ORDER
D. Manmohan, J.M.
1. These are 9 appeals filed by the Revenue and they are directed against the consolidated order of the CIT(A) for the asst. yrs. 1976-77 to 1983-84 and a separate order passed by him in the asst. yr. 1984-85.
2. The issue involved in all these appeals is common. We, therefore, pass a consolidated order for the sake of convenience.
3. The issue in short in all these appeals is with regard to the taxability of the interest payable by the Government under the Coal Mines (Nationalisation) Acts. The facts giving rise to the dispute are as under.
4. The assessee is a company incorporated under the U.K. Companies Act. It has coal mines in the State of Bihar. The management of the coking coal mines was taken over by the Central Government on 17th October, 1971 and were thereafter nationalised on 1st May, 1972. In the case of non-coking coal mines, the management was taken over on 30th January, 1973 and nationalised on 1st May, 1973. Under the aforesaid Acts, assessee was entitled to compensation of Rs. 93,28,500 and Rs. 5,17,000 respectively. As per s. 9(2) of the Coal Mines Act, the Government has to pay simple interest @ 4 per cent the compensation amount from the date on which the Coal Act received the assent of the President upto the date when the amount is paid by the Central Government to the Commissioner of Payments. Sec. 17 of the Act provides for appointment of Commissioner of Payments by the Central Government for the purpose of distributing the amount payable to the owner of each coal mine. Sec. 18 provides that the Central Government should pay, to the Commissioner for payments, compensation amount within 30 days from the specified date. Amended s. 18(5) reads as under :
“Interest accruing on the amounts standing to the credit of the deposit account referred to in sub-s. (3) shall ensure to the benefit of the owners of coal mines and shall also be payable to the Commissioner in addition to the sum referred to in sub-s. (1).”
5. In s. 20, it was stated that the creditors of the coal mines owners should make a claim with the Commissioner of Payments for recovery of their debts. Secs. 21 and 22 deal with the priority of the claims. Sec. 34 deals with disbursement of the money by the Commissioner to the claimants. Sec. 26 deals with the distribution of amounts by the Commissioner of Payments to the owners of coal mines in the event of any balance left after meeting the liabilities of secured and unsecured creditors. Coking Coal Act also contains identical provisions. During the accounting year relevant to the asst. yr. 1984-85, the Central Government sanctioned interest to the tune of Rs. 67,49,553 in terms of s. 9(2) of the Coal Act for the period upto February, 1993 and the amount was released to the assessee in August, 1983. Accounting year of the assessee for the assessment year ended on 30th June, 1983. The assessee was following the accounting year in all the previous year beginning from 1st July and ending on 30th June of the following year.
6. Out of aforestated amount, which was released by the Central Government the assessee received Rs. 49,49,553 from the Commissioner of Payments as interest on compensation payable under s. 9(2) of the Act subject to the condition of the assessee furnishing bank guarantee in favour of Commissioner of Payments for the like amount and further condition imposed was that the amount received by the assessee-company shall be kept in a Fixed Deposit a/c with a Nationalised Bank, and the same was not to be allowed to be withdrawn during the period of bank guarantee. This was apparently because of conflict as regards the interpretation of the unamended s. 18(5) of the Act according to which, interest payable under s. 9(2) of the Act shall enure to the owner of the coal mines. The case of the assessee before the Courts appears to be that interest receivable under s. 9(2) of the Coal Act shall not be utilised for disbursement to the creditors and thus directly payable to the coal mine owner. Subject to the finalisation of the dispute, assessee was allowed to withdraw the money conditionally. The balance amount of Rs. 18 lakh was paid over directly to one of the creditors of the petitioner by the Commissioner of Payments as per direction of Supreme Court. As the assessee received the amount, the AO sought to tax the same as income for the asst. yr. 1984-85. AO observed in this regard that the right to receive the income got crystallised in February, 1983 even though it was received subsequently. The case of the assessee that the amount has to be taxed in the respective years of accrual i.e., between asst. yrs. 1972-73 to 1984-85, though found to have some basis, was rejected on the ground that until and unless the Government decided disbursement, it cannot be said that the interest has automatically accrued or was paid. Subsequently, the AO ascertained the actual yearwise accrual of interest by addressing a letter to the Commissioner of Payments and accordingly taxed the same in the asst. yrs. 1976-77 to 1983-84 also.
