned counsel for the Revenue is not applicable to the present case.
11. In the instant case it is very clear that it was only in view of the order made by the Court that the amount was permitted to be withdrawn and that too on the furnishing of a bank guarantee of a nationalised bank and the appellant was required to refund the amount with interest to the respondent in case the respondent succeeded. Therefore, the determinative date would be the date on which the decision was rendered by the Court and it is for that relevant year that the income-tax will have to be assessed as it can be said that the amount accrued on that date only.
12. In view of what has been discussed by us hereinabove, the answer is required to be given in favor of the assessed and against the Revenue. The appeals are allowed accordingly with no orders as to costs.