ANDHRA BANK FINANCIAL SERVICES LIMITED vs. THE COMMISSIONER OF INCOME TAX-I

/ I 32ss I IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD FRIDAY ,THE NINTH DAY OF JUNE TWO THOUSAND AND TWENTY THREE PRESENT THE HONOURABLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HONOURABLE SRI JUSTICE C.V. BHASKAR REDDY ITTA. NO: 424 425 AND 445 0F 2005 320 0F 2006 AND 114 0F 2012 ITTA. NO: 424 ot 2005 (lncome Tax Tribunal Appeal Under Sectlon 260-4 of the lncome Tax Act 1961, against the order of the lncome Tax Appellate Tribunal, Hyderabad Bench 'B', Hyderabad in ITA No 12614yd12000, for assessment Year '1996-97 dated 08-06-2005, preferred against the Order of the Commissioner of lncome Tax (Appeals)-V, Central Hyderabad, l.T.A No.B16/CC-3/CIT(A)V dated 29-11-1999, preferred against the Order of the Deputy Commissioner of lncome tax Central Circle-lll, Hyderabad, PAN/GlR No A-2lCC-lll/Hyd, dated 12-03-1 999. Between: Andhra Bank Financial Services Ltd, Hyderabad I Floor, 4-5-1 to 23, Andhra Bank Buildings, Sultan Bazar, Koti, Hyderabad - 195. ...APPELLANT AND The Commissioner of lncome Tax-|, Aayakar Bhavan, Basheerbagh, Hyderabad- 5OOOO1 ...RESPONDENT INCOME TAX TRIBUNAL APPEAL NO: 425 OF 2005 (lncome Tax Tribunal Appeal Under Section 260-4 of the lncome Tax Act, against the order of the lncome Tax Appellate Tribunal, Hyderabad Bench 'A', Hyderabad in llA No.115/Hyd/1999. for Assessment Year 1994-95 dated 06-06-2005, preferred against the Order of the Commissioner of lncome Tax Appeals, Hyderabad, Appeal No.SO/CC.3/C|T(A) (Cent)/98-99 dated 30-11-1998, preferred against the Order of

{ the Assistant Commissioner of Inccrne Tax, Central Circle lll. PAN/GlR No.A- 2/CC.lll dated 31 -03-1997) Between: Andhra Bank Financial Services L-td. Hyderabad I Floor, 4-5-1 to 23, Andhra Bank Buildings, Sultan Bazar, Kotr Hyderabad - 195 ...APPELLANT AND The Commissioner :f lncome Tax I 500001 Aayakar Bhavan. Basheerbagh, Hyderabad- RESPONDENT INCOME TAX TRIBUNAL APPEAL NO: 445 OF 2005 (lncome Tax Tnbunal Appeal Under Section 260-4 of the lncome Tax Act, against the order of the lncome Tax Appellate Tribunal, Hyderabad Bench 'A', Hyderabad in ITA No.116/Hyd/1999, for Assessment Year 1995-96, dated 06-06-2005, preferred against the Order of the Commissioner of lncome Tax Appeals-Central, Hyderabad, in Appeal No.119/C C3/ClT(A) (Central)/98-99 dated 30-11-1998, preferred against the Order of the Assistant Commissioner of lncome Tax Central Circle-lll, PAN/GlR No.-A-2lCC-lll, Hyderabad, dated 3'1-03-1998) Between: Andhra Bank Financial Services Ltd. Hyderabad I Floor, 4-5-1 to 23, Andhra Bank Buildings, Sultan Bazar, Koti. Hyderabad - 195. ...APPELLANT AND The Commissioner o{ lncome Tax-l 500001 Aayakar Bhavan, tr.n*'lfflSEJ,iitftl- INCOME TAX TRIBUNAL APPEAL NO: 320 OF 2006 (lncome Tax Tribunal Appeal Under Section 260-4 of the lncome Tax Act, against the order of the lncome 'fax Appellate Tr bunal, Hyderabad Bench 'A', Hyderabad in ITA No.562/Hyd12001 for Assessment Year 1993-94, dated 14-03-2006, preferred against the Order of the Commissioner of lncome Tax (Appeals) V (Central)

Hyderabad, Appeal No 809/CC-3/C|T(A)V, (Cent )/1999-2000, dated 29'05'2001' preferred agarnst the order of the Deputy Commissioner (Appeals) of lncome-Tax and commissioner of lncome-Tax (Appeals) PAN/GIR No.A-2lCC-lll/Hyderabad, dated 12-03-1999.) Between: Andhra Bank Financial Services Ltd, Hyderabad I Floor, 4-5-1 to 23, Andhra Bank Buildings, Sultan Bazar, Koti, Hyderabad - 195 ..,APPELLANT AND The Commissioner of lncome Tax-1, Aayakar Bhavan, Basheerbagh, Hyderabad- 5OOOO1 ...RESPONDENT INCOME TAX TRIBUNAL APPEAL NO: 114 OF 211? (lncome Tax Tribunal Appeal Under Section 260-A of the lncome Tax Act, against ihe order of the lncome Tax Appellate Tribunal, Hyderabad Bench 'A', Hyderabad in ITA No.318/Hyd/2003, for Assessment Year'1995-96' dated 14-03-2006, preferred against the Order of the Commissioner of lncome Tax Appeals-ll, Hyderabad, ITA No.51O CIT (A)-ll 02-03 dated 06-11-2002, preferred against the Order of the Assistant Commissioner of lncome Tax, PAN/GIR No.A-1 dated 15-02-2002) Between: Andhra Bank Financial Services Ltd, Hyderabad I Floor, 4-5-1 to 23' Andhra Bank Buildings, Sultan Bazar, Koti, Hyderabad - 195 ...APPELLANT AND The Commissioner of lncome Tax-|, Aayakar Bhavan, Basheerbagh, Hyderabad- 5OOOO1 ...RESPONDENT Counsel for the Appellant: SRl. C. P. RAMASWAMI Counsel ior the Respondent: SRI B.NARASIMHA SARMA, SENIOR STANDING COUNSEL FOR INCOME TAX The Court delivered the following Common Judgment:

