Income Tax Appellate Tribunal - Delhi
Association Of Corporations & Apex,, vs Assessee on 5 November, 2004
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'H': NEW DELHI
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND
SHRI B.K. HALDAR, ACCOUNTANT MEMBER
I.T.A.No. 1144/Del/2005
Assessment Year : 2001-02
I.T.A.Nos. 1676,1677,1678/Del/2006
Assessment Year : 1998-99 to 2000-2001
Association of Corporations Vs. Asstt. Director of Income Tax (E)
& Apex, Societies of Handlooms, Inv. Circle - 1,
Handloom Pavilion, Mayur Bhawan,
Near Gate No. 2, Pragati Maidan New Delhi.
New Delhi - 110 001.
(Appellant) (Respondent)
Appellant by : Shri K.S.V.S. Manian, CA
Respondent by : Smt. Reena S. Puri, CIT DR
ORDER
PER DIVA SINGH, JM
These four appeals have been filed by the assessee against the orders of the CIT(A) for 2001-02, 1998-99, 1999-2000 and 2000-01 asstt. Years respectively. All these appeals are being decided by a common order for the sake of convenience as they were heard together in view of the common stand of the parties before the Bench that the arguments on facts and case law on either side would remain the same on the issues agitated by the assessee.
2. ITA No. 1114/Del/05 is filed against the order dated 5th November, 2004 of CIT XXVI, New Delhi for 2001-02 asstt. Year.
ITA 1144/Del/2005 Page 2
A.Y. 2001-
2001-2002
ITA Nos. 1676, 1677, 1678/Del/06
A.Ys: 1998-
1998-99 to 2000-
2000-2001
Assn. of Corpns. & Apex Societies of Handlooms New Delhi 2.1 In the said appeal, originally the assessee had filed 10 grounds along with the memo of appeal dated 9th March, 2003. However subsequently they were substituted by 6 grounds vide Revised grounds dated 5.12.2006. 2.2 Accordingly after taking note of the fact that ld. CIT DR had no objection to the substitution of Revised grounds for the original grounds raised by the assessee the substitution is allowed and the parties before the Bench were heard on the said grounds. The revised grounds in ITA 1144/Del/2005 read as under:
1. The Ld. CIT(A) has erred in law and on facts in upholding the addition made by the AO of Rs. 1,76,89,280/- as alleged income.
2. The Ld. CIT(A) has erred in law and on facts in not appreciating that the assessee never had the right to receive any alleged interest income of Rs.
1,76,89,200/-. Also there should be an award of the Arbitrator and also Rule of the Court allowing the award. Nothing had happened of this kind in this case.
3. Under the contract between the assessee and the Bihar Government dated 5.3.1997 the State Government has to advance Rs. 40 crores which was kept as FDR in Syndicate Bank and was covered by a lien as security for Bank Guarantee by the bank to the Government of Bihar for Rs. 40 crores. Under the circumstances of facts and legal position no income has accrued or arisen as income to the assessee since the contract was got frustrated.
4. The Bihar Government invoked the Bank Guarantee on 16.12.2000 of Syndicate Bank which had paid the amount not only of Rs. 40 crores but also prematurely encashing the FDRs and getting upto the date of payment to the Bihar Government on such FDRs from Syndicate Bank as alleged interest. Consequently based on the principle of law by the Apex Court in the case of E.D. Sassoon & CO. Ltd. Vs. VIT reported in (1954) 26 ITR 27 (S.C) no income has accrued or arisen in the case of the assessee so assessment is wrong and bad in law.
5. The levy of interest u/s. 234B of Rs. 19,99,119/- is not at all leviable no evidence that the Assessing Officer has applied his mind as has been held by the Supreme Court in the case of CIT vs. Ranchi Club reported in 247 ITR 209 (SC) upholding the decision of the Patna High Court judgment in the case of Uday Misthanna Bhandar vs. CIT reported in 222 ITR22.
6. On seeing the past history of the assessee has been assessed as Charitable Institution and was allowed exemption u/s 11 of the Income Tax Act, 1961 since inception and is a Government of India Society trying to help and coordinate various societies in the country manufacturing by member unit towards marketing of their hand looms products and the assessee was covered ITA 1144/Del/2005 Page 3 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi under section 2(15) of the Income Tax Act, 1961 and also registered under section 12A(a)of the Income Tax Act 1961.
3. ITA 1676/Del/2006 to ITA 1678/Del/2006 are filed against separate orders dt. 21.3.2006, 20.3.2006 and 21.3.2006 of CIT(A)-XI, New Delhi, wherein 3 identical grounds in each of the years have been raised. 3.1. For ready reference we reproduce grounds from ITA 1676/Del/2006.
"1. That the CIT(A) erred on facts and in law in not appreciating that the initiation of the reassessment proceedings made by the AO u/s 147 of the Act was based on mere change of opinion and the reassessment order passed pursuant thereto is liable to be quashed.
2. That the CIT(A) erred on facts and in law in confirming the addition made by the AO in respect of interest on FDs maintained by the appellant with the bank without appreciating that the appellant had no control over the amounts of such FDs.
2.1.
2.1 That the CIT(A) erred on facts and in law in not appreciating that owing to a dispute with the Government of Bihar, the interest amount earned on FD could not be treated as income.
2.2.
2.2 That the CIT(A) erred on facts and in law in not appreciating that since the bank had lien on the amount of FDs and interest accrued thereon as security against the bank guarantee provided by the bank to the Government of Bihar, the interest on the FDs could not be treated as income of the appellant, nor the interest, the same neither having accrued nor received by the appellant.
3. Alternatively and without prejudice, the CIT(A) erred on facts and in law in not giving direction to the AO to consider form 10 filed by the appellant during the assessment proceedings to allow the benefit of accumulation of income. 3.1. That the CIT(A) erred on facts and in law in not appreciating that the requirement of filing form 10 along with the return of income is directory and not mandatory.
3.2. That the CIT(A) erred on facts and in law in holding that no application has been filed by the appellant before CBDT for condonation of delay in filing Form
10."
3.2. It is seen that the issue addressed in the above 3 appeals vide ground no.2, 2.1 and 2.2 is identical to ground no.1 in ITA 1144/Del/2005 and the said appeal namely ITA 1144/Del/2006 it was a common stand of the parties that the ground numbers 2, 3, 4 and 6 are facts and arguments in support of ground no.1. Vide the ITA 1144/Del/2005 Page 4 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi said ground the assessee is challenging the addition made on account of interest income stated to be earned by the assessee. The said issue is common in all the four appeals. The arguments on facts in regard thereto are common as such the finding on the said issue would apply to the respective grounds in the remaining appeals under consideration.
3.3. Apart from the above common issue in all the appeals, in the remaining 3 appeals for 1998-99 to 2000-2001 A.Y. the second common issue involved vide ground no.1 is the initiation of reassessment proceedings u/s 147. 3.4. The third common issue in these remaining three appeals is the challenge posed to the action of the CIT(A) in not directing the A.O. to consider Form no.10 filed during the assessment proceedings to allow the benefit of accumulation of income addressed vide ground no.3. In regard to the issue addressed vide ground no.3 in the remaining 3 appeals the ld.AR has also addressed arguments in ITA 1144/Del/2005 stating that these have been addressed before the CIT(A) and they shall be addressed while considering the said issue. 3.5. That leaves us with ground no.5 in ITA 1144/Del/05. No arguments were addressed on the said issue by the ld.A.R. It is seen that the said ground is consequential and requires no adjudication. However since no arguments were advanced it is dismissed as 'not pressed'.
4. Having thus summed up the grounds in the appeals filed by the assessee we now propose to consider ground no.1 along with supportive grounds and arguments in ITA 1144/Del/2005. For the said purpose we first propose to set out the facts available on record.
5. Facts as available in the Assessment Order : The relevant facts are that the assessee as per its return filed on 17.10.2009 declared a total income of NIL. The ITA 1144/Del/2005 Page 5 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi assessment was concluded on a positive income of Rs. 1,30,81,281/- by assessment order dated 24.3.2004.
5.1. The Assessing Officer observed that the assessee is a Society whose main objects are to coordinate and diffuse useful knowledge to the member units towards marketing of handloom products. He also observed that the aims and objects of the Society are charitable within the meaning of section 2 (15) of the Income Tax Act 1961. It was also observed by him that the Society is registered u/s 12A (a) of the Income Tax Act 1961. By applying the provisions of section 11 and 12 of Act, it was seen that the assessee has declared its income at NIL. 5.2. The AO, from the details filed and the books of accounts produced before it, observed that it reveals that the Society during the accounting period had received bank interest on FDR amounting to Rs. 9,80,81,363/- which had not been shown as its income.
5.3. The AO required the assessee to explain why this interest income should not be taken as the income of the Society. The AO observed that assessee had taken the entire amount of interest of Rs. 9,80,81,363/- directly in the balance sheet as liability under the head "loans and advances" showing as interest on fixed deposits under lien against the Bank Guarantee.
5.4. The assessee stated that as per the Interest Act, 1978, the right to make a demand for the interest vests only if a notice was served and the same expires three years from the date the right to receive interest accrues. As such it was contended that as on 31.3.2001, the right to make a demand existed with the Government of Bihar. It was also agitated that on 5.2.2001, the Government of Bihar, vide their statement of claim before the Secretary (Textiles) (Sole Arbitrator) in the matter between the assessee and the State of Bihar, made a claim of Rs. 35.48 crores on ITA 1144/Del/2005 Page 6 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi the amount of Rs. 40 crores advanced to the assessee. Accordingly, the amount was shown as 'Loans and Advances'.
5.5. Not convinced with the explanation offered the AO concluded as under :-
The facts are that the assessee has received bank interest on deposits amounting to Rs. 9,80,81,363/- which has not been taken as Income in Income & Expenditure Account. As per provisions of Income Tax Act, 1961 institution or trust availing the benefit of Sec. 11 & 12 should declare every receipt either by way of voluntary contribution, income from property held under trust and service charges on account of service rendered by the educational and medical institute, as income earned during the year. Only exception given is corpus donation not to be treated as income. In the case under reference, the assessee received Rs. 9,80,81,363/- as interest from FDR which comes under the purview of income from the property i.e FDRs held under trust. Thus action of the assessee with regard to showing the interest income, as liability is not in order as per provisions of Sec. 11 & 12 applicable to the assessee. Since the interest income comes under the purview of income from the property held under the trust, the same is being treated as income.
Examination of books of accounts showed that the assessee maintains its books of accounts of Mercantile System of Accounting and out of total interest of Rs. 9,80,81,363/-, Rs. 1,76,89,280/- accrued during the accounting period 1-4- 2000 to 31-3-2001. Hence, the same is being taken as income for the year under consideration.
With these remarks, total income is computed as under :-
Excess of Income over Expenditure As shown (-) Rs. 46,70,999/-
Add :-Interest Income accrued and received Rs. 1,76,89,280/ As discussed above.
