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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI K. NARASIMHA CHARY, JM & DR. A.L.SAINI, AM
O R D E R
Per Dr. Arjun Lal Saini, AM:
The captioned four appeals, cited above, filed by the revenue, pertaining to the assessment years 2008-09, 2009-10, 2010-11 & 2011- 2012, are directed against orders passed by ld. Commissioner of Income Tax (Appeals)-Jalpaiguri, in Appeal Nos.89,90,91&92/CIT(A)/SLG/2013- 2014, all dated 11.03.2014, which in turn arise out of orders passed by the Assessing Officer (AO) Under Section.148/143(3) of the Income Tax Act 1961, (in short the ‘Act’), dated 12.12.2013, 12.12.2013, 12.12.2013 & 12.12.2013, respectively.
The facts of the case qua the assessee are that the assessee is a civil contractor which is in litigation against the Govt. of West Bengal in connection with contract work awarded to the assessee during the F.Y.1995-96. On 30.06.2004 the Arbitral Tribunal had made an award of 11.03.2014. The Ld. ClT(A) has relied on the judgement of the Bombay High Court in DSL Enterprises P. Ltd. Vs Mrs. N.C. Chandratre, Income Tax Officer, TDS-1 & Others 20) 3-(355)-ITR-0209-Bom, to conclude that the receipt of interest on the fixed deposits is not income in the hands of the assessee till the Arbitration Award attains finality. In allowing the assessee's appeal, the Ld. CIT(A) has directed the AO to restrict the tax to the extent offered for tax by the assessee in return and that, 'This needs to be adjusted in the income when the Arbitration Award is finalised'.
3. Aggrieved from the assessment orders, the assessee filed four appeals before the ld CIT(A), Jalpaiguri, who has allowed the appeals of the assessee observing the followings :-
“8. Conclusion- Out of all the judgements cited by the assessee, the facts of assessee's case are similar to the facts in the case DSL ENTERPRISES P. LTD. v. MRS. N. C. CHANDRATRE, INCOME- TAX OFFICER, TDS - 1 AND OTHERS 2013-(355)-ITR -0209 - BOM - [ Writ Petition No. 1473 of 2013, decided on February 21, 2013]. The Hon High Court had ordered in this case as under- "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petitioner to furnish a bank guarantee of Rs. 65 crores in respect of the amount which was deposited by the MSEDC and withdrawn.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 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 Officer, TDS-l & Others 2013-(355)-ITR-0209-Bom, wherein the facts and circumstances of the case are fundamentally different from that of the instant case.
2. That the order of the Ld. CIT(A), Jalpaiguri, directing the Assessing Officer to 'restrict the tax to the extent offered for tax by the assessee in return and that, 'This needs to be adjusted in the income when the Arbitration Award is finalised', is self- contradictory in that, since the entire interest receipt on the fixed deposits has already been declared by the assessee as income from business, the assessee would have every right to claim that the entire interest receipt has already been assessed to tax, and hence, the scope of further adjustment on finalization of arbitration would not exist.
Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified law, in entirely ignoring the primary issue on which the assessment is based i.e. whether the interest receipts on fixed deposits are business receipts or income from other sources.
Whether on the facts and in the circumstances of the case, the Ld. ClT(A) was justified in directing that the tax offered by the assessee should be adjusted with the income on finalization of arbitration award, while remaining silent on how or in which assessment year such interest income should be assessed.
That the appellant craves leave to add, amend or alter the grounds of appeal, if any.”
The above cited four appeals pertain to same assessee, different assessment years, same facts and circumstances, common issues involved, therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of brevity and convenience.
The appeal in pertaining to AY, 2008-09, is taken as the lead case. The grounds raised in this case are identical and similar with other assessment years/appeal Nos. cited above. In these appeals, although the assessee has raised multiple grounds of appeal, i).The reliance on the judgement of the Bombay High Court in DSL Enterprises P. Ltd. Vs Mrs N.C. Chandratre, Income Tax Officer, TDS-1 & Others 2013-(355)-ITR- 0209-Bom, is found to be misplaced.The assessee has asserted that the interest receipt is not income till arbitration is finalized whereas the ITO had treated the interest receipt as income. In the instant case, the assessee has itself declared the interest receipts as income in income-tax returns filed u/s 148 and the Ld.CIT(A) has also taken note of this fact. Thus the decision in the cited case does not apply to the instant case.
(ii).The direction to the AO to restrict the tax to the extent offered for tax by the assessee in return and that, this needs to be adjusted in the income when the Arbitration Award is finalised, is apparently self- contradictory. The Ld.CIT (A) has failed to appreciate the fact that the entire interest receipts on the fixed deposits have already been declared by the assessee as income from business. In the event of the arbitration being finalized in favour of the assessee, the assessee would have every right to claim that the entire interest receipts have already been assessed to tax. Hence, the scope of further adjustment would not exist.
