Telangana High Court
Andhra Bank Financial Services Ltd,. ... vs The Commissioner Of Income Taxi, ... on 9 June, 2023
THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
AND
THE HON'BLE SRI JUSTICE C.V.BHASKAR REDDY
I.T.T.A.Nos.424, 425 and 445 of 2005, 320 of 2006
and 114 of 2012
COMMON JUDGMENT:(Per the Hon'ble the Chief Justice Ujjal Bhuyan) This common order will dispose of I.T.T.A.Nos.424, 425 and 445 of 2005, 320 of 2006 and 114 of 2012.
2. We have heard Mr. C.P.Ramaswami, learned counsel for the appellant (also referred to as 'the assessee') and Mr. B.Narasimha Sarma, learned Standing Counsel, Income Tax Department representing the respondents (also referred to as 'the Revenue').
3. Issue raised in all the appeals is one and the same and therefore, all the appeals were heard together and are being disposed of by this common judgment and order. However, Mr. C.P.Ramaswami had argued I.T.T.A.No.425 of 2005 as the lead appeal. Therefore, reference to facts and orders would be in relation to I.T.T.A.No.425 of 2005. 2
4. Before we deal with the said appeal, we may mention that I.T.T.A.No.424 of 2005 arises out of the order dated 06.06.2005 passed by the Income Tax Appellate Tribunal, Hyderabad Bench-A, Hyderabad (briefly, 'the Tribunal' hereinafter) in I.T.A.No.126/Hyd/2000 for the assessment year 1996-97. Likewise, I.T.T.A.No.425 of 2005 arises out of order dated 06.06.2005 passed by the Tribunal in I.T.A.No.115/Hyd/1999 for the assessment year 1994-95; I.T.T.A.No.445 of 2005 arises out of the order of the Tribunal dated 06.06.2005 in I.T.A.No.116/Hyd/1999 for the assessment year 1995-96; I.T.T.A.No.320 of 2006 arises out of the order dated 14.03.2006 passed by the Tribunal in I.T.A.No.562/Hyd/2001 for the assessment year 1993-94; and finally I.T.T.A.No.114 of 2012 arises out of the order of the Tribunal dated 14.03.2006 passed by the Tribunal in I.T.A.No.318/Hyd/2003 for the assessment year 1995-96.
5. These appeals have been filed by the assessee as appellant under Section 260A of the Income Tax Act, 1961 (briefly, 'the Act' hereinafter) against the aforesaid orders of 3 the Tribunal and have been admitted on the following substantial questions of law:
(1) Whether on the facts and in the circumstances of the case, Tribunal was justified in holding that the appellant was the owner of the bonds in question despite the notification dated 02.07.1992 issued by the Custodian in terms of Section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992? And (2) Whether on the facts and in the circumstances of the case, Tribunal was justified in holding that the assessing officer as well as the Commissioner of Income Tax (Appeals) was competent to decide the ownership of the bonds in assessment proceedings in spite of the provisions of sub-section (4) of Section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992?
6. Appellant before us is an assessee under the Act having the status of a company. Assessment year under consideration is 1994-95. Assessee is engaged in the business of providing financial services.
7. For the aforesaid assessment year, the assessee filed return of income on 29.11.1994 declaring Nil income after setting-off the losses of earlier years. This was followed by 4 filing of a revised return by the assessee on 22.08.1995 again declaring Nil income after setting-off the losses. Thereafter revised return was processed under Section 143 of the Act. Assessing officer noted that one entity called 'Fair Growth Financial Services Limited' (referred to hereinafter as 'Fair Growth') had delivered five bonds to the assessee in discharge of twelve contracts much before the notified date. However, assessee had not accounted for the accrued interest on the said bonds on the ground that till such time the petitions filed by the assessee before the Special Court constituted under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (briefly, 'the Special Court Act' hereinafter) were decided declaring the ownership of the bonds, assessee could not deal with the bonds including getting its name registered as the owner. According to the assessing officer, assessee had purchased these bonds before the notified date though those were under the custody of the Special Court along with various other bonds. Therefore, assessing officer took the view that the interest accrued on those bonds had to be accounted for by the assessee. By the assessment order 5 dated 31.03.1997 passed under Section 143(3) of the Act, the assessing officer treated the interest amount which was worked out by the assessee itself at Rs.47.03 crores as income being interest due from Fair Growth and on that basis, proceeded to complete the assessment.