Total Income Rs. 1,30,18,281/-
6. Aggrieved by this action the assessee came in appeal before the CIT(A).
7. Arguments before the CIT(A): Before the CIT(A) it was contended that the assessee is a Society constituted by the Development Commissioner Handlooms, Ministry of Textiles, Govt. Of India in 1984. and it is also a Society registered under the Societies Registration Act 1860 vide registration dated 28.6.1984. The Society it was stated is also registered under the Income Tax Act under section 12A and ITA 1144/Del/2005 Page 7 A.Y. 2001-
2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi qualifies for exemption u/s 11 and 12 of the Act. It was emphasized that the assessee is a body nurtured and nourished by the Ministry of Textile, Government of India and having it's office at Handloom Pavilion, Near Gate No. 2, Pragati Maidan, Bhairon Marg, New Delhi. The office bearers it was stated as would be evident from Memorandum of Association are all government officers mostly IAS officers who are administering the work of Handloom in various places. It was elaborated that the assessee coordinates in the matter of encouraging development of handloom production in the country as a body functioning as a conduit pipe between the users and the manufacturers. The users were claimed to be government Organizations like Railways, Defence and other departments of Central Government in the country. It was argued that producers of handloom products through out the country get the benefit of their services as the availability of the products and quantity are located by the assessee from its Member Organisations located in various places in the country and it arranges for the production and supply of handloom products through these agencies to the governmental organizations who make their requirements known to the assessee. 7.1. It was further contended that in the year under consideration as against the NIL income declared by the assessee assessment was completed at an income of Rs. 1,30,18,281/- u/s 143(3). The major addition made by the AO it was stated is in respect of Rs. 1,76,89,280/- added as alleged interest income on FDRs in the computation of assessable income.
7.2. The said action was assailed on the ground that the AO has erred in treating the said sum as income of the assessee. It was stated that this amount did not belong to the assessee. The same was stated to be an interest on FDRs under lien against which Bank Guarantee had been issued to the Govt. of Bihar by the bank ITA 1144/Del/2005 Page 8 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi on behalf of the assessee pursuant to the contract dated 5.3.97 between the assessee Society and the Govt. of Bihar.
7.3. Accordingly it was put forth that the assessee was legally neither in a position to encash Fixed Deposits Receipts nor the interest thereof since the matter was subjudice and had been referred to the sole Arbitrator namely the Secretary (Textiles) and is pending till date. Thus, it was stated that the said amount cannot be taken as assesee's income.
7.4. Addressing the background it was submitted that the Govt. of Bihar through the Director of Handloom and Sericulture, Department of Industries, Govt. of Bihar invited tenders in the month of June, 1996 for supply of cotton dhotis and handloom cotton sarees to the State of Bihar.
7.4.1. The assessee's tender, it was stated, was accepted and a formal contract of the total value of Rs. 199.854 crores was entered into on 5.3.97 for supply of 124.52 lakhs dhotis and an equal number of sarees. 7.4.2. Referring to the contact it was urged that as per the stipulations in the contract an amount of Rs. 40 crores was paid to the assessee on the assessee's furnishing a Bank Guarantee for an equal amount in favour of the Government of Bihar.
7.4.3. The said amount, it was stated was to be used by the assessee for distribution amongst various State Level Cooperative Weavers Societies for initiating supplies.
7.4.4. It was clarified that under the contract the parties had agreed that all disputes and differences relating to and arising out of the contract except regarding the quality and quantity of the goods supplied would be referred to a sole arbitrator.
ITA 1144/Del/2005 Page 9
A.Y. 2001-
2001-2002
ITA Nos. 1676, 1677, 1678/Del/06
A.Ys: 1998-
1998-99 to 2000-
2000-2001
Assn. of Corpns. & Apex Societies of Handlooms New Delhi 7.4.5. It was submitted that the assessee furnished a Bank Guarantee through its banker namely the Syndicate Bank, I.P. Estate Branch, New Delhi on 5.3.97. 7.5. It was stated that in September, 1997 a dispute arose between the parties as there was delay in making payments for supplies by the Government of Bihar. It was stated that as against the total supplies of handloom Sarees/Dhotis worth Rs. 35.98 crores the assessee received payment of only 7.96 crores. The allegation from the other side was also made apparently on the basis of newspaper reports that the sarees and dhotis supplied had been made on powerlooms and not on handlooms. It was further stated on behalf of the assessee that in order to wriggle out of the contract an order was passed by the Chief Secretary, Govt. of Bihar and communicated through Director Handlooms, Government of Bihar dated 23.9.1997 whereby the Syndicate Bank, New Delhi was directed to invoke the Bank Guarantee and remit Rs. 40 crores to the Govt. of Bihar. It was stated that in view of the above facts the assessee had filed the Writ petition before the Hon'ble Delhi High Court seeking to restrain the invocation of the Bank Guarantee as directed by the Govt. of Bihar. It was clarified that single judge of the Hon'ble Delhi High Court vide its order dated 1.9.1999 dismissed the writ petition of the assessee on the ground that the jurisdiction did not lie with the Delhi High Court. It was stated that the assessee then contested the said issue before the Division Bench of the Hon'ble High Court which was also dismissed by the Hon'ble High Court for want of jurisdiction and the assessee was advised to move the High Court of Patna vide order dated 27.9.2000.
7.6. It was stated that the Director of Handlooms State of Bihar terminated the contract with the assessee and the Govt. of Bihar took this opportunity and pursued the Syndicate Bank, Delhi for release of payment of Rs. 40 crores. The same was ITA 1144/Del/2005 Page 10 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi duly discharged by the bank on 16.12.2000 after encashing the FDRs along with interests due on such FDRs and was informed by the said bank on 18.12.2000. 7.7. It was further stated that the assessee had also referred the matter to the Sole Arbitrator, Secretary (Textiles) on 26.9.1997. 7.8. On 5.2.2001, it was stated the Government of Bihar apart from the refund of Rs. 40 crores also lodged before the Arbitrator a claim of Rs. 35.48 crores as interest on advance money as well as recoveries of expenditure and punitive compensation all aggregating to Rs. 71 crores. This was claimed it was stated over and above Rs. 40 crores which was already in dispute.
7.9. It was submitted that on account of these facts the interest does not belong to the assessee as the assessee was holding the same in trust on behalf of the Government of Bihar.
7.10. It was stated that interest income earned arising out of deposits of such advance does not have taxable character in the hands of the asseee. It was further stated that the matter was subjudice. On account of this fact the assessee has treated the sum of Rs. 9.80 crores as a liability being interest on fixed deposits under lien against the Bank Guarantee. It was submitted that the bank has marked a lien on this amount of FDR as well as the interest thereof as security against the Bank Guarantee provided to the Govt. of Bihar and therefore it cannot be encashed by the assessee nor the interest is available to the assessee. 7.11. On account of these facts it was stated the interest income does not belong to the assessee as it was stated to be an advance received from the Govt. of Bihar for execution of the contract and the assessee is only a trustee. Therefore the principle as well as the interest has to be paid to the Govt. of Bihar.
ITA 1144/Del/2005 Page 11
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2001-2002
ITA Nos. 1676, 1677, 1678/Del/06
A.Ys: 1998-
1998-99 to 2000-
2000-2001
Assn. of Corpns. & Apex Societies of Handlooms New Delhi 7.12. It was further stated that since the issues were subjudice before the Sole Arbitrator and the "virus" of tax can be attracted only when the interest income belongs to the assessee. On account of these facts, it was stated the assessee has reflected the sum of Rs. 9.80 crores as a liability. 7.13. Accordingly it is submitted that the question of application of funds can arise only if the income belongs to the assesee. Since the said amount is not the income in the hands of the assessee as such it was stated cannot be taxed as on the date it cannot be said to belong to the assessee. It is only when the income can be stated to belong to the assessee can the assessee apply this towards its object. 7.14. It was reiterated that the FDRs were prematurely encashed on 16.12.2000 and this fact was informed to the assessee through letter dated 18.12.2000 by the Syndicate Bank. As such it was requested that it may be appreciated that no sum has arisen out of the FDRs as income, which the assessee is entitled to. It was clarified that on account of this reason the assessee had filed NIL return as charitable institution. In support of its claim, reliance was placed upon E.D. Sassoon and Co. Ltd. and Others vs. CIT reported in 26 ITR 27 (SC) wherein at page 51 the three judge bench held as under :-
If the assessee acquires a right to receive the income, the income can be said to have accrued to him although it may be received later, on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be, a debt owed to him by somebody. There must be as is otherwise expressed debtium in present solvendum in futuro; see W.S. Try Ltd. V. Johnson (Inspector of Taxes), and Webb v Stenton and others, Garnishees. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.
7.15. It was also submitted that although the word 'earned' does not appear in section 4 of the Act however it has very often been used by the Courts. It was stated that the concept cannot be divorced from income accruing to the assessee. It was argued that If income has accrued to the assessee it is certainly earned by him in the ITA 1144/Del/2005 Page 12 A.Y. 2001-
2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi sense that he has contributed to its production and of the parenthood of the income which can be traced to him. It was argued that in order that the income can be said to have accrued to or earned by the assessee it is not only necessary that the assessee must have contributed to the accruing or arising by rendering services or otherwise but he must have created a debt in his favour. A debt must have come into existence and he must have acquired a right to receive the payment or in other words a debtium in present solvendum in futuro.
7.16. On facts it was argued it cannot be said that any income has accrued to him.. The mere expression "earned" in the sense of the rendering the services etc. by itself is of no avail. It was stated that it is a settled position and has been applied to understand what is an amount receivable under the mercantile system of accounting is only the amount to be taken as income only if the person entitled to receive it is in a position to debit the account of the debtor and credit it to the profit and loss account. Reliance was placed upon CIT Vs. Hindustan Housing and Land Development Trust Ltd. reported in 161 ITR 524 (SC) Reliance was also placed upon the following judgments :- 243 ITR 451 (Ker.), 238 ITR 740 (Cal.), 177 ITR 414 (Ker.), 161 ITR 524 (SC), 157 ITR 711 (Ker.) 7.17. It was re-iterated that FDRs under lien against the Bank Guarantee granted by the bankers were encashed and taken away by the Govt. of Bihar way back in December 2000 itself. The Bank Guarantee was revoked by the Govt. of Bihar. As the FDR's were prematurely enchased there was no right to receive any dues arising out of the FDRs which have been so encashed and taken away by the Bihar Government.
7.18. The alternate argument was put forth if it is to be held as assesssee's income then the liability towards payment of interest on the advance to the Govt. of Bihar which has been claimed by the person advancing the money is an application ITA 1144/Del/2005 Page 13 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi of funds and such liability for payment of interest if reckoned as application of funds which as per claim of the Govt. of Bihar is to the extent of Rs. 35.48 crores would completely "digest" the total interest of Rs. 9.80 crores and there would be no income liable for any tax. When considered from this point of view, the sum of Rs. 1,76,89,230/- would go to meet the contractual liability namely the interest as demanded by the Govt. of Bihar. Therefore, there is no resulting income to be taxed in the hands of the assessee.
7.19. It was submitted that when the alternate claim of the assessee is considered then there is no income which the Assessing Officer can tax. Accordingly it was pleaded that addition of Rs. 1,76,89,230/- be deleted..
