The Commissioner of Income Tax -IV vs National Mineral Development Corporation Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 31ST DAY OF AUGUST 2020

PRESENT

THE HON’BLE MR. JUSTICE ALOK ARADHE

AND

THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD

I.T.A. NO.219 OF 2012

BETWEEN:

M/S. HUTCHINSON & CO., (INDIA) P. LTD., FIRST FLOOR, NAMDEV GARNET 37/7-1, AGA ABBAS ALI ROAD OFF: ULSOOR ROAD, BANGALORE-560042 REPRESENTED BY ITS DIRECTOR SRI. PRAKASH BALACHANDRAN AGED ABOUT 43 YEARS S/O SRI. VELIATH BALACHANDRAN. ... APPELLANT (BY SRI. CHYTHANYA K.K., ADV.)

AND:

THE DEPUTY COMMISSIONER OF INCOME-TAX

CIRCLE-11(4), BANGALORE.

INCOME TAX OFFICER

WARD 12(4), NEW DELHI. ... RESPONDENTS (BY SRI. K.V. ARAVIND, ADV.,) - - -

THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961, ARISING OUT OF ORDER DATED 30-03-2012

PASSED IN ITA NO.1512/DEL/2006 TO 1514/BANG/2009, FOR THE ASSESSMENT YEARS 1997-98, 1998-99, 1999- 2000, 2000-01, 2002-03, 2003-04 & 2004-05 (ANNEXURE- A), PRAYING TO I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. II. ALLOW THE APPEAL AND SET ASIDE THE COMMON ORDER OF THE ITAT BEARING ITA NO.1512/DEL/2006 TO 1514/BANG/2006, 908/BANG/2009 TO 911/BANG/2009, IN THE INTEREST OF JUSTICE AND EQUITY.

THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:

JUDGMENT

This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been preferred by the assessee. The subject matter of the appeal pertains to Assessment years 1997-98 to 2000-01 and 2003-04. The appeal was admitted by a Bench of this Court on 05.11.2012 to consider the following substantial questions of law: (i) Whether the Tribunal was justified in not allowing the claim of interest from the deposits made for and on behalf of PHRC alleging there was no obligation to pay interest to PHRC by the appellant without considering the terms and

conditions of the agreement between the parties?

(ii) In pursuance of the agreement between the appellant and the PHRC whether any income had arising out of the deposits accrued to be taxed in the hands of the appellant?

(iii) When the claim of the payment charged off in the profit and loss account was not allowable as deduction, whether the interest income shown by the appellant in the profit and loss account can be assessed when it really belonged to PHRC?

Facts leading to filing of this appeal briefly stated are that the assessee is engaged in providing services to Holiday Resort Company, for which it receives service charges besides the other income, which was offered for taxation. The assessee entered into an agreement / contract with M/s Prestige Holiday Resorts Company Pvt. Ltd., which is in the business of

property development and development of resorts. The aforesaid company formed a club viz., Royal Goan Bench Club, which was formed with an object to secure for its members exclusive rights of occupation of certain apartments fully furnished at various locations in India for a specified period each year. In pursuance of the agreement, a trust deed was executed between the parties on 21.04.1995 and the assessee agreed to act as a trustee, as a trust and in the capacity of trust company. A capital bond agreement was executed between Prestige Holiday Resorts Company Ltd., and the assessee wherein it was agreed that Prestige Holiday Resorts Company Ltd which was in the process of constructing the resorts was to provide funds for the assessee to enable it to provide guarantee to the time share holders in respect of pre construction of the unit of accommodation and Prestige Holiday Resorts Company Ltd agreed to park with the assessee, the funds, which were to be kept in deposit by way of capital bond and

interest accrued on capital bond was to be paid by assessee to Prestige Holiday Resorts Company Ltd. The assessee made deposits out of the funds given to it by Prestige Holiday Resorts Company Ltd and in return of income it had offered the income derived from deposits and it had also claimed deduction for the same amount of interest payable to Prestige Holiday Resorts Company Ltd. The assessing authority concluded the assessment by bringing to tax interest on deposits offered as income but declined to allow interest payable to Prestige Holiday Resorts Company Ltd and held that the assessee had no obligation to make payment to Prestige Holiday Resorts Company Ltd.

Being aggrieved, the assessee filed an appeal before Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide order dated 28.02.2006 and 30.06.2009 inter alia held that there was no stipulation for payment of interest to Prestige Holiday Resorts Company Ltd in the agreement and no

liability accrued to the assessee which was liable to be allowed as deduction. In the result, the order passed by the assessing authority was upheld. The assessee thereupon filed appeal before Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’, for short). The tribunal vide order dated 30.03.2012 upheld the orders of the Commissioner of Income Tax (Appeals). Being aggrieved, the assessee is in appeal before us.

Learned counsel for the assessee has raised a singular contention that the Tribunal while deciding the appeal has failed to consider the terms and conditions of the agreement and therefore, the matter be remitted to the Income Tax Appellate Tribunal for decision afresh. Learned counsel for the revenue could not point out from the order passed by the Tribunal that the terms and conditions of the agreement have been considered by the Tribunal.

In view of aforesaid aspect of the matter, it is not necessary for us to examine on merits the substantial questions of law framed by a bench of this court. Admittedly, it is the contention of the assessee that under the relevant clauses of the agreement, the interest earned on capital bond was required to be paid to Prestige Holiday Resorts Company Ltd. However, the Tribunal while passing the impugned order has failed to consider the terms and conditions of the agreement. The impugned order passed by the Income Tax Appellate Tribunal is therefore, set aside and the matter is remitted to the Tribunal for decision afresh in accordance with law pertaining to Assessment years 1997-98 to 2000-01, 2002-03 to 2004-05. In the result, the appeal is disposed of. Sd/- JUDGE

Sd/- JUDGE

The Commissioner of Income Tax -IV vs. National Mineral Development Corporation Ltd