8. Aggrieved thereby, assessee preferred appeal before the Commissioner of Income Tax (Appeals) (Central), Hyderabad (briefly referred to hereinafter as 'CIT-A'). By the appellate order dated 30.11.1998, CIT-A upheld the addition holding that the bonds had been purchased by the assessee prior to the notification date. It was held to be a valid purchase and thus the assessee was treated as the absolute owner of those bonds as delivery of the bonds to the assessee was not hit by the Special Court Act. Therefore, the addition of the interest accrued on the bonds by the assessing officer as income of the assessee was upheld by the CIT-A.
9. Assessee filed further appeal before the Tribunal which was registered as I.T.A.No.115/Hyd/1999 for the 6 assessment year 1994-95. The said appeal was heard by the Tribunal along with I.T.A.No.116/Hyd/1999 for the assessment year 1995-96 filed by the assessee itself. Tribunal vide the order dated 06.06.2005 however upheld the decision of the assessing officer as affirmed by the CIT-A on this point.
10. Mr. C.P.Ramaswami, learned counsel for the appellant, argued that the question for consideration in this batch of appeals is whether interest income accrued to the appellant on the bonds held by it without transfer of title and more particularly when such bonds were attached by operation of law and the title of the bonds was in dispute before the Special Court under the Special Court Act? Corollary to the above question would be the question as to whether Income Tax authorities have power to determine ownership of the bonds between the period from July, 1992 to May, 1997 when the title to the bonds was sub judice before the Special Court?
710.1. Mr. Ramaswami pointed out that appellant was incorporated in February, 1991 as a 100% subsidiary of Andhra Bank, a public sector undertaking, presently merged with Union Bank, as a Non-Banking Financial Corporation (NBFC) with share capital of Rs.5 crores. Between April, 1991 and June, 1992, appellant had all its financial transactions only with Fair Growth for value of more than Rs.200 crores mainly out of borrowed funds. Most of these transactions were in securities through ready and forward transactions. Adverting to the Special Court Act, he submits that Fair Growth was a notified person in terms of Section 3 thereof by virtue of notification dated 02.07.1992 issued by the Custodian. In terms of Section 3(3) of the Special Court Act, all properties of the notified person stood attached simultaneously with the issue of the notification. According to him, appellant was required to deposit all the income arising from the bonds to the Custodian in terms of the Special Court Act pending decision of the Special Court. All the concerned public sector undertakings which had issued the securities had directed the appellant to produce 'No Objection Certificate' 8 (NOC) from the Custodian for interest and ownership over such bonds. Consequently, in the audited final accounts for the financial year 1993-94, relevant to the assessment year 1994-95, appellant had disclosed in the 'Notes on Account' that no income had accrued to the appellant on bonds valued at Rs.40.83 crores since the title to the bonds/securities was in dispute before the Special Court by virtue of the petitions filed by the appellant before the Special Court. Mr. Ramaswami submits that in all such cases, the Special Court had held that all the ready and forward transactions entered into during the period from 01.04.1991 to 06.06.1992 were illegal. However, this decision of the Special Court was partly reversed by the Supreme Court in the case of Bank of India v. The Custodian on 19.03.1997 by holding that the ready and forward contracts were severable into two parts - i.e., the ready leg and the forward leg. While the ready leg was legal, the forward leg was illegal.
10.2. In the case of the appellant, Special Court by its order passed in 1997 declared it to be the owner of the 9 bonds valued at Rs.40.83 crores. Consequently, the appellant declared in its return of income for the assessment year 1997-98 all the accrued interest as its income. Thus, the appellant substantiated its stand that no income had accrued to it on those bonds till the title to the bonds was cleared by the Special Court in the year 1997.
10.3. Learned counsel submits that the Revenue authorities including the appellate authorities did not appreciate the above facts; rather they proceeded to determine the ownership of the bonds which is not permissible.
10.4. Learned counsel submits that Tribunal erred in relying upon two decisions of the Calcutta High Court in Mahamaya Dassi v. Commissioner of Income Tax1 and in the case of Champa Properties (Private) Limited v. Commissioner of Income Tax2 in as much as facts were completely distinguishable in the two referred cases. In the two 1 [1980] 126 ITR 748 (Cal) 2 [1987] 166 ITR 367 (Cal) 10 decisions of the Calcutta High Court, title to the concerned properties was not in dispute, whereas by operation of law under the Special Court Act appellant was divested of its title to the bonds held by it till 1997 when it was declared to be the owner by the Special Court. He, therefore, submits that decision of the Supreme Court in CIT v. Hindustan Housing and Land Development Trust Limited3 followed by the Calcutta High Court in CIT v. Eastern Investments Limited4 is squarely applicable to the facts of this case. He submits that Tribunal had completely misconstrued the provisions of the Special Court Act and thus arrived at an erroneous conclusion. Thus, he submits that the two questions may be answered in favour of the appellant and against the Revenue.