8. Finding of CIT(A): Considering the above submissions the CIT(A) came to the following conclusion :-
I have considered at length the facts of the case. I find that the Assessing Officer has acted in accordance with law in subjecting to tax a sum of Rs. 1,76,89,280/- being accrued income during the accounting period 1.4.2000 to 31.3.2001. this interest income, is a part of Rs. 9,90,81,363/-, being interest on Fixed Deposit Receipts, which comes under the purview of income from property i.e, Fixed Deposit Receipts held under trust. As per the provisions of the Income-tax Act, 1961 an institution or trust availing the benefit of section 11 and 12 should declare every receipt either by way of voluntary contribution income from property held under trust and service charges on account of service rendered by educational by educational and medical institutes, as income earned during the year. During the course of appellate proceedings before me, the Assessing Officer has affirmed that there is no stipulation in the contract that the interest accrued or arisen on the Fixed Deposit Receipt, cannot be availed of by ACASH. Taxation of Rs. 1,76,89,280/- being interest income accrued and received, is , therefore held to be in accordance with law, and confirmed.
9. Being aggrieved by the order of the CIT(A) the assessee is in appeal before the Tribunal.
ITA 1144/Del/2005 Page 14
A.Y. 2001-
2001-2002
ITA Nos. 1676, 1677, 1678/Del/06
A.Ys: 1998-
1998-99 to 2000-
2000-2001
Assn. of Corpns. & Apex Societies of Handlooms New Delhi
10. Submissions on behalf of assessee : Ld. AR heavily relied upon the submissions advanced before the authorities below and reiterated the facts as canvassed before the authorities below.
10.1 Attention of the Bench was invited to the copy of the written submissions filed before the Bench on the basis of which it was contended that no income has accrued to the assessee in the year under consideration. 10.2 For ready reference the written submissions are reproduced hereunder :-
The Association of Corporations and Apex Societies of Handlooms (ACASH) is a Registered Society under the Societies Registration Act 1860 vide Registration dated 28.6.1984 and also registered u/s 12A (a) of Income Tax Act 1961 thereby claiming exemption u/s 11 and 12 of the Income Tax Act 1961.
The Society was constituted by the Development Commissioner, Handlooms, . Ministry of Textiles, Govt. of India and the membership is opened to State/National level Apex Cooperatives and Corporations.
Memorandum of Association along with Rules and Regulations of the Society and list of members are enclosed in the paper book. On the perusal of the list it may be noted that State Handloom Corporations, Weavers Cooperative Societies, State Cooperatives are the members. The Chairman and the Vice Chairman of the Society are the Development Commissioner and Additional Development Commissioner for Handlooms, Udhyog Bhawan, Ministry of Textiles, Govt. of India.
The appeal ITA NO.1144/Del/05 relates to A.Y. 2001-02 against order u/s 143(3).
The only ground of appeal relates to addition by the AO. as alleged income of the Society sum of RS.1,76,89,280/-. The brief facts are:
ITA 1144/Del/2005 Page 15
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ITA Nos. 1676, 1677, 1678/Del/06
A.Ys: 1998-
1998-99 to 2000-
2000-2001
Assn. of Corpns. & Apex Societies of Handlooms New Delhi
1. On 5.3.1997 assessee entered into contract with Govt. of Bihar for supply of dhotis and sarees to the families living below the poverty line. The total value of the contract was for Rs.199.8546 crores (see paper book 1 to 6).
2. On the same day a sum of Rs.40 crores was paid by the Govt. of Bihar to the assessee Society against which Bank Guarantee of equal amount was provided by the assessee through its bankers namely Syndicate Bank (paper book page no.7 and 8).
3. Out of the above advance, the assessee gave for execution of the work advance totaling to Rs.11.69 crores to various supplying agencies namely State Handloom Corporations/State Handloom Apex Societies /Cooperative Societies who had in turn given Bank Guarantee in favour of the assessee. A sum of Rs.28.50 crores was kept as FDR under lien with Syndicate Bank as a security deposit for issuance of Bank Guarantee to Bihar Govt.
4. The assessee Society had to start supplies 45 days after receipt of the order from the Govt. of Bihar and thereafter complete the supply within 6 months.
5. Assessee supplied goods amounting to Rs.35.40 crores to Bihar Govt. upto Nov. 1997 with a corresponding liability to the suppliers. Against this supplies the assessee received only of Rs.7.96 crores.
6. In July 1997 on the basis of newspaper reports alleging production of sarees and dhotis on power looms instead of hand loom by some of the supplying agencies engaged .by the assessee the Bihar Govt. wanted to terminate the contract.. The Chief Secretary, Govt. of Bihar invoked the Bank Guarantee vide order dated 15.9.97, copies enclosed at paper book page no.10 to 14. Consequently, the Director (Handloom) and Sericulture, Bihar, Patna vide letter dated 23.9.97, copy enclosed at page 9 of the paper book directed the Syndicate Bank for payment of Rs.40 crores.
7. On 21.11.97 the Under Secretary, Govt. of Bihar terminated the contract with ACASH vide letter enclosed at page no.15 and 16 of the paper book.
8. Assessee filed petition before the Hon'ble Delhi High Court u/s 9 of the arbitration and conciliation Act 1996 for ITA 1144/Del/2005 Page 16 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi interim relief restraining the encashment of the Bank Guarantee which came up before single Judge vide his order dated 1.9.99 dismissed the application for add interim injection on the ground that this Court had no territorial jurisdiction to entertain and decide the petition.
9. Assessee then filed another application before the Division Bench of the Delhi High Court but could not succeed as the Division Bench also vide their order 27.9.2000 upheld the order passed by the single judge and returned the petition to the appellant for being presented in appropriate Court i.e. the Court who had the jurisdiction to the entertain the petition of the assessee (in this case is Patna High Court).
10. The Govt. of Bihar immediately instructed the Syndicate Bank to release the Bank Guarantee of Rs 40-crores. The Syndicate Bank vide letter dated 18.12.2000 (paper book page no.29 & 30) intimated the assessee that on 16.12.2000, it has liquidated pre-maturely all the FDRs held as security i.e. 28.5 crores plus 9.8 crores as interest earned over the years and repaid to 'Bihar Govt. the sum of Rs.4O crores on 16.12.2000.
11. The amount of Rs. 4O crores was reflected in the accounts under the sub head Loans & advances (schedule-8) under the main head current liabilities and provision for the year ended 31st March 1998, 31st March 1999 and 31st March 2000.
12. The interest on the said fixed deposits which were held as lien against the Bank Guarantee were also reflected under sub-head Loans & advances (schedule-8) under the main head current liabilities and provisions in the Balance sheet. This is because the assessee was holding the advance ·received from Govt. of Bihar as a trustee in a fiduciary capacity.
13. This aspect has been duly disclosed by the assessee in the Notes to the accounts for all the years under consideration.
14. The assessee filed petition before the Secretary (Textile) in Sept. 1997 as recorded by the AO. in his order. The Govt. of Bihar as well as the assessee both filed petitions as well as counter petitions for claims before the arbitrator namely ITA 1144/Del/2005 Page 17 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi Secretary (Textiles) and since then the proceedings are in progress for settling the disputes before the sole arbitrator.
15. The assessee Society has always maintained separate identity of the funds received from the Govt. of Bihar as it was only a custodian of the funds and could take as income only on completion of the contract. Even the interest on FDRs were never physically received, it was always held in lien with the bank which was subsequently pre-maturely encashed and utilized for paying back to Bihar Govt.
16. The Assessing Officer has treated the interest on the FDRs having its source to the advance received from the Bihar Govt. as assessee's own income thereby resulting in huge demands against the assessee despite the submissions of the assessee that the principal as well as the resultant interest therefrom does not belong to the assessee as the Society does not have any right on such income. The income taxed by the AO. as assessee's income is as under:-
A Y. 2001-02 Rs.1,76,89,280/- A.Y. 2000-01 Rs.3,51,63,260/- A.Y 1999-2000 Rs.2,10,46,130/-
17. The case of the assessee is the advance received from Govt. of Bihar which is the source for the FDR was held by the assessee as Trustee in fiduciary capacity.
The interest thereof on the said FDRs therefore is also held in trust and cannot be regarded as income of the assessee as the assessee has no right on the said interest income
18. As stated above, the entire transaction is now before the arbitrator and issues will be resolved after the award of the arbitrator provided it is acceptable by the parties otherwise the matter would have to be finally resolved by the superior courts. Till such time the assessee has to maintain status-quo.
19. The Assessing Officer as well as the CIT(A) has failed to appreciate that liability to include as income of the assessee would arise only when the assessee has a right to receive such income in his capacity as owner of the income. Neither advance received can be treated as income nor the accrual out of such advance can be subjected as assessee's income.
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20. Under the provisions of sec. 11 and 12 the income derived from property held. under trust and voluntary contributions received are taken as part of the total income. Neither the advance received of Rs.40-crores from Bihar Govt. nor the interest income by holding the said sum as FDRs can be said to be income derived from the property held under trust as the advance cannot be termed as property of the assessee Society.
21. The income would accrue and arise to the assessee only when the transaction is completed between the parties. Section 219 of the Indian Contract Act, also provide that in the absence of any special contract, payment for the performance of an Act is not due to the agent unless the completion of such Act (page 39 of E.D. Sasson).
22. List of case laws to support the case of the assessee is enclosed separately.
23. Without prejudice, the assessee submits that if the interest is treated as part of the total income of the assessee, then the AO. should consider application filed in Form No.10 by the assessee seeking accumulation u/s 11 (2) of the Income Tax Act, 1961. The application for seeking accumulation can be filed by the assessee during the course of assessment proceedings/as well as in the appellate proceedings:-
The support is drawn from the Gujarat High Court decision in the case of CIT v. Mayur Foundation 274 ITR 562 (Guj).
10.3. In support of the claim made, reliance was placed upon the following judgments :-
1. E.D Sassoon & Company Ltd. & Others V. CIT, Bombay in 26 ITR 27 (SC)
2. Paragon Construction (India) Pvt. Ltd. v. CIT (2005) 142 TAXMAN 215 (Delhi)
3. Godhra Electricity Company Ltd. v. CIT (1997) 225 ITR 746 (SC)
4. Srikant G. Shah v. ITO (2008) 300 ITR (AT) 324 (Mumbai)
5. CIT v. Tanubai D Desai reported in 84 ITR 713 (Bom)
6. CIT v. Hindustan Housing and Land Development Trust Ltd. (SC) (1986) 161 ITR 524 ITA 1144/Del/2005 Page 19 A.Y. 2001-
2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi 10.4. Over and above the written submissions addressed vide para 23 reproduced above it was argued that these arguments were advanced before the CIT(A) also who should have allowed the alternate claim relying on CIT vs. Mayur Foundation 274 ITR 562 (Guj.). It was submitted that the said argument is recorded in the impugned order however no finding thereon has been given. Reliance was placed on Circular no.100 dt. 24.1.1973 of the CBDT for the contention that the claim of the assessee deserves to be allowed.
11. Submissions in support of the orders by the Ld.CIT, D.R. :The Ld. D.R., on the other hand, vehemently contended that the assessee has been contesting before the sole Arbitrator that the Rs. 40 crore has wrongly been encashed by the Bihar Government and the said amount belongs to it. It was her stand that the assessee has been taking contrary stands on facts before every forum. 11.1 On facts it was her argument that the assessee has violated the terms of the contract with the State of Bihar. The fact that the assessee had made the bank guarantee from the advance of Rs.40 crores received from the State of Bihar was stated to be in clear violation of the terms of the contract. To so invest the funds, it was her submission, was assessee's own decision. It was her argument that having so invested the funds in FDR the assessee cannot escape tax liability and say that the funds in fact belong to the State of Bihar.
