ORDER
R.K. Gupta, J.M.:
This is an appeal by assessed against the order of Commissioner (Appeals) relating to assessment year 1981-82. The assessed has taken various grounds of appeal relating to sustenance of addition of Rs. 1,16,830, not deciding the issue of allowing inerest under section 214 and not deleting the addition on account of charging of interest under section 215 and 216 of the Act.
2. The ground relating to allowing the interest under section 214 was not decided by the Commissioner (Appeals). Therefore, this issue is restored back to the file of the Commissioner (Appeals) to decide the same, as the ground was taken before him. We order accordingly.
3. The brief facts relating to confirming the addition of Rs. 1, 16,830, as stated in the order of Commissioner (Appeals), are that the assessed filed its return of income on 29-8-1981, declaring an income of Rs. 1,25,700. However, the original assessment was passed at income of Rs. 2,48,940. In the said order, the assessing officer had made the addition of Rs. 1,16,820 on account of income earned through agreement with M/s P.C. Chanda & Co. (P) Ltd. The facts are that P.C. Chanda & Co. owned a piece of land. This land was acquired by the Government and certain compensation was awarded to him. The compensation was also paid to it. The said company filed an application with the district court for enhancement of the compensation. The District Judge rejected the application of P.C. Chanda & Co. who was not interested in further litigation. However, it entered into an agreement with late Shri Prem Chand Jain through his benamidars. As per this agreement the assessed was required to incur an the expenses on further litigation and in the event of higher compensation being allowed by the higher Court, the assessed was to be paid Rs. 10,000 towards the cost of litigation expenses and a further sum of 45 per cent of the enhanced compensation. The assessed contested the appeal in the High Court and incurred certain expenses. The High Court was pleased to award higher compensation. The SLP was also filed by M/s P.C. Chanda & Co. for further enhancement. Even the State of Haryana filed the SLP before the Hon’ble Supreme Court. However, both the SLI’s were dismissed by the Hon’ble Supreme Court. Thus, the order the Hon’ble High Court had become final. In accordance with the order of the Hon’ble High Court P.C. Chanda & Co. got the extra compensation. In terms of the agreement with the assessed, a sum of Rs. 1, 16,800 was paid to the assessed. The assessed claimed such receipt to be non-taxable. The reason advanced by the assessed was that the agreement of the assessed with P.C. Chanda & Co. was an illegal agreement and, therefore, the income derived from such agreement cannot be brought to tax. It was also stated that the amount received by the assessed was gratis on which it has no right. Thus, this amount was not taxable. However, the assessing officer considered the submissions of the assessed and held that the amount received by the assessed was taxable. He accordingly brought the same to tax in the hands of the assessed.
4. Same arguments were taken before the Commissioner (Appeals) as were taken before the assessing officer. After considering the submissions and perusing other material on record, the Commissioner (Appeals) was also in agreement with the assessing officer. Therefore, he confirmed the order of the assessing officer.
5. The contentions raised before the lower authorities were reiterated here before us by the learned counsel. It was further stated that the amount received by assessed on account of enhanced compensation is not taxable in the hands of the assessed, as the same is application of income and there is no overriding title of the assessed and the agreement entered between P.C. Chanda & Co. and assessed was void. It was also submitted that case laws relied upon before the Commissioner (Appeals) were not considered. It was further added that the consideration received by assessed was in the nature of capital receipt, therefore, for this reason also the amount received by assessed cannot be taxed. The reliance was placed on various case laws on this issue. Further attention of the Bench was drawn on copy of written submissions filed before the Commissioner (Appeals), which is placed on record and on various other documents. On the other hand, the learned Departmental Representative strongly placed reliance on the order of the assessing officer. It was further stated that various case laws relied upon by the assessed are not applicable on the facts of the present case. It was further stated that if the income is illegal, in that case also the same is taxable. The reliance was placed on the decision in case of CIT v. Piara Singh (1980) 17 CTR (SC) 111 : (1980) 124 ITR 40 (SC). It was also stated that the agreement was valid agreement. It was further stated that if any grievances on account of invalid agreement, that could be to the State Government, who has paid the enhanced compensation on account of award by Hon’ble High Court. The SLPs filed by the State Government as well as by assessed on behalf of P.C. Chanda & Co. were dismissed by the Hon’ble Supreme Court. Therefore, any receipt on account of valid or invalid agreement received by assessed are taxable. It was further stated that in no manner the agreement can be treated as invalid agreement, as the agreement was for rendering the services to a person on whose behalf the case was filed before the Hon’ble High Court as well before the Hon’ble Supreme Court by the assessed.
6. We have considered the rival submissions and have also perused the material to which bur attention was drawn. We have also seen the various case laws relied upon by both the parties. After considering the relevant material, we found that the Commissioner (Appeals) was justified in not allowing the claim of the assessed. We noted that the appellant through his benamidar, Chakresh Kumar Jain entered into an agreement with P.C. Chanda & Co. (P) Ltd. for contesting the case in the High Court on behalf of P.C. Chanda & Co. for higher compensation. As per agreement the appellant was to be paid Rs. 10,000 towards the cost of litigation and 40 per cent of the balance amount. The appellant contested the case in the Punjab & Haryana High Court and the Hon’ble High Court was pleased to enhance the compensation at a uniform rate of Rs. 17 per sq. yard. Additional amount of 15 per cent solarium and 6 per cent interest was also to be received by P.C. Chanda & Co. Against the decision of the Hon’ble High Court, the SLP was filed on behalf of P.C. Chanda & Co. as well as by Haryana Government. Both the SLPs were dismissed by the Hon’ble Supreme Court on 28-4-1990. Accordingly, the following amount became payable to P.C. Chanda & Co..-
Rs.
