ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB)) -- PRINT AND ONLINE EDITION
Charitable purposes --Definition--Amendment disqualifying assessee for exemption where commercial activity undertaken--Assessee entering into agreement with concessionaire for development of indoor cricket academy--Carrying on of commercial and profit motive activities for long duration--Not charitable or welfare activity--Effect of amendment of section 12AA(3 ) w. e. f. 1-6-2010--Cancellation of registration from 1-6-2010 not from date of signing of agreement--Income-tax Act, 1961 , s. 12AA(3) -- Mumbai Cricket Association v. Director of Income-tax (Exemption) (Mumbai) . . . 151
Appeal to Commissioner (Appeals) --Power to admit additional evidence--Assessee making out case of insufficient time for complying with requirement--Additional evidence to be admitted--Income-tax Rules, 1962, r. 46A-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
Business expenditure --Business--Commencement of business--Assessee not granted registration as vendor by Ministry of Defence as supplier--No supply taking place--Business of assessee not set-up--Expenditure rightly disallowed--Assessee after obtaining registration participating in tenders invited by Ministry of Defence--Assessee in state of readiness to obtain orders--Expenditure allowable--Income-tax Act, 1961, s. 37-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
----Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable--Income-tax Act, 1961, ss. 5(2), 9(1)(i), (vi), (vii), 40(a)(i), 195--Double Taxation Avoidance Agreement between India and Ireland, art. 12(2)(b)--Double Taxation Avoidance Agreement between India and the U. S. A., art. 12-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
----Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option--Income-tax Act, 1961, ss. 17, 37, 43(2)-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
----Employees stock option scheme--Discount on issue of options allowable as deduction--Income-tax Act, 1961, s. 37-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
Capital or revenue expenditure --Artwork charges--Artwork having life of six months or less--No enduring advantage--Not capital expenditure--Income-tax Act, 1961-- Parle Agro P. Ltd. v. Assistant CIT (Mumbai) . . . 551
Cash credits --Burden of proof--Share application moneys--Shareholders non-resident entities--Balance-sheets, certificates of incorporation, confirmations and certificates of good standing, filed by assessee--Foreign inward remittance certificates showing remittance by banking channels--Approval of Foreign Investment Promotion Board to raise capital--Discharge of primary burden cast on assessee--Identity and creditworthiness of creditors and genuineness of transaction proved--Moneys received cannot be treated as income of assessee--Income-tax Act, 1961, s. 68-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
Costs --Department--Assessing Officer and Commissioner (Appeals) performing statutory functions--No case for imposition of costs on them-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
Deduction of tax at source --Recipient of income not having primary tax liability--Payer cannot have vicarious tax withholding liability--Income-tax Act, 1961, s. 195-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
Depreciation --Rate of depreciation--Computer accessories and peripherals--Depreciation applicable at 60 per cent.-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556
Double taxation avoidance --Non-resident--Royalty-- Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable--Income-tax Act, 1961, s. 9(1)(vi), Expln. 5 --Double Taxation Avoidance Agreement between India and the U. S. A., arts. 3(2), 12-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
----Provisions of Act or of Agreement whichever more beneficial applicable to assessee--Effect of retrospective amendments to domestic law--Income-tax Act, 1961, s. 90(2)-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Exemption --Export--Method of computation--Communication charges to be excluded from export turnover as well as total turnover--Income-tax Act, 1961, s. 10A-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504
Income-tax authorities --Duties--Natural justice--If record available with Department and assessee points towards it--Authorities to verify that evidence and decide allowability-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
Income-tax --General principles--Accounting--No accounting principle determinative in computation of total income under Act--Effect of Guidelines issued by other authority-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
International transactions --Arm’s length price--Determination--Appeal to Appellate Tribunal--Power to admit additional evidence--Applicability of comparable uncontrolled price method not properly dealt with by Dispute Resolution Panel and Transfer Pricing Officer--Documents subsequently procured and necessary for proper ascertainment of transfer pricing adjustment--Assessee prevented by sufficient cause from producing them in assessment proceedings--Additional evidence to be admitted--Issue of transfer pricing adjustment to be restored to Transfer Pricing Officer--Income-tax Act, 1961, s. 92CA(3)-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556
----Arm’s length price--Determination-- Selection of comparables--Companies which have suffered events like merger or demerger, impacting financial results, those having supernormal profit, those functionally dissimilar, those acting as intermediary having outsourced their activity, those whose directors involved in fraud, those whose turnover exceeding Rs. 200 crores not to be treated as comparables--Direction to Assessing Officer to determine arm’s length price of each comparable objected by assessee--Matter remanded--Income-tax Act, 1961, s. 92C-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504
Interpretation of taxing statutes --Noscitur a sociis-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
Non-resident --Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C--Income-tax Act, 1961, ss. 234B, 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
----Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable--Income-tax Act, 1961, s. 9(1)(vi), Expln. 5 , (vii)--Double Taxation Avoidance Agreement between India and the U. S. A. art. 12(4)(b)-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Words and phrases --“Expenditure†--Means not only “paying out“ but also “incurring“-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
Art. 12(2)(b) --Business expenditure--Disallowance-- Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
Arts. 3(2) --Double taxation avoidance--Non-resident-- Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Art. 12 --Business expenditure--Disallowance-- Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
----Double taxation avoidance--Non-resident-- Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
Art. 12(4)(b) --Non-resident--Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
S. 5(2) --Business expenditure--Disallowance-- Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
S. 9(1)(i), (vi), (vii) --Business expenditure--Disallowance-- Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
S. 9(1)(vi), Expln. 5 --Double taxation avoidance--Non-resident-- Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
S. 9(1)(vi), Expln. 5, (vii) --Non-resident--Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
S. 10A --Exemption--Export--Method of computation--Communication charges to be excluded from export turnover as well as total turnover--Income-tax Act, 1961, Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504
S. 17 --Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
S. 37 --Business expenditure--Business-- Commencement of business--Assessee not granted registration as vendor by Ministry of Defence as supplier--No supply taking place--Business of assessee not set-up--Expenditure rightly disallowed--Assessee after obtaining registration participating in tenders invited by Ministry of Defence--Assessee in state of readiness to obtain orders--Expenditure allowable-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
----Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
----Business expenditure--Employees stock option scheme--Discount on issue of options allowable as deduction-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
S. 40(a)(i) --Business expenditure--Disallowance-- Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
S. 43(2) --Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602
S. 68 --Cash credits--Burden of proof--Share application moneys--Shareholders non-resident entities--Balance-sheets, certificates of incorporation, confirmations and certificates of good standing, filed by assessee--Foreign inward remittance certificates showing remittance by banking channels--Approval of Foreign Investment Promotion Board to raise capital--Discharge of primary burden cast on assessee--Identity and creditworthiness of creditors and genuineness of transaction proved--Moneys received cannot be treated as income of assessee-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521
S. 90(2) --Double taxation avoidance--Provisions of Act or of Agreement whichever more beneficial applicable to assessee--Effect of retrospective amendments to domestic law-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
S. 92C --International transactions--Arm’s length price--Determination-- Selection of comparables--Companies which have suffered events like merger or demerger, impacting financial results, those having supernormal profit, those functionally dissimilar, those acting as intermediary having outsourced their activity, those whose directors involved in fraud, those whose turnover exceeding Rs. 200 crores not to be treated as comparables--Direction to Assessing Officer to determine arm’s length price of each comparable objected by assessee--Matter remanded-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504
S. 92CA(3) --International transactions--Arm’s length price--Determination--Appeal to Appellate Tribunal--Power to admit additional evidence--Applicability of comparable uncontrolled price method not properly dealt with by Dispute Resolution Panel and Transfer Pricing Officer--Documents subsequently procured and necessary for proper ascertainment of transfer pricing adjustment--Assessee prevented by sufficient cause from producing them in assessment proceedings--Additional evidence to be admitted--Issue of transfer pricing adjustment to be restored to Transfer Pricing Officer-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556
S. 195 --Business expenditure--Disallowance-- Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
----Deduction of tax at source--Recipient of income not having primary tax liability--Payer cannot have vicarious tax withholding liability-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639
S. 234B --Non-resident--Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
S. 234C --Non-resident--Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582
R. 46A --Appeal to Commissioner (Appeals)--Power to admit additional evidence--Assessee making out case of insufficient time for complying with requirement--Additional evidence to be admitted-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521--
Posted By Rajkumar to ITR at 8/06/2013 12:28:00 PM
TAX DEDUCTORS WHO DEFAULT IN DEPOSITING TDS BY DUE DATE SHALL BE LIABLE FOR PROSECUTION: CBDT
It has come to the notice of Income Tax Department that many times the tax deductors, after deducting TDS from specified payments, are deliberately not depositing the taxes so deducted in Government account and continue to deploy the funds so retained for business purposes or for personal use. Such retention of Government dues beyond the due date is an offence liable for prosecution under Section 276B of the Income Tax Act, 1961. The defaulter, if convicted, can be sentenced to Rigorous Imprisonment (RI) for a term which can extend upto seven years. The TDS units of Income Tax Department have been taking up prosecution proceedings in suitable cases where TDS has been retained beyond the due date. The Central Board of Direct Taxes has partly modified existing guidelines for identification of cases for launching prosecution. As per the revised guidelines, the criterion of minimum retention period of 12 months has been dispensed with. For the benefit of public at large, it is now clarified that defaulters, who have retained the TDS deducted and failed to deposit the same in Government account within due date, shall be liable for prosecution, irrespective of the period of retention. However, the offence u/s 276B of the Income Tax Act can be compounded by Chief Commissioner having jurisdiction on the case, either before or after the launching of prosecution proceedings. In the recent past, several defaulters have submitted petitions for compounding of such offences and compounding orders have also been passed by the Competent Authority in suitable cases. - www.pib.nic.in
IT: Amount of arbitral award which has been invested in a fixed deposit of a bank and interest earned thereon cannot be regarded as income which has accrued unless and until proceedings related to arbitral award attained finality and thus, it would be wholly unreasonable to deduct tax at source on an amount which had not accrued
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[2013] 35 taxmann.com 477 (Bombay)
HIGH COURT OF BOMBAY
DSL Enterprises (P.) Ltd.