11.2 It was also her contention that out of the advance of Rs,40 crores received by the assessee a sum of Rs.38 crores odd had been kept in FDRs and the remaining funds were transferred to the saving bank account. The Ld. D.R. submitted that the interest earned in the savings bank account where smaller amount of the funds were parked for shorter durations the assessee has earned interest and the said interest has been treated by the assessee as its own income. It was her contention that on ITA 1144/Del/2005 Page 20 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi the contrary on the interest earned from the FDR for reasons best known to the assessee it is being claimed that it belongs to the Bihar Government. This claim it was reiterated is only before the Tax Authorities as before the sole arbitrator the assessee is contending that the bank guarantee has been wrongfully invoked. 11.3 It was her vehement contention that this dual stand of the assessee shows that the claim before the Tax Authorities has no legs to stand on. A perusal of the paper book pages 139 to 154 for the years under consideration, it was stated would bear out these facts as would be evident from page 138 of the paper book clause v) & vi) as per schedule 17 Notes to the accounts.
"Sch.17 : Notes to the Accounts Clause iv) The bank is charging 1% bank commission on the bank guarantee of Rs. 40.00 crores against the normal rate of 3% on the condition that Acash will pay the differential guarantee commission if the bank is required to honour its guarantee obligations. However, Acash has requested the bank to reconsider its decision.
v) An amount of Rs. 2,41,82,691.00 has been earned as interest on FDs made out of Rs.40 crores advance mentioned above. In view of the case filed by the Govt. of Bihar, the above amount is not taken as income. Total interest accumulated on such FDs upto 31st March, 1999 is Rs. 4,52,28,824.00.
vi) Interest of Rs. 5,21,455.00 on savings a/c with Syndicate bank pertaining to Bihar supplies have been taken as income."
11.4 It was her stand that the treatment given by the AO is correct in terms of the settled legal principles that once the assessee has received a certain sum and as per its own will it has decided to put a portion of the same in FDR and certain portion in his saving bank account and the assessee at every stage knew how much interest was earned on the FDRs as such the judgment of Apex Court in the case of E.D. Sasoon and Co. Ltd. and Others vs. CIT on which Ld. AR was heavily relying upon would not be applicable since that is a case of a managing agency, and facts and issues are distinguishable . Similarly it was argued that the other cases relied upon by the ld.AR would have no applicability as the interest belonged ITA 1144/Del/2005 Page 21 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi exclusively to the assessee and there is no order of any arbitrator or any court which says that the said sums do not belong to the assessee. 11.5 Addressing the alternate submission advanced by the assessee on the application of income, it was her submission that this argument was never made before the AO and the Assessing Officer, as such, has never examined it for which reason the said argument even though addressed before the CIT(A) has not been considered by the CIT(A). It was her contention that as the assessee has not made an application in the proper form in terms of section 11 and 12 of the Act, there is no occasion to consider the same. It was emphasized that no application for such request has been moved by the assessee along with the return which is the mandate of law. Thus, it was argued that since the said procedure has not been followed the alternate arguments should not be accepted at this stage.
12. Submissions on behalf of assessee in the Rejoinder :
In rejoinder on the alternative prayer advanced on behalf of the assessee it was submitted by the ld.A.R. that the occasion to file a declaration in form no.10 u/s 11(2) along with the return did not arise as all along, it has been the assessee's claim that the said income does not belong to the assessee, thus the occasion to file the said form, along with the return did not arise. It was also his argument that the issue on merits is contested as such the alternate argument ought to have been considered.
Findings.
13. We have heard the rival submissions and perused the material available on record and taken into consideration the decisions relied upon by the parties before the Bench. In the light of the above facts and arguments considering ground no.1 in ITA 1441/Del/2005 along with the supportive grounds we are of the view that it would be appropriate to refer to the Agreement dated 5.3.1997 entered into by the ITA 1144/Del/2005 Page 22 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi assessee with the State of Bihar, copy of which is placed at pages 10-15 of the paper book. The next document which needs to be considered is order dated 23.9.1997 of Chief Secretary, Govt. of Bihar placed at pages 20-23 of the paper book along with the accompanying letters from Director, Handlooms&Sericulture, Govt. of Bihar addressed to the Syndicate Bank i.e. the guarantor bank placed at pages 18 and 19 of the paper book.
13.1. Before we refer to the documents mentioned above it is an accepted fact that the assessee is a Society constituted by the Development Commissioner Handlooms, Ministry of Textiles, Govt. of India in 1984 and is also a Society registered under the Societies Registration Act, 1860 vide registration dated 28.6.1984. It has also been canvassed that the Society is registered under the Income Tax Act u/s 12A and qualifies for exemption u/s 11 & 12. It is also the unrebutted stand of the assessee that it is a body nurtured and nourished by the Ministry of Textiles, Govt. of India and it coordinates in the matter of encouraging development of handloom production in the country and functions as a conduit pipe between the user and the manufacturer. It is a matter of record that the Govt. of Bihar through the Director of Handlooms and Sericulture, Dept. of Industries, Govt. of Bihar invited tenders in the month of June 1996 for supply of cotton handloom cloth/sarees to the State of Bihar. The assessee succeeded in its tender being accepted. The successful bid resulted in an agreement dt. 5.3.1997 between the Government of Bihar and the association of corporations and Apex Societies of Handlooms (referred to as ACASH i.e. the assessee) which is placed at pages 10 to 15 of the paper book.
13.2. A perusal of the said document shows that an advance of Rs. 40 crores was paid by the Government of Bihar and the Bank Guarantee of the said amount was to be given on the same date as per Clause 1 of the said agreement.
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Assn. of Corpns. & Apex Societies of Handlooms New Delhi 13.3. As per Clause 7 of the said agreement the assessee was required to furnish a performance guarantee for Rs. 20 crores which could be invoked by the Chief Secretary, Bihar, if there are sufficient reasons to do so after giving an opportunity of being heard to the assessee.
13.4. A perusal of clause 13 of the said agreement further shows that the Chief Secretary, Bihar after giving an opportunity of being heard to ACASH if there were sufficient reasons to do so could invoke the two bank guarantees (for Rs.40 crores and Rs. 20 crores). By virtue of the said clause it was ensured that ACASH was to be given 7 working days time to refer the matter to the arbitrator. The bank guarantees to be given by ACASH were required to be unconditional and from nationalized banks the validity of which was either 9 months from the date of purchase order or for 60 days after the receipt of entire supply. 13.4.1. For ready reference clause 1, clause 7 and 13 are reproduced hereunder from pages 12 and 14 of the paper book.
"Clause 1: Advance to be paid The Government of Bihar has agreed to advance a sum of Rs.40 crores to ACASH for commencing the execution of the contract. aCASH has agreed to give a Bank Guarantee for Rs.40 crores against this advance.
"Clause 7: Payment Terms The tender schedule (Part B) vide Clause no.7 has stated that the successful tenderer will be required to furnish security amount at the rate of 5% of the value of the total order placed less the amount of earnest money, in the form of bank draft or National saving certificate, Fixed deposit certificate pledged to the Director, Handloom and Sericulture, Govt. of Bihar, Patna or in the form of bank guarantee on any nationalized bank within a period of 14 days from the date of acceptance of the tender. In the event of the failure of the tenderer to furnish the requisite security, the amount of earnest money shall stand forfeited and vide clause no.11 deduction of 5% will be made from the running bill by way of performance guarantee, which would be payable on successful completion of the supply ITA 1144/Del/2005 Page 24 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi of order. After negotiations, it has been mutually agreed that Acash shall furnish a performance guarantee for Rs.20 crores in lieu of above mentioned 5% security deposit and 5% deduction from the running bill. Consequently, the Director, Handlooms, Govt. of Bihar shall pay full value of accepted goods against the bills raised. The performance guarantee may be invoked by the Chief Secretary, Bihar if there are sufficient reasons to do so after giving an opportunity of hearing to ACACH. In this case, the liability of ACACH varies from 0.25% per month to maximum 2% of value of undelivered goods.
(ii) On the basis of QRN received from D.M., ACACH will send its bill to Director, Handlooms within seven days for the payment. The Director (Handlooms) shall release the payment for the full value of accepted goods within 23 days from the date of the receipt of goods. All draft charges shall be borne by ACASH. Draft shall be payable at Delhi on a nationalized bank.
(iii) ACASH shall send the material through transporter on prepaid basis to the District Headquarters. In the event of default in timely payment by Govt.
of Bihar in one fortnight ACACH has the right to stop further supplies and no penalty will be paid by ACACH for late delivery in the event of non payment or delayed payment.
(iv) In case, ACASH makes the supplies earlier than the delivery schedule, the Govt. of Bihar shall make payment for the full value of goods supplied within the same time for the extra supplies also.
(v) The adjustment of the advance is to be made from the bills of later part of the last two months of supply @ Rs.20 crores per month. Clause 13 : Bank guarantee The two bank guarantees (for Rs.40 crores and Rs.20 crores) may be invoked by the Chief Secretary, Bihar if there are sufficient reasons to do so, after giving an opportunity of hearing to ACACH, ACACH may be given seven working days time to refer the matter to the Arbitrator. Bank guarantee to be given by ACACH will be unconditional and from a nationalized bank. Validity of bank guarantees will be either for 9 months from the date of purchase order or for 60 days after the receipt of entire supply, whichsoever is later. In case of earlier completion of supplies, the bank guarantees may be revoked on the basis of mutually consent of parties."
The disputes and differences arising out in relation to the said agreement save and except any dispute or difference regarding quality and quantity of goods supplied at the time of delivery were to be referred to the sole arbitration of the Secretary, Ministry of Textiles, Govt. of India, Udyog Bhavan, New Delhi as per Clause 16. On perusal of paper book pages 16 ITA 1144/Del/2005 Page 25 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi and 17 would show that it contains the copy of bank guarantee dt. 5.3.1997 by Syndicate Bank for Rs.40 crores on the request of the assessee i.e. ACACH which was given against the advance of Rs.40 crores received from Govt. of Bihar, Dept. of Industries Directorate of Handlooms and Seri Culture for due fulfillment by the contractor i.e. the assessee on the terms and conditions contained in the said agreement. 13.4.2. Paper book page numbers 21 to 23 it is seen is an order of Chief Secretary, Bihar dt. 15.9.1997 whereby the said authority orders that the Bank Guarantee be invoked under Clause 13 of the contract and Directorate of Handlooms, Govt. of Bihar was directed to take necessary action accordingly. 13.4.3. A perusal of the said order shows that both the parties were heard on 15.9.1997 namely Shri G.B. Rai, Additional Advocate General on behalf of Department of Industries and Director of Handlooms and an unnamed advocate on behalf of ACASH.