',fti ), r. THE HON'BLE THE CHIEF JUSTICE UJJAI BHUYAN AND THE HON'BLE SRI JUSTICE C.V.BHASKAR REDDY I.T.T.A. Nos.424 425 and 445 of 2OO5 32O of 2006 and 114 of 2012 COMMON JUDGMENT: ltr. tt , tlar)'t)te the CheJ.Justic( IUat tttulltatl) This common order t,ill dispose of I.T.T.A. Nos.424, 425 and 445 ::f 2OO5, 32O of 2006 and 114 of 2012. 2. We havr: heard Mr. C.P.Ramaswami, learned counsel for the appellarrt (also referred to as 'the assessee') arrd Mr. B.Narasimha Sarmar. learned Standing Counsel, Income Tax Department representing the respondents (also referred to as 'the Revenue') 3. Issue raised in all thc appeals is one and the same and therefore, all the appeals were heard together and are being disposed of by this common judgment ald order Hou,ever, Mr. C.P.Ramaswami had argued I.T.T.A.No.425 of 2O05 as the lead appeal. T}-rerefore, reference to facts and orders would be in relation to LT.T.A.No.425 of 2OO5 (

I / the Tribur-ral and I'ravt' bcen admitted on the follou'ing substantial qr-re stions ol ia\\ ( l ) Whcthcr orl the facts and in t]rc circunrsrances of tltc' c rrsc, Tribunal was jusrified in holdrng that thc appcll:Lrrt rvas the ou'ner of the l;onrls in qrrestion despite thc notification dated 02.O7 1992 issued by the Custodiarr in terms of Section 3 of thc Special Courl (Trial of Offences Relating to Transaciions in Securitics) Act, 1992? And \2) Whcther on the facts and iI.t the circumst ances of thc case, Tribuna.l was justified in holding that the assessing officer as well as the Comrnissioner of Incomc Tar (Appeals) was competent to decide the ownership of the bonds in assessment proceedings in spite of tl-re provisions of sub section (4) of Se,rtion 3 of the Spccral Court (Trial of Offenccs Relating to Transactions in Securities) Lct, 1992? 6. Appellart before us is an assessee under the Act having the status of a company. Assessment year under consideration is 1994'95. Assessee is engaged in the business of providing financial services 7. For the trforesaid assessment year, the assessee filed return of incorne on 29.11 .1994 declaring Ni1 income after t setting-off the losses of earller years. This was foiioued by (

l filing of a revised return b1,' the asscssee on 22.08.1995 again declaring Nil incomc after setting-off the losses Thereafter revised return \/as processed under Section 143 of the Act. Assessing officer noted that one entity called 'Fair Growth Financial Services Limited' (referred to hereina-fter as 'Fair Growth') had delivered five bonds to the assessee in discharge of twelve contracts much before the notifled date. However, assessee had not accounted for the accrued interest on the said bonds on the ground that till such time the petitions hled by the assessee before the Special Court constituted under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (briefly, the Special Court Act' hereinafter) were decided declaring the ownership of the bonds, assessee could not deal witl- the bonds including getting its name registered as the owner. According to the assessing ofhcer, assessee had purchased these bonds before the notified date though those were under the custody of the Special Court along with various other bonds. Therefore, assessing officer took the view that the interest accrued on those bonds had to be ) accounted for by the assessee. By the assessment order )

t# lffi*r' ,' / dated 31.O3.1997 passcrl Lrnder Section 143(3) of the Acr, thc assessinli officer treatecl the interest amount u,hicl'r r.l.as u,orked out b1, the asscssce itself at Rs.47.03 crores as income beinrl intercst due lrom Fair Grou,th and on that basis, proceerled to completc the assessment. B. Aggrievcd thereb1,, assessee preferred appeal before the Commissioner of Income Tax (Appeals) (Central), Hyderabad (briefly referred to hereinaJter as 'CIT-A'). By the appellate orcler dated 30.11.1998, CIT-A upheld the addition holdir-rg that the bonds had been purchased by the assessee prior to the notification date. It was held to be a valid purchase and thus the assessee was treated as the absolute owner of those ltonds as delivery of the bonds to the assessee was not hit by the Special Court Act Therefore, the addition of the interest accrued on the bonds by the assessing officer as income of the assessee was upheid by thi: CIT-A 9. Assessee filed further appeal before the Tribuna_l r ( u,hich w-as rcgistered AS I'l'.A.No.115lHyd/ 1999 for the

6 assessment year 1994-95. The said appeal r.r'as heard bv the Tribunal along with I.T.A.No.116 lllydl1999 for the assessment year 1995-96 filed by the assessee itself Tribunal vide the order dated 06.06.2005 hoq'ever upheld the decision of the assessing ofhcer as aJfirmed by the CIT-A on this point. 1O. Mr. C.P.Ramaswami, learned counsel for the appellant, argued that the question for consideration in this batch of appeals is whether interest income accrued to the appellant on the bonds held by it without transfer of title and more particularly when such bonds were attached by operation of law and the title of the bonds was in dispute before the Special Court under the Special Court Act? Corollary to the above question would be the question as to whether Income Tax authorities have power to determine ownership of the bonds between the period from July, 1992 to May, 1997 when the title to the bonds was sub judice before the Special Court? J''t'

8 (NOC) irom the Custodian for interest and ou'nership ovcr such bonds. Consequentiy, in the audited final accounts for the financial year 1993-94, relevant to the assessment year L994-95, appellant had disclosed in the 'Notes on Account' that no income had accrued to the appellant on bonds valued at Rs.40.83 crores since the title to the bonds/ securities was in dispute before the Special Court by virtue of the petitions filed by the appellalt before the Special Court. Mr. Ramaswami submits that in all such cases, the Special Court had held that all the ready and forward transactions entered into during the period from O 1.04. 1991 to 06.06. 1992 were illegal. However, this decision of the Special Court was partly reversed by the Supreme Court in the case of Bauk of.India v. The Custodian on 19.O3.1997 by holding that the ready and forward contracts were severable into two parts - i.e., the ready leg and the forward leg. While the ready leg was legal, the forward leg was illegal. 10.2. In the case of the appellant, Special Court by its order passed in 1997 declared it to be the owner of the n.

