Ito vs Bhomraj Agarwal on 28 November, 2000

Rajasthan High Court

Equivalent citations: (2002) 76 TTJ NULL 297

ORDER

S.R. Chauhan, J.M,

As the above appeals and C.Os. involve common points, so we are disposing them of together by this common order for the sake of convenience.

2. ITA No. 967/Jp/1996 is an appeal by revenue for assessment year 1992-93 and is directed against the order of Commissioner (Appeals), Jodhpur, dated 12-3-1996, passed in Appeal No. 493/1995-96, whereby the learned Commissioner (Appeals) set aside the assessing officer’s reframed assessment order, dated 12-2-1996, passed under section 143(3) set aside, and restored the matter to assessing officer to reframe the assessment by following the directions of learned Commissioner (Appeals) given by learned Commissioner (Appeals) in the earlier appellate order of Commissioner (Appeals), dated 22-3-1994, passed in Appeal No. 219/1993-94.

3. ITA No. 1360/Jp/1994 is an appeal by revenue for assessment year 1992-93 and is directed against the order of Commissioner (Appeals), Jodhpur, dated 22-3-1994, passed in Appeal No. 219/1993-94 whereby he set aside the assessing officer’s original assessment order, dated 29-7-1993, passed under section 143(3) wherein the assessing officer had included the entire amount of interest of Rs. 2,06,863 in the assessee’s total income of the year. The learned Commissioner (Appeals) referring to the decision of Hon’ble Supreme Court in the case of CIT v. T.N.K Govindrajulu Chetti (1967) 66 ITR 465 (SC) directed the assessing officer to verify from the perusal of contract as to whether there was any clause or agreement regarding payment of interest in the contract, and the same providing for payment of interest on delayed/disputed payment, and if so to decide in view of decision of Hon’ble Supreme Court. In respect of this appeal of revenue, the assessee has filed CO No. 10/Jdpr/1998 supporting the impugned order of the learned Commissioner (Appeals).

4. ITA No. 1491/Jp/1996 is an appeal by the revenue for assessment year 1992-93 and is directed against the order of Commissioner (Appeals), Jodhpur, dated 16-5-1996, passed in Appeal No. 6/1996-97 whereby he set aside the assessing officer’s rectification order, dated 15-3-1996 on assessee’s application dated 2-3-1996, passed under section 154 with the direction to assessing officer to pass an order on the assessee’s rectification application under section 154 taking into consideration the decision of the Honble Supreme Court in the case of Rama Devi v. CIT (1990) 181 ITR 400 (SC), as also the instructions of the CBDT in Udasar group of cases (of District Bikaner, Rajasthan). In respect of this appeal of revenue, the assessee has filed CO No. 1/Jp/1997 supporting the impugned order of learned Commissioner (Appeals).

5. In brief the relevant facts are that late Shri Bhairudan Agarwal was a contractor of P.W.D., Rajasthan Government. The assessee had done some contract work of construction of roads for the State Government and some bills were outstanding. There being some disputes regarding payment Shri Bhairudan filed suit in the court of District Judge, Bikaner, on 18-5-1976, against the Government of Rajasthan. During the pendency of this suit Shri Bhairudan Agarwal expired on 25-12-1982, and his son Shri Bhomraj Agarwal was substituted as a legal representative in the said civil suit. The court decreed the suit in plaintiff favour vide its judgment and decree dated 9-10-1991, wherein the court also allowed interest at the rate of 9 per cent per annum on the decreed amount from the date of filing of suit till on the date of payment. This amount of interest worked out at Rs. 2,06,813, the payment of which the plaintiff received during the period relevant to assessment year 1992-93. The return of income in the case of Late Shri Bhairudan Agarwal for assessment year 1992-93 was filed by his legal representative Shri Bhomraj Agarwal wherein the interest of Rs. 2,06,862 was mentioned but a note was appended in the computation sheet that the amount of interest was not considered as income. The assessing officer framed original assessment, under section 143(3) on 29-7-1993, whereby the made addition of entire amount of interest of Rs. 2,06,863 in assessee’s total income of the year observing that the cases cited by the authorised representative of the assessee were not applicable as therein interests were awarded in arbitrations whereas in the instant case the interest was given on the basis of court’s orders in accordance with Explanation 2 of section 34(1) of CPC. The assessing officer accordingly held the interest as revenue receipt and accordingly taxable. The assessing officer also relied on the decision of Hon’ble Kerala High Court in Rock Well Engg. Co. Ltd. v. CIT (1989) 180 ITR 277 (Ker). The assessee preferred appeal against this original assessment order, dated 29-7-1993, before Commissioner (Appeals). The learned Commissioner (Appeals) vide his appellate order, dated 22-3-1994, passed in Appeal No. 219/1993-94 set aside the original assessment and restored the matter to assessing officer with the direction to verify from the contract as to whether there was any clause or agreement regarding the payment of interest on delayed/disputed payment and if so to decide in accordance with Hon’ble Supreme Court’s decision in the case of T.N.K. Govindarajulu Chetti (supra).

6. The department having not accepted the aforesaid decision of the learned Commissioner (Appeals), dated 22-3-1994 has filed ITA No. 1360/Jp/1994 before the Tribunal and the assessee filed CO No. 10/Jdpr/1998 in respect of the said order of learned Commissioner (Appeals).