13.4.4. A perusal of the said order further bears out the fact that on behalf of the Govt. of Bihar it was agitated that ACASH had not given performance guarantee till date. The contention of the other side that the Govt. of Bihar had accepted the goods and therefore the contractual obligation of ACASH was fulfilled was objected on the ground that at no point of time the Govt. of Bihar waived the condition of performance guarantee. It was contended that the government had been insisting that ACASH should give performance guarantee and relaxation was given only in regard to payment of bills submitted till 30th June, 1997 on the condition that the performance guarantee would be given on or before 30th June, 1997. Accordingly it was stated on this ground alone the bank guarantee could be invoked.
13.4.5. It was also agitated that ACASH had not adhered to the schedule of supply. According to the schedule the entire supply ought to have been completed by 21st August, 1997 where as till 25th August, 1997 only 20% of the total ordered ITA 1144/Del/2005 Page 26 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi quantity was stated to have been supplied. It was alleged that the violation of the contract was not limited to supply of goods but ACASH was also faulted with on the ground of failing to provide a revised supply schedule which it was claimed was itself also adequate and sufficient ground to invoke the Bank Guarantee. 13.4.6. Another objection was posed on the ground that the evidence available with Govt. of Bihar showed that power loom goods instead of only handloom products had been supplied. The contention that the collectors had accepted the goods and distributed part of the goods was contested to be not a valid ground and ACASH was accused of having cheated in as much as the powerloom products had been wrongly stamped as handloom products. The samples having been tested in the organizations under the Textile Ministry or linked to the said Ministry were relied upon. The reliance placed upon the fact that there is no foolproof method in order to arrive at firm conclusions as to whether the products were made on handloom or powerloom by ACASH was also faulted with. Absence of due diligence on the part of ACASH was stated to be not only a violation of contract but according to the Additional Advocate General also raised substantial questions about the methodology of operation. 13.4.7. Relying upon a press release issued by the ACASH the Addl. Advocate General stated that ACASH had retained Rs. 28.31 crores in their own accounts as such it can be stated that ACASH has not distributed the money to the Weavers Society for purchasing yarn and for payment of wages as per commitments in the meetings dt. 22.8.1996 and 3rd December, 1996 on the basis of which interest free advances were made. The arguments on behalf of ACASH that payments were due from government was stated to be not a valid argument as payment had been withheld on account of the fact that the terms of Performance Guarantee from ACASH had not been complied with and the fact that power loom ITA 1144/Del/2005 Page 27 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi product instead of handloom product was provided. It was also agitated by the Addl.Director General in case ACASH is aggrieved with the decision the proper forum would be to approach the Arbitrator.
13.4.8. A careful perusal of the said order further bears out the fact that on behalf of ACASH through its lawyers it was contended that the Government of Bihar had been supplied handloom sarees and dhotis worth Rs. 32.11 crores which had been accepted and over and above Rs. 3 crores worth supplies in regard to which acceptance report had not been received. It was claimed that against these supplies of Rs.35.11 crores an amount of Rs. 7.96 crores only had been received from the Govt. of Bihar. It was contended that Clause 7 of the contract had four major conditions and each condition is interrelated to the other. The conditions inter alia were that the payments were to be made within 23 days of the receipt of goods; if the payments were not made supplies could be stopped, as per Clause 8 of the contract; supplies were stated to be linked with the payment and adjustment of Rs.40 crores advance as provided in the contract and was to be adjusted from the bills of the latter part of the last two months of supply. It was also contended that the Govt. of Bihar had taken delivery of goods and had also appropriated the goods.
13.4.9. It was also contended through the Advocate that the Rs.40 crores advances had been given for commencement of execution of the contract which was to be given as interest free advances to supplying (handloom organizations). How the State handloom organizations were to appropriate these advances it was stated was governed by the Articles of Association of the said handlooms association. It was stated that there is no bar for the State organization to advance to private persons if their rules permit. However as far as ACASH is ITA 1144/Del/2005 Page 28 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi concerned no advance had been given to two agencies from Haryana or to any private party.
13.4.10. On behalf of ACASH the sample testing was also faulted with the ground that the samples were stated to have been taken from six suppliers and the value of the said lot was only Rs.65 lakhs rupees. The samples were also stated to have not been taken in the presence of the Representative of ACASH. The entire conclusion having been based on just two samples from each supplier was also faulted with. It was pointed out that under Clause 5 (iii) of the contract certificates of acceptance have been issued and no dispute had been raised in this regard. Letter of NITRA was relied upon for the proposition that there is no test or standard equipment to distinguish between the handloom or power loom products. As such their report it was stated 'could not be accepted'. Referring to Clause 13 of the contract it was stated that sufficient reasons must exist to invoke the guarantee. The contract was stated to be still alive as such the bank guarantee it was stated cannot be invoked. Clause 14 was also relied upon so as to contend that it provides for mutual negotiations which had never taken place. 13.4.11. Considering the submissions certain queries were put to ACASH in regard to the enquiry which may have been conducted to find out the truth of the newspaper report. The assessee responded that they have ordered an enquiry whose report is awaited but their own enquiry report indicated that only handloom products have been supplied. The assessee was also required to specifically answer its position vis-a-vis performance guarantee. The assessee's response was considered to be not a satisfactory reply.
13.4.12. The Additional Advocate General in reply on the other hand stated that Bihar Govt. has given Rs.40 crores as advance and Rs. 7.96 crores as payments where as the total value of supply according to ACASH is for Rs.35 ITA 1144/Del/2005 Page 29 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi crores. Six organizations whose samples were tested it was contended have supplied goods worth Rs.15 crores He also reiterated the earlier points that the performance guarantee had not been given and schedule of supply was not adhered to which were stated to be sufficient grounds to invoke the Bank Guarantee. Reliance was also placed upon by the admission by ACASH itself that they had kept Rs.28.31 crores in interest bearing deposits it was again stated that this is a violation of contract. Reliance was placed upon the minutes of the meeting which was stated to be forming part of the contract. Relying on the same it was submitted that the entire discussions relating to the grant of interest free advances to ACASH was based on the need to give money as advance to handloom organizations for yarn and wages and the conduct of ACASH it was stated was not in conformity with the arguments made by them during the meeting. As such it was claimed that there is a violation of contract on this score also. Reference was also made to the letter no. 2255/CCS dt. 26th August, 1997 addressed by the State of Bihar to ACASH requiring that a detailed enquiry be made in respect to the irregularities.
13.4.13. Considering these submissions the Chief Secretary concluded that there was a violation in the terms of the contract by ACASH on two grounds namely Performance Guarantee not having been finalized within the stipulated time nor in the extended time; and not adhering to the delivery schedule or submitting any Revised Schedule. However in regard to the issue whether the supply was of products produced by power loom or handloom he took the stand that he was not in a position to take a view as the report of the Textile Commissioner was awaited. 13.4.14. For ready reference we reproduce para 5 of the said order from page 23 of the paper book.
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Assn. of Corpns. & Apex Societies of Handlooms New Delhi "5. After going through the papers and arguments of both the parties, I am satisfied that Acash has violated the terms of the contract at least on two grounds :
(i) Performance guarantee was not given within the stipulated time and even after extension of the time limit upto 30.9.197.
(ii) They have not adhered to delivery schedules, nor was any revised schedule submitted.
In addition, ACACH has, admittedly kept Rs. 28.31 crores in interest bearing deposits in the bank.
Even though some test reports suggest powerloom products have been supplied instead of handloom products, I am not at present taking a view as to whether the products supplied are powerloom or handloom since the report of the Textile Commissioner is still awaited. ACACH, may make this report available to the Industries dept. Govt. of Bihar as and when received. However, there is enough evidence on record to arrive at a prima facie conclusion that powerloom products have been supplied instead of handloom products.
In view of the above, I am satisfied that sufficient grounds exist for invoking the bank guarantee under clause 13 of the contract. It is hereby ordered that the bank guarantee be invoked under clause 13 of the contract. Director (Handloom), Govt. of Bihar is directed to take necessary action accordingly."
13.5. The record shows that acting on the above order Director, Handlooms, State of Bihar sent a letter dt. 23.9.1997 to the assessee's bank invoking the bank guarantee and demanded Rs.40 crores through bankers cheque. The assessee approached the Hon'ble High Court of Delhi twice to stay the invocation of the Bank Guarantee unsuccessfully.
13.6. Considering the facts as available on record and discussed hereinabove we find ourselves unable to agree with the contention of the ld.A.R. that on the basis of above the facts and background that the interest arising from the FDRs can not be the income of the assessee. The argument that FDRs were under lien against the Bank Guarantee does not help the assessee, the assessee could offer it for lien only because the assessee's ownership was unfettered. Assets whose ownership is questionable cannot be offered as lien. Even after offering them as lien the ownership is not transferred and assessee's ownership continues to be undisturbed till the occurring of the event by virtue of which the ownership passes to ITA 1144/Del/2005 Page 31 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi the party who has a lien in its favour which event has occurred on 16.12.2000 when the bank guarantee was invoked. As on the day the Fixed deposits were maintained the ownership is undisputed. Future events cannot dictate the taxability of the issue in the pressed proceedings. It is seen that the undisputed fact on record is that the F.D.R. of Rs. 28.31 crores which was maintained from the Rs.40 crores advance by the Govt. of Bihar. The said sum was advance available to the assessee for the specific purpose of facilitating/executing the terms of the contract entered. As such the said sum was available to the assessee to be used accordingly by it at its own discretion. Admittedly the assessee maintained a portion of the advanced funds in its savings bank and advanced the funds to weaver societies as and when identified by it. The interest earned on the funds maintained in the Saving bank account has been taken by the assessee itself as the income as such there is no quarrel on the said issue with the department. However a portion of the said Rs.40 crores received as advance namely Rs. 28.11 crores etc. has been deposited in FDRs. It has been canvassed that the decision to do so was a prudent decision as Weaver Societies capable of delivering the handloom products had to be identified. The prudence of the said decision/action is also not under challenge and it will not impact the conclusion that the amount of interest is taxable in the hands of the assessee. The claim that it belongs to the State of Bihar cannot be accepted. The departmental stand that it is a unilateral decision of the assessee cannot be faulted with. Having given our utmost consideration we hold that the arguments of the assessee do not have merit not only on the ground that the action was unilateral and not contemplated under the contract but also on the ground that even if the argument is accepted in that situation also the ownership of the goods under lien pass only at the time the event contemplated does not occur and the party in whose favour the lien has been created can under law claim ITA 1144/Del/2005 Page 32 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi ownership on the goods/asset as the party has failed to perform the contracted terms. Thus when the FDRs were maintained ownership vested completely with the assessee even if the assessee unilaterally binds itself by way of executing lien, the ownership passes on 16.12.2000 which future development will not impact the taxability.