() bonds valued at Rs.4O.83 crores. Consequentlr,, the appellant rlr'clared rr it s return of income for the assessment vear 1997-98 all the accrued interest as its income- Thus, the arppelJ:rnt substantiated its stand that no income haLd accrtred to it on those bonds till the title to the bonds u,as clealed trv the Special Court in the year 1997. 10.3. Learned counsel submits that the Revenue authorities including th c' appellate authorities did not appreciate the abovc fer<:ts: rather they proceeded to determine the ou,nership of the bonds which is not permissible. 10.4. Learned counscl submits that Tribunal erred in re\ring upon 1wo decisions of the Calcutta High Court in Mahamaya Dassi v. Commissioner of Income Taxt and in the case of Champa Properties (Privatel Limited v. Commissioner of Income Taxz in as much as facts were completely distinguish:rblt: in the tu,o referred cases. In the two ll9801 126 ITR 7,18 (t al) ll987l 166 II'R 167 (('al)

l0 decisions of the Calcutta High Court, title to the concerned properties was not in dispute, whereas by operation of law under the Special Court Act appellant was divested of its title to the bonds held by it till 1997 when it was declared to be the owner by the Special Court. He, therefore, submits that decision of the Supreme Court in CIT v. Hindustan Housiag and Laad Development Trust Limited3 followed by the Ca,lcutta High Court in cIT v. Eastern Investments Linited4 is squarely applicable to the facts of this case. He submits that Tribunal had completely misconstrued the provisions of the Special Court Act and thus arrived at an erroneous conclusion. Thus, he submits that the two questions may be answered in favour of the appellant and against the Revenue. 11. On the other hand, Mr. B.Narasimha Sarma, learned Standing Counsel, Income Tax Department appearing for the respondents has supported the orders passed by the revenue authorities including the Tribunal. He submits that the Tribunal has correctly appreciated the provisions 'Irq86l t6t ITR 524 (sc) n 1rso51 213 rrR i34 (cat1 --t ffitr 1: ,r! '! \ ) )

of the Specia: Court Acl :rnrl has in fact parth. allor.r,ed thc appeal of thr. appcllanr lrr any view, of the matter, he submits that findin{r ol the assessing officer has been aliirmed b-y thr: CIT A as u'c,11 as by thc Tribunal albeit w,ith some modific:rtion, ancl t ltercfore, in an appeal under Section 260,4 of the Act, lurther interference by the High Court is not n(tcessary. IIc ftnally submits that no question of law arises in this batch of appeals muchless any substantial qui:stion of lau . 12. Submissions made bl learned counsel for the parties have received the due consideration of the Court. 13. Before ad verting to th e findings of the Tribunal, it would be apposite to first deal with the provisions of the Special Court Act. The Spet:ia1 Court Act was enacted in the year 1992 ind camc into force on 06.06.1992. It was enacted to provide for the establishment of a Special Court for the trial of olTences relating to transactions in securities and for matters connectecl ttrerervith or incidental thereto. 'Custodian' has been definerl under Section 2(b) to mean L

2 \t\t.'i{ the Custodial appointed under sub-section (1) of Section 3. 'Special Court' has been defined in Section 2(d) to mean the Special Court established under sub-section (1) of Section 5. 14. Section 3 of the Special Court Act is the essence of the Act and reads as follows: 3. Appointment and functions of Custodian:- (1) The Central Governmcnt may appoint one or more Custodians as it may deem fit for the purposes of this Act. (21 The Custodian may, on being satisfred on information received that any person has been involved in aly offence relating to transactions in securities after the 1"! day of April, 1991 and on and before the 6fr June, 1992, nottfy the name of such person in the Oflicia-l Ga"rtLe. (3) Notwithsta-nding anything contained in the Code and aly other law for the time beingin force, on and from the date of notil-rcaLion under sub-section (2), any property, movable or immovable, or both, belonging to any person notified under that sub-section shall stand attached simultaneously with the issue of the notifrcation. 14) The property attached under sub- section (3) shall be dealt with by the Custodian in such manner as the Special Court may direct. (5) The Custodian may take assistance of any person while exercising his powers or for dischargrng his duties under ttris section ald section 4.

.r.-l 14.1. As per sub scction (1), Centrat Govemment may appoint one c,r morc Cuslodians as it may deem fit for the purposes of r,he Speci:rl Court Act. Sub-section (2) says that the Custodian ma\., ()n being satisfied on information received that any person has been involved in any offence relating to transactions in securities after O1.04.1991 and on or before 0(;.06.1992, notifv the narne of such person in the Officia1 Gazette. Srrb-section (3) provides that notwithstanding anything contained in the Code of Criminal Procedure, 1973 and any other law for the time being in force, on and from the date of notification under sub-section (2l,, any property, movable or immovable, or both, beionging to aly person notified under that sub_ section shall stand attacherl simultaneously with the issue of the notification. Thus, lr.hat sub-section (3) says is that on and from the date of notification notifying the name of such person in the Official Gazette involved in any offence relating to tralsactions in securjties after 01.O4.1991 and on or before 06.06.1992, zrrrr. property, be it movable or ;-/

l'1 immovable, belonging to such person shall stand attached simultaneously u'ith the issue of the notification. 14.2. Post such attachment, sub-section (4) empowers the Custodian to deal with such attached property in such manner as the Special Court may direct 15. As per Section 4(11, if the Custodian is satished after an inquiry that any contract or agreement entered into at any time after O1.04.1991 and on or before 06.06.7992 in relation to arry property of the person notihed under sub- section (2) of Section 3 has been entered into fraudulently or to defeat the provisions of the Special Court Act, he may cancel such contract or agreement ald on such cancellation, such property would sta-nd attached. However, as per the proviso no contract or agreement shall be cancelled except after giving to the parties to the contract or agreement a reasonable opportunity of being heard. Sub-section (2) provides that any person aggrieved by the notification issued under sub-section (2) of Section 3 or any cancellation made under sub-section (1) of Section

