Income Tax Appellate Tribunal - Jaipur
Jabbarmal Dugar vs Income-Tax Officer on 15 February, 1990
Equivalent citations: [1990]34ITD104(JP)
ORDER
J.K. Verma, Accountant Member
1. In this appeal, the assessee has challenged the order of the Id. CIT(A) whereby he has confirmed the order of the ITO, who has brought to tax an amount of Rs. 3,93,925, which the assessee had received as interest on refund of estate duty over charged by the Dy. Controller of Estate Duty.
2. Brief facts of the case are that Shri Budhmal Dugar adoptive father of the appellant expired on 17thMarch, 1954. The Dy. Controller of Estate Duty assessed an amount of Rs. 6,03,926 as estate duty payable on his estate by his order dated 30th October, 1958. The assessee challenged the assessment and finally the Hon'ble Rajasthan High Court decided on 30th November, 1971 that only l/3rd share of the family properties would be deemed to have passed on the death of the deceased. Accordingly, the assessee became entitled to receive a refund of Rs. 4,66,184, which he received on28-2-1973. Thereafter, the assessee applied to the Controller of Estate Duty for grant of interest Under Section 64(7) of the E.D. Act on the excess duty refunded on 28-2-1973. That application was rejected. The assessee again approached the Hon'ble Rajasthan High Court, who ordered vide their order dated 20th July, 1979 that assessee should be paid such interest as the Controller may allow Under Section 64(7) of the E.D. Act. The assessee finally received the amount of the interest amounting to Rs. 3,93,925 as a consequence of order of CED/CIT Jodhpur dated 12th February, 1981. As per information supplied to us by the Id. A/R for the assessee, the refund voucher was prepared on 25-3-1981 but it was actually delivered to the assessee on 24-4-1981. Assessee's accounting year is Chaitsudi 12, which for the assessment year 1982-83 corresponds with the accounting period starting from 17-4-1981 to 5-4-1982. The assessee, as per the copy of account filed before us, credited the account of M/s Sampatram Budhmal Dugar with this amount of Rs. 3,93,925 in this previous year, which is relevant for the assessment year 1982-83. While filing its Income-tax Return, the assessee appended a note along with the computation of income to the following effect:
A refund of Rs. 3,93,925 has been received as interest Under Section 64(7) of the Estate Duty Act, 1953 on account of reference before the Rajasthan High Court, Jodhpur in the case of Shri Budhmal Dugar (deceased). Since it is a capital receipt, it has not been included in the total income of the assessee.
3. Meanwhile, it may be mentioned that a partial partition in respect of the immovable and movable properties worth Rs. 12 lacs belonging to the HUF was carried out in March 1974 and the claim was recognized by the ITO vide his order dated 7-3-1975. It may be mentioned that while the Id. CIT(A) has referred to this as partial partition, the ITO has mentioned it as partition. A copy of ITO's order dated 7-3-1975 has been filed before us as page 27 of the paper book, which shows that it was only a partial partition in respect of movable and immovable properties amounting to Rs. 12 lakhs only in which the partial partition was between Svs. Jhabarmal and his two minor sons Shri Sanjay Kumar and Saryans Kumar. The partial partition order is in respect of the HUF M/s Sampatram Budhmal, Sardarshahar for the assessment year 1974-75.
4. During the course of assessment proceedings it was claimed before the ITO that this amount was not taxable because it was capital receipt Another argument taken before the ITO was that the interest was to be charged on accrual basis from year to year. The ITO, however, rejected both the contentions of the assessee. Regarding the claim of capital receipt, the ITO relied on the decision of the Hon'ble Supreme Court in the cases of RM. AR. AR. RM. AR. AR. Ramanathan Chettiar v. CIT [1967] 63 ITR 458 and CIT v. Kamal Behari Lai Singha [1971] 82 ITR 460 (SC). He distinguished the case of CIT v. RM.AR.AR. Veerappa Chettiar [1970] 76 ITR 467 (SC) relied upon by the assessee. Regarding the claim that the interest was to be charged on accrual basis from year to year, the ITO pointed out that the assessee had shown interest on receipt basis and, thus, he charged the entire amount to tax.
5. The assessee met no success before the CIT(A) who, after mentioning the facts in detail and also discussing in detail the arguments advanced from both the sides so also the case law relied upon on behalf of the assessee, upheld the decision of the ITO.