11. On the other hand, Mr. B.Narasimha Sarma, learned Standing Counsel, Income Tax Department appearing for the respondents has supported the orders passed by the revenue authorities including the Tribunal. He submits that the Tribunal has correctly appreciated the provisions 3 [1986] 161 ITR 524 (SC) 4 [1995] 213 ITR 334 (Cal) 11 of the Special Court Act and has in fact partly allowed the appeal of the appellant. In any view of the matter, he submits that finding of the assessing officer has been affirmed by the CIT-A as well as by the Tribunal albeit with some modification, and therefore, in an appeal under Section 260A of the Act, further interference by the High Court is not necessary. He finally submits that no question of law arises in this batch of appeals muchless any substantial question of law.
12. Submissions made by learned counsel for the parties have received the due consideration of the Court.
13. Before adverting to the findings of the Tribunal, it would be apposite to first deal with the provisions of the Special Court Act. The Special Court Act was enacted in the year 1992 and came into force on 06.06.1992. It was enacted to provide for the establishment of a Special Court for the trial of offences relating to transactions in securities and for matters connected therewith or incidental thereto. 'Custodian' has been defined under Section 2(b) to mean 12 the Custodian appointed under sub-section (1) of Section
3. 'Special Court' has been defined in Section 2(d) to mean the Special Court established under sub-section (1) of Section 5.
14. Section 3 of the Special Court Act is the essence of the Act and reads as follows:
3. Appointment and functions of Custodian:- (1) The Central Government may appoint one or more Custodians as it may deem fit for the purposes of this Act.
(2) The Custodian may, on being satisfied on information received that any person has been involved in any offence relating to transactions in securities after the 1st day of April, 1991 and on and before the 6th June, 1992, notify the name of such person in the Official Gazette.
(3) Notwithstanding anything contained in the Code and any other law for the time being in force, on and from the date of notification under sub-section (2), any property, movable or immovable, or both, belonging to any person notified under that sub-section shall stand attached simultaneously with the issue of the notification.
(4) The property attached under sub-
section (3) shall be dealt with by the Custodian in such manner as the Special Court may direct.
(5) The Custodian may take assistance of any person while exercising his powers or for discharging his duties under this section and section 4.
1314.1. As per sub-section (1), Central Government may appoint one or more Custodians as it may deem fit for the purposes of the Special Court Act. Sub-section (2) says that the Custodian may, on being satisfied on information received that any person has been involved in any offence relating to transactions in securities after 01.04.1991 and on or before 06.06.1992, notify the name of such person in the Official Gazette. Sub-section (3) provides that notwithstanding anything contained in the Code of Criminal Procedure, 1973 and any other law for the time being in force, on and from the date of notification under sub-section (2), any property, movable or immovable, or both, belonging to any person notified under that sub- section shall stand attached simultaneously with the issue of the notification. Thus, what sub-section (3) says is that on and from the date of notification notifying the name of such person in the Official Gazette involved in any offence relating to transactions in securities after 01.04.1991 and on or before 06.06.1992, any property, be it movable or 14 immovable, belonging to such person shall stand attached simultaneously with the issue of the notification. 14.2. Post such attachment, sub-section (4) empowers the Custodian to deal with such attached property in such manner as the Special Court may direct.
15. As per Section 4(1), if the Custodian is satisfied after an inquiry that any contract or agreement entered into at any time after 01.04.1991 and on or before 06.06.1992 in relation to any property of the person notified under sub- section (2) of Section 3 has been entered into fraudulently or to defeat the provisions of the Special Court Act, he may cancel such contract or agreement and on such cancellation, such property would stand attached. However, as per the proviso no contract or agreement shall be cancelled except after giving to the parties to the contract or agreement a reasonable opportunity of being heard. Sub-section (2) provides that any person aggrieved by the notification issued under sub-section (2) of Section 3 or any cancellation made under sub-section (1) of Section 15 4 or any other order made by the Custodian in exercise of the powers conferred on him under Sections 3 or 4 may file a petition objecting to the same within such period as may be specified whereafter the Special Court may make such order as it may deem fit after hearing the parties.
16. Section 5 provides for establishment of Special Court. Section 9A of the Special Court Act deals with jurisdiction, powers, authority and procedure of Special Court in civil matters. What is relevant for our present discourse is sub- section (1) of Section 9A. It says that on and from the commencement of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Act, 1994, the Special Court shall exercise all such jurisdiction, powers and authority as were exercisable, immediately before such commencement by any civil court in relation to any matter or claim relating to any property standing attached under sub-section (3) of Section 3 and/or arising out of transactions in securities entered into after 01.04.1991 and on or before 06.06.1992 for which a person notified under sub-section (2) of Section 3 is 16 involved as a party, broker, intermediary or in any other manner.