i\ ,1 or al_v- othur orcler m:rrle' bv the Custodian in exercise of the pori,ers cr )nferrecl on hirn under Sections 3 or 4 mav file a petition objecting to tl-re same u/ithin such period as may be specificd ',r'hereafter t1'rr, Spe cial Court mav make such order as it mzry deem fit :rftcr hearing the parties 16. Section 5 provides lbr establishment of Special Court. Section 94 of the Specral Clourt Act deals with jurisdiction, powers, authority ald pror:edure of Special Court in civil matters. Whal is relevant for our present discourse is sub- section (1) of Section 9A. It says that on and from the commencement of the Special Court (Trial of Offences Relating to Tralsaction s ir-r Securities) Amendment Act, 1994, the Sper:ial Court shal1 exercise all such jurisdiction, powers and eLuthority as were exercisable, immediately before such commencement by any civil court in relation to any matter or claim relating to any property standing attached under sub-section (3) of Section 3 and/or arising out of transactions in securities entered into after 01.04.199 1 ard on or be:forc 06.06.1992 for which a person notifiecl under sub section (2) of Section 3 is i I

l6 involved as a party, broker, ir-rtermediar5z or in any other manner. 77. Section 13 confers overriding effect on the Special Court Act. It says that provisions of the Special Court Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act or in any decree or order of any court, tribunal or other authority. 18. We may now advert to the order of Tribunal. Tribunal summed up the facts in the following manner: 4. The facts of the case are that the appellant company is incorporated in 1991 as 100% subsidiary of Andhra Bank Lirnited, a Nationalized Bank. It is engaged in the business of linancial services, leasing, hire purchase activities etc. As regards the addition of interest on Securities of Rs.41.83 crores the facts are that the following Bonds had been delivered by M/s Fair Growth Financial Services Ltd. [M/s FGFSL in short] to the assessee company in discharge of 12 contracts much before the notifred date: lii ![

rt f' Sr No l 2 3 4 5 Bonds t7",i, 9'1 9",1, Rs Rs RS Rs Rs ir. Face Value I i.,r.1,75,000' 14.00,o0,00o ir ()r ).O0,0OO 2 (X).00,000 8.!)0,O0,000 + ].r.r,75,ooo Cost Rs. 14.71,').7,3O7 Rs. !1,5 I ,a 7.945 Rs 5,8O.91.78l Rs. 1 ,81 ,50,95!) Rs. 8,90,00,0O0 n". +0,Si,I a,ooo 5. 'lhc assessee h:rcl mentioncd in thc notes on accounts that the interest irccrued on the aforesaid bonds has not ber:n accountcd for since the matter was pending before the Special Court and until the Special Court declared the assessec as owner of those bonds, the assesseo could not get lho bonds registered in its name. The AO, horvever, formed an opinion that the assessce had purchased those bonds and those have been delivered to the assessee before the noLified date mentioned in the Special Court Act. The asscssee contended before the AO that the ser:urities were in the name of M/s FGFSL ald there was no endorsement on those bonds transferring the sarne to the assessee and that the CAs appointed by the Special Court was to verify ald certify the claim of the assessee has reported that m the books of M/s FGFSL only Rs.21.58 crores has been treated as sale on ready- forward basis and the "ready forward transactions" balance was treated as closil-rg stock of securiLies in their books ald bcing illegal, thr: Securities of Rs.41.83 crores did not belong to the assessee. The AO opined that this observation of thc CA hit<l no bearing on income tax proceedings. He was of thc opinion that since the assessee was maintaining the books of accounts on mercantile system and ;Ls per the books. the assessee claimed to have purchascd thcse bonds, tltc interest due on those bonds J /

I8 should have becn accounted for as income during the year. Rclyrng on the principle lard down b1,the Supreme Court in thc case of State Bank of Travancore v CIT 158-lTR- lO2, the AO held that merely because the assessee could not dea.l with the bonds as those were in the custody of the Custodian appointed under the Special Court Act, the assessee cannot disown the liability to tax on the accrued interest. He has pointed out that the Supremc Court in that case held that even the interest due on strcky loans should be treated as income of the assessee. Hc held that the realisability or the ability of thc assessee to deal with tfre bonds or otherwise cannot bar the assessce from admitting the accrued interest as income- Finding that t-here were some tax free bonds, he added thc interest on the following balance bonds to the total income of the ASSCSSCE: I 17% NTPC Bonds of face Rs.2,53,93,75O value of Rs. 'l4,93,75,000 2 13y. NPC Bonds of face Rs. 1,i5,70,000 value of Rs.8,9O,00,0O0 Rs.3,69,63,750 5A. The CIT(A) upheld the addition after discussing in detail the development in this case before and after the Special Court Act was constituted. He held that the bonds worth Rs.4O.83 crores which had been purchased by the assessee prior to the notification date and which had been taken into consideration while ca-lculating the arnount outstanding against M/s FGFSL for the purpose of balalce sheet dated 3l-3-1993 was a valid purchase and in view of the Supreme Court decision, the purchase was complete by way of first leg of the ready forward transaction and therefore, the assessee was the absolute owner of those .t )