7. In so far as asst. yr. 1984-85 is concerned it has seen many a round of litigation as could be seen from the order of the CIT(A) dt. 25th August,1987 (assessment order was set aside), dt. 25th March, 1991 [assessment made by the AO under ss. 143(3)/251 was confirmed] and 11th November, 1994 [impugned order passed in pursuance of the direction of the Tribunal vide their order dt. 19th March, 1992 in ITA No. 1344 (Cal) of 1991].
8. We would briefly touch upon the facts which are necessary for disposal of the appeals. In the previous round of litigation, Tribunal set aside the matter to the file of the CIT(A) with certain observations in paras. 8 to 10 of that order. In short, the direction of the Tribunal was to collect all the relevant material and reconsider the issue in the light of the decision of the Hon’ble Supreme Court in Civil Appeal Nos. 1930-33 of 1989, dt. 19th July, 1989.
9. Before the CIT(A), assessee-company submitted that the balance of credits as on the date of acquisition is 306.45 per cent higher than the amount of compensation i.e., the credit as on 1st May, 1993 in respect of both the Coking Coal and Coal Mines is Rs. 3,01,72,406 whereas, the total compensation receivable is Rs. 98,45,500. It was further submitted that the details of receipts of the compensation amount by the Commissioner of Payments as well as the details of disbursement to the creditors have not been furnished by the Commissioner of Payments but the fact remains that nothing has been received by the assessee-company from Commissioner of Payments towards distribution of surplus after meeting the debts and liabilities of the company. In the absence of the above particulars the company has not been able to wind up but to maintain its status and observe all the statutory obligations. It was also submitted that (vide written statement, dt. 15th June, 1994) the interest amounting to Rs. 49,49,553 released by the Supreme Court by its interim order, dt. 17th March, 1983 on providing bank guarantee was taken back in full by invoking the bank guarantee as the matter was decided against the company as per the Supreme Court’s order, dt. 19th June, 1989 in Civil Appeals No. 1930-33 of 1989. The Supreme Court judgment was also placed before the CIT(A) and highlighted the amended provision of s. 18(5) of the Coal Act makes it clear that the interest has to be made available to the Commissioner of Payments to meet debts and liabilities and, therefore, the interest on compensation cannot be treated as income in the hands of the assessee-company. Several decisions of apex Court were relied upon by the assessee-company.
10. On a careful consideration of the relevant provisions of Coal and Coking Act and the decisions of the Supreme Court [cited before CIT(A)] and also considering the fact that the balance of credits as on the date of acquisition is 306.45 per cent higher than the amount of compensation and nothing has been received by the company from the Commissioner of Payments in the form of disbursement of surplus after meeting the debts and liabilities of the company, it was held that the creditors of the assessee-company have an overriding title to the interest of Rs. 67,49,553. He further observed that the Commissioner of Payments had disbursed the entire interest along with the principal to the claimants and not a penny had ever reached the hands of the assessee as its income would also support the case of the assessee. He, therefore, observed that the interest of Rs. 67,49,553 is not taxable either on receipt basis or on accrual basis. For the reasons given by him in his detailed order for the asst. yr. 1984-85, the addition made in other assessment years was also deleted.