17. Section 13 confers overriding effect on the Special Court Act. It says that provisions of the Special Court Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act or in any decree or order of any court, tribunal or other authority.
18. We may now advert to the order of Tribunal. Tribunal summed up the facts in the following manner:
4. The facts of the case are that the appellant company is incorporated in 1991 as 100% subsidiary of Andhra Bank Limited, a Nationalized Bank. It is engaged in the business of financial services, leasing, hire purchase activities etc. As regards the addition of interest on Securities of Rs.41.83 crores the facts are that the following Bonds had been delivered by M/s Fair Growth Financial Services Ltd. [M/s FGFSL in short] to the assessee company in discharge of 12 contracts much before the notified date:17
Sr No Bonds Face Value Cost
1 17% Rs. 14,93,75,000 Rs. 14,74,27,307
2 9% Rs. 10,00,00,000 Rs. 9,51,47,945
3 9% Rs. 6,00,00,000 Rs. 5,80,91,781
4 9% Rs. 2,00,00,000 Rs. 1,81,50,959
5 13% Rs. 8,90,00,000 Rs. 8,90,00,000
Rs. 41,83,75,000 Rs. 40,83,18,000
5. The assessee had mentioned in the notes on accounts that the interest accrued on the aforesaid bonds has not been accounted for since the matter was pending before the Special Court and until the Special Court declared the assessee as owner of those bonds, the assessee could not get the bonds registered in its name.
The AO, however, formed an opinion that the assessee had purchased those bonds and those have been delivered to the assessee before the notified date mentioned in the Special Court Act. The assessee contended before the AO that the securities were in the name of M/s FGFSL and there was no endorsement on those bonds transferring the same to the assessee and that the CAs appointed by the Special Court was to verify and certify the claim of the assessee has reported that in the books of M/s FGFSL only Rs.21.58 crores has been treated as sale on ready- forward basis and the "ready forward transactions"
balance was treated as closing stock of securities in their books and being illegal, the Securities of Rs.41.83 crores did not belong to the assessee. The AO opined that this observation of the CA had no bearing on income tax proceedings. He was of the opinion that since the assessee was maintaining the books of accounts on mercantile system and as per the books, the assessee claimed to have purchased these bonds, the interest due on those bonds 18 should have been accounted for as income during the year. Relying on the principle laid down by the Supreme Court in the case of State Bank of Travancore v CIT 158-ITR- 102, the AO held that merely because the assessee could not deal with the bonds as those were in the custody of the Custodian appointed under the Special Court Act, the assessee cannot disown the liability to tax on the accrued interest. He has pointed out that the Supreme Court in that case held that even the interest due on sticky loans should be treated as income of the assessee. He held that the realisability or the ability of the assessee to deal with the bonds or otherwise cannot bar the assessee from admitting the accrued interest as income. Finding that there were some tax free bonds, he added the interest on the following balance bonds to the total income of the assessee:
1 17% NTPC Bonds of face Rs. 2,53,93,750 value of Rs.14,93,75,000 2 13% NPC Bonds of face Rs. 1,15,70,000 value of Rs.8,90,00,000 Rs. 3,69,63,750 5A. The CIT(A) upheld the addition after discussing in detail the development in this case before and after the Special Court Act was constituted. He held that the bonds worth Rs.40.83 crores which had been purchased by the assessee prior to the notification date and which had been taken into consideration while calculating the amount outstanding against M/s FGFSL for the purpose of balance sheet dated 31-3-1993 was a valid purchase and in view of the Supreme Court decision, the purchase was complete by way of first leg of the ready forward transaction and therefore, the assessee was the absolute owner of those 19 bonds. Both in the Misc. Petition No.6/1992 and Misc.