l9 bor<ls. I'lr,th in rlrc I\1rsr. Irerition No.6/1992 ancl j\,lisc. Pel ition i\o.2 1O lt)'i , tlrc ;rsscssee has also corrtc.trded Itefor-c lhc Spccral Cortr.t Iirirl it \r,as the absolutc ou.ncr of thosc bonrls. Hc lirrttrer olrsen,ed pcrtinently thal in the Mis<:. Pctirion No 6/ l9!t-2. nowhere the assesscc had praled tlrc Spccial Courr 1.ll declare it absolute orvncr of those bor-rtls, sinr:e it hari all aiong claimcd that those bonds ,,r.,<:r: not hit by rl.:r. Special Court Act sir.rce the lrarlsacrlolt had bcen coml;leted long back. Although the Custodian had disputcd Lhc ownership and to be on the seLfc side. the assessce l.rad allowed the Custodian to collcct thc intcrest accrLrccl on such bonds, those bonds could not be part of th(] attached property of the notificd persons. since thc notrficd persons had delivered those bonds to the assessee anrl as per the Supreme Court dccision. those wcre no longcr the property of the notificd Irersons. It is only in the l\4rsc. Petition No.2lO/97 while pointing our- that the assessee was in possession of the excess v:rlue of thc bonds. the assessee has requested the Speci:r1 Court to allow it to purchase such excess bonds zrnd dcclare it as the absolutc owner. Even in that petition, the assessee has never cxprcssed its doubt about its titlc over ttre bonds worth Rs.4O.83 crores and there is no praycr for declaring the assessee as absolute owner of lhose bonds. Thesc facts clcarly indicate that the delivery of the bonds to the assessce was not hit by the Special Court Act as thosc bonds had been purchased by the assessee and the assessee was the absolute owner as pcr law. At no point of trme, the assessee had raised any doubt ,zrbout its owrrcrship. Like otI.rers, it has also contested the claim o[ the Custodian that all the shares and secunties halded or..er by thc notilleci I)ersons were to be att:rche<i. Taking inlo constdcration tt)(, legal position, he held that t La P,. I

\ 20 the asscssee was the owner o[ thcse bonds ciuring tlrc relevant accounting yeer and therefore intcrcst on those bonds accrued to the asscssee. Mcrely because the Custodian had raised somc doubt about the title of the appellart over those bonds, would not postpone the accnral of the income to the fulure period. With regards to the submission of the assessee that the intcrest accrued on those bonds has been accounted for in the Asst. year 1998-99 he observed that "6.2. ^fhe time of accrual or arisal of income is of significance in taxation. [n order that income may be said to have accrued at a particular point of law, it must have ripened into a debt at that moment, that is to say, the assessee should have acquired a right to receive payment at that moment, though the receipt itself may take place later. The date of accrual will depend upon the nature and terms of the statute or agreement which gives rise to the right. In this case, the interest on the PSU Bonds accrued in the relevant year. The PSU have not postponed the payment of interest. Only receipt of the interest by the appellant has been postponed since in view of the Special Court Act, clear decision has to be taken by recording legal ownership over the bonds, but such decision regarding legal ownership cannot postpone accrual of the interest on those bonds. The expression "accrual" represents a stage anterior to the point of time when the income becomes receivable ald connote a character of the income, which is more or less inchoate and which is something less than a receipt as held by the Supreme Court in the case of Anglo French Textile Co. Ltd. v CIT 25 ITR 27 (SC). The appetlant maintained accounts on mercantile I I

] \ s\'slcrn, it lrrd shorlrr tllose bonds as its assets in tlrc l,iililno(,sltcet (i,awn on 31,3-93 an(l also on 3 i .] ) I an(l jrr vicq ol rlrt' Supreme Court decision, it ltas lltle o\1 r sLtclL l,rrnds at thc rcle\.ant pcriod hrrs lrcen corrllrmcrl IIcnce, the appcllant ufas leqallr cntrtlcd to lhc interest on those bonds dr,.!)ll thc rcl(:van1 asscssment year. Only tht: re.crpr o[ tlr(] irrtercsl had been postponed. Since rhc ai)l)ellanL \,as ntairrtaining the accounts on mt rca ttile svstem, lt .,', a s assessable to the accrued lnlcre:.t no( llt lhe -\1';,11 it was received, but in the ve:rr ir rvhrch, .rs per th(. terms of the agreement by thc PSI[J, rlre intercsL u,ould be payable to the holrler of thc 1)orrds. 'lircrcfore, I confirm the action oI the AO rn arlding th.r interest on those bonds am.)unting to Rs 3,69.63.750/ -." 18.1. Tribunal. thereafter, analysed the provisions of the Special Court r\ct and recorded the following findings: 9. A nrrtification u,as issued on 2-7-Igg2 by the Custodian trnder sectior.r 3(2) of the Special Act, 1992 declaring M Is FGFSL zrs one of the notified persons. A public notic(.was zrlso issued by the Custodian informing lhat all thc propcrties of the notifred person have been zlttached art<l asking all thosc including Banks, Financial lnstitutions, Mutu:rl Fund. \vho had dealings with the notifiL-d pcrs, )ns to intimatc thc Custodian the details of such propert es hcld by thenr ir the name of the notified persons .rs on the dilte of n()tification, jointly or on bchalf of tl-lc noLifi( d l)ers()r1s as rrlso the detatls of value o[ slrarcs / 1;r>nd s. held as coilalt'ral security furnished by thc notificd l)cr so ls. ) ) )

)) 10. Thc asscssee \r'as onc o[ thc eflcctccl partit:s o[' I992 Scam and had advanced mone-v to M/s FGFSL. onc of the notified parties ard it was for:nd thert somc o[ tl-t t: securities delivered by M/s FGFSL werc forgcd/ fabricated. On 3 8-1992 the assessee filed a Misc. Petition No.6 bcfore the Special Court mentioning therein that as against thc total payment of Rs.236.78 crores, M/s FGFSI- had clelivered securitics worth Rs.266.03 crores to the asscssec and out of this, securities worth Rs.205.12 crores were forged and were tampered with or not genuine; that on further negotiations, M/s FGFSL had handed over certain securities worth Rs. 101.57 crores and offered collatera-l security for certain shares worth Rs. 1l1.87 crores; that as given in annexure-C to the petition the assessee has securities witll face value of Rs. 42 crores, which have been purchased by the assessee before the notihcaLion period. In this petition, the assessee has prayed the Court to declare it as absolute owner of the equity shares ald PSU Bonds and beneficial owner of the equity shares and bonds receivable for realizing the outstanding demand. Out of the total paJ.ment of Rs.236.78 crores the assessee has reduced Rs.4O.83 crores being the cost of aforesaid disputed 5 Bonds and had shown Rs.195.94 crores as the amount outstanding against M/s FGFSL as on 3 1-3- 1993 in its balance sheet. As an alternative the assessee prayed that in case the Court came to the conclusion that the appellalt was not entitled to the declaration of ownership of the aforesaid securities and tronds, M/s FGFSL might be directed to pay the entire sum of Rs.236.78 crores along with interest thereon at the contract rates and further interest thereon at the rate of 24o/o per annum from 3orh June, 1992 till payment and/or realisation. The Custodian ) \ J