11. Aggrieved by the action of the CIT(A), Revenue is in appeal before us, contending, inter alia, that the interest accrued to the assessee which was later on applied by the Commissioner of Payments to settle the dues of the claimants and, therefore, it is a case of application of income already accrued to the assessee. In other words, income cannot be said to have been diverted at source by an overriding title as the interest is payable to the assessee under s. 9(2) of the Act though for the sake of convenience, the amount is placed in the hands of the Commissioner of Payments for disbursement to the creditors. Learned Departmental Representative further submits that the direction of the Tribunal was not adhered to in word and spirit by the CIT(A) and, at any rate, the evidence adduced before the CIT(A) and considered by him was fresh evidence and, therefore, he should have given a reasonable opportunity to the AO which was lacking in the instant case. Elaborating further, learned Departmental Representative submits that the two Acts and the order of the Hon’ble Supreme Court passed in the year 1989 were not furnished before the AO and, therefore, he had no chance to verify the impact vis-a-vis taxability of the income in the year 1984-85 on receipt basis or taxability on accrual basis in all the years. He particularly emphasized that the Tribunal gave specific direction to the CIT(A) to obtain the list of the secured and unsecured creditors to find out as to whether the interest receivable by the assessee along with the compensation amount was sufficient to make disbursement and whether any excess/surplus is available so as to tax the same in the hands of the assessee. Learned Departmental Representative submits that the details of the sundry creditors were not furnished even before the CIT(A) and, therefore, his order deserves to be set aside. He also adverted our attention to p. 27 of the paper book (interim order of the Supreme Court, dt. 17th March, 1983) to place reliance on the words “the interest which has already accrued may be withdrawn by the appellant, East India Coal Co. Ltd.”. According to the learned Departmental Representative, Hon’ble Supreme Court categorically observed that the interest accrued to the assessee-company and, therefore, it is taxable in the respective years on accrual basis. He further submits that the later judgment of the Hon’ble Supreme Court, dt. 19th July, 1989, was not directly on the point, inasmuch as, the Supreme Court merely appreciated the provisions of s. 18(5) of the Coal Act to hold that the interest payable on the compensation amount should also be handed over to the Commissioner of Payments but that does not mean that under the IT Act, such income does not accrue to the assessee. Learned Departmental Representative states that the CIT(A) has jumped to the conclusion that the income did not accrue to the assessee whereas, Hon’ble Supreme Court never stated so and also highlighted that other particulars were not examined by the CIT(A) as per direction of the Tribunal.
12. As regards the question as to when the interest income accrues, learned Departmental Representative relied upon the decision of the Hon’ble Orissa High Court in the case of CIT vs. Raja S. N. Bhanja Deo (1977) 106 ITR 748 (Ori).
13. On the other hand, learned counsel, appearing on behalf of the assessee, submitted that learned Departmental Representative has travelled beyond the grounds urged before the Tribunal. Elaborating further he submitted that it is not the case of the appellant that the CIT(A) has not given him proper opportunity before passing an order nor was a ground taken regarding non-compliance of the terms of the Tribunal. Learned counsel, therefore, submits that the issues which were not specifically raised before the Tribunal should not be entertained. Apart from the paper-book which was already filed, learned counsel also filed an additional paper-book containing several judgments of the apex Court, order of the Tribunal, dt. 19th March, 1992 in ITA No. 1344 (Cal) of 1991, balance sheet and other annexures for the year ended on 30th June, 1984. He submits that all the details, that could be gathered by the assessee-company, were furnished before the CIT(A) and the decision of the CIT(A) was in line with the direction of the Tribunal. Adverting our attention to p. 7 of the paper-book (balance sheet as on 30th June, 1974), learned counsel submitted that the creditors as on 30th June, 1973, was Rs. 3,01,72,406 and as on 30th June, 1974, it was Rs. 2,99,74,317 whereas, the total compensation amount was about Rs. 1 crore. Learned counsel submits that the assessee was allowed to withdraw Rs. 49 lakhs in terms of the interim order of the Court on condition of furnishing bank guarantee of equivalent amount and, therefore, there was no accrual of income on the date of release of the funds particularly in the light of the fact that the bank guarantee was invoked by the Commissioner of Payments and the amount had to be returned by