v.
Mrs. N.C. Chandratre, Income-tax Officer*
DR. D.Y. CHANDRACHUD AND A.A. SAYED, JJ.
WRIT PETITION NO. 1473 OF 2013
FEBRUARY 21, 2013
Section 5, read with section 197 of the Income-tax Act, 1961 - Income - Accrual of [Arbitral award] - Assessment year 2013-14 - In accordance with a scheme of rehabilitation sanctioned by BIFR, petitioner-assessee was successor in interest of a company by name of 'D' - 'D' had claims against MSEDC which were referred to an arbitral Tribunal - Though Single Judge of High Court dismissed petition filed by MSEDC challenging arbitral award, appeal filed by MSEDC had been admitted - Division Bench of High Court granted a stay on execution of award subject to MSEDC depositing an amount of Rs. 179 crores and furnishing a bank guarantee for Rs. 86 crores - Order was modified in appeal by Apex Court - Under order of Apex Court, MSEDC was required to deposit Rs. 65 crores and 'D' was permitted to withdraw amount so deposited subject to furnishing a bank guarantee - Upon withdrawal, amount had been invested in a fixed deposit of a bank which had marked a lien to the extent of Rs. 65 crores - During financial years 2009-10 to 2011-12 revenue issued certificate for no deduction of tax at source under section 197 on interest income - However, application for certificate under section 197 for financial year 2012-13 was rejected on ground that petitioner had an absolute right to receive amount of interest and hence, interest income was an accrued income of petitioner which was subject to deduction of tax at source - Whether petitioner would have an indefeasible entitlement in respect of principal amount of Rs. 65 crores as well as interest earned only if proceedings which were pending in regard to challenge to arbitral award conclude in its favour - Held, yes - Whether unless those proceedings attained finality, petitioner would be subject to a possible order of restitution not merely in respect of principal amount of Rs. 65 crores but also interest which had been generated on amount withdrawn in view of mandate of section 144 of Civil Procedure Code, 1908 to provide restitution if a decree was modified in appeal - Held, yes - Whether, therefore, it would be wholly unreasonable to deduct tax at source on an amount which had not accrued to petitioner as income during financial year in question, entitlement of petitioner being contingent on outcome of challenge to arbitral award - Held, yes [Paras 10, 13 & 14][In favour of assessee]
FACTS
| ■ | In accordance with a scheme of rehabilitation sanctioned by the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985, the petitioner-company was a successor in interest of a company by the name of 'D'. | |
| ■ | 'D' had claims against MSEDC which were referred to an arbitral Tribunal constituted under the Arbitration and Conciliation Act, 1996. The Arbitral Tribunal made an award of Rs. 179 crore together with interest. The division bench granted an interim stay of the execution of the award subject to fulfilling certain conditions. The Apex Court modified the conditions on which a stay of execution of the award was granted. Under the order of the Apex Court, MSEDC was required to deposit Rs. 65 crores and 'D' was permitted to withdraw the amount so deposited subject to furnishing of a bank guarantee to the satisfaction of the pronotory and Senior Master. | |
| ■ | The petitioner furnished a bank guarantee in the sum of Rs. 65 crore against a deposit of 100 per cent margin money with the bank. The bank had marked a lien on the fixed deposit to the extent of Rs. 65 crore. | |
| ■ | During financial years 2009-10 to 2011-12 and subsequently, the petitioner had received interest on the fixed deposit of Rs. 65 crores. The revenue had issued certificate under section 197 for no deduction of tax at source on interest income for financial years 2009-10 to 2011-12. However, application filed before ITO(TDS) for the certificate for financial year 2012-13 was rejected on the ground that the petitioner had an absolute right to receive the amount of interest and, hence, the interest income was an accrued income of the petitioner which was subject to the deduction of tax at source. |
HELD
| ■ | There can be no manner of dispute even as a matter of first principle, about the fact that the amount of Rs. 65 crores which was permitted to be withdrawn against a bank guarantee for an equivalent amount does not represent income which has accrued to 'D'. | |
| ■ | So long as the challenge to the arbitral award has not attained finality, the amount which has been awarded does not represent income which has accrued. | |
| ■ | Upon the withdrawal of the amount by 'D', the amount has been invested in a fixed deposit of a bank which has marked a lien to the extent of Rs. 65 crores; this corresponds to the amount of the bank guarantee which it has furnished. The interest which has accrued on the amount of the fixed deposit cannot be regarded at this stage as income which has accrued to the petitioner. | |
| ■ | In view of the provisions of section 144 of the CPC, 1908, if the decree in terms of the award is varied or reversed in appeal, the Court which passed the decree or order is under a mandate on the application of any party entitled to any benefit by way of restitution or otherwise to cause such restitution to be made so as to place the parties in the position which they would have occupied but for such decree or order. The Court is empowered to make any orders including orders for the refund of costs and for the payment of interest. [Para 10] | |
| ■ | The scope of the appeal before the Division Bench is the validity of the order of the Single Judge dismissing the objection to the arbitral award and it is not only the quantum of compensation which is in dispute in the letters patent appeal that has been filed against the order of the Single Judge. Moreover, it would be fallacious to postulate that the petitioner has absolute ownership of the funds to the extent of Rs. 65 crores. Even the impugned order of the ITO (TDS) proceeded on the fallacious assumption that the petitioner has an absolute right to receive an amount of interest. | |
| ■ | So long as an appeal against the order of the Single Judge on the arbitration petition is pending, the petitioner does not have an absolute entitlement either to retain the amount of Rs. 65 crores or the interest which has been realized in respect of the fixed deposit placed with the bank. [Para 11] | |
| ■ | The submission of the revenue is that the order of the Apex Court only required the petitioner to furnish a bank guarantee of Rs. 65 crores in respect of the amount which was deposited by the MSEDC and withdrawn. However, it is urged that there was no direction in regard to the interest which would accrue on the amount of Rs. 65 crores and there is no link as such between the fixed deposit upon which interest has been earned and the bank guarantee which was required to be furnished for the withdrawal of Rs. 65 crores. It would not be possible to accede to the submission for the simple reason that the interest on the fixed deposit does not represent a crystallized entitlement of the petitioner during the financial year in question. | |
| ■ | The petitioner would have an indefeasible entitlement in respect of the principal amount of Rs. 65 crores as well as the interest earned only if the proceedings which are pending in regard to the challenge to the arbitral award conclude in its favour. Unless those proceedings attain finality, the petitioner would be subject to a possible order of restitution not merely in respect of the principal amount of Rs. 65 crores, but also the interest which has been generated on the amount withdrawn in view of the mandate of section 144 of the CPC, 1908, to provide restitution if a decree is modified in appeal. | |
| ■ | In that view of the matter, it would be wholly unreasonable to deduct tax at source on an amount which has not accrued to the petitioner as income during the financial year in question, the entitlement of the petitioner being contingent on the outcome of the challenge to the arbitral award. Moreover, it has also not been disputed on behalf of the petitioner and it is fairly conceded by the petitioner that if the challenge to the arbitral award ends in favour of the petitioner, the revenue would be entitled to bring to tax the amount accrued in the corresponding year. [Para 13] | |
| ■ | For these reasons the ITO(TDS) was not justified in denying a certificate under section 197 despite the fact that such a certificate has been issued earlier for three preceding financial years 2009-10, 2010-11 and 2011-12. | |
| ■ | No other objection to the grant of a certificate under section 197 has been asserted on behalf of the revenue at the hearing. | |
| ■ | Accordingly, the rule is made absolute by directing the Income-tax Officer to issue a certificate under section 197 for financial year 2012-13. Rule is made absolute in these terms. [Para 14] |
CASES REFERRED TO
CIT v. Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524 (SC) (para 6) and CIT v. Shoorji Vallabhadas & Co.[1962] 46 ITR 144 (SC) (para 12).