6. In the appeal before us, the arguments of the Id. counsel for the assessee are on three bases. In the first instance it has been argued that it is a capital receipt and is not taxable at all. Alternatively it is argued that even if it is taken to be revenue receipt, since assessee's system of accounting is mercantile and since the interest pertains to the period 195 8 to 28th February, 1973,itaccruedduringthatperiodand is not chargeable in the assessment year 1982-83. Lastly, it has been argued that even if none of the arguments of the assessee are accepted, since this refund voucher was prepared on 25-3-81, which finally quantified the amount of interest to be received by the assessee, at the most it may be said to pertain to the assessment year 1981 -82 and is not chargeable in the assessment year 1972-73. The 1 d. counsel has referred to a large number of decisions to support his arguments.
7. Regarding the first and main argument of the assessee that it is a capital receipt, the Id. counsel has again referred to the decision of the Hon'ble Supreme Court in the case of RM.AR.AR. Veerappa Chettiar (supra), and has argued that the decision of the Hon'ble Supreme Court in the case of RM.AR.AR.RM.AR.AR. Ramanathan Chettiar (supra), was given on different facts and different arguments and, in fact, the law applicable to the facts of assessee's case is the one which is laid down in the case of RM.AR.AR. Veerappa Chettiar (supra).
8. The Id. counsel has also taken great pains in trying to establish that assessee's system of accounting is mercantile. From details filed in his paper book, the Id. counsel has tried to show that in the assessment year 1950-51 assessee's method of accounting was shown as mercantile. In 1951-52, it was left blank. In assessment year 1952-53, it is shown as mercantile. Again in 1953-54, it has been shown as mercantile. He argued that there was no admission by the assessee that for the assessment year 1982-83 assessee's system of accounting was cash, nor does the assessment show this. The Id. counsel for the assessee tried to argue that the assessee had accounted for interest from debtors on mercantile basis and this also showed that assessee's system of accounting was mercantile. The Id. counsel referred to the decisions of the Hon'ble Rajasthan High Court reported in 123 ITR at pages 388 and 881 to support his argument that when the interest is debited or credited in accounts, it shows that it is mercantile system. On this basis, the Id. counsel argued that since the Hon'ble Rajasthan High Court had ordered the refund of estate duty which was charged in excess and upto which date (28-2-73) the interest was to be paid, assessee's right to receive interest accrued and hence the interest would spread over from 1958 to 1973, according to assessee's system of accounting. Alternatively, it could be said to accrue on 20-7-1979 when the Hon'ble High Court held that interest was payable on the excess amount of estate duty. Finally, the 1 d. counsel submitted that the order of the CED was passed on 12-2-1981 and at best it could be assumed that it was at that point of time that the interest accrued. He submitted that even the refund voucher was prepared calculating the interest upto 28-2-1973 on 25-3-1981 but only the delivery of the refund voucher was given on 24-4-1981, which falls in this assessment year. In these circumstances, according to the learned counsel, if at all this interest could be charged to tax it should be spread over from 1958 to 1973 but it could not be charged to tax in the assessment year 1982-83, i.e., the year under consideration.
9. The Id. D/R, on the other hand, vehemently argued that assessee's system of accounting was cash and on that basis the amount of interest received by the assessee has to be assessed in this assessment year. He referred to the original income-tax returns filed by the assessee and pointed out that for the assessment year 1974-75 in the space provided to indicate the system of accounting, the assessee had crossed over the systems mentioned as "mercantile" and "mixed" and had ticked the system "cash". Similarly, for the assessment year 1981-82 i.e., the assessment year immediately preceding the assessment year under consideration in the Annexure 'D* Sub-part 'A' Col. 5 & 6 the assessee had ticked the "cash" system of accounting as the one followed by him. He submitted that for the assessment year under consideration the Income-tax forms were modified and this year no such column was provided and hence it had to be presumed that assessee had continued to follow the cash system of accounting, which it had declared it was following last year, i.e., 1981 -82 assessment year. The 1 d. D/R also referred to the findings given by the 1 d. CIT(A) on pages 14&15 of his order while dealing with Grounds No. 1 & 2 and the submissions made on behalf of the assessee as well as the observations made by the ITO.
10. The Id. D/R further argued in the alternative that even if it was assumed that assessee's system of accounting was mercantile, the facts showed that on 20-7-1979, the Hon'ble High Court had only held that interest may be allowed to the assessee but unless order Under Section 64(7) was passed by the CED and on that basis the final order of computation of interest was passed by the ACED no interest had accrued to the assessee. He further pointed out that even on mercantile basis where some quantification has to be done of amounts calculated on accrual basis and debit notes or credit notes are issued, they are accounted for only when they are actually received.