the assessee-company in the light of the decision of the Supreme Court, dt. 19th July, 1989. Learned counsel has taken us through the judgment of the Hon’ble Supreme Court to submit that as per the amended provision i.e. 18(5) of the Coal Act the interest amount is payable by the Central Government to the Commissioner of Payments and the further fact that the claimants are also entitled to like amount of interest i.e. @ 4 per cent, shows that the interest amount has to be made available to the Commissioner of Payments to meet the debts and liabilities. Adverting to paras 11 and 12 of the judgment (Supreme Court) he submitted that had the Parliament intended to give the interest to the owners, there would have been no necessity for fixing the maximum limit of interest payable to the claimants with reference to the rate of interest accrued to the scheduled amount. Both the Acts were also placed before us. As per s. 24 of the Coal Act, Commissioner of Payments should first meet the claims admitted by him, of secured creditors and unsecured creditors, from out of compensation amount as well as interest on the compensation received under ss. 9(2) r/w 18(1) and 18(5) of the Coal Act and if the amount available with him is insufficient to meet in full the total amount of admitted claims, all such claims shall abate in equal proportion. If, by chance, the amount available with the Commissioner is more than the amount payable to the claimants, the difference is payable to the mine owner under s. 26 of the Coal Act. Learned counsel submits that on such amount was received from the Commissioner of Payments and, therefore, there is no accrual of income. He further submitted that the statute specifically provided for payment by the Central Government to the Commissioner of Payments for disbursement to the claimants and, therefore, at no stage, the assessee-company was involved. In other words, the interest never reached the hands of the assessee-company. The only provision by which the assessee-company was entitled to receive was s. 26 of the Coal Act. But in the instant case, there was no such receipt. Therefore, according to the learned counsel, there was no real income. He also submitted that there was an overriding title created under the statute. Therefore, it was not the case of application of income but diversion of income under various provisions of the Coal Act and Coking Act. He relied upon the following decisions in support of his submission that there is no real income and, at any rate, there is diversion of income by overriding title :
(1) Raja Bejoy Singh Dudhuria vs. CIT (1933) 1 ITR 135 (PC);
(2) CIT vs. Sitaldas Tirathdas (1961) 41 ITR 367 (SC);
(3) CIT vs. Bijli Cotton Mills (P) Ltd. (1979) 116 ITR 60 (SC);
(4) CIT vs. Tollygunge Club Ltd. (1977) 107 ITR 776 (SC);
(5) CIT vs. G. Basu & Co. (1990) 182 ITR 472 (Cal);
(6) CIT vs. Shoorji Vallabhdas & Co. (1962) 46 ITR 148 (SC);
(7) Poona Electronic Supply Co. Ltd. vs. CIT (1965) 57 ITR 521 (SC);
(8) CIT vs. Kalooram Govindram (1965) 57 ITR 630 (SC);
(9) CIT vs. Birla Gwalior (P) Ltd. (1973) 89 ITR 266 (SC);
(10) Madeva Upendra Sinai vs. Union of India (1975) 98 ITR 209 (SC);
(11) H. M. Kashiparekh & Co. Ltd. vs. CIT (1960) 39 ITR 706 (Bom);
(12) Cochin State Power & Light Corpn. Ltd. vs. CIT (1974) 93 ITR 582 (Ker);
(13) Amalgamated Electricity Co. Ltd. vs. CIT (1974) 97 ITR 224 (Bom);
(14) CIT vs. S. K. G. Sugar Ltd. (1974) 96 ITR 194 (Pat); and
(15) Park Hotel (P) Ltd. vs. CIT (1987) 167 ITR 60 (Cal).
14. He lastly submitted that the AO sought to tax the income twice i.e., in the asst. yrs. 1976-77 to 1983-84 on accrual basis and again in 1984-85 on receipt basis which is not in accordance with law.
15. We have carefully considered the rival submissions and perused the record. Audited accounts of the assessee of the years ended 30th June, 1974, and 30th June, 1983, and also detailed submissions made before the CIT(A) as well as before us clearly indicate that the compensation amount and the interest receivable under s. 9(2) of the Coal Act put together was less than the figure of sundry creditors. It was asserted before the CIT(A) that the assessee-company has not received any amount from the Commissioner of Payments under s. 26 of the Coal Act. The fact that the balance of creditors is 306.45 per cent higher than the amount of compensation would prima facie support the stand of the assessee-company. It is not the case of the Revenue that the assessee is in receipt of any amount from the Commissioner of Payments under s. 26 of the Coal Act. The case of the Revenue is that the sanctioned interest of Rs. 67,49,553 is the income of the assessee which was applied in discharge of the liabilities through the medium of Commissioner of Payments. The other issues such as opportunity to the AO to present his case before the CIT(A) with regard to fresh evidence furnished before the appellate authority, etc. were not agitated by the Revenue by raising specific ground and, therefore, do not call for consideration.
