IT: Division of States divides tax burden: Corporations formed after division of States to pay tax in specified ratio
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[2013] 39 taxmann.com 143 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax -I, Lucknow
v.
U.P. Forest Corporation*
RAJIV SHARMA AND DR. SATISH CHANDRA, JJ.
IT APPEAL (DEFECTIVE) NOS. 2 TO 4 OF 2013†
SEPTEMBER 30, 2013
Section 56 of the Income-tax Act, 1961 - Income from other sources - Chargeable as [Interest on FDR] - Assessment years 2002-03 to 2004-05 - Assessee-UP State forest corporation purchased FDRs from undivided funds in undivided State of UP and same was kept in commercial bank to earn interest - On formation of new State of Uttaranchal after division of UP State, notification was passed whereby fund was divided in ratio of 46:54 per cent respectively in favour of old and new State Forest Corporations - Whether on fact, Tribunal was justified in holding that interest income had to be divided in ratio of 46:54 per cent and only 46 per cent had to be taxed in hand of assessee - UP State forest Corporation and balance 54 per cent was taxable in hand of Uttaranchal forest corporation - Held, yes [Para 6] [In favour of assessee]
CASES REFERRED TO
Dr. M.S. Pal v. State of Uttar Pradesh [Writ Petition No. 248 of 2000 (MB), dated 11-7-2005] (para 5).
D.D. Chopra and Ghan Shyam Chaudhary for the Appellant. Ashish Raj Shukla, Pushpila Bisht and Raj Bali Shukla for the Respondent.
ORDER
1. Cause shown in the affidavit in support of the application to condone the delay is sufficient.
2. Accordingly, the applications are allowed and the delay in filing the present appeals are hereby condoned.
3. All the appeals have been filed by the Department under Section 260A of the Income-Tax Act, 1961 against the different judgments and orders passed by the Income Tax Appellate Tribunal, Lucknow. The details of the Income Tax Appeals are as under:—
| ITAD No. | Assessment Year | Judgment & Order dated |
| 2 of 2013 | 2002-03 | 06.03.2009 passed in ITA No. 785/Luc/05; |
| 3 of 2013 | 2003-04 | 06.03.2009 passed in ITA No. 243/Luc/06; |
| 4 of 2013 | 2004-05 | 06.03.2009 passed in ITA No. 619/Luc/07. |
4. Sri Ghanshyam Choudhary, learned counsel for the Department submits that the assessee has earned income on the interest of FDRs. On specific query from the Bench, he admits that the FDRs are pertaining to the two states namely Uttar Pradesh and Uttaranchal. The FDRs were purchased when the State was undivided. He submits that the interest is not taxable either in the Uttaranchal or Uttar Pradesh. So, the AO has rightly made the addition pertaining to the interest in the hands of the assessee.
5. On the other hand, Sri Raj Bali Shukla, learned counsel for the assessee submits that the FRDs were purchased when the State was undivided. The State was divided on 01.04.2001. Thereafter, the assets of the two States were divided, as per the notification dated 13.02.2004 in the ratio of 46:54 between the State of Uttar Pradesh and Uttaranchal. Accordingly, the FRDs were also divided. Uttaranchal Forest Development Corporation is separate and legal entity and is liable to pay the tax on the interest in the ratio mentioned in the notification. For this purpose, he submits that this proposition was accepted by the Hon'ble Court of Uttaranchal in Writ Petition No. 248 of 2000 (MB) vide judgment and order dated 11.07.2005 (Dr. M.S. Pal v.State of Uttar Pradesh & Ors.), (copy on record).
6. After hearing both the parties and on perusal of the record, it appears that the FDRs were purchased from the undivided funds in undivided State of UP by the Forest Corporation and the same were kept in the commercial bank to earn the interest. By virtue of the notification, the State was divided and funds were also divided in the ratio of 46:54%. The Tribunal vide its impugned order has observed that the interest income has to be divided in the ratio of 46:54% and only 46% thereof has to be taxed in the hands of the present assessee. The rest of 54% is taxable in the hands of Uttaranchal Forest Development Corporation.
7. In view of the aforesaid notification and above discussion, we find no reason to interfere with the impugned order passed by the Tribunal. The same appears reasonable and is hereby sustained along with the reasons mentioned therein.
8. In the result, all the three appeals filed by the Department are hereby dismissed at the admission stage.
Regards
Prarthana Jalan
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