Chirag Balsara, Ms. Swati Deshpande, Praveer Shetty and Nishith Joshi for the Petitioner. Vimal Gupta and Suresh Kumar for the Respondent.
JUDGMENT
Dr. D.Y. Chandrachud, J. - Rule; with the consent of Counsel for the parties returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal.
2. The Petitioner is a Company incorporated under the Companies' Act, 1956, in accordance with a scheme for rehabilitation sanctioned by the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985. The Petitioner is a successor in interest of a Company by the name of Datar Switchgear Limited (DSL).
3. DSL had claims against the Maharashtra State Electricity Distribution Company Limited (MSEDC) which were referred to an Arbitral Tribunal constituted under the Arbitration and Conciliation Act, 1996. The Arbitral Tribunal made an award on 18 June 2004 in the amount of Rs. 179 crores together with interest at 10% per annum. Initially, the arbitral award was set aside by a Learned Single Judge of this Court, but on appeal, the proceedings were remanded back to the Learned Single Judge for fresh disposal. On 18 March 2009, the Learned Single Judge dismissed a Petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the arbitral award. MSEDC filed an appeal before the Division Bench. By an order dated 2 May 2009, the Division Bench granted an interim stay of the execution of the award subject to MSEDC depositing an amount of Rs.179 crores and furnishing a Bank Guarantee for the balance of Rs.86 crores (the contention of DSL being that the total amount due inclusive of interest was Rs.265 crores). Against the order of the Division Bench, Special Leave Petitions were filed before the Supreme Court both by DSL and by MSEDC. The Supreme Court modified the conditions on which a stay of execution of the award was granted by the Division Bench in the following terms:
"We are of the view that interests of justice would be served if the terms subject to which stay is granted are modified as follows:
| (a) | MSEDC shall deposit Rs.65 crores with the Bombay High Court on or before 20.6.2009. DSL will be at liberty to draw the said sum of Rs.65 crores by furnishing an unconditional Bank Guarantee to the satisfaction of the Prothonotary and Senior Master of the High Court. | |
| (b) | MSEDC shall furnish a Bank Guarantee for the remaining Rs.200 crores on or before 20.6.2009 to the satisfaction of the Prothonotary and Senior Master. The said Bank Guarantee shall be kept current during the pendency of the appeal. | |
| (c) | The Bank Guarantee that is furnished by DSL for withdrawing Rs.65 crores, shall confirm that the Bank shall not object to any claim under the Guarantee on the ground that the matter is pending before the BIFR or any other ground." |
4. The Petitioner furnished a Bank Guarantee in the sum of Rs.65 crores of the Indian Bank dated 25 June 2009 against a deposit of 100 per cent margin with the Indian Bank. Indian Bank has marked a lien on the fixed deposit to the extent of Rs.65 crores. The Petitioner has received during Financial Years 2009-10, 2010-11 and 2011-12 and subsequently interest on the fixed deposit of Rs.65 crores. The Income Tax Department on an application filed by the Petitioner issued a certificate under Section 197 of the Income Tax Act, 1961, for financial years 2009-10, 2010-11 and 2011-12. On 2 April 2012, the Petitioner filed an application before the Income Tax Officer, TDS-I, Nashik for a certificate of no deduction of tax at source under Section 197 on the interest income for F.Y. 2012-13. On 14 May 2012, this application was rejected by the CIT (TDS) inter alia on the ground that the Company was not carrying on any business so as to generate business income and that the interest which has accrued on the deposits may result in income taxable under the head "Income from other sources" and may result in a demand. Thereafter, a communication was issued by the Income Tax Officer (TDS-I), Nashik on 29 May 2012 informing the Petitioner that his application has been rejected by the CIT on 14 May 2012.
5. The Petitioner filed a Petition under Article 226 of the Constitution for challenging the order of 29 May 2012. A Division Bench of this Court by an order dated 29 October 2012 noted that no valid reason has been furnished by the Assessing Officer to differ from the earlier decisions for A.Ys. 2009-10, 2010-11 and 2011-12 in the matter of the grant of a certificate under Section 197. Since no reasons were furnished for taking a view different from the view taken in the earlier years, the order dated 29 May 2012 was set aside and the Assessing Officer was directed to pass a fresh order on merits in accordance with law. Thereafter, a communication was issued by the Income Tax Officer on 22/23 November 2012 rejecting the application of the Petitioner. On a fresh petition filed under Article 226 of the Constitution, a Division Bench of this Court by an order dated 17 December 2012 noted that in the earlier order of the Court, the order of the CIT dated 14 May 2012 was not specifically set aside though it was contained in the communication dated 29 May 2012 to the Petitioner. Consequently, since the order of 14 May 2012 of the CIT had not been specifically set aside, the Income Tax Officer (TDS) was bound by the order of the CIT. In that view of the matter, the Division Bench quashed and set aside the order of the ITO (TDS) dated 22/23 November 2012 and made it clear that by the order of the Court dated 29 October 2012, the order of the CIT dated 14 May 2012 had also been set aside. The ITO (TDS) was directed to pass a fresh order on merits.
6. Thereafter, a notice to show cause was issued to the Petitioner on 21 January 2013 stating inter alia as follows:
"On going through the application dated 3.4.2012 and all other documents submitted from time to time, the following points emerge:
| (i) | There is no business income during the FY 2012-13; | |
| (ii) | The applicant company has income from deposits under the head income from other sources aggegating Rs.6,07,07,750/-. The taxability arising out of such income has been stated by you at Rs. Nil in your application submitted in Form No.13. The fact remains that there is positive income and estimated tax liability would be of Rs.2.06 cr. which is much more than the TDS amount of Rs.60.70 lacs. | |
| (iii) | In your case the Arbitral Tribunal has awarded the judgment in your favour and the Hon'ble Supreme Court vide order dated 15.5.2009 has modified the stay order granted by the Division Bench reducing the amount to be deposited by the MSEDC. Therefore, the quantum of compensation is only in dispute. The Hon'ble S.C. judgment in the case of CIT v.Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524 relied upon by you in support of your claim is not applicable to your case since the situation arisen as a result of Hon'ble Apex Court's decision above in respect of enhancement or reduction of compensation, has been duly considered vide amendment to Finance Act, 2003 w.e.f. 1.4.2004 to sec. 45(5). Sec.45(5)(c) clarifies the position. |
3. In view of the above, it appears that the deductor company has absolute ownership of the funds to the extent of Rs.65 crs. and interest arising out of the said deposit is taxable in the year of receipt as income from other sources."
The Petitioner furnished a reply. Eventually, an order has now been passed rejecting the application for the grant of a certificate under Section 197 by the ITO (TDS-I), Nashik on 5 February 2013. The principal ground on which the application has been rejected is that in the present case, the Petitioner has an absolute right to receive the amount of interest and hence, the interest income is an accrued income of the Petitioner which is subject to the deduction of tax at source.