13.7. Accordingly for the reasons given hereinabove the concurrent finding of the authorities below on facts cannot be faulted with. The arguments that assessee was under a bonafide belief that maintaining FDRs from these funds and holding them as lien for the State of Bihar in terms of the requirements of the Agreement does not impact the taxability of the amount; Ignorance of law in tax matters cannot be accepted. The bonafide of the assessee in holding that FDRs in lien towards the obligation under the contract in favour of State of Bihar are of no relevance in the present proceedings. No doubt the object of the Society is laudable the society may also have an argument that the Bank Guarantee was wrongly invoked. However these facts and arguments qua the issue involved are of no help. The issue has to be solely decided on the basis of facts on record, the relevant provisions of the Act and the case law on the issue which we would subsequently address is of no help to the assessee. 13.8. We now propose to discuss the case law relied upon before us.. 13.8.1 It is seen that before us the ld.A.R. has placed reliance on ED Sassoon & Co.Ltd. and another vs CIT 26 ITR 27 (S.C.). Specific attention has been invited to page 51 for the proposition that unless and until there is a debt due created in favour of assessee by somebody it cannot be said that he has acquired the right to receive the income or that the income has accrued to it. The ld.A.R. has canvassed that by virtue of the principle laid down by the Apex Court in the said judgement the interest received is not the income of the assessee. The stand has been ITA 1144/Del/2005 Page 33 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi vehemently opposed by the ld.D.R. who has argued that the said judgement has no relevance to the facts of the present case as it is purely in the context of the circumstances where a managing agency can be said to have earned commission or not. A careful reading of the said judgement shows that their Lordships were called upon to consider one common question of law in all the appeals viz., whether in the circumstances of the case the managing agency commission was required to be apportioned between the Sassoons and their respective transferees in the proportion of the services rendered as managing agents by each one of them and the decision turns upon the question whether any income had accrued to the Sassoons on the dates of the respective transfers of the managing agencies to the transferees or at any time thereafter.
13.8.2. Considering the terms and conditions of the agreements entered into by the assessee and other managing agents it was held that the commission were not liable to apportionment between the S Company and A in the proportion of the services rendered as managing agents by each one of them, but A was liable to pay tax on the whole commission. The Right to receive the commission it was held would arise and the income, profits or gains would accrue to the managing agents only at the end of the calendar year which was the terminus a quo for the making up of the accounts and ascertaining the net profits earned by the company. 13.8.3. Their Lordships held that the transferees obtained under the deed of assignment and transfer executed by the S company in their favour was an income bearing asset consisting of the office of managing agents, the managing agency agreement and all the rights and benefits as such managing agents under the agreement and no part of the consideration paid by the transferees to the S company could be allocated as a receipt of income by reason of their contribution towards the earning of the commission in the shape of services rendered by them as ITA 1144/Del/2005 Page 34 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi managing agents of the U company for the broken period. What the transferees obtained under the deed of assignment and transfer was the expectancy of earning a commission in the event of the condition precedent by way of complete performance of the obligation of the managing agency under the managing agency agreement being fulfilled and a debt arising in favour of the managing agents at the end of the stated period of service contingent on the ascertainment of net profits as a result of the working of the U company during the calendar year. 13.8.4. In the facts of the present case it is seen it has no relevance as undisputably the amount of Rs.40 crores was advanced in terms of agreement between the parties for advancing to the Cooperative agencies which were to be identified by the assessee for the purpose of its contract in order to supply handloom sarees/dhotis. The fact that the assessee was required to provide a bank guarantee to the extent of the said amount over and above performance guarantee of Rs.20 crores which is alleged to have not been made and the fact that it is alleged that the assessee has provided the bank guarantee from the advance of Rs.40 crores received or the fact that from the loan of Rs.40 crores received the assessee maintained FDRs of Rs.28.11 crores which is violation of the terms of the contract are issues on which we are not required to give a finding as it will not impact the fact that at the time Rs.40 crores were advanced to the assessee the purpose was specified namely to facilitate the performance of the contract so as to enable the assessee to advance the same to the cash-starved weaver associations so that they could meet their requirements of yarn and wages cost. The ownership, control over the said funds of the assessee was undisputed. The act of holding them in lien for the State of Bihar does not pass the ownership/control of the said funds from the assessee. Thus neither at the time the funds were received nor during the time they continued to be in assessee's ITA 1144/Del/2005 Page 35 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi possession till December 2000. The fact that the assessee approached the Hon'ble Delhi High Court seeking to restrain the State of Bihar from revoking the Bank Guarantee or the stand before the Sole Arbitrator that these were funds belonging to the assessee are facts which may be relevant for considering the bonafide. However as far as quantum proceedings are concerned it has no relevance. However the admitted stand of the parties as appearing from documents available on record is that the FDs of Rs.28.11 crores were maintained from advance of Rs.40 crores which admittedly was the advance received by the assessee for performing the obligations of the contract the interest earned thereon belongs to the assessee. Thus the judgement of the Apex Court in ED Sassoon & Co. has no relevance for deciding the issue.
13.8.5. We have also taken into consideration the judgement of the Apex Court in the case of CIT vs. Hindustan Housing and Land Development Trust 161 ITR 524 (S.C.) wherein the issue of enhanced compensation was disputed and the assessee was allowed to withdraw the said amount only on furnishing a security bond for refunding the amount in the event of the appeal being allowed. In these circumstances it was held that the amount did not accrue to the assessee as there was no absolute right to receive the amount at that stage. In the facts of the present proceeding it is an undisputed fact that the FDRs have been maintained by the assessee from the funds advanced to the assessee by the State of Bihar to be further advanced to State Handloom Organisations for meeting their expenses of yarn and wages. The action of the assessee to maintain a portion of Rs.40 crores advanced in F.D. till a weaver Society is identified and also to offer the very same FDs as a surety to State of Bihar argued to be a violation of the terms of the contract by the CIT, D.R. relying on the Order of the Chief Secretary or contrary to the negotiated terms of the contract will not impact the fact that the origin of the funds ITA 1144/Del/2005 Page 36 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi and stated purpose of the advance of the funds was solely to facilitate the performance of the contract. The interest earned by the assessee on these funds has unilaterally been treated by the assessee as belonging to the State of Bihar in the undisputable facts cannot lead to the conclusion that it did not belong to the assessee. The right to receive the interest was not obstructed by either any term in the contract or by any order of any Court. To pledge the very same FDs as part of the performance of the contractual requirements does not absolve the assessee as under the contract the assessee was duty bound to disburse these funds to the State Handloom Organisations so as to facilitate the Weaver organizations to make available the handloom dhotis/saress which the assessee was required to supply to the State of Bihar. These funds were made available to ensure that the cash starved Weaver Societies would be able to meet their costs of yarn and wages from these funds so advanced by the assessee. The assessee had full right and unfettered ownership of the said advance received for the specific purpose of facilitating its contractual terms which were in harmony with its aims and objects. 13.9. Our attention is also invited to the CIT vs. Rao Bahadur Kalawala Cunnan Chetty Charities ( 1982) 135 ITR 485 Madras for the proposition that the income from the properties held under the Trust will have to be arrived at in the normal commercial manner. Perusal of the observations made by the Hon'ble High Court would show that in the facts of the present case it does not advance the case of the assessee in any manner. The relevant observations extracted from the said judgement are:
"Whereever Parliament considered that the computation of income should be in accordance with the provisions of the I.T.Act, 1961, it introduced the concept by using appropriate language. In the absence of any such language in S.11(1) of the Act, the computation as envisaged by the other provisions of the Act cannot be imported into S.11(1). Section 11 contemplates an application of the income for charitable purposes.
ITA 1144/Del/2005 Page 37
A.Y. 2001-
2001-2002
ITA Nos. 1676, 1677, 1678/Del/06
A.Ys: 1998-
1998-99 to 2000-
2000-2001
Assn. of Corpns. & Apex Societies of Handlooms New Delhi The charity can accumulate 25 per cent of the income. Taking into account the purpose for which the conditions of S.11(1)(a) are imposed, it would be clear that the income to be considered will be that which is arrived at in the context of what is available in the hands of the assessee subject to an adjustment of any expenses extraneous to the trust. The application of income for charitable purposes will have to be excluded and it is only the balance that would require an examination for finding out whether the assessee has complied with the rule of accumulation. Accordingly, the income from the properties held under trust will have to be arrived at in the normal commercial manner without reference to the attracted provisions which are att racted by S.14, and 25 per cent thereof will have to be ascertained, and, if the assessee has accumulated more than 25 per cent, the consequences contemplated in S.11 will have to follow."
(emphasized by the Bench) 13.9.1. The finding of the CIT(A) and the AO which we have upheld are in fact supported by the above judgement.
13.10. Reliance has also been placed upon the judgement of Hon'ble High Court in the case of CIT vs. Trustees of HEH the Nizams Supplement reliance Endowment Trust 127 ITR 378 (AP) wherein at page 386 it has been observed that for the purposes of Schedule 11 (1)(a), it is the books of the trust which have to be taken into account in determining the income and expenditure of the trust. A perusal of the said judgement shows that it considers facts peculiar to its own. For ready reference the relevant extract from the head note is reproduced hereunder.
"Held, (i) that with regard to the income of the trust as such, it was the accounts of the trust alone that had to be taken into consideration. Though the payment of income-tax and wealth-tax made during the relevant year related to the previous assessment years, it could not be disputed that such expenses were incidental to the carrying out of charitable purposes of the trust. Such payments were outgoings in that particular year and were incidental to the carrying out of the objects of the trust. Therefore, the payments had to be excluded from the income of the trust. If so excluded, the income of the assessee for the A.Y. 1966-67 was only Rs. 9,428.61 and the same being less than Rs. 10,000, the trust ITA 1144/Del/2005 Page 38 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi was not taxable under S.11(1)(a) of the I.T.Act. For the A.Y. 1968-69, the expenditure over income was Rs. 2,906.03 after excluding the taxes paid during the year and, therefore, there was no surplus money for the purpose of investment and hence the trust was not assessable under the I.T.Act."
13.10.1. The argument that unilateral action of the assessee should be given sole importance and the facts available on record be ignored is not supported by their Lordships in the case of Nizams Supplement reliance Endowment Trust.