Amount of compensation awarded by High Court
2,47,354
Less: Amount previously received on such acquisition
73,850
1,73,504
Add :
Rs.
1. solarium at 15%
26,025
2. Interest from 2-4-1973 to 20-11-1979 at 6%
79,307
3. Cost allowed by High Court
4,572
1,09,904
2,83,408
The said amount was also paid to the said company. Out of the said amount the expenses of Rs. 10,000 and the expenses of Rs. 4,672 allowed by the court were to be deducted. After deducting this amount, the balance distributable income come to Rs. 2,68,837. As per agreement the share of the appellant came to Rs. 1,20,977. Thus, the appellant received the following amounts:
Rs.
Share in balance receipts
1,20,977
Expenses as per agreement
10,000
Expenses as allowed by the court
4,572
1,35,549
7. The assessed incurred expenses of Rs. 18,719 and the balance amount was not offered for taxation on. the ground that the said payment was in the nature of gratis. The arguments of the counsel of the assessed that no one is allowed to take litigation of some other person and, therefore, the same was illegal in the eyes of law and further contention that the amount received by the appellant by an agreement entered through a benamidar was against public policy and, therefore, illegal and could not be brought to tax, in our considered view, are ill-founded.
8. We have seen the various case laws i.e., in case of Rees v. De Bernardy (1985 R. 323) (Ch. D) (1896) p. 437. In this decision, the, Privy Council has held “that the agreement was in the nature of champerty and void. It was further held that the agreement must be set aside as an improvident bargain which D. had obtained by taking an unfair advantage of his position.
9. In the case of Hussain Bakhsh & Anr. (Plaintiffs) v. Rahmat Hussain & Anr. (Defendants)
10. After going through the details of these cases, we find that issue in these cases was whether the agreements entered between the parties were void or valid, but nowhere the question was whether income earned out of those void or valid agreements were taxable or not. In these cases, the first court has decided the issue in favor of plaintiff by holding that the agreements were valid. However, on further appeal by the defendant, whereby the validity of agreement was challenged, it was held that because the agreement was void, therefore, no award can be awarded on account of that agreement.
11. Here in the case in hand, the facts are totally different because the agreement was entered and the Hon’ble Punjab & Haryana High Court has enhanced the compensation and the appeal of the Haryana Government as well as of P. Chanda & Co. filed by assessed were dismissed by the Hon’ble Supreme Court, meaning thereby that the enhanced compensation allowed by the Hon’ble High Court was upheld. In this way the order of the Hon’ble Punjab & Haryana High Court is final. Now the question which is to be decided is whether such income can be brought to tax or not. Under section 4 of the IT Act, any amount has to be brought to tax, which is received or accrued in the year under consideration, as it does not talk of the nature of such income. Whether the income has been earned by legal source or by illegal source is immaterial for the purpose of taxation. As provided in section 10, certain exemptions are allowable on account of illegal income i.e., illegal expenses incurred for earning illegal income. The expenses incurred by assessed has already been allowed, therefore, the net amount received by assessed was rightly brought to tax by the assessing officer and the Commissioner (Appeals) was justified in confirming the order of the assessing officer.
12. We have also considered the decision in case of Padmaraje R. Kadambande v. CIT (1992) 195 ITR 877 (SC) relied upon by the counsel of the assessed and found that facts in that case were also different. In that case the appellant, the only child of Maharaja, was granted a cash allowance of Rs. 3,000 p.m. from 1-4-1947. After the merger of Kolhapur with the then State of Bombay, the allowance was continued up to 31-7-1955, and thereafter discontinued because of the provisions of section 4 of the Bombay Merged Territories Miscellaneous Alienations Abolition Act, 1955, which declared that all such alienations shall be deemed to be abolished. Section 150(1) of that Act provided for different types of cash allowance. On a later stage, the appellant was conveyed about the sanction of compassionate payment of Rs. 3,000 with effect from 1-8-1956 by the Collector vide his letter dated 6-10-1959.’ The appellant received Rs. 36,000 and Rs. 33,992 from the Government of Maharashtra respectively during the financial year ending 31-3-1963 and 31-3-1964 and the question was whether the receipts were receipts of income and were taxable. The Hon’ble Bombay High Court has held that these receipts are taxable. However, the Hon’ble Supreme Court reversed the decision of the High Court by holding that the payments sanctioned on compassionate ground are capital in nature and not taxable.
13. Here in the present case, as stated above, the facts are entirely different as the assessed received the amount of consideration on account of agreement entered between P.C. Chanda & Co., on whose behalf the case was contested before the Hon’ble Punjab & Haryana High Court and on account of enhanced compensation, the amount was received by assessed. Therefore the amount in question cannot be considered as the amount received on account of compassionate ground.
14. We found that the ratio in the case of CIT v. Piara Singh (supra), on which the reliance was placed by the learned Departmental Representative, is applicable on the facts of the present case. In this case, the dispute was in regard to expenses incurred on account of carriage of currency notes across the border. The Hon’ble Supreme Court has held that the illegal expenses were incurred on account of earning illegal income. Therefore, it was a loss which spent directly from carrying on of the business and was incidental to it and its deduction had to be allowed under section 10. Therefore, in view of these facts and circumstances and the above discussion of ours, we hold that the Commissioner (Appeals) was justified in dismissing the ground of the assessed. Accordingly we confirm the order of Commissioner (Appeals) on this issue.
15. The next issue which relates to interest under sections 215 and 216 are consequential in nature and the Commissioner (Appeals) has already directed the assessing officer to allow consequential relief to the assessed, if any. Therefore, we do not find any infirmity in these observations of the Commissioner (Appeals). Accordingly the findings of the Commissioner (Appeals) on this issue are also confirmed.
16. In the result, the appeal of the assessed is allowed in part for statistical purposes.