7. An affidavit in reply has been filed in these proceedings.
8. On behalf of the Petitioner, it has been submitted that: (i) The arbitral award is yet to attain finality since the appeal against the decision of the Learned Single Judge, rejecting a Petition under Section 34 has been admitted and is pending consideration before the Division Bench; (ii) Unless and until the arbitral award attains finality, the Petitioner has no crystallised entitlement to receive the amount awarded and this cannot be treated as its income; (iii) The order of the Supreme Court dated 15 May 2009 makes it clear that while DSL was permitted to withdraw an amount of Rs.65 crores deposited by MSEDC, this was subject to its furnishing an additional Bank Guarantee to cover the entire amount; (iv) In the event that the Petitioner fails and the challenge to the arbitral award is upheld, the Petitioner would be liable to refund the entire amount of Rs.65 crores which has been withdrawn and would be liable to provide restitution to MSEDC under Section 144 of the Code of Civil Procedure, 1908. In the circumstances, it was urged that the interest which has resulted from the fixed deposit maintained with the Indian Bank in respect of the amount of Rs.65 crores is not income which has accrued since the entire amount inclusive of interest is contingent upon the outcome of the pending proceedings.
9. On the other hand, it has been urged on behalf of the Revenue that: (i) While there can be no dispute about the fact that the Petitioner has no vested right in respect of the amount of Rs.65 crores which has been permitted to be withdrawn by the Supreme Court against the furnishing of a Bank Guarantee, the interest which has been earned on the amount is income which has accrued to the Petitioner; (ii) DSL is a sick industrial Company and the Revenue would be justified in securing its interest by declining a certificate under Section 197; and (iii) In any event no prejudice would be caused to the Petitioner if tax is deducted at source since the Petitioner would be entitled to refund of tax paid together with interest under Section 244A in the event that it is required to pay over the principal amount of Rs.65 crores with interest to MSEDC.
10. The facts which have been narrated in the earlier part of the judgment would indicate that the challenge to the arbitral award is pending in appeal and the award is yet to attain finality. Though the Learned Single Judge of this Court dismissed a Petition filed by MSEDC challenging the arbitral award, the appeal filed by MSEDC has been admitted. A Division Bench of this Court granted a stay on the execution of the award subject to MSEDC depositing an amount of Rs.179 crores and furnishing a Bank Guarantee for Rs.86 crores. This order was modified in appeal by the Supreme Court. Under the order of the Supreme Court, MSEDC was required to deposit Rs.65 crores and DSL was permitted to withdraw the amount so deposited subject to furnishing a Bank Guarantee to the satisfaction of the Prothonotary & Senior Master. Consequently, there can be no manner of dispute even as a matter of first principle, about the fact that the amount of Rs.65 crores which was permitted to be withdrawn against a bank guarantee for an equivalent amount does not represent income which has accrued to DSL. So long as the challenge to the arbitral award is alive and is pending, and the legality of the arbitral award has not attained finality, the amount which has been awarded does not represent income which has accrued. Upon the withdrawal of the amount by DSL, the amount has been invested in a fixed deposit of Indian Bank which has marked a lien to the extent of Rs.65 crores; this corresponds to the amount of the Bank Guarantee which it has furnished. The interest which has accrued on the amount of the fixed deposit cannot be regarded at this stage as income which has accrued to the Petitioner. In view of the provisions of Section 144 of the Code of Civil Procedure, 1908, if the decree in terms of the award is varied or reversed in appeal, the Court which passed the decree or order is under a mandate on the application of any party entitled to any benefit by way of restitution or otherwise to cause such restitution to be made so as to place the parties in the position which they would have occupied but for such decree or order. The Court is empowered to make any orders including orders for the refund of costs and for the payment of interest.
11. The basis on which a show cause notice was issued to the Petitioner on 21 January 2013 is that what was disputed before the Division Bench of this Court is only the quantum of compensation. The show cause notice also proceeded on the basis that the Petitioner has absolute ownership of the funds to the extent of Rs.65 crores. There is a fallacy in both these assumptions. The scope of the appeal before the Division Bench is the validity of the order of the Learned Single Judge dismissing the objection to the arbitral award and it is not only the quantum of compensation which is in dispute in the Letters Patent Appeal that has been filed against the order of the Learned Single Judge. Moreover, it would be fallacious to postulate that the Petitioner has absolute ownership of the funds to the extent of Rs.65 crores. Even the impugned order of the ITO (TDS-I) proceeded on the fallacious assumption that the Petitioner has an absolute right to receive an amount of interest. So long as an appeal against the order of the Learned Single Judge on the Arbitration Petition is pending, the Petitioner does not have an absolute entitlement either to retain the amount of Rs.65 crores or the interest which has been realised in respect of the fixed deposit placed with Indian Bank.
12. Under the Income Tax Act, 1961, income chargeable to tax is income that is received or is deemed to be received in India in the previous year relevant to the year in which assessment is made or the income that accrues or arises or is being accrued in India during such year. In CIT v. Shoorji Vallabhdas and Co., [1962] 46 ITR 144 (SC), the Supreme Court held that "the substance of the matter is the income". Similarly in Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 the Supreme Court held that "Income-tax is a tax on the real income i.e., the profits arrived at on commercial principles subject to the provisions of the Income Tax Act.". These principles were followed by the Supreme Court in the judgment in Godhra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746, in holding that even though the assessee was following a mercantile system of accounting and had made entries in its books regarding enhanced charges for the electric supply made to the consumers, no real income had accrued in respect of those enhanced charges in view of the fact that soon thereafter the assessee had been subjected to litigation in a suit filed by the consumers. The Supreme Court held that "the question whether there was real accrual of income to the assessee-company in respect of enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic manner". The Supreme Court held that the claim at increased rates on the basis of which necessary entries were made represented only hypothetical income and the amounts as brought to tax by the Income Tax Officer did not represent the income which had really accrued to the assessee-company during the relevant previous years". In CIT v. Hindustan Housing & Land Development Trust Ltd., [1986] 161 ITR 524 (SC) the Supreme Court cited with approval the following principle laid down in Khan Bahaddur Ahmed Alladin & Sons v. CIT [1969] 74 ITR 651 (AP):
"Income-tax is not levied on a mere right to receive compensation; there must be something tangible, something in the nature of a debt, something in the nature of an obligation to pay an ascertained amount. Till such time, no income can be said to have accrued..."
13. The submission of the Revenue is that the order of the Supreme Court only required the Petitioner to furnish a Bank Guarantee of Rs.65 crores in respect of the amount which was deposited by the MSEDC and withdrawn. However, it is urged that there was no direction in regard to the interest which would accrue on the amount of Rs.65 crores and there is no link as such between the fixed deposit upon which interest has been earned and the Bank Guarantee which was required to be furnished for the withdrawal of Rs.65 crores. In our view, it would not be possible to accede to the submission for the simple reason that the interest on the fixed deposit does not represent a crystallised entitlement of the Petitioner during the financial year in question. The Petitioner would have an indefeasable entitlement in respect of the principal amount of Rs.65 crores as well as the interest earned only if the proceedings which are pending in regard to the challenge to the arbitral award conclude in its favour. Unless those proceedings attain finality, the Petitioner would be subject to a possible order of restitution not merely in respect of the principal amount of Rs.65 crores, but also the interest which has been generated on the amount withdrawn in view of the mandate of Section 144 of the Code of Civil Procedure, 1908 to provide restitution if a decree is modified in appeal. In that view of the matter, it would be wholly unreasonable to deduct tax at source on an amount which has not accrued to the Petitioner as income during the financial year in question, the entitlement of the Petitioner being contingent on the outcome of the challenge to the arbitral award. Moreover, it has also not been disputed on behalf of the Petitioner and it is fairly conceded by Counsel for the Petitioner that if the challenge to the arbitral award ends in favour of the Petitioner, the Revenue would be entitled to bring to tax the amount accrued in the corresponding year.