16. As regards the taxability of interest either on accrual basis or on receipt basis, it is necessary to bear in mind the settled principles on the question of real income as well as diversion of interest by overriding title. In the case of Raja Bejoy Singh Dudhuria (supra) the facts are that the assessee succeeded to the family estate on the death of his father. Subsequently, his step-mother brought a suit for maintenance against him in which a consent decree was made directing the assessee to make a monthly payment of a fixed sum to his step-mother. It was declared that the maintenance was a charge on the ancestral estate in the hands of the assessee. The amounts paid by the assessee to his step-mother were not included in his income on the ground that there was diversion of income by overriding title. The Privy Council held that it was not a case of application by the assessee of part of his income in a particular way; it was rather the allocation of a sum out of his revenue before it became income in his hands. It was, therefore, directed that such payment shall stand excluded from the computation of the total income of the assessee.
17. In the case of Sitaldas Tirathdas (supra), the Hon’ble Supreme Court applied the above principle to negative the contention of the assessee on the ground that in the maintenance decree passed by the Court no charge was created on any property of the assessee and, therefore, it is a case of application of income already received by the assessee to discharge the obligation. Explaining further it was observed that the true test of the application of rule of diversion of income by overriding charge is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Where, by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches assessee, the same consequence, in law, does not follows.
18. In the case of Bijli Cotton Mills (P) Ltd. (supra) assessee collected from the customers some amount towards ‘dharmada’ which was separately marked for charity. The question, was as to whether such dharmada amount forms part of income of the assessee. It was held by the apex Court that such amounts were received by the assessee under an obligation to spend them for charitable purpose only and, therefore, these amounts are not to be treated as trading receipts though the assessee has not kept the amounts in a separate bank account but admittedly a separate dharmada account was maintained in the books.
19. In the case of Tollygunge Club Ltd. (supra) a similar view was taken by the Hon’ble Supreme Court by applying the principles laid down by the Hon’ble Supreme Court (supra).
20. In the case of G. Basu & Co. (supra), the facts were interesting. There were certain disputes and differences amongst the partners of two firms carrying on professional practice as Chartered Accountants. Pursuant to an award of arbitration, three partners of one of the firms retired from the firm and as per the deed of retirement, certain specific items of outstanding fees were directly assigned to the retiring partners. The question was as to whether the outstanding fees received by the firm is taxable. The Hon’ble Calcutta High Court observed that this was an instance of source of income being subject to an obligation and so the outstanding fees paid to the retiring partners were not assessable as income of the firm.
21. In the case of Shoorji Vallabhdas & Co. (supra), the facts are that the assessee credited in its accounts the commission receivable under original agreement. Subsequently, assessee entered into a contract, after the end of the accounting year, to receive less commission. The question that arose for consideration was whether whole amount credited in the books was taxable as income. In this regard, the Hon’ble Supreme Court observed, at p. 148 of the report, as under :
“Income-tax is a levy on income. No doubt, the IT Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter in the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a “hypothetical income”, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account.”
22. Reverting to the facts of the instant case, these two statutes nationalising the coal mines, specifically empowered the Commissioner of Payments to receive the compensation as well as interest income. Controversy as to whether the assessee-company was entitled to interest income was set at rest by the decision of the Hon’ble Supreme Court in their order dt. 19th July, 1989. By virtue of the above two enactments, there is an automatic charge on the amount receivable by the assessee. The assessee is entitled to only the excess amount after disbursement to the claimants. The power is vested in the Commissioner of Payments under s. 26 of the Coal Act and analogous provision of Coking Act. Only in the event of any excess amount declared by the Commissioner of Payments, income accrues to the assessee. In the instant case, it is not shown that the assessee has received any amount from the Commissioner of Payment under s. 26 of the Act. On the contrary, the facts indicate that there was no chance of any receipt as the balance liabilities are in excess of the amount of compensation as well as interest receivable on the said compensation. Such being the case, the interest of Rs. 67,49,553 cannot be treated as income accrued to the assessee; there being diversion of income by overriding charge created by the statutes [both the Coal Mines (Nationalisation) Act, 1973 and The Coking Coal Mines (Nationalisation) Act, 1972]. We, therefore, do not see any infirmity in the orders of the CIT(A). The appeals filed by the Revenue are, therefore, dismissed.