13.11. Before us reliance was also placed upon the judgment of the Delhi High Court in the case of Paragaon Construction India Ltd. vs CIT 142 Taxman 215 Delhi. The facts as appreciated by the Hon'ble High Court are that there was a dispute between the assessee and the NDMC in regard to the contract entered into with the NDMC. The dispute was referred to the Arbitrator who passed an award directing NDMC to pay certain sum along with simple interest to assessee. The assessee moved the Hon'ble High Court for making the award rule of the Court. Despite filing objections against the award the NDMC deposited the amount in the Court. During the pendency of the proceedings the Hon'ble High Court permitted the amount to be withdrawn by the assessee against the bank guarantee with a further condition that in case the NDMC succeeds assessee would refund the amount with interest. The assessee subsequently withdrew the amount and kept it in a F.D. with a bank on which interest was earned. The A.O. held that interest accrued on the amount so deposited is taxable income for the relevant A.Y. the award was subsequently confirmed and affirmed by the High Court. In these facts it was held that it was not a case where mere date of payment was deferred but in fact the right to receive the sum was in jeopardy and the right was said to have ITA 1144/Del/2005 Page 39 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi accrued to the assessee when the said award was affirmed by the High Court and the determining date was held to be the decision rendered by the High Court. 13.11.1. In the facts of the present case it is seen that no order of any High Court or of the sole Arbitrator is available on record which has either been called upon to consider or has considered that the said sum does not belong to the assessee. Further no forum is seized of the question whether the sum was advanced belong to the assessee for a specific purpose in terms of the contract belong to assessee or not what is in dispute is whether maintaining FDRs of Rs. 28.11 lakhs from the advanced funds is violation of the terms of the contract or not which issue is not to be adjudicated upon by us in the present proceedings. Apart from that there is a further dispute namely that over and above the requirement of maintaining the Bank Guarantee of Rs.40 crores which according to the State of Bihar was never provided by the assessee from its own funds but was provided from the very sums advanced to the assessee the non performance guarantee of Rs.20 corres not having been provided was also alleged to be a violation which issue is also not for us to decide. No doubt counter claim of the assessee is also on record that maintaining FDRs from the Rs. 40 crores advanced is not a violation of the terms of the contract similarly grievances in regard to not releasing payment as per the stipulated schedule are other claims put forth apart from that there are various issues about the violation of a contract in view of the allegations by the State of Bihar that what was supplied was power loom products and not handloom products and counter claims by the assessee that the products which have been supplied by the societies identified by the State of Bihar and the defects in certification etc. given by the said Weavers Societies cannot be held against the assessee as the assessee is not a producer/manufacturer of the product and faults have been found with the sampling procedure and the sampling area. The fact ITA 1144/Del/2005 Page 40 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi remains that despite the multiplicity of disputes and the allegations and counter allegation as far as the factum of Rs.40 crores advanced to assessee is concerned by the State of Bihar there is no dispute on the fact that it was advanced to the assessee for a specific purpose in terms of the contract. The fact that interest has been earned from the FDRs of Rs. 28.11 crores maintained from a portion of Rs.40 crores there is no dispute. We see no evidence or document on the basis of which it may be said that these funds belonged to the State of Bihar as they were exclusively put for the use of the assessee to perform a certain task. By virtue of the said fact the interest earned thereon it becomes the income of the assessee whatever may be the treatment given by the assessee in its books of accounts. The facts and issue considered by the Hon'ble High Court in the case of Paragaon Constructions is of no help to the assessee as the facts are entirely distinguishable. 13.12. Reliance is also placed upon the judgement of Apex Court in Godhra Electricity Co.Ltd. vs CIT 225 ITR 746 (S.C.) in the facts of the specific case it is seen that the assessee company following the mercantile system of accounting had made entries in its books regarding enhanced charges for the supply of electricity made to the consumers whereas on facts no real income had accrued to the assessee in respect of those enhanced charges wherein after multiplicity of litigation by the assessee therein and the consumers of the electricity and the intervention of the Secretary to the Govt. of Gujarat Industries, Mines and Power dept. wherein the Hon'ble High Court and the Hon'ble Apex Court had considered the issues at various times before them in regard to disposal of various suits before trial court. Since the said hypothetical income as per the books of accounts of the assessee was being treated as assessee's income the Hon'ble Apex Court held that the Tribunal has rightly held that the claim at the increased rates as made by the assessee company on the basis of which necessary entries were made represented ITA 1144/Del/2005 Page 41 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi only hypothetical income and the amounts in question brought to the tax by the A.O. did not represent income which really accrued to the assessee company. 13.12.1. In the facts of the present case there is no hypothetical income considered by the department specific amount of interest has been earned on the FDR amounting to Rs. 1,76,89,280/- and there is no document on the basis of which it can be said that it does not belong to the assessee as such the said judgement is of no help.
13.13. Ld .A.R. has also relied upon the judgement of the Hon'ble Bombay High Court in the case of National Grindlays Bank Ltd. vs CWT 115 ITR 211 for the proposition that a banking company which holds the property as a trustee is not entitled to exemption in respect of property held in trust. It was contended that although the judgement is in the context of Wealth Tax, the proposition laid down therein is relied upon to canvass that the interest earned is held by the assessee in trust and does not belong to the assessee. In the facts of that case the bank had been appointed as a trustee the property held by the bank in its capacity as a trustee it was held cannot be said to belong to the bank. In the facts of the present case there is no document on the basis of which it can be said that the assessee is holding the said funds in Trust for the State of Bihar. The funds are at the exclusive disposal of the assessee as an advance in terms of the agreement with the State of Bihar for advancing the same to the weaver societies. Till the said sums are not advanced they are the income of the assessee and as and when the said funds are advanced they are application of income maintaining FDs of Rs.38 crores from the advance of said funds on which interest has been earned cannot be said to be application of the income. As such these judgement do not help the assessee in any manner.
ITA 1144/Del/2005 Page 42
A.Y. 2001-
2001-2002
ITA Nos. 1676, 1677, 1678/Del/06
A.Ys: 1998-
1998-99 to 2000-
2000-2001
Assn. of Corpns. & Apex Societies of Handlooms New Delhi
14. Accordingly for the reasons given hereinabove the ground no.1 in ITA 1144/Del/2005 along with grounds 2, 3, 4 & 6 are rejected. Ground no.5 was not argued by the parties before the Bench. Being consequential the same is rejected.
15. In the said appeal based on page 14 para 24 of the impugned order, arguments were advanced in ITA 1144/Del/2005 along with arguments in support of ground no.3 in the remaining 3 appeals. These shall be considered while adjudicating groundno.3 in ITA 1676, 1677 & 1678/Del/2005.
16. In the remaining 3 appeals of the assessee ground no.1 is common and the common stand of the parties before the Bench was that facts arguments and case law is identical which would apply to all the three years. 16.1. Facts :- In the light of the above stand it is seen that in the years under consideration i.e. 1998-99, 1999-2000, 2000-201 the returns filed by the assessee were processed u/s 143(1). As a result the assessment for 2001-02 having been selected for scrutiny the issue of interest earned on FDRs was examined by the A.O. and the addition made by him was confirmed by the CIT(A). In view of the fact that it was the same issue for the assessment years under consideration the AO initiated action u/s 147 of the Income Tax Act for taxing the interest income of Rs. 2,10,46,133/-; Rs. 2,41,82,691/- and Rs. 3,51,63,259/- respectively the said issue when challenged before the CIT(A) was rejected on the ground that since the earlier returns filed for the A.Ys were only processed u/s 143(1A) as such it was not a case of change of opinion on the same set of facts the contention that reasons were not provided to the assessee was also dismissed on the ground that the assessee has not shown any evidence that despite the request the reasons for action u/s 147 were not provided by the A.O. The CIT(A) held that in each of these years that it appeared to be a case where reasons were not provided to the appellant simply because no such request has been made before the A.O. ITA 1144/Del/2005 Page 43 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi 16.2. Arguments of the Parties:- Aggrieved by this the assessee is in appeal before the Tribunal. The ld.A.R. contended that this was a case of change of opinion. However in the face of the judgement of the Apex Court in the case of Rajesh Jhaveri Stock Brokers, he did not contest the issue further and merely relied upon Sarthak Securities Co.Ltd. vs. ITO 329 ITR 110 (Del). Ld.D.R. on the other hand heavily relied upon the impugned order and the judgement of the Apex Court contending that the issue is settled that in the case of 143(1A) intimation, there is no occasion to apply the mind, as such the ground of assessee deserves to be rejected. 16.3. Findings:- We have heard the rival submissions and perused the material available on record. It is seen that before the Bench the ld.AR did not canvass that the reasons have not been provided. The judgement relied upon by the ld.A.R. has no application in the present case since this is not a case of 143(3) assessment but where intimation is issued u/s 143(1A) of the I.T.Act, 1961. The Ld.A.R. merely confined his argument to the fact that it was a case of change of opinion which is no longer res integra by virtue of the judgement of the Apex Court in the case of Rajesh Jhaveri Stock Brokers, 291 ITR 500 (S.C.). The ld.D.R. also relied upon CIT vs. Sivashakthi Floor Mills Ltd. 327 ITR 430 (Gauhati). Accordingly in the light of the aforementioned facts, arguments and position of law, the finding arrived at in the impugned order is upheld on this issue and ground no.1 of the assessee in each of these remaining 3 years is rejected.
17. Ground no.2 has been considered by us in the earlier part of this order while considering ground no.1 along with supporting grounds in ITA 1144/Del/2005. Since the facts and circumstances remained identical for similar reasons the ground no.2 of the assessee is dismissed in these remaining 3 appeals. We may only make a reference to the fact that apart from the arguments advanced in A.Y. 2000-2001 another argument was also advanced before the CIT(A). The assessee had ITA 1144/Del/2005 Page 44 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi advanced the argument that as per Accounting Standards 9 (A.S.-9) the assessee's claim on merit deserves to be allowed on the basis of Revenue recognition. This argument is recorded at pages 19 to 22 in ITA 1678/Del/2006 which has been applied in the remaining two years by the CIT(A). The said issue has been considered by the CIT(A) in pages 35 and 36 wherein reliance has been placed upon the CIT(A)'s order for 2001-02. The reliance placed on the Accounting Standard-9 for Revenue recognition does not help the assessee's case in any manner whatsoever. The facts and circumstances being identical, ground no.2 raised by the assessee in each of the 3 remaining appeals is also rejected.
18. The third surviving issue addressed in the remaining three appeals i.e. ITA 1676 to 1678/De/2006 vide ground no.3 is that the (a) CIT(A) erred in not directing the AO to consider Form no.10 filed by the assessee during the assessment proceedings to allow the benefit of accumulation; (b) CIT(A) erred in not appreciating that the requirement to file Form no.10 along with the return is directory and not mandatory; (c ) CIT(A) erred in facts in holding that no application has been filed by the assessee before CBDT for condonation of delay in filing Form
10. 18.1. Facts:- A perusal of the record shows that before the CIT(A) it was contended that in the course of the assessment proceedings the assessee has filed Form no.10 for accumulation of profits and since the A.O. did not mention anything about this application the A.O. was required to offer his comments before the CIT(A). The A.O's response vide letter dt. 27.2.2006 in A.Y. 2000-2001 which has been considered in each of the remaining 2 A.Ys also is found reproduced at pages 27 to 29 of the impugned order. A perusal of the same shows that the A.O. observed that form no.10 for accumulation of income of Rs.21.14 crore was filed during the course of the assessment proceedings but no finding has been mentioned in the ITA 1144/Del/2005 Page 45 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi assessment order because he was of the view that the assessee did not warrant any relief. Reliance on the judgement of the Supreme Court and the High Courts by the assessee was considered to be misplaced. He was of the view that they did apply in view of the fact that form no.10 was filed on 15.2.2005 whereas Rule 17 clearly stipulated that from no.10 should be delivered before the expiry of the time allowed u/s 139(1) for furnishing the return. As such it was stated the stipulated time expired on 31.10.1998; 31.10.1991 and 31.10.2000 for 1998-99, 1999-2000 and 2000-2001 A.Ys respectively He was further of the view that the assessment was not a normal assessment and it was an assessment u/s 147/143(3) and the department's circular no.273 dt. 30th January, 1980 dealt with matters of condonation of delay in filing form no.10 under which the CBDT has authorized the CIT to admit the belated application u/s11(2) read with Rule 17 for condonation of delay in filing form no.10 u/s 119(2) of the Income Tax Act, 1961. And since the assessee has not sought any such condonation of delay in respect of the three A.Ys the plea for accumulation of income u/s 11(2) read with Rule 17 was not tenable in each of the years.
18.1.1. These comments of the A.O. were forwarded to assessee who filed his submissions dated 7.3.2006 which are found reproduced at pages 29 to 34 of the impugned order.