14. For these reasons we are of the view that the ITO (TDS-I), Nashik was not justified in denying a certificate under Section 197 despite the fact that such a certificate has been issued earlier for three preceding F.Ys. 2009-10, 2010-11 and 2011-12. Having regard to the several orders of remand that have been passed by the Court on two previous occasions, no useful purpose will be served by a further order of remand. No other objection to the grant of a certificate under Section 197 has been asserted on behalf of the Revenue at the hearing. We accordingly make the rule absolute by directing the First Respondent to issue a certificate under Section 197 for financial year 2012-13. Rule is made absolute in these terms. There shall be no order as to costs.
IT: Since provision made towards leave encashment of employees was in respect of ascertained and definite liability, same would not be added while computing book profit for purpose of levy of MAT under section 115JB
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[2013] 35 taxmann.com 450 (Himachal Pradesh)
HIGH COURT OF HIMACHAL PRADESH
Commissioner of Income-tax
v.
H.P. Tourism development Corpn. Ltd.*
A.M. KHANWILKAR, CJ.
AND R.B. MISRA, J.
AND R.B. MISRA, J.
IT APPEAL NOS. 28 & 29 OF 2012-B
MAY 16, 2013
Section 115JB of the Income-tax Act, 1961 - Minimum alternate tax [Leave encashment provision] - Assessing Officer treated provision made by assessee towards leave encashment of employees as in respect of unascertained liability and added same in book profit for purpose of levy of MAT - Tribunal deleted addition and held that provision made was in respect of ascertained and definite liability - Whether since issue was already stand answered by decision of Apex Court in Bharat Earth Movers v. CIT [2000] 112 Taxman 61, appeal filed by revenue was to be dismissed - Held, yes [Para 3] [In favour of assessee]
FACTS
| ■ | The assessee made provision towards leave encashment of employees. The Assessing Officer added the same by treating it as unascertained liability for ascertaining book profit. | |
| ■ | On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. | |
| ■ | On second appeal, the Tribunal held that the provision made was in respect of 'ascertained and definite liability' of the assessee towards leave allowance to be paid to the employees. | |
| ■ | The Tribunal relying upon the decision of the Apex Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428 deleted the order of the Assessing Officer. | |
| ■ | On revenue's appeal to the High Court: |
HELD
| ■ | It is not open for this Court to over turn the finding of fact so recorded by the appellate Tribunal and, more so, when the issue is already covered by the decision of the Apex Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428/112 Taxman 61. [Para 2] | |
| ■ | The argument of the appellant that the finding recorded by the Tribunal is in appropriate, cannot be the basis to admit these appeals and, more so, when the substantial question, formulated by the department, already stands answered by the decision of the Apex Court in Bharat Earth Movers (supra). Hence, dismissed. [Para 3] |
CASE REVIEW
Bharat Earth Movers v. CIT [2000] 245 ITR 428/112 Taxman 61 (SC) (para 3) followed.
CASES REFERRED TO
CIT v. Bharat General & Textile Industries Ltd. [1986] 157 ITR 158 (Cal.) (para 2) and Bharat Earth Movers v. CIT [2000] 245 ITR 428/112 Taxman 61 (SC) (para 2).
Vinay Kuthiala and Mrs. Vandana Kuthiala for the Appellant. Vishal Mohan and Rattan Thakur for the Respondent.
ORDER
A.M. Khanwilkar, CJ. - Heard counsel for the parties.
2. These appeals have been filed by the Department on the assertion that it raises substantial question of law as follows:-
"Whether the provision made by the assessee for leave encashment is not an ascertained liability and is thus liable to be added to the "book profit" under Explanation 1 to Section 115 JB of the Income-tax Act, 1961?"
In both these appeals, the Assessing Officer, relying on the decision of the Calcutta High Court, in the case of CIT v. Bharat General & Textile Industries Ltd. [1986] 157 ITR 158 held that the provision made by the respondent in the books of account towards leave encashment of employees for the relevant period was unascertained liability and, therefore, was required to be disallowed. The Appellate Tribunal, however, over turned that finding recorded by the Assessing Officer. The Appellate Tribunal accepted the plea of the respondent that the provision made by the respondent in the concerned accounting year was in respect of "ascertained and definite liability" of the respondent towards leave allowance to be paid to the employees. Consistent with that finding, the Appellate Tribunal, relying on the decision of the Apex Court in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428/112 Taxman 61 allowed the appeal and was pleased to set aside the assessment order to the extent disallowing the amount towards leave allowance to be paid to the employees. The Appellate Tribunal allowed the claim of the respondent assessee. It is not open for this Court to over turn the finding of fact so recorded by the Appellate Tribunal and, more so, when the issue is already covered by the decision of the Apex Court in the case of Bharat Earth Moverscase (supra). It will be apposite to advert to the exposition of the Apex Court in the said decision, which reads thus:-
"The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain." (Emphasis supplied)
3. The argument of the appellant that the finding recorded by the Tribunal is inappropriate, cannot be the basis to admit these appeals and, more so, when the substantial question, formulated by the Department, already stands answered by the decision of the Apex Court inBharat Earth Movers (supra). Hence, dismissed.
RITESH IT : An irrevocable general power of attorney which leads to over all control of property in hands of developer would constitute transfer within meaning of section 2(47)
FACTS
(1) Assessee, a member of housing building society, entered into a joint development agreement ('JDA') with a developer. In terms of said agreement assessee transferred its land to the developer in lieu of monetary consideration and consideration in kind;
(2) As per the agreement developer was authorised to:
| (a) | Enter into property for purpose of development | |
| (b) | Amalgamate project with any other project in adjacent area | |
| (c) | Mortgage or create charge on property to raise funds for the project | |
| (d) | Sell, transfer, lease and license premises constructed on such land |
(3) Assessing Officer held that since assessee had assigned all rights in land belonging to the society and handed over possession of property to the developer, he would be liable to capital gain on his share of consideration.
HELD
(1) When developer was authorised to amalgamate projects with other projects or to mortgage it for raising of funds or to transfer its conveyance, etc., it showed that possession was given by society or its members to the developer on execution of irrevocable power of attorney;
(2) Such irrevocable general power of attorney led to over all control of property in hands of developer, which authorised the developer to enter into the property not only for the purpose of development but for other purposes also;
(3) Therefore, such transfer of possession of land through power of attorney to the developer would amount to transfer within meaning of section 2(47)(v).
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[2013] 36 taxmann.com 10 (Chandigarh - Trib.)
IN THE ITAT CHANDIGARH BENCH 'B'
Charanjit Singh Atwal
v.
Income-tax Officer, Ward -VI (1), Ludhiana
T.R. SOOD, ACCOUNTANT MEMBER
AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
IT APPEAL NOS. 448, 858, 986,993,1064, 1070 TO 1074, 1088
TO 1090,1092, 1099, 1100, 1156, 1178, 1204, 1205, 1219, 1223 AND 1238
(CHD.) OF 2011, 3, 276, 310, 556, 765 & 1301 (CHD) OF 2012
AND 196 (CHD) OF 2013
[ASSESSMENT YEARS 2007-08 & 2008-09]
TO 1090,1092, 1099, 1100, 1156, 1178, 1204, 1205, 1219, 1223 AND 1238
(CHD.) OF 2011, 3, 276, 310, 556, 765 & 1301 (CHD) OF 2012
AND 196 (CHD) OF 2013
[ASSESSMENT YEARS 2007-08 & 2008-09]
JULY 29, 2013
CBDT revises prosecution guidelines for TDS defaulters
By TIOL News Service
NEW DELHI, AUG 06, 2013: IT has come to the notice of Income Tax Department that many times the tax deductors, after deducting TDS from specified payments, are deliberately not depositing the taxes so deducted in Government account and continue to deploy the funds so retained for business purposes or for personal use. Such retention of Government dues beyond the due date is an offence liable for prosecution under Section 276B of the Income Tax Act, 1961. The defaulter, if convicted, can be sentenced to Rigorous Imprisonment (RI) for a term which can extend upto seven years.
The TDS units of Income Tax Department have been taking up prosecution proceedings in suitable cases where TDS has been retained beyond the due date. The Central Board of Direct Taxes has partly modified existing guidelines for identification of cases for launching prosecution. As per the revised guidelines, the criterion of minimum retention period of 12 months has been dispensed with. For the benefit of public at large, it is now clarified that defaulters, who have retained the TDS deducted and failed to deposit the same in Government account within due date, shall be liable for prosecution, irrespective of the period of retention.
