M/S.N S NAYAK and SONS, vs. THE ASSISTANT COMMISSIONER

: 1 : IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH Dated this the 7th day of October 2015 Before THE HON’BLE MR.JUSTICE ASHOK B.HINCHIGERI Writ Petition Nos.101026-101028/2015 (T-IT) Between: M/s N.S.Nayak & Sons, Represented by Shri Naresh Nayak, Partner, aged about 43 years, Plot No.08, Shree Sai, Old Income Tax Office Road, Vidyanagar, Hubli-580021. ...Petitioner (By Sri A.Shankar, Sri Lava G.Venkatesh and Sri S.Annamalai, Advocates) A n d : The Assistant Commissioner of Income-Tax, Circle-1(1), Central Revenue Building, Navanagar, Hubli-580025. ...Respondent (By Sri Y.V.Raviraj, Advocate) These petitions are filed under Articles 226 & 227 of the Constitution of India praying to quash the notice issued under the provision of Section 148 of the Act issued by the respondent as enclosed and marked as Annexure-A1, A2 & A3 and etc.

: 2 : These petitions coming on for Preliminary Hearing in ‘B’ Group this day, the Court, made the following: ORDER The petitioner has called into question the notices, dated 21.03.2014, 25.03.2014 and 21.03.2014 (Annexures-A1, A2 and A3 respectively) issued by the respondent under Section 148 of the Income Tax Act, 1961. 2. Sri A.Shankar, the learned counsel for the petitioner submits that the amounts accrued by way of interest on the amounts ordered to be released to the petitioner subject to the petitioner furnishing the bank guarantee cannot be offered to tax, because the entitlement of the petitioner is yet to be crystallised. In support of his submission, he relies on the Division Bench judgment dated 19.01.2015 passed in I.T.A. No.347/2009. Para 6 of the said decision read out by him is extracted hereunder: “ 6. Therefore, what emerges from the aforesaid judgment is, when an assessee receives money, either under an award or by a decree of the court, or under an award passed by the arbitrator, if the amount paid to him is not in dispute, then that amount represents his

: 3 : income. He should offer it to tax in the previous year of the date of payment of the said amount. But if the amount due to him is in dispute and it is subject-matter of a litigation and during the pendency of the litigation, if any interim order is made for payment of the said amount, the said payment is subject to the final result of the said proceedings. In the event the assessee looses the legal battle, the amount received by way of interim payment, has to be repaid. The amount to which he is entitled to, out of the disputed amount, would crystallize only when the litigation ends and payment is made after the finality of the litigation, then that amount is to be offered to tax in the previous year of the date of payment. Merely because by virtue of an interim order, with or without conditions, some payment is made for the purpose of Income tax Act, it would not constitute income and therefore there is no liability ot pay tax on the day such interim payment is received. Therefore, in the instant case, the assessee is liable to pay the amount covered under the cheques, only after a final conclusion of the dispute before the Andhra Pradesh High Court, as rightly held by the Appellate Authorities.” 3. He submits that the Appeal, under Arbitration Act, No.6/2010 filed by the petitioner against the order of the District

: 4 : Judge, Margao, is pending consideration before the High Court of Bombay at Goa. 4. The respondent’s side is in no position to dispute the factual and legal position. 5. The issue is no more res integra. As the litigation is still pending, the amount which is the subject-matter of the litigation cannot be offered to tax. Following the aforementioned Division Bench judgment, I quash the impugned notices with the liberty to the respondent to reinitiate the proceedings under Sections 147 and 148 of the Income Tax Act but depending upon the outcome of the proceedings in the said Appeal No.6/2010 and if the law permits. Sd/- JUDGE Kms