18.1.2. A perusal of the same shows that the assessee contended that in the facts of assessee's case there was no assessment u/s 143(3) and the returns were processed u/s 143(1)(a). No notice u/s 143(2) was issued for scrutiny assessment. Thus the reassessment u/s 147/143(3) is infact the first assessment of the assessee company. The facts qua the issue on merits were reiterated. It was urged that only during the reassessment proceedings the assessee came to know that the A.O. was proposing to treat the said interest amount as income of the assessee as such this is ITA 1144/Del/2005 Page 46 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi the first instance the application of form no.10 could be moved. Referring to circular no.273 it was pointed out is beneficial to the assessee and the assessee fully satisfies the conditions laid down in the afore mentioned Board's Circular to enjoy the benefit despite belated filing of form no.10. The judgements of various Courts relied upon before the A.O. in the remand proceedings were relied upon again. Reliance was palced upon Sun Engineering Works Pvt.Ltd. 198 ITR 297 for the meaning of the terms as considered therein of "assessed" or "reassessed" the escaped income. Reliance was also placed upon Apogee International Ltd. Vs UOI 220 ITR 248 (Delhi) and CIT vs. Punjab National Bank 249 ITR 763(Delhi) for the proposition that of intimation u/s 143(1) does not amount to assessment and thus since no regular assessment was framed prior to the issue of notice u/s 14 of the entire issue was open before the A.O. Reliance was further placed upon K.Govindan & Sons vs CIT 247 ITR 192 for the proposition that the assessment made for the first time u/s 147 is a regular assessment. 18.1.3. Findings under challenge:-
Considering these arguments the CIT(A) as per page 36 came to the following conclusion.
"As regards the alternate plea taken by the appellant as per ground no.6, it is noticed that they have contended that they had filed notice in Form no.10 in the course of assessment proceedings before the A.O. for accumulation of profits and in case the aforesaid interest is treated as there income they should be permitted to accumulate the said income u/s 11(2) of the Income Tax Act, 1961. The appellant has relied upon various court decision and decisions of the Appellate Tribunal and has contended that in their case the first assessment was made u/s 147/143(3) and they have filed form no.10 in the course of these assessment proceedings. Relying on the decisions of various courts & ITAT Benches they have contended that the time limit for filing of form no.10 provided in Rule 17 of the I.T.Rules is only director and that the delay in filing Form no.10 cannot be fatal so as to deny the benefit of accumulation. In this regard it is noticed that Rule17 of the I.T.Rules clearly stipulates that notice in Form 10 is required to be submitted within the time limit prescribed u/s 139(1). In the instant case the due date for filing of return for the year under consideration was 31.10.2000. The appellant has filed the said form on 25.2.2005 in the course of assessment proceedings initiated u/s 147 of the Income Tax Act, 1961. Thus there is an inordinate delay in filing of form no.10 ITA 1144/Del/2005 Page 47 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi and here I am inclined to agree with the observations of the AO in his report dt. 27.2.2006 that if the appellant's contention is accepted then there is no need to file notice for accumulation u/s 11(2) in form no.10 and the assessee can file the said form as and when pointed out/detected by the department. It is also noticed that vide circular no.273 dt. 30.6.1980 the CBDT has authorized the CIT to admit a belated application and condone the delay after satisfying himself regarding the genuineness of the case. In the instant case, however, no such application for condonation of delay has been filed by the appellant.
Under these circumstances I am inclined to agree with the view of the AO that the appellant's plea for deemed application of funds u/s 11(2) for accumulation of Rs. 3.60 crores, is not tenable and is liable to be rejected. Accordingly, this ground is decided against the appellant."
18.2. Aggrieved the assessee is in appeal before the Tribunal. 18.3. Arguments on behalf of the Parties:- The Ld.A.R. contended that the alternate prayer deserves to be allowed and the assessee should be allowed to get the benefit of accumulation u/s 11(2) as even if it is held that the income belongs to the assessee the same results in NIL income. The department it was argued should not be allowed to outrightly reject the claim of the assessee. It was argued that the application for seeking accumulation can be filed by the assessee during the course of the assessment proceedings/ as well as the appellate proceedings. In support of the said claim reliance was placed upon CIT vs. Mayur Foundation 274 ITR 562 (Gujarat). Reliance was also placed upon Circular no.100 (F.No. 195/1/72-IT(A-I) dated 24.1.1973 which has been taken into consideration by various judicial pronouncements. Reliance was placed upon:-
CIT vs. Cutchi Memon Union (1985) 155 ITR 51 (Kar.) CIT vs. Ramchandra Poddar Charitable Trust (1987) 164 ITR 666 (Cal.) ITO vs. K.Ravindranathan Nair (1992) 41 ITD 462 (Coch.Trib.) 18.4. Ld.D.R. on the other hand contended that on facts CIT(A) is justified to reject the claim.
ITA 1144/Del/2005 Page 48
A.Y. 2001-
2001-2002
ITA Nos. 1676, 1677, 1678/Del/06
A.Ys: 1998-
1998-99 to 2000-
2000-2001
Assn. of Corpns. & Apex Societies of Handlooms New Delhi 18.5. Findings:- We have heard the submissions advanced by the parties before the Bench and taken into consideration the material available on record. We first proceed to consider the relevant provisions to which our attention has been initiated. The assessee is a Charitable Society. It is seen that Form no.10 is the form considered under Rule 17 of the Income Tax Rules, 1962. The marginal note for Rule 17 reads as under.
accumulation Notice for accumulat ion of income by Charitable or religious trust or institution or association referred to in clauses (21) and (23) of section 10.
Rule17: The notice to be given to AO or the prescribed authority under clause (21) or (23) of section 10 shall be in form no.10 and shall be delivered before the expiry of the time allowed under sub section (1) of section 139, for furnishing the return of income.
The Foot note 20 of the Income Tax Rules, 2010 (Taxman's Publication 47th Edition also needs to be referred to. The same reads as under.
Delay in filing the notice is condonable by Commissioners Circular 273 dt. 3.6.1980.
CBDT circular has authorized Commissioners to admit applications u/s 11(2), read with rule 17, from persons deriving income from property held under the trust wholly for charitable or religious purposes for accumulation of such income to be applied for such purposes stipulated subject to the condition inter alia that the failure to give notice to the Income Tax Officer u/s 11(2) and investment of the money in the prescribed securities was only due to oversight. 'Oversight' means according to Oxford Advanced Learner's Dictionary, the fact of making a mistake because you forget to do or you do not notice. Where, according to the petitioner, there was delay by charted accountant in finalizing the accounts and it was for that reason that the notice in form no.10 for accumulation was not filed within the time indicated in rule 17 and the commissioner rejected the application for condonation of delay in giving form 10 under rule 17 and the Commissioner rejected the application for condonation of delay in giving form 10 under rule 17 the authority was directed to pass an order in the light of the CBDT circular prescribing conditions for admitting applications by the Commissioner under section 11(2) read with rule 17.
ITA 1144/Del/2005 Page 49
A.Y. 2001-
2001-2002
ITA Nos. 1676, 1677, 1678/Del/06
A.Ys: 1998-
1998-99 to 2000-
2000-2001
Assn. of Corpns. & Apex Societies of Handlooms New Delhi 18.5.1. In the foot note 20 referred to above, following decisions have been referred to.
Kerala Rural Employment & Welfare Society vs ADIT (2009) 184 Taxman 93 (Ker.) CIT vs. Nagpur Hotel Owners' Association (2001) 114 Taxman 255/247 ITR 201 (SC) CIT vs Mayur Foundation (2005) 274 ITR 562 (Guj.) CIT vs. Shimla Chandigarh Diocese Society (2009) 318 ITR 96 (P&H) DIT vs. Mitsui & Co. Environmental Trust (2007) 211 CTR (Del) 352 DIT(E) vs. Daulat Ram Education Society (2005) 278 ITR 260 (Del) Bharat Kalyan Pratisthan vs. DIT (2007) 160 Taxman 216 (Del) DIT(E) vs. Mamta Health Institute for Mother & Choldren (2007) 162 Taxman 235 (Del).
Cotton Textiles Export Promotion Council vs ITO (2008) 20 SOT 187 (Mum) 18.5.2. Accordingly it is seen that the statutes and the provisions read along with the Board's Circular contemplate that the delay is condonable in certain circumstances. Before us ld.A.R. has also relied upon the judgement in the case of CIT vs Mayur Foundation which also supports the argument. However on facts it is seen that no such application has been filed by the assessee for condoning the delay before the Commissioner. As such the occasion to consider and thereafter accept/reject the same did not arise.
18.5.3. Accordingly to the extent that reliance is placed upon circular no.273 dt. 3.6.1980 the argument of the assessee cannot be faulted. Read with Rule 17 of the Income Tax Rules it is seen that the power to condoned the delay is available with Commissioner. However the occasion to exercise the power can only arise if appropriate petition is before an authority. In the absence of any petition moved on behalf of the assessee the arguments that this was the first occasion when the request could have been made on behalf of the assessee have no relevance. As the said request has to be put forth before the Appropriate Authority competent to consider the request. It is not assessee's case that the ITA 1144/Del/2005 Page 50 A.Y. 2001- 2001-2002 ITA Nos. 1676, 1677, 1678/Del/06 A.Ys: 1998- 1998-99 to 2000- 2000-2001 Assn. of Corpns. & Apex Societies of Handlooms New Delhi application for delay has been moved which is not being considered or has wrongly been rejected. The assessee for reasons best known to itself is unfortunately continuing to agitate the ill advised stand of seeking a redressal where no grievance has been faced by it. It is not the procedural requirement that petition for condonation of delay before the Commissioner can be moved only after permission of the Tribunal has been obtained. What the assessee needs to do and chooses to do or not to do is entirely assessee's own wisdom and if the assessee instead of directly approaching the concerned authority chooses to agitate the issue in appeal, we have no alternative but to dismiss the ill advised stand of the assessee posed by way of ground no.3 as on facts as they stand we are of the view that there is no infirmity in the impugned order.
18.6. In the facts of ITA 1144/Del/2005 it is seen that the assessee has by way of an argument addressed the issue before the CIT(A) and on the basis of the strength of the arguments advanced therein has also agitated that benefit of accumulation be allowed to the assessee in A.Y. 2000-2001.
18.6.1. It is seen that herein also where necessary steps have not been taken by the assessee itself the occasion to consider something where efforts on the part of the assessee are lacking does not arise. As such we are of the view that there is no occasion for us to give any direction to any authority under the Act in the facts of the present case as necessary steps have not been taken by the assessee itself. The occasion to consider various judgements in the context of oversight or reasonable cause does not arise as such the said plea of the assessee is misconceived and ill advised and not supported on facts, as such rejected.
19. In the result the appeals filed by the assessee are dismissed.
Order pronounced on 31st January, 2012.
ITA 1144/Del/2005 Page 51
A.Y. 2001-
2001-2002
ITA Nos. 1676, 1677, 1678/Del/06
A.Ys: 1998-
1998-99 to 2000-
2000-2001
Assn. of Corpns. & Apex Societies of Handlooms New Delhi Sd/- Sd/-
(B.K. HALDAR) (DIVA SINGH)
ACCOUNTANT
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 31st January, 2012
* Manga/Veena/Kvta
Copy of the order forwarded to:-
1. Appellant;Respondent;CIT;CIT(A);DR
By Order
Deputy Registrar, ITAT.