However, the offence u/s 276B of the Income Tax Act can be compounded by Chief Commissioner having jurisdiction on the case, either before or after the launching of prosecution proceedings. In the recent past, several defaulters have submitted petitions for compounding of such offences and compounding orders have also been passed by the Competent Authority in suitable cases.
The TDS units of Income Tax Department have been taking up prosecution proceedings in suitable cases where TDS has been retained beyond the due date. The Central Board of Direct Taxes has partly modified existing guidelines for identification of cases for launching prosecution. As per the revised guidelines, the criterion of minimum retention period of 12 months has been dispensed with. For the benefit of public at large, it is now clarified that defaulters, who have retained the TDS deducted and failed to deposit the same in Government account within due date, shall be liable for prosecution, irrespective of the period of retention.
However, the offence u/s 276B of the Income Tax Act can be compounded by Chief Commissioner having jurisdiction on the case, either before or after the launching of prosecution proceedings. In the recent past, several defaulters have submitted petitions for compounding of such offences and compounding orders have also been passed by the Competent Authority in suitable cases.
IT: Amount of arbitral award which has been invested in a fixed deposit of a bank and interest earned thereon cannot be regarded as income which has accrued unless and until proceedings related to arbitral award attained finality and thus, it would be wholly unreasonable to deduct tax at source on an amount which had not accrued
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[2013] 35 taxmann.com 477 (Bombay)
HIGH COURT OF BOMBAY
DSL Enterprises (P.) Ltd.
v.
Mrs. N.C. Chandratre, Income-tax Officer*
DR. D.Y. CHANDRACHUD AND A.A. SAYED, JJ.
WRIT PETITION NO. 1473 OF 2013
FEBRUARY 21, 2013
Section 5, read with section 197 of the Income-tax Act, 1961 - Income - Accrual of [Arbitral award] - Assessment year 2013-14 - In accordance with a scheme of rehabilitation sanctioned by BIFR, petitioner-assessee was successor in interest of a company by name of 'D' - 'D' had claims against MSEDC which were referred to an arbitral Tribunal - Though Single Judge of High Court dismissed petition filed by MSEDC challenging arbitral award, appeal filed by MSEDC had been admitted - Division Bench of High Court granted a stay on execution of award subject to MSEDC depositing an amount of Rs. 179 crores and furnishing a bank guarantee for Rs. 86 crores - Order was modified in appeal by Apex Court - Under order of Apex Court, MSEDC was required to deposit Rs. 65 crores and 'D' was permitted to withdraw amount so deposited subject to furnishing a bank guarantee - Upon withdrawal, amount had been invested in a fixed deposit of a bank which had marked a lien to the extent of Rs. 65 crores - During financial years 2009-10 to 2011-12 revenue issued certificate for no deduction of tax at source under section 197 on interest income - However, application for certificate under section 197 for financial year 2012-13 was rejected on ground that petitioner had an absolute right to receive amount of interest and hence, interest income was an accrued income of petitioner which was subject to deduction of tax at source - Whether petitioner would have an indefeasible entitlement in respect of principal amount of Rs. 65 crores as well as interest earned only if proceedings which were pending in regard to challenge to arbitral award conclude in its favour - Held, yes - Whether unless those proceedings attained finality, petitioner would be subject to a possible order of restitution not merely in respect of principal amount of Rs. 65 crores but also interest which had been generated on amount withdrawn in view of mandate of section 144 of Civil Procedure Code, 1908 to provide restitution if a decree was modified in appeal - Held, yes - Whether, therefore, it would be wholly unreasonable to deduct tax at source on an amount which had not accrued to petitioner as income during financial year in question, entitlement of petitioner being contingent on outcome of challenge to arbitral award - Held, yes [Paras 10, 13 & 14][In favour of assessee]
FACTS
| ■ | In accordance with a scheme of rehabilitation sanctioned by the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985, the petitioner-company was a successor in interest of a company by the name of 'D'. | |
| ■ | 'D' had claims against MSEDC which were referred to an arbitral Tribunal constituted under the Arbitration and Conciliation Act, 1996. The Arbitral Tribunal made an award of Rs. 179 crore together with interest. The division bench granted an interim stay of the execution of the award subject to fulfilling certain conditions. The Apex Court modified the conditions on which a stay of execution of the award was granted. Under the order of the Apex Court, MSEDC was required to deposit Rs. 65 crores and 'D' was permitted to withdraw the amount so deposited subject to furnishing of a bank guarantee to the satisfaction of the pronotory and Senior Master. | |
| ■ | The petitioner furnished a bank guarantee in the sum of Rs. 65 crore against a deposit of 100 per cent margin money with the bank. The bank had marked a lien on the fixed deposit to the extent of Rs. 65 crore. | |
| ■ | During financial years 2009-10 to 2011-12 and subsequently, the petitioner had received interest on the fixed deposit of Rs. 65 crores. The revenue had issued certificate under section 197 for no deduction of tax at source on interest income for financial years 2009-10 to 2011-12. However, application filed before ITO(TDS) for the certificate for financial year 2012-13 was rejected on the ground that the petitioner had an absolute right to receive the amount of interest and, hence, the interest income was an accrued income of the petitioner which was subject to the deduction of tax at source. |
HELD
| ■ | There can be no manner of dispute even as a matter of first principle, about the fact that the amount of Rs. 65 crores which was permitted to be withdrawn against a bank guarantee for an equivalent amount does not represent income which has accrued to 'D'. | |
| ■ | So long as the challenge to the arbitral award has not attained finality, the amount which has been awarded does not represent income which has accrued. | |
| ■ | Upon the withdrawal of the amount by 'D', the amount has been invested in a fixed deposit of a bank which has marked a lien to the extent of Rs. 65 crores; this corresponds to the amount of the bank guarantee which it has furnished. The interest which has accrued on the amount of the fixed deposit cannot be regarded at this stage as income which has accrued to the petitioner. | |
| ■ | In view of the provisions of section 144 of the CPC, 1908, if the decree in terms of the award is varied or reversed in appeal, the Court which passed the decree or order is under a mandate on the application of any party entitled to any benefit by way of restitution or otherwise to cause such restitution to be made so as to place the parties in the position which they would have occupied but for such decree or order. The Court is empowered to make any orders including orders for the refund of costs and for the payment of interest. [Para 10] | |
| ■ | The scope of the appeal before the Division Bench is the validity of the order of the Single Judge dismissing the objection to the arbitral award and it is not only the quantum of compensation which is in dispute in the letters patent appeal that has been filed against the order of the Single Judge. Moreover, it would be fallacious to postulate that the petitioner has absolute ownership of the funds to the extent of Rs. 65 crores. Even the impugned order of the ITO (TDS) proceeded on the fallacious assumption that the petitioner has an absolute right to receive an amount of interest. | |
| ■ | So long as an appeal against the order of the Single Judge on the arbitration petition is pending, the petitioner does not have an absolute entitlement either to retain the amount of Rs. 65 crores or the interest which has been realized in respect of the fixed deposit placed with the bank. [Para 11] | |
| ■ | The submission of the revenue is that the order of the Apex Court only required the petitioner to furnish a bank guarantee of Rs. 65 crores in respect of the amount which was deposited by the MSEDC and withdrawn. However, it is urged that there was no direction in regard to the interest which would accrue on the amount of Rs. 65 crores and there is no link as such between the fixed deposit upon which interest has been earned and the bank guarantee which was required to be furnished for the withdrawal of Rs. 65 crores. It would not be possible to accede to the submission for the simple reason that the interest on the fixed deposit does not represent a crystallized entitlement of the petitioner during the financial year in question. | |
| ■ | The petitioner would have an indefeasible entitlement in respect of the principal amount of Rs. 65 crores as well as the interest earned only if the proceedings which are pending in regard to the challenge to the arbitral award conclude in its favour. Unless those proceedings attain finality, the petitioner would be subject to a possible order of restitution not merely in respect of the principal amount of Rs. 65 crores, but also the interest which has been generated on the amount withdrawn in view of the mandate of section 144 of the CPC, 1908, to provide restitution if a decree is modified in appeal. | |
| ■ | In that view of the matter, it would be wholly unreasonable to deduct tax at source on an amount which has not accrued to the petitioner as income during the financial year in question, the entitlement of the petitioner being contingent on the outcome of the challenge to the arbitral award. Moreover, it has also not been disputed on behalf of the petitioner and it is fairly conceded by the petitioner that if the challenge to the arbitral award ends in favour of the petitioner, the revenue would be entitled to bring to tax the amount accrued in the corresponding year. [Para 13] | |
| ■ | For these reasons the ITO(TDS) was not justified in denying a certificate under section 197 despite the fact that such a certificate has been issued earlier for three preceding financial years 2009-10, 2010-11 and 2011-12. | |
| ■ | No other objection to the grant of a certificate under section 197 has been asserted on behalf of the revenue at the hearing. | |
| ■ | Accordingly, the rule is made absolute by directing the Income-tax Officer to issue a certificate under section 197 for financial year 2012-13. Rule is made absolute in these terms. [Para 14] |
CASES REFERRED TO
CIT v. Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524 (SC) (para 6) and CIT v. Shoorji Vallabhadas & Co.[1962] 46 ITR 144 (SC) (para 12).