11. Regarding the arguments of the Id. counsel for the assessee and his references to the decisions in RM.AR.ARRM.ARAR. Ramanathan Chettiar's case (supra) and RM.AR.AR. Veerappa Chettiar's case (supra), he argued that in Ram Nathan's case, the Hon'ble Supreme Court had held that interest received on excess payment of estate duty was revenue receipt. He submitted that the reference of the A/R for the assessee to the decision in the case of Veerappa Chettiar was not relevant because in that case the HUF had been partitioned and the interest was to be paid to the erstwhile HUF, which was non-existent and it could not be taxed in the hands of the divided members of the HUF. He submitted that in the case of the assessee there was only a partial partition and the department is taxing the income in the hands of the HUF and not the partitioned members of the erstwhile HUF.
12. In his reply, Shri Ranka submitted that an inadvertent mistake of showing assessee's system as cash system in the Income-tax return should not go against the assessee. He argued that the details submitted before the ITO, the CIT(A) an4 also before us show that assessee's system of accounting is cash. He pointed out that the ITO has assessed interest of Rs. 3,000 on bank FDRs on mercantile basis and if the ITO really believed that assessee's system of accounting was cash, the interest on FDRs should not have been taxed this year. He submitted that this shows that the ITO himself had accepted that assessee's system of accounting was mercantile and hence this amount cannot be taxed in the assessment year under consideration.
13. We have carefully considered the arguments advanced from both the sides and have also perused the material on record. However, we are of the opinion that the case of the assessee fails. So far as the assessee's first objection that it is a capital receipt is concerned, we are of the opinion that the arguments advanced by the Id. D/R are fully justified and that assessee's reliance on the case of Veerappa Chettiar is not on a sound footing. For this purpose, we would quote from the decision of the Hon'ble Supreme Court in the case of RM.AR.AR. Veerappa Chettiar (supra) itself, the case relied upon by the Id. A/R for the assessee:-
Even after the death of the sole male member, so long as the property which was originally of the joint Hindu family remains in the hands of the widows of the members of the family and is not divided among them, the joint family continues. Payment of the estate duty was doubtless made out of the joint family fund and the interest which accrued due also acquired the character of joint family property when received. The Joint family status came to an end only on February 17,1947. On the severance of the joint status the assessee became entitled to a share in the family estate. The amount of interest on the estate duty accrued as income to the joint family but it was income of the joint family and not of the individual members. But when a share out of the estate which included the interest on estate duty was received by the assessee it had not the character of income. Once the income was received by the joint family, the amount lost its character of income: it became merged in the joint family assets and became the capital of the family.
RM.AR.AR. Veerappa Chettiar's case (supra) It may be noted that in this case the Hon'ble Supreme Court had given a decision in the circumstances when the estate duty was levied on deaths taking place in 1934 and 1938 of two members of an HUF. The HUF was totally partitioned in 1947 and the refund of estate duty along with interest was paid in 1957. It was in these circumstances that their Lordships of the Supreme Court, observed in the above quoted lines in their order that -
(i) the amount of interest on the estate duty accrued as income to the joint family but it was income of the joint family and not of the individual members,
(ii) the joint family status came to an end on February 17,1947 and on the severance of the joint status the assessee became entitled to a share in the family estate, and
(iii) and when a share out of the estate, which included the interest on estate duty, was received by the assessee it had not the character of income.
As rightly argued by the 1 d. D/R in the case of the assessee before us only a partial partition has taken place a point which we have tried to elaborate and highlight while narrating the brief facts of the case. Even as per the assessment order and the appeal filed by the assessee, the HUF M/s. Sampatram Buddha of which Shri Jhabarmal Dugar is the Karta still exists and as per the observations of the Hon'ble Supreme Court quoted above, interest on the estate duty accrued as income to the joint family. In these circumstances, the argument on behalf of the assessee that it was a capital receipt and not a revenue receipt, has no force and is rejected.