Petition No.210/97, the assessee has also contended before the Special Court that it was the absolute owner of those bonds. He further observed pertinently that in the Misc. Petition No 6/1992, nowhere the assessee had prayed the Special Court to declare it absolute owner of those bonds, since it had all along claimed that those bonds were not hit by the Special Court Act since the transaction had been completed long back. Although the Custodian had disputed the ownership and to be on the safe side, the assessee had allowed the Custodian to collect the interest accrued on such bonds, those bonds could not be part of the attached property of the notified persons, since the notified persons had delivered those bonds to the assessee and as per the Supreme Court decision, those were no longer the property of the notified persons. It is only in the Misc. Petition No.210/97 while pointing out that the assessee was in possession of the excess value of the bonds, the assessee has requested the Special Court to allow it to purchase such excess bonds and declare it as the absolute owner. Even in that petition, the assessee has never expressed its doubt about its title over the bonds worth Rs.40.83 crores and there is no prayer for declaring the assessee as absolute owner of those bonds. These facts clearly indicate that the delivery of the bonds to the assessee was not hit by the Special Court Act as those bonds had been purchased by the assessee and the assessee was the absolute owner as per law. At no point of time, the assessee had raised any doubt about its ownership. Like others, it has also contested the claim of the Custodian that all the shares and securities handed over by the notified persons were to be attached. Taking into consideration the legal position, he held that 20 the assessee was the owner of these bonds during the relevant accounting year and therefore interest on those bonds accrued to the assessee. Merely because the Custodian had raised some doubt about the title of the appellant over those bonds, would not postpone the accrual of the income to the future period. With regards to the submission of the assessee that the interest accrued on those bonds has been accounted for in the Asst. year 1998-99 he observed that "6.2. The time of accrual or arisal of income is of significance in taxation. In order that income may be said to have accrued at a particular point of law, it must have ripened into a debt at that moment, that is to say, the assessee should have acquired a right to receive payment at that moment, though the receipt itself may take place later. The date of accrual will depend upon the nature and terms of the statute or agreement which gives rise to the right. In this case, the interest on the PSU Bonds accrued in the relevant year. The PSU have not postponed the payment of interest. Only receipt of the interest by the appellant has been postponed since in view of the Special Court Act, clear decision has to be taken by recording legal ownership over the bonds, but such decision regarding legal ownership cannot postpone accrual of the interest on those bonds. The expression "accrual"
represents a stage anterior to the point of time when the income becomes receivable and connote a character of the income, which is more or less inchoate and which is something less than a receipt as held by the Supreme Court in the case of Anglo French Textile Co. Ltd. v CIT 25 ITR 27 (SC). The appellant maintained accounts on mercantile 21 system, it had shown those bonds as its assets in the balance sheet drawn on 31-3-93 and also on 31-3-94 and in view of the Supreme Court decision, it has title over such bonds at the relevant period has been confirmed. Hence, the appellant was legally entitled to the interest on those bonds during the relevant assessment year. Only the receipt of the interest had been postponed. Since the appellant was maintaining the accounts on mercantile system, it was assessable to the accrued interest not in the year it was received, but in the year in which, as per the terms of the agreement by the PSU, the interest would be payable to the holder of the bonds. Therefore, I confirm the action of the AO in adding the interest on those bonds amounting to Rs.3,69,63,750/-."
18.1. Tribunal, thereafter, analysed the provisions of the Special Court Act and recorded the following findings:
9. A notification was issued on 2-7-1992 by the Custodian under section 3(2) of the Special Act, 1992 declaring M/s FGFSL as one of the notified persons. A public notice was also issued by the Custodian informing that all the properties of the notified person have been attached and asking all those including Banks, Financial Institutions, Mutual Fund, who had dealings with the notified persons to intimate the Custodian the details of such properties held by them in the name of the notified persons as on the date of notification, jointly or on behalf of the notified persons as also the details of value of shares/bonds held as collateral security furnished by the notified persons.22
10. The assessee was one of the effected parties of 1992 Scam and had advanced money to M/s FGFSL, one of the notified parties and it was found that some of the securities delivered by M/s FGFSL were forged/fabricated.
On 3-8-1992 the assessee filed a Misc. Petition No.6 before the Special Court mentioning therein that as against the total payment of Rs.236.78 crores, M/s FGFSL had delivered securities worth Rs.266.03 crores to the assessee and out of this, securities worth Rs.205.12 crores were forged and were tampered with or not genuine; that on further negotiations, M/s FGFSL had handed over certain securities worth Rs. 101.57 crores and offered collateral security for certain shares worth Rs. 111.87 crores; that as given in annexure-C to the petition the assessee has securities with face value of Rs. 42 crores, which have been purchased by the assessee before the notification period. In this petition, the assessee has prayed the Court to declare it as absolute owner of the equity shares and PSU Bonds and beneficial owner of the equity shares and bonds receivable for realizing the outstanding demand. Out of the total payment of Rs.236.78 crores the assessee has reduced Rs.40.83 crores being the cost of aforesaid disputed 5 Bonds and had shown Rs.195.94 crores as the amount outstanding against M/s FGFSL as on 31-3-1993 in its balance sheet. As an alternative the assessee prayed that in case the Court came to the conclusion that the appellant was not entitled to the declaration of ownership of the aforesaid securities and bonds, M/s FGFSL might be directed to pay the entire sum of Rs.236.78 crores along with interest thereon at the contract rates and further interest thereon at the rate of 24% per annum from 30th June, 1992 till payment and/or realisation. The Custodian 23 filed an affidavit before the Special Court contending that since the assessee had entered into certain transactions on ready forward basis with M/s. FGFSL and certain Shares and Securities had been handed-over to the appellant as security in connection with some ready forward transactions and as the ready forward transaction was illegal by reasoning of the provisions of the Sec.13 of the Securities Contract Act, no rights whatever had been created in favour of the appellant in respect of the said Securities and the same would continue to belong to the notified person. It was submitted that even if the Court held that the beneficial interest in respect of certain shares belonging to FGFSL and handed-over prior to 2nd July, 1992 and passed the Custodian right under Sec. 4 of the Special Court Act should be protected.