Chirag Balsara, Ms. Swati Deshpande, Praveer Shetty and Nishith Joshi for the Petitioner. Vimal Gupta and Suresh Kumar for the Respondent.
JUDGMENT
Dr. D.Y. Chandrachud, J. - Rule; with the consent of Counsel for the parties returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal.
2. The Petitioner is a Company incorporated under the Companies' Act, 1956, in accordance with a scheme for rehabilitation sanctioned by the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985. The Petitioner is a successor in interest of a Company by the name of Datar Switchgear Limited (DSL).
3. DSL had claims against the Maharashtra State Electricity Distribution Company Limited (MSEDC) which were referred to an Arbitral Tribunal constituted under the Arbitration and Conciliation Act, 1996. The Arbitral Tribunal made an award on 18 June 2004 in the amount of Rs. 179 crores together with interest at 10% per annum. Initially, the arbitral award was set aside by a Learned Single Judge of this Court, but on appeal, the proceedings were remanded back to the Learned Single Judge for fresh disposal. On 18 March 2009, the Learned Single Judge dismissed a Petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the arbitral award. MSEDC filed an appeal before the Division Bench. By an order dated 2 May 2009, the Division Bench granted an interim stay of the execution of the award subject to MSEDC depositing an amount of Rs.179 crores and furnishing a Bank Guarantee for the balance of Rs.86 crores (the contention of DSL being that the total amount due inclusive of interest was Rs.265 crores). Against the order of the Division Bench, Special Leave Petitions were filed before the Supreme Court both by DSL and by MSEDC. The Supreme Court modified the conditions on which a stay of execution of the award was granted by the Division Bench in the following terms:
"We are of the view that interests of justice would be served if the terms subject to which stay is granted are modified as follows:
| (a) | MSEDC shall deposit Rs.65 crores with the Bombay High Court on or before 20.6.2009. DSL will be at liberty to draw the said sum of Rs.65 crores by furnishing an unconditional Bank Guarantee to the satisfaction of the Prothonotary and Senior Master of the High Court. | |
| (b) | MSEDC shall furnish a Bank Guarantee for the remaining Rs.200 crores on or before 20.6.2009 to the satisfaction of the Prothonotary and Senior Master. The said Bank Guarantee shall be kept current during the pendency of the appeal. | |
| (c) | The Bank Guarantee that is furnished by DSL for withdrawing Rs.65 crores, shall confirm that the Bank shall not object to any claim under the Guarantee on the ground that the matter is pending before the BIFR or any other ground." |
4. The Petitioner furnished a Bank Guarantee in the sum of Rs.65 crores of the Indian Bank dated 25 June 2009 against a deposit of 100 per cent margin with the Indian Bank. Indian Bank has marked a lien on the fixed deposit to the extent of Rs.65 crores. The Petitioner has received during Financial Years 2009-10, 2010-11 and 2011-12 and subsequently interest on the fixed deposit of Rs.65 crores. The Income Tax Department on an application filed by the Petitioner issued a certificate under Section 197 of the Income Tax Act, 1961, for financial years 2009-10, 2010-11 and 2011-12. On 2 April 2012, the Petitioner filed an application before the Income Tax Officer, TDS-I, Nashik for a certificate of no deduction of tax at source under Section 197 on the interest income for F.Y. 2012-13. On 14 May 2012, this application was rejected by the CIT (TDS) inter alia on the ground that the Company was not carrying on any business so as to generate business income and that the interest which has accrued on the deposits may result in income taxable under the head "Income from other sources" and may result in a demand. Thereafter, a communication was issued by the Income Tax Officer (TDS-I), Nashik on 29 May 2012 informing the Petitioner that his application has been rejected by the CIT on 14 May 2012.
5. The Petitioner filed a Petition under Article 226 of the Constitution for challenging the order of 29 May 2012. A Division Bench of this Court by an order dated 29 October 2012 noted that no valid reason has been furnished by the Assessing Officer to differ from the earlier decisions for A.Ys. 2009-10, 2010-11 and 2011-12 in the matter of the grant of a certificate under Section 197. Since no reasons were furnished for taking a view different from the view taken in the earlier years, the order dated 29 May 2012 was set aside and the Assessing Officer was directed to pass a fresh order on merits in accordance with law. Thereafter, a communication was issued by the Income Tax Officer on 22/23 November 2012 rejecting the application of the Petitioner. On a fresh petition filed under Article 226 of the Constitution, a Division Bench of this Court by an order dated 17 December 2012 noted that in the earlier order of the Court, the order of the CIT dated 14 May 2012 was not specifically set aside though it was contained in the communication dated 29 May 2012 to the Petitioner. Consequently, since the order of 14 May 2012 of the CIT had not been specifically set aside, the Income Tax Officer (TDS) was bound by the order of the CIT. In that view of the matter, the Division Bench quashed and set aside the order of the ITO (TDS) dated 22/23 November 2012 and made it clear that by the order of the Court dated 29 October 2012, the order of the CIT dated 14 May 2012 had also been set aside. The ITO (TDS) was directed to pass a fresh order on merits.
6. Thereafter, a notice to show cause was issued to the Petitioner on 21 January 2013 stating inter alia as follows:
"On going through the application dated 3.4.2012 and all other documents submitted from time to time, the following points emerge:
| (i) | There is no business income during the FY 2012-13; | |
| (ii) | The applicant company has income from deposits under the head income from other sources aggegating Rs.6,07,07,750/-. The taxability arising out of such income has been stated by you at Rs. Nil in your application submitted in Form No.13. The fact remains that there is positive income and estimated tax liability would be of Rs.2.06 cr. which is much more than the TDS amount of Rs.60.70 lacs. | |
| (iii) | In your case the Arbitral Tribunal has awarded the judgment in your favour and the Hon'ble Supreme Court vide order dated 15.5.2009 has modified the stay order granted by the Division Bench reducing the amount to be deposited by the MSEDC. Therefore, the quantum of compensation is only in dispute. The Hon'ble S.C. judgment in the case of CIT v.Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524 relied upon by you in support of your claim is not applicable to your case since the situation arisen as a result of Hon'ble Apex Court's decision above in respect of enhancement or reduction of compensation, has been duly considered vide amendment to Finance Act, 2003 w.e.f. 1.4.2004 to sec. 45(5). Sec.45(5)(c) clarifies the position. |
3. In view of the above, it appears that the deductor company has absolute ownership of the funds to the extent of Rs.65 crs. and interest arising out of the said deposit is taxable in the year of receipt as income from other sources."
The Petitioner furnished a reply. Eventually, an order has now been passed rejecting the application for the grant of a certificate under Section 197 by the ITO (TDS-I), Nashik on 5 February 2013. The principal ground on which the application has been rejected is that in the present case, the Petitioner has an absolute right to receive the amount of interest and hence, the interest income is an accrued income of the Petitioner which is subject to the deduction of tax at source.