14. Regarding the alternate arguments of the assessee also that even if it is a revenue receipt, it is not taxable in this year, our opinion is against the assessee. The facts show that the assessee might have followed some mercantile system long time back but at least in the assessment years 1974-75,1981-82 and the assessment year under consideration the assessee was following cash system of accounting. The chart filed by the Id. counsel for the assessee for the years 1956 to 1971 may indicate that the assessee might have followed mercantile system yet the years which become relevant i.e., after 28-2-1973 when the refund of estate duty was given to the assessee, the assessee positively followed cash system of accounting and that is why for the assessment year 1974-75, the record of which's available, the assessee positively and consciously indicated in the return of income that it was following cash system of accounting and not mercantile or mixed system of accounting. Again for the assessment year 1981-82, the Income-tax return of which was made available before us, the assessee consciously and positively showed that it was following cash system of accounting and not mercantile or mixed system of accounting. We attach a lot of weight to the argument of the learned D/R that the return of income is a document which is verified on oath by the assessee and it cannot be taken lightly particularly when the entries, which are made show that the assessee had applied its mind by striking out the items "mercantile and mixed" and had ticked "cash system of accounting" as the one followed by it. Hence, we do not agree with the argument of Shri Ranka that it was only an advertent mistake. We further gather from the conduct of the assessee that the assessee was conscious of the fact that according to the system of accounting followed by it, this amount could not be entered in the books of accounts for the assessment year 1981-82 and that is why on the one hand it deliberately indicated in the Income-tax return that its system of accounting was cash, it did not enter the amount of Rs. 3,93,925, i.e., the amount of interest in its books of accounts in the accounting period relevant for assessment year 1981-82 although the order of the CED is dated 12-2-1981 and the refund voucher is dated 25-3-1981. If the assessee really believed that the amount accrued as a result of the order of the CED or the ACED dated 12-2-1981 or 25-3-1981 even if the refund voucher were actually received on 25-4-1981 the assessee could have or should have shown this amount as its receipt in its books of account (even if it were treated as capital receipt) in the accounting period ending on 17th April, 1981 because according to the mercantile system of accounting, adjustment entries are made even after the close of the accounting year. On the other hand assessee's own conduct shows that when the assessee received this amount it treated it as its income for the assessment year under consideration and entered it in its books of accounts in the previous year relevant for the assessment year 1982-83 and it also gave a note in its return of income for the assessment year 1982-83 that it was not a taxable income because it was a capital receipt. All these factors show that it is only an after-thought that the assessee wants to argue that even if it is a revenue receipt, it had accrued a long time back, i.e., upto 28-2-1973 and on that basis it is not taxable this year. The genuineness of assessee's conduct in this regard is further dies-believed on account of the fact that if the assessee really thought it was accruing to the assessee on mercantile basis the assessee should have been making relevant entries in its books of accounts ever since it was claiming that the amount of estate duty claimed by the department is not payable by it and the assessee is entitled to the interest on the excess amount of estate duty paid by it. We further agree with the argument of the Id. D/R that even if the argument of the assessee is accepted that it had followed mercantile system of accounting, since the assessee could know the exact quantification only when it actually received the refund voucher in this year and which it accounted for this year in its books of accounts, it would be treated as assessee's income of this year itself, just as credit notes and debit notes are accounted for only when they are received even by those assessees who follow mercantile system of accounting.
15. So far as the argument of the 1 d. counsel regarding including the interest on FDRs of the bank in the income of the assessee on accrual basis is concerned, we find that this fact goes against the assessee because assessee himself had not shown this amount in its income on accrual basis and intended to show it only on receipt basis when he should have actually received the interest on the bank FDRs. However, as mentioned in the assessment order, the assessee offered it for taxation on the ground that the government had notified that the interest on FDRs may be taxed on accrual basis. In this way, it is apparent that although assessor's system of accounting is cash yet it offered the interest on FDRs for tax on accrual basis firstly on account of a concession given by the Government in this regard and secondly, perhaps as an after-thought to strengthen his arguments to prevent from tax the amount of Rs. 3,93,925 received by it as interest on excess payment of estate duty. We, therefore, reject this argument of the Id. counsel of the assessee.
16. Taking all these factors into account, we hold that the assessee was, in fact, following cash system of accounting and that this amount of Rs. 3,93,925 was assessee's income chargeable to income-tax in the assessment year 1982-83, i.e., the year under consideration and hence assessee's objections on this point are rejected.
17. Next objection raised by the assessee is regarding charging of interest Under Section 215. It was argued by the learned counsel for the assessee that the assessee was under a bonfire belief that the amount of Rs. 3,93,925 was not assessee's income and hence the interest Under Section 215 could not be charged. We, however, find no force in the arguments of the learned counsel because it is not a case where the assessee can claim that interest Under Section 215 was not chargeable at all according to provisions of law and hence in view of the decision of the Hon'ble Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961, we decline to entertain this ground and it is rejected. We may mention that Shri Ranka referred us to the decision of the Hon'ble Rajasthan High Court in the case of CIT v. Gulch Properties (P.) Ltd. [1988] 169 ITR 493. However, that decision does not help the assessee because that was a case where it was held that the assessee-company was under liquidation and was not under an obligation to file an estimate of advance-tax and was not liable to pay any interest Under Section 217(1 A) of the I.T. Act. In the instant case, it cannot be assessee's case that the assessee was not at all liable to file an estimate of advance-tax. Accordingly, the appeal filed by the is dismissed.