18.2. Further Tribunal noted that insofar the assessee is concerned, the transactions were entered into prior to introduction of the Special Court Act. Assessee had purchased the bonds prior to the notified date and had taken delivery thereof. It, thus, became property of the assessee and could not be construed to be property of the notified person. Tribunal held as follows:
13. In the present case, the transactions were entered into by the assessee prior to introduction of the Special Act. Admittedly, the assessee had purchased the bonds prior to the notified date and has taken delivery thereof. It became property of the assessee before that date, and 24 therefore, they cannot be property of the notified person.
This was the stand of assessee right from beginning. Again, as observed by the CIT(A), it is only in the Misc. Petition No.210/1997, while pointing out that the assessee was in possession of excess value of the bonds, the assessee has requested the Special Court to allow it to purchase such excess bonds and declare it as the absolute owner. But in so far as bonds worth Rs.40.83 crores were concerned there was no prayer for declaring the assessee as absolute owner. It is because of this fact that the delivery of the bonds was not hit by the Special Act, as those bonds had been purchased by the assessee before the effective period and it became absolute owner of the Bonds, as per the provisions of the law, in the light of the decision of the Supreme Court. The assessee was absolute owner of the bonds and the purchase thereof was outside the purview of the Special Act. The decision of the Supreme Court in the case of Hindustan Housing and Land Development Trust Ltd. (supra), therefore, is of no help to the assessee. This decision was rendered in different context. There a compensation was awarded by the Land Acquisition Officer. Arbitrator made award fixing a higher compensation and directed the payment of interest from the date of acquisition. Thereupon the State Government preferred an appeal before the High Court and pending the appeal, the State Government deposited in the Court the additional compensation payable under the award. The assessee was permitted to withdraw that amount only on furnishing of security bond for refunding the amount, in the event of the appeal being allowed. These were the circumstances, under which the question arose, whether the additional compensation could be taxed as the income accrued to the assessee on the ground that 25 it became payable pursuant to the arbitration award. The Supreme Court held that the entire amount of compensation was in dispute in the appeal filed by the State Government and that the dispute was regarded by the court as real and substantial because the assessee was not permitted to withdraw the amount deposited by the State Government without furnishing a security bond for refunding the amount, in the event of the appeal being allowed. In the aforesaid case, it was held that there was no absolute right to receive the amount at that stage. The Court, however, also observed and made it clear that there was a clear distinction between the cases where the right to receive payment was in dispute and it was not a question of merely quantifying the amount to be received, and cases where the right to receive payment was admitted and the quantification only of the amount payable was left to be determined in accordance with the settled and accepted principles.
18.3. Thereafter, Tribunal came to the following conclusion:
17. We, therefore, hold that mere existence of dispute as to the title or freezing one's right by an invalid action of an authority cannot by itself is decisive and material and in making the assessment, the department has prima-facie power to decide whether the assessee is the owner of the property without waiting for the outcome of the litigation proceedings filed in respect thereof. In the present case, the AO as also the CIT(A), in our opinion, were competent to decide about the ownership of the bonds in assessment proceedings and in holding that, as the Bonds were purchased by the assessee before the specified date under 26 the Special Act, they were not to be subjected to attachment. It was also so held by the Special Court, though subsequently. The assessee was the owner and continued to be so in the two years under consideration and consequently, the assessment of interest thereon was chargeable in his hand in these two years itself.
18. In the above facts and circumstances, in our opinion, interest income accrued to the assessee in the two years, under considerations, and was rightly assessed. The contention of the assessee is that it has offered in A.Y. 1997-98 has no bearing in determining its accrual income in the years to which it pertain. We, however, leave it open to the assessee to claim necessary relief in the proceedings for A.Y. 1997-98, wherein entire income has been offered to tax, if so advised. The assessee would be at liberty to claim necessary claim and the authorities would consider the claim of the assessee in accordance with the law.