ll f-ilc-d an ii lldar rr lr, lort ht. Special Court contending that sincc rltr: ilsscssc(. ltlrrl cntr.rr:d ir.rto ccrtarirr transactions on rcird\ lbr$rucl l>.rsr-. u.trl.r M/s. FCFSI- and cert:rin Sharcs arrd Sci:Lrritii,s lLild becn h;rnded over to the appcll:rnt its sccLrritr rrr corlncction with some rcady foruirrrl l] iutsir( ltolrs :rnrl ;rs ll-re ready lorward transaction was illcg;rl l;r' rr.rsoninr ,,i titc pror,isions of the Sec.l3 of the Sccurr ies ( ontrzrr.l \rl. no rights rvhatcver had llccn creatccl in farrrLrr ol- thc rtpl;cllalt in respect of the said Securities ,urd rlrt silrn( \\ ()Llld continue to beiong to the notificd pt',-son. [t wtrs :,Lrbmitled that even if the Court held that (lre bcncfir.ral ii-ti.resl in respect ofcertain shares belonging ro FC.I.SL .rnrt i)attded-over prior to 2"a July, 1992 :rnd l)asscd 1lr(: Crrsrodiarl right under Sec. 4 of the Specinl Cou rt Ar-.t should lrc orotected. 18.2. Further 'lribunaLl nored that insofar the assessee is concerned, the transactions were entered into prior to introduction of the Spccral Court Act. Assessee had purchased the bonds prior to the notifred date and had taken delivery thereof. It, thus, became property of the assessee ald could not bc construed to be property of the notified person. Tribunal hclcl as follows: I3. [n llre present cast.. lltc transactions were entered into lty the irsst,ssc<' 1;rior 1o ir-rtroduction of the Spccial Act. Adrni c(11-r. ll.rc asscsscc had purchased the bonds prior to thc notilird <l:rtc ru:r:l h:rs taken delivery thereof. It becamc propcrt] of the irss('ssee before that date, a]1d I t

)1 thcrefore, they cannot be propcrty of tlle notificd persorr' Ttris t'as thc stand of assessee right from lleginning' Ag.,un, :rs obscn'ed b1' the CIT(A), it is only in the Mist: Petition No-2 I O/ 1997, while pointing out that Lhc asscssec u,as in possession of excess valuc o[ the bonds, the zrssessee has requested the Special Court to allow it to purchasc such excess bonds and declare it as the absolutc os,ncr. But in so far as bonds worth Rs.40.83 crores were concerned there was no prayer for declaring the assessce as absolute owner. lt is because of this fact that the delivery of the bonds was not hit by the Special Act, as those bonds had been purchased by the assessee before tl're cffcctive period and it became absolute owner of thc Bonds, as per the provisions of the law, in the Iight of the decision of the Supreme Court. The assessee was absolute owner of the bonds and the purchase thereof was outside the pun,iew of the Special Act. The decision of the Supreme Court in the case of Hindustan Housing and Land Devclopment Trust Ltd. (supra), therefore, is of no help to the assessee. This decision was rendered in different context. There a cornpensation was awarded by tl.re Land Acquisition Ofhcer. Arbitrator made award fixing a higher compensation and directed the payment of intcrest from the date of acquisition Thereupon the Statc GovernmenL preferred an appeal before the High Court and pending the appea-I, the State Government dePosited in the Court thc additional compensation payable under the award. The assessee was permitted to withdraw that arnount only on furnishing of security bond for refunding the amount, in the event of the appeal being aliowed. These were the circumstances, under which the question arose, whct]lcr the additional compensation could be ta,xed as the income accrued to the assessee on the ground that ) ) \

it bcr:arnc pin,alllc l)ur slr,r'il tr) tlrc arl)itration award. '[']re Suprernc Clrurt irclC Ilrirt thc cnllrc iimounl of compcnsar iorr urrs ur rlt'.lrulr: in lhe zippeal filed bv the statc Go\.,irl1flrcrrr irrrr] Ir,rt llle dispute \t'as regarde(l by the corlfl irs rcal lrtcl sui) ,Liultlal bccausc thc asscssee \\,as not pernri ted to rlit hdlr'.' lrrc .lmount deposited b1' the Statc Go\,( n)me nl rr.itlr,;r t I f rr rnishing zL security bond for refundir.rg thc amolurt. rr tlr(' e\'orlt of thc appeal being aliowed. [n tl-re alirr-es:ucl t ast , it rvas held that there was no absolrtte righl to rtcL rr,' tlre :rmount at that stagc. The Court, hou'ever, irlso r-l1lsi r-''ed and made it clear that there was a ck ar disltrr'liou lr,'trvc't:n lhc cases where the rrght to reccive paymcnt rvir. trr dispute ar-rd it was not a question of merelv quar.rih'ing the amount to be received, and cases'wherc the righl to rcceive payment was admitted ald the quantifir:ittion olrlr of the amount payable was left to be det('rminccl in a, r'orrlanc-e with the settled and acccpted princrplcs. 18.3. Thereafter, Tribunal came to the following conclusion: 17. S'e, thercfor r:, hol<l that mere existence of dispute as to the til-le or lreezing ont''s right by an invalid action of an authority car]rrol bv r t sclf is decisive and material and in makir.rg t he assessrncrrl. 1hc depaJtmenthas pima facie power to dccide wht-'lher tht asscssee is the owner of the propertl' rrithout u'aiting l rr the outcome of the litigation proceedings filed in resp, r'r thercof. In the present case, the AO as :rlso thc OIT(A). in , rur opinion, were competent to decidc al)out the o."r,nC|sh rl:r of thc bonds in assessment proccedings and in l-tol,lur!l that, as the Bonds were purchased lr_r, thc a<sc"s,, iri'lbre the specihed date under I I /