7. An affidavit in reply has been filed in these proceedings.
8. On behalf of the Petitioner, it has been submitted that: (i) The arbitral award is yet to attain finality since the appeal against the decision of the Learned Single Judge, rejecting a Petition under Section 34 has been admitted and is pending consideration before the Division Bench; (ii) Unless and until the arbitral award attains finality, the Petitioner has no crystallised entitlement to receive the amount awarded and this cannot be treated as its income; (iii) The order of the Supreme Court dated 15 May 2009 makes it clear that while DSL was permitted to withdraw an amount of Rs.65 crores deposited by MSEDC, this was subject to its furnishing an additional Bank Guarantee to cover the entire amount; (iv) In the event that the Petitioner fails and the challenge to the arbitral award is upheld, the Petitioner would be liable to refund the entire amount of Rs.65 crores which has been withdrawn and would be liable to provide restitution to MSEDC under Section 144 of the Code of Civil Procedure, 1908. In the circumstances, it was urged that the interest which has resulted from the fixed deposit maintained with the Indian Bank in respect of the amount of Rs.65 crores is not income which has accrued since the entire amount inclusive of interest is contingent upon the outcome of the pending proceedings.
9. On the other hand, it has been urged on behalf of the Revenue that: (i) While there can be no dispute about the fact that the Petitioner has no vested right in respect of the amount of Rs.65 crores which has been permitted to be withdrawn by the Supreme Court against the furnishing of a Bank Guarantee, the interest which has been earned on the amount is income which has accrued to the Petitioner; (ii) DSL is a sick industrial Company and the Revenue would be justified in securing its interest by declining a certificate under Section 197; and (iii) In any event no prejudice would be caused to the Petitioner if tax is deducted at source since the Petitioner would be entitled to refund of tax paid together with interest under Section 244A in the event that it is required to pay over the principal amount of Rs.65 crores with interest to MSEDC.
10. The facts which have been narrated in the earlier part of the judgment would indicate that the challenge to the arbitral award is pending in appeal and the award is yet to attain finality. Though the Learned Single Judge of this Court dismissed a Petition filed by MSEDC challenging the arbitral award, the appeal filed by MSEDC has been admitted. A Division Bench of this Court granted a stay on the execution of the award subject to MSEDC depositing an amount of Rs.179 crores and furnishing a Bank Guarantee for Rs.86 crores. This order was modified in appeal by the Supreme Court. Under the order of the Supreme Court, MSEDC was required to deposit Rs.65 crores and DSL was permitted to withdraw the amount so deposited subject to furnishing a Bank Guarantee to the satisfaction of the Prothonotary & Senior Master. Consequently, there can be no manner of dispute even as a matter of first principle, about the fact that the amount of Rs.65 crores which was permitted to be withdrawn against a bank guarantee for an equivalent amount does not represent income which has accrued to DSL. So long as the challenge to the arbitral award is alive and is pending, and the legality of the arbitral award has not attained finality, the amount which has been awarded does not represent income which has accrued. Upon the withdrawal of the amount by DSL, the amount has been invested in a fixed deposit of Indian Bank which has marked a lien to the extent of Rs.65 crores; this corresponds to the amount of the Bank Guarantee which it has furnished. The interest which has accrued on the amount of the fixed deposit cannot be regarded at this stage as income which has accrued to the Petitioner. In view of the provisions of Section 144 of the Code of Civil Procedure, 1908, if the decree in terms of the award is varied or reversed in appeal, the Court which passed the decree or order is under a mandate on the application of any party entitled to any benefit by way of restitution or otherwise to cause such restitution to be made so as to place the parties in the position which they would have occupied but for such decree or order. The Court is empowered to make any orders including orders for the refund of costs and for the payment of interest.
11. The basis on which a show cause notice was issued to the Petitioner on 21 January 2013 is that what was disputed before the Division Bench of this Court is only the quantum of compensation. The show cause notice also proceeded on the basis that the Petitioner has absolute ownership of the funds to the extent of Rs.65 crores. There is a fallacy in both these assumptions. The scope of the appeal before the Division Bench is the validity of the order of the Learned Single Judge dismissing the objection to the arbitral award and it is not only the quantum of compensation which is in dispute in the Letters Patent Appeal that has been filed against the order of the Learned Single Judge. Moreover, it would be fallacious to postulate that the Petitioner has absolute ownership of the funds to the extent of Rs.65 crores. Even the impugned order of the ITO (TDS-I) proceeded on the fallacious assumption that the Petitioner has an absolute right to receive an amount of interest. So long as an appeal against the order of the Learned Single Judge on the Arbitration Petition is pending, the Petitioner does not have an absolute entitlement either to retain the amount of Rs.65 crores or the interest which has been realised in respect of the fixed deposit placed with Indian Bank.
12. Under the Income Tax Act, 1961, income chargeable to tax is income that is received or is deemed to be received in India in the previous year relevant to the year in which assessment is made or the income that accrues or arises or is being accrued in India during such year. In CIT v. Shoorji Vallabhdas and Co., [1962] 46 ITR 144 (SC), the Supreme Court held that "the substance of the matter is the income". Similarly in Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 the Supreme Court held that "Income-tax is a tax on the real income i.e., the profits arrived at on commercial principles subject to the provisions of the Income Tax Act.". These principles were followed by the Supreme Court in the judgment in Godhra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746, in holding that even though the assessee was following a mercantile system of accounting and had made entries in its books regarding enhanced charges for the electric supply made to the consumers, no real income had accrued in respect of those enhanced charges in view of the fact that soon thereafter the assessee had been subjected to litigation in a suit filed by the consumers. The Supreme Court held that "the question whether there was real accrual of income to the assessee-company in respect of enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic manner". The Supreme Court held that the claim at increased rates on the basis of which necessary entries were made represented only hypothetical income and the amounts as brought to tax by the Income Tax Officer did not represent the income which had really accrued to the assessee-company during the relevant previous years". In CIT v. Hindustan Housing & Land Development Trust Ltd., [1986] 161 ITR 524 (SC) the Supreme Court cited with approval the following principle laid down in Khan Bahaddur Ahmed Alladin & Sons v. CIT [1969] 74 ITR 651 (AP):
"Income-tax is not levied on a mere right to receive compensation; there must be something tangible, something in the nature of a debt, something in the nature of an obligation to pay an ascertained amount. Till such time, no income can be said to have accrued..."
13. The submission of the Revenue is that the order of the Supreme Court only required the Petitioner to furnish a Bank Guarantee of Rs.65 crores in respect of the amount which was deposited by the MSEDC and withdrawn. However, it is urged that there was no direction in regard to the interest which would accrue on the amount of Rs.65 crores and there is no link as such between the fixed deposit upon which interest has been earned and the Bank Guarantee which was required to be furnished for the withdrawal of Rs.65 crores. In our view, it would not be possible to accede to the submission for the simple reason that the interest on the fixed deposit does not represent a crystallised entitlement of the Petitioner during the financial year in question. The Petitioner would have an indefeasable entitlement in respect of the principal amount of Rs.65 crores as well as the interest earned only if the proceedings which are pending in regard to the challenge to the arbitral award conclude in its favour. Unless those proceedings attain finality, the Petitioner would be subject to a possible order of restitution not merely in respect of the principal amount of Rs.65 crores, but also the interest which has been generated on the amount withdrawn in view of the mandate of Section 144 of the Code of Civil Procedure, 1908 to provide restitution if a decree is modified in appeal. In that view of the matter, it would be wholly unreasonable to deduct tax at source on an amount which has not accrued to the Petitioner as income during the financial year in question, the entitlement of the Petitioner being contingent on the outcome of the challenge to the arbitral award. Moreover, it has also not been disputed on behalf of the Petitioner and it is fairly conceded by Counsel for the Petitioner that if the challenge to the arbitral award ends in favour of the Petitioner, the Revenue would be entitled to bring to tax the amount accrued in the corresponding year.
14. For these reasons we are of the view that the ITO (TDS-I), Nashik was not justified in denying a certificate under Section 197 despite the fact that such a certificate has been issued earlier for three preceding F.Ys. 2009-10, 2010-11 and 2011-12. Having regard to the several orders of remand that have been passed by the Court on two previous occasions, no useful purpose will be served by a further order of remand. No other objection to the grant of a certificate under Section 197 has been asserted on behalf of the Revenue at the hearing. We accordingly make the rule absolute by directing the First Respondent to issue a certificate under Section 197 for financial year 2012-13. Rule is made absolute in these terms. There shall be no order as to costs.
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
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