18.4. Thus, Tribunal held that mere existence of dispute as to the title or freezing of one's right by invalid action of an authority cannot by itself be decisive. In an assessment proceeding, the Revenue has prima facie power to decide whether the assessee is the owner of the property without waiting for outcome of the litigation proceedings.27
18.5. On the issue as to taxability of the interest earned on bonds transferred to NALCO and similar additions on inter-
corporate deposit, Tribunal held as follows:
28. We have heard the parties and considered the rival submissions. The AO has rejected the claim of the assessee because the agreement on the basis of which it has earmarked the bonds and the interest thereon in favour of NALCO, was of a subsequent date i.e. 17-5-94 which was much after the closing date of the accounting year. It was irrespective of the fact that on examining the details of interest credited in the ledger a/c under the head "Interest on Securities (Investments)", he found that the interest on such bonds had been credited and a corresponding debited of the interest payable has been given to NALCO. From the copy of the agreement with NALCO claimed to have been finalized on 29-10-93, it is evident that parties have agreed to the terms but could not execute the agreement due to injunction by the Supreme Court. From the material on record we notice that NALCO started placing the temporary surplus funds with the assessee from November, 1991 on short-term basis i.e. for a period of 90 days on the rate of interest of 21% to 22%.
The total outstanding amount in inter corporate deposit of NALCO was Rs.45 crores. The due date for ICD No.126 for an amount of Rs.20 crores was 15-9-92 and for ICD No.154 for an amount of Rs.25 crores was 20-10-92. The assessee due to various reasons defaulted in meeting the commitments and offered to transfer in favour of NALCO
(i) 14% Mahanagar Telephone Nigam Ltd. Bonds of the face value of Rs.12.50 crs; (ii) 13% Nuclear Power Corporation Ltd. Bonds of face value of Rs. 8 crs; (iii) 9% Power Finance 28 Corporation Ltd. Bonds of face value of Rs.19.50 crs and
(iv) 17% National Thermal Power Corporation Ltd., Bonds of face value of Rs.5 crs. In addition to the Bonds of Rs.45 crs, the assessee also offered post dated interest warrants pertaining to the said Bonds amounting to Rs.3,99,39,725/-. However, the 17% NTPC Bonds of the face value of Rs.5 crores were not delivered and the NALCO agreed to take delivery of the remaining Bonds of Rs.38 Crores as post dated interest warrants. On the basis of the above terms of settlement, the agreement was to be signed on 29-10-93. However, on account of the interim injunction order dated 28-10-93 of the Hon'ble Supreme Court restraining the assessee from making any payment to any other creditor other than M/s. Kudremukh Iron Ore Company Ltd., the agreement could not be concluded till the Supreme Court disposed of the interim injunction order. Thereafter, it was agreed that the appellant would encash and invest the proceeds of the interest warrants in short term deposits and interest on such short term deposits would also be payable to NALCO. Thereafter, the 14% MTNL Bonds of the face value of Rs.12.50 crores were also redeemed as per the settlement dated 16-5-94, the assessee delivered all the bonds and proceeds of redemption value of MTNL Bonds and the interest warrants in favour of NALCO.
29. From the aforesaid facts, it is true that the Bonds were in the possession of the assessee during the accounting year in which interest accrued and assessee even encashed the interest warrants and by making deposit of the interest on those bonds in term deposits has earned further interest. It was all pursuant to understanding between the assessee and NALCO right 29 from the date of agreement dated 29-10-1993 which for some technical reasons could not be executed or acted upon. The agreement subsequently executed on 16-05- 1994 also suggest like that by incorporating the payment of intervening period to NALCO. There was thus an agreement for payment of interest to NALCO on the outstanding amount not only the principal but also some interest thereon. Thus, the liability to pay interest to NALCO did arise right from the original agreement dated 29-10-1993. The debit of interest on the amount outstanding in ICD account was based on agreement and since it was ascertained liability in favour of NALCO, such claim in our opinion would be allowable. It might be true that the assessee company continued to be the owner of the Bonds, it was in the nature of a trust with an obligation to hold it and to pay the usufruct to NALCO. It was actually paid also and was offered as income and assessed to tax in the hands of NALCO who was liable to be taxed on the income earned on those bonds.
30. Alternatively as the CIT (A) held that the assessee may claim the payment of interest to NALCO as per the settlement as a deduction in the Asst. Year 1995-96, which was the relevant assessment year for the settlement dated 16-5-94. But as we have held that there was a liability for payment of income to NALCO in the respective year the effect may be given in concerned years itself. The right to the interest has passed to NALCO during the accounting year relevant to the assessment year under consideration. Therefore, we delete the addition made by the AO, since interest was payable as per the existing understanding between NALCO and the assessee. 30
31. Any deduction on this account made in subsequent year(s) may be withdrawn on its being allowed in these years by deleting the same from the income of the assessee bank.