6l the Speciai Act. they werc not to be sub.jcctcd to atta('hmenl . It u,:rs also so held b1, thc Special Courl, though sr rl>scquentlr'. The asscssec vvas the o\r.rrcr altd continucd to be so in the t\rio years under consideration rtnd cOnserluentlr-, thc assessnlcnt of interest thereon was <:hargcablc in hrs heurd in these two years rtself. 18. [n the aborre facts and circumstances, in our opinion, intcrest income accrucd to the assessee in the two years, under considerations, and was rightly assessed. The contention of the assessee is that it has offered in A.Y. 1997 -9a has no bearing in determining its accrual income in the ycars to which it pertain. We, however, leave it open to the assessee to claim necessary relief in the proceedings for A.Y. 1997 -98, wherein entire income has been offered to ta-x, if so adviscd. The assessee would be at liberty to claim nccessarl/ claim and the authorities would consider the claim of the assessee in accordance with the law. 18.4. Thus, Tribunal held that mere existence of dispute as to the title or freezing of one's right by invalid action of an authority cannot by itself be decisive. In an assessment proceeding, the Revenue has pima facie power to decide whether the assessee is the owner of the property without waiting for outcome of the Iitigation proceedings. ( \ t

\ 18.5. On the issue zrs to lrr-ralrilitv of the intcrest earned on bonds transfe,rred to NAL('O:rnd similzrr addrtions on inter corporate deposit, Tnbunrrl hcld as follor.r,s 24. Wr havc lrr:rrrrl llr,.i)irr'{ics iuld consiclcred thc rival submissiorrs- Thc AO rr;rs lejccled thc claim of thc asscssee b.rcause tlrc :rr3r r,r.mcnt on thc basis of which it has carmarked thc bortrls ar-rd the intercst thereon in favour of llALCO, rvas ol rr slrt)scqueltt datr: i.e. 17-5-94 which rvas much alter tlrc clrrsrng datc of the accounting year. It was irrcspcr:tirre rJl th(. fact thal on cxamining the details of intercst crt:ditecl rn tlrc ledger a/c under the head "lnterest orr Securi(ies lln\ cslments)", hc found that the interest on such bon(ls had been credited and a corresponding debited c)l rh(' intercst payable has been given to N/\LCO. F'r'r>m tltc copy o[ thc agreement with NALCO claimed to havc bccrr finzrl jzed on 29- 1O-93, it is evident that partres have :rsrccd to the tcrms but could not execute the agreemcnt drrr' 1o injunction by the Supreme Court. Frorr, the matcrial on r t'cord we notice that NALCO started pla('ing thc temp()rarv surplus funds with the assessee from Novernber, 1991 on short-term basis i.e. for a period o1 !)Q fl2ys on th(. ratc of interest of 21o/o to 22o/o. The total outstanding arrotLllt in inter corporate deposit of NALCO u,as Rs.45 crores. 'j'hc <lue date for ICD No.l26 for a-n amount of Rs.20 cror.cs was 15-9-92 and for ICD No.154 for an amoun[ ot lls.25 crores was 2O-lO 92. The assessee dut: to varic-rus r(.:ts()tls defaulted in mectrng the commitments and ollerecl ro t ralsler in lavour of NALCO (i) 14% Mahanagar Tclephon. Nigam I-td. Bonds of the face value of Rs.l2.5O crs: (ir1 r.l , Nuclear Porver Corl;oration Ltd. Bonds o1'facc r,altre of l.ls ,9 crs; (iii) 9,/o porr.er Finiance I .rJ I

I \ Corporation Lt(I. Bontls of facc value of Rs. 19.50 crs and In') 1,7o/. National 'l'hernal Pouer Corporation Ltd., Bonds of face valrre of Rs.5 ct-s. In addition to the Bonds of Rs 45 crs, the assessee also offered post dated interest warrants pcrtaining to t he said LJonds amounting to Rs.3,99,39,725/', Horvever, rlne l7o/o NTPC Bonds of the lace value of Rs.5 crores !\'ere not delivered artd the NALCO agreed to tirke delivery of the remaining Bonds of Rs.38 Crores as post dated rntcrest warrants. On the basis of the above terms of settlement, the agreement was to be signed on 29-lO 93. Howevcr, on account of the interim injunction order datcd 2a-lo-93 of the Hon'ble Supreme Court restraining thc assessee from making any payment to any other creditor other than M/s. Kudremukh Iron Ore Company Ltd., the agrecmcnt could not be concluded till the Supreme Court disposed of the interim injunction order, Thereafter, it u'as agreed that the appellant would encash and invest the proceeds of the interest warrants in short term deposits and interest on such short term dcposits would also be payabte to NALCO. Thereafter, the 14% MTNL Bonds of the facc value of Rs.I2.5O crores were a-lso redeemed as per the settlement dated 16-5-94, the assessee delivered all the bonds and proceeds of redemption value of MTNL Bonds and the interest warrants in favour of NALCO. 29. From the aforesaid facts, it is true that the Bonds were in the posscssion of the assessee during the accounting year in which interest accrued and assessee even encashed the interest warrants and by making deposit of the interest on those bonds in term deposits has earned further interesL. [t was all pursuart to understanding between the assessee and NALCO right I ]