(iii).The order of the Ld.CIT(A) is entirely silent on the basis of the assessment u/s 147/143(3) under appeal. The issue being whether the interest on the fixed deposits should be treated as business receipts as claimed in the returns of the assessee or as income from other sources, as assessed by the AO. iv) The Ld.CIT(A) has directed that the tax assessed should be adjusted with the income when the arbitration award is finalized. However, the order is silent on the year in which the income of the assessee should be assessed in the eventuality of the arbitration being finalized in the assessee's favour.
Ld. DR has further submitted that from computation of incomes filed by assessee as submitted with return of incomes (filed against notices u/s 148 issued by the AO) of the four relevant AYs the following manner of computation of total income is noted.
2) ITO vs Hindustan Housing & Land Development Trust Ltd (1986) 1611TR (SC):
The relevant issue in that case was whether enhanced compensation amount received/receivable by assessee which was still disputed in appeal, was to be treated as income of assessee, which was decided in favour of assessee.The present case is totally different as the issue here is interest received on deposit made out of compensation amount including enhanced compensation, and the interest earned from Centurian Bank of Punjab do not form part of the award at all.
3) CIT vs Shoorji Vallabhdas B & Co (1962) 46 ITR 144 (SC) 4) Poona Electric Supply Co Ltd vs CIT (1965)57 ITR 521 (SC) 5) Godhra Electricity Co Ltd vs CIT (1997) 225 ITR 746
All the three cases above only lays down the principle of determination of real income of an assessee, while taking care of existing constraints and exigencies that it may be subject to. In the instant case the assessee itself has declared the interest incomes as business receipts in the returns of income filed against notices u/s 148 and therefore there remains no further scope for referring to any contingency of having to forego such interest income at any later date and therefore it is obvious that the AO had rightly considered the interest income of assessee as taxable in the respective Assessment Years.
6) ITO vs DSL Enterprises (P) Ltd, (2013) 35 Taxmann. com. 477(Bombay HC)
The Ld CITIA) decided the assessee's appeal in favour of assessee primarily relying on the case of ITO vs DSL Enterprises (P) Ltd, (2013 )35 Taxmann. com. 477(Bombay ) which held that interest on deposit of arbitral award is not liable for TDS on the reasoning that it is considered as not assessable to tax unless' the-' arbitral proceedings have attained finality since even interest amount may have to be refunded by assessee following provision of section 144 of the Civil Procedure Code,1908, if the arbitral award is revised at a later date.
The decision above is not that of the Jurisdictional High Court and no decision of the Hon'ble Supreme Court is available. Therefore it is reiterated that since the assessee itself has declared the interest incomes as business receipts in the returns of income filed against notices u/s 148, hence there remains no scope for referring to the fact that since the arbitral award is still sub-judice, the interest earned on deposit of arbitral award amount was not yet assessable to tax. the assessee and the Government, therefore, he referred the matter to the arbitrator. The relevant para of the arbitrator award reads as follows :-
“ I further Award and direct that if the respondents fail to make payment of the awarded sum of Rs.2,76,97,205.00 with 10% interest as aforesaid within the period of four months from the date of this Award, the claimant will be entitled to further interest @18%(eighteen percent) per annum as per Section 31 sub-section 7(b) of the Arbitration and Conciliation Act, 1996 from the date next to the date of the Award till payment.”
Further the ld. AR relied on the following judgments :- i) DSL Enterprises (P) Ltd. Vs. Mrs. N.C.Chandratre, ITO & Ors., (2013) 258 CTR (Bom) 155 : TDS-Certificate under S.197-Interest on arbitral award-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-Unless those proceedings attain finality, the assessee 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 S. 144 of the CPC, 1908 to provide restitution if a decree is modified in appeal. ii) CIT Vs. Hindustan Housing and Land Development Trust Ltd., 161 ITR 524 (SC): Additional compensation fixed by arbitrator-appeal by government against award-amount deposited in court-assessee permitted to withdraw only on furnishing security-additional compensation does not accrue and not taxable as profit at that stage. iii) Paragon Constructions (India) (P.) Ltd. Vs. CIT, [2005] 142 TAXMAN 215 (Delhi) : In the instant case, it was very clear that it was only in view of the order made by the High Court that the amount was permitted to be withdrawn and that too on the furnishing of a bank guarantee of a nationalised bank and the appellant was required to refund the amount with interest to the respondent in case the respondent succeeded. Therefore, the determinative date would be the date on which the decision was rendered by the High Court and it was for that relevant year that the income-tax would have to be assessed as it could be said that the amount accrued on that date only. [Para 11]