19. Sum and substance of the decision rendered by the Tribunal can be traced to paragraphs 17 and 18 of its order dated 06.06.2005. According to the Tribunal, mere existence of dispute as to title or attachment of property would not be decisive. While framing an assessment, the Revenue has prima facie power to decide as to whether the assessee is the owner of the property or not without waiting for the outcome of the litigation. Therefore, Tribunal upheld the decision of the assessing officer and CIT-A that as the bonds were purchased by the assessee before the specified date under the Special Court Act those were not to be subjected to attachment. Tribunal noted that in fact this was the factual position arrived at by the Special Court though subsequently.
20. As already noted above, during the hearing, learned counsel for the appellant fairly pointed out that in the year 1997, the assessee in its return of income for the 31 assessment year 1997-98 declared all the accrued interest. This aspect was also gone into by the Tribunal by holding in paragraph 18 that this would have no bearing on its determination. However, Tribunal gave liberty to the assessee to claim necessary relief in the proceedings for the assessment year 1997-98 wherein the entire income including the accrued interest on the Bonds was offered to tax by making it clear that assessee would be at liberty to claim necessary relief which should be considered by the authority in accordance with law.
21. Adverting to sub-section (3) of Section 3, on which much reliance has been placed by learned counsel for the appellant, we may mention that as per the aforesaid provision which would have overriding effect over the Code of Criminal Procedure, 1973 and all other law for the time being in force on and from the date of the notification under sub-section (2) of Section 3, any property movable or immovable or both, belonging to any person under sub- section (2) would stand attached simultaneously with the issue of the notification. Therefore, all that sub-section (3) 32 of Section 3 provides is attachment of the property belonging to the person who is notified under sub-section (2) of Section 3 of having been involved in any offence relating to transactions in securities after 01.04.1991 and before 06.06.1992. Therefore, the thrust of sub-section (3) is attachment of the property and not deciding ownership of the property qua notified person.
22. It is another matter that in an application filed by the assessee, the Special Court subsequently declared the assessee to be the owner of the property (bonds) which was precisely the view taken by the assessing officer and the CIT-A. Therefore, no fault can be found with the view taken by the Tribunal.
23. Insofar the decision of the Supreme Court in Hindustan Housing and Land Development Trust Limited (supra) is concerned, the issue arose after certain lands belonging to the assessee were regularised and then compulsorily acquired by the State Government. Compensation awarded by the Land Acquisition Officer was challenged by the 33 assessee before the arbitrator who thereafter enhanced the same. This was appealed against by the State Government before the High Court. Pending appeal, State Government deposited certain amount being the additional amount. Assessee was permitted to withdraw that amount on furnishing security bond for refunding the amount in the event of the appeal being allowed. On receiving the amount, assessee credited it in its suspense account. The question was whether the said amount could be taxed as the income of the assessee for the relevant assessment year on the ground that it became payable pursuant to the arbitrator's award. Tribunal held the same to be not taxable in the relevant assessment year which was affirmed by the High Court. Supreme Court also affirmed the decision of the High Court. In the facts of that case, Supreme Court affirming the view taken by the High Court held that there was no liability in praesenti to pay the enhanced compensation till it is judicially determined by the final Court since the question whether the offer made by the Land Acquisition Officer is inadequate or not and 34 whether the claimant would be entitled to additional compensation was yet to be decided.
24. Evidently, facts of the present case are entirely different. What was under attachment was the bonds dealt with by the notified person. Revenue authorities noted that the bonds were purchased by the assessee prior to the notified date and therefore, assessee was the owner of the bonds. In fact, this was also the claim of the assessee before the Special Court which was ultimately decided in favour of the assessee by the Special Court in the year 1997. That being the position, Tribunal was right in taking the view that in an assessment proceeding, it is perfectly justified for the revenue authorities to take a prima facie view as to title of a property which is only for the purpose of assessment.
25. In that view of the matter, we are of the unhesitant view that the substantial questions of law framed above are to be answered in favour of the Revenue and against the 35 assessee. The substantial questions of law are answered accordingly.
26. Consequently, all the appeals fails and are accordingly dismissed. However, there shall be no order as to costs.
Miscellaneous applications pending, if any, shall stand closed.
______________________________________ UJJAL BHUYAN, CJ ______________________________________ C.V.BHASKAR REDDY, J 09.06.2023 pln