l() from tlrt rlatc of:rgr('enr(1rt (lated 29 lO lq93 rrhtch lol solrle tcchnical rcil:r()ns ( i)Lll(l nol be t'xt t rtLt ri or it( l( d upon. Tlr( agr( ('rncltl liltl)s('(lLlcnlh' ('xeculcd rrn l6 05 1994 triso suggcst lil<c llrit lry incorporatitlg thc pa)'tnerlt o[ intr:n'enrng pct Jorl to )iAI-CO. Thcrc u'as thus an agrcemcnl for 1;avmenl r)l intercst to NA[,C() on lhc outstardirlg amount rrol t,nh tl-re prilrcip:rl l)u I also sorne intcresl thereon. Tl1us, the liability to paY intercrit to NALCO clir I arisc rigllt [t om lhe original agreem(]tlt dated 29 lO-1993. The debil ol' interest on th(: amount outstandin g in ICD acc,trrrtt rvas bascd on agrecmcnt atld since il was ascertajned Jr:rbrJity in favour of NALC(), such claim in or rr opinion u,ort Lrl bc allou'able. It might be true that the assessec compa trv continued to be tht' owncr of the Bonds, it was in rhe nature of a trusl with iLn obligation ro hold it ald to pay the usufruct to NALCO. It was actually paid also rnrl was offered as income attd assessed to tax in the hands of NALCO who was liable to be taxed orr the income t':rrned on those bonds. 30. Alt,:rnativelv as the CIT (A) helcl that thc asscssce may claim the payment of interest to NALCO as per thc settlement as a deducl,ron in the Asst, Year 1995-96, which u,as the relevant asscssment year for the settlemetrt dated 16-5-94. Bu1 as rr.c have held that thcre was a liability for payment of int:omc to NALCO in the respectire year thc cffcct may be gircrr iu concerned years itself. 'fhe right to thc inlerest hzLs passed to NALCO during the accounting year rclcvant to the assessment year under considerati()n. Thercforc. ue delete the addition made by the AO, sirrce interest u':Ls payable as per the existing undcrstandrng bet\ (:en N.1LCO altd thc assesscc. ) )

l0 31. Any deduction on tlris account made in subsequcnt ycar(s) miir' be rlithdrau'n on its bcirlg allowed in these ycars b-v dclcting tl)(' same from the income of the assessee b:urk. 19. Sum and substance of the decision rendered by the Tribunal can be traced to paragraphs 17 and 18 of its order dated 06.06.2005. According to the Tribunal, mere existence of dispute as to title or attachment of property would not be decisive. While framing an assessment, the Revenue has pima facie power to decide as to whether the assessee is the owner of the property or not without waiting for the outcome of the litigation. Therefore, Tribunal upheld the decision of the assessing officer and CIT-A that as the bonds were purchased by the assessee before the specified date under the Special Court Act those were not to be subjected to attachment. Tribunal noted that in fact this was the factual position arrived at by the Special Court though subsequently 20. As already noted above, during the hearing, learned I counsel for the appellant fairly pointed out that in the year $ 1997 , the assessee in its return of income for the \ I

assessmenl vear 1997 98 <leclared a1l the accrued interest This aspecr \\,as also gonc into by the Tribunal br holding in parergraph 18 that tl-ris rvould have no bearing olr its detcrminatior-r. Hou,ever. Tribunal gave libe rtv to the assessee to claim necessarv relief in the proceedings for the assessment yea-r 1997 98 wherein the el-rtire income including the accrued interest on the Bonds was oflered to tax by making it clear thal assessee would be at liberty to claim necessary relief which should be considered by the authority in accordance with law 2l . Adverting to sub section (3) of Section 3, on which much reliance has been placed by learned counsel for the appeilant, we may mention that as per the aforesaid provision which would havc. overriding effect over the Code of Criminal Procedure, i973 and a-11 other lan, for the time being in forcr: on and from the date of the notification under sub-section (2) of Section 3, any property movable or ,immovable or both, belonging to any person under sub ( \ section (2) would stand attached simultaneously u,ith the issue of the notification. Tl'rerefore, all that sub_section (3) I t

il of Section 3 provides is attachme nt of the property belonging to the person who is notified under sub-section (2) of Section 3 of having been involved in any offence relating to transactions in securities after O 1 .04. 199 I and before 06.06.L992. Therefore, the thrust of sub-section (3) is attachment of the property and not deciding ownership of the property qua notified person. 22. It is another matter that in an application filed by the assessee, the Special Court subsequently declared the assessee to be the owner of the property (bonds) which was precisely the view taken by the assessing officer and the CIT-A. Therefore, no fault can be found with the view taken by the Tribunal. 23. Insofar the decision of the Supreme Court in Iliudustan Ifousing aad Iand Developmeot Trust LiEited (supra) is concerrred, the issue arose after certain lands belonging to the assessee were regularised and then compulsorily acquired by the State Government. Compensation awarded I \ by the Land Acquisition Officer was challenged by the

\ assessec bcfore the arbitr-zrtor who thereafter enhanced thc same- This r.r as appt:a1ed against by the State Govcrnment belore the High Court. Pcnding appeal, State Government deposited cer-tain amount being the additional amount. Assessee was permitted to withdraw that amount on furnishing security bond lor refunding the amount in the event of the appeal br:ing allowed. On receiving the amount, assessee creditecl it in its suspense account. The question u,as whether thc said amount could be ta_xed as the income of the asse sseer for the relevant assessment year on the ground that it became payable pursuant to the arbitrator's arvard. Tribuna-1 held the same to be not taxable in the relevalt assessment year which was affirmed by the High Court. Supreme Court also affirmed the decision of th e High Court. In the facts of that case, Supreme Court affrrming the view taken by the High Court held that there was no liabilit5r in praesenti to pay the enhanced compensation tilL it is judicially determined by the final Court since the question whether the offer made by the Land Acquisition Officer is inadequate or not and

l4 whether the claimant would be entitled to additionai compensation was yet to be decided 24. Evidently, facts of the present case arc entirely different. What was under attachment was the bonds dealt with by the notihed person. Revenue authorities noted that the bonds were purchased by the assessee prior to the notified date and therefore, assessee was the owner of the bonds. In fact, this was also the claim of the assessee before the Special Court which was ultimately decided in favour of the assessee by the Special Court in the year 1997. Tlrat being the position, Tribunal was right in taking the view that in an assessment proceeding, it is perfectly justilred for the revenue authorities to take a pima facie view as to title of a propert5r which is only for the purpose of assessment. 25. In that view of the matter, we are of the unhesitant view that the substantial questions of law framed above are t to be answered in favour of the Revenue and against the I t

HIGH COURT DATED:0910612023 COMMON JUDGMENT ITTA. NO: 424,425 AND 445 OF 2005, 320 0F 2006 AND 114 0F 2012 DISMISSING ALL THE APPEALS 1)., _-:-,11 /4 . .-i l-. 1 ? l\l\ 2s8 q ., \ C\ts V9 , \F- \> *- (j;