7. In pursuance of the Commissioner’s (Appeals) set aside order dated 22-3-1994, the assessing officer reframed the assessment on 12-2-1996, under section 143(3)/set aside wherein the assessing officer also held the interest payment to the revenue receipt and thus added the entire interest amount of Rs. 2,06,863 in the assessee’s income, as was done in the original assessment. The assessee preferred appeal against the said reframed assessment, dated 12-2-1996, before the Commissioner (Appeals). The learned Commissioner (Appeals) decided the said appeal bearing No. 493/1995-96, vide his appellate order, dated 12-3-1996. Whereby he set aside the assessing officer’s reframed order dated 12-2-1996, and restored the matter to assessing officer to reframe assessment by following the Deputy Commissioner’s (Appeals) directions (given in Commissioner’s (Appeals) earlier order, dated 22-3-1994, in Appeal No. 219/1993-94).

8. The department did not accept the aforesaid order of Commissioner (Appeals), dated 12-3-1996, and has preferred appeal bearing ITA No. 967/Jp/1996 before the Tribunal.

9. The assessee, however, filed an application under section 154 for rectification of assessing officer’s reframed set aside assessment, dated 12-2-1996, stating that the interest amount of Rs. 2,06,863 was for a period of 15 years and 10 months and so the same should be spread over the respective years when the interest had become due, and that accordingly only a sum of Rs. 13,042 was attributable to the year under appeal. It was stated that it was a mistake to make an addition of Rs. 2,06,863 and so the same should be rectified. This rectification application of assessee dated 2-3-1996 was rejected by assessing officer vide his order under section 154, dated 15-8-1996. Against this rejection order of assessing officer the assessee preferred appeal before Commissioner (Appeals) bearing Appeal No. 6/1996-97 which the learned Commissioner (Appeals) decided vide his appellate order, dated 16-5-1996, passed under section 154 whereby the learned Commissioner (Appeals) set aside the assessing officer’s order, dated 15-3-1996, and directed the assessing officer to decide the assessee’s rectification application under section 154 afresh by following the procedure being followed in Udasar cases at Bikaner. Aggrieved by this order of Commissioner (Appeals), dated 16-5-1996, the revenue has preferred appeal before Tribunal bearing ITA No. 1491/Jp/1996 and the assessee has preferred CO No. 1/Jp/1997.

10. We have heard the arguments of both the sides and perused the relevant material on record as also the cited decisions, copies of which have been furnished on record.

11. First we take up ITA No. 1360/Jp/1994 and its related CO No. 10/Jdpr/1998. In its appeal the revenue has taken the following ground :

“On the facts and in the circumstances of the case, the learned Commissioner (Appeals) has erred in setting aside the addition of Rs. 2,06,863, being interest awarded by the court on the delayed payment of contract receipts, with the direction to decide the same in view of Supreme Court judgment in the case of CIT v. Govindrajulu Chetti (1967) 66 ITR 465 (SC), whereas the interest receipt is clearly revenue in nature and was awarded by the court as it was payable under the law and, therefore, the addition should have been sustained.”

The learned Departmental Representative of revenue has contended that the assessee being a contractor was awarded an interest of Rs. 2,06,863 on the delayed payment of the contract work of PWD executed by the assessee by the judgment of the court resulting from civil suit filed by the assessee, and the assessee received this interest payment during the period relevant to assessment year 1992-93, and so the assessing officer, while passing the original assessment order under section 143(3), dated 29-7-1993, included the aforesaid entire amount of interest of Rs. 2,06,863 in the total income of the assessee for the assessment year under appeal. He has, in this regard, referred to pages 2 and 3 of the said assessment order. He has contended that the learned Commissioner (Appeals) vide his impugned appellate order, dated 22-3-1994, set aside the issue of taxability of said interest and restored the issue to assessing officer with the directions as contained in para 3.6 on page 4 of his order. He has contended that the revenue is aggrieved against the setting aside of the issue by the learned Commissioner (Appeals) and that he should have himself decided the issue on merit. As against this the learned authorised representative of assessee has contended that the assessee late Shri Bhairudan Agarwal executed contract work of PWD in the year 1965. As some payments were withheld by PWD or for that matter the State Government of Rajasthan the assessee filed civil suit in the court of District Judge in the year 1975 which was decreed on 9-10-1991. He has contended that the court also allowed interest on the delayed payment of contract work which worked out at Rs. 2,06,863. He has contended that this payment was received by the assessee on 27-3-1992. He has contended that this matter has not yet become final as the State Government is in appeal before the Honble High Court, a copy of the memo of said appeal is placed on pages 19 to 33 of Paper Book filed in ITA No. 1491/Jp/1996. He has also contended that the payment has been received by the assessee on furnishing security bond copy of which has been placed on page 18 of the Paper Book filed in ITA No. 1491/Jp/1996. He has contended that this interest amount is exempt for the reason that this interest has been allowed by the court under section 34, CPC as compensation. He has cited T.N.K. Govindaraju Chetti v. CIT (supra) in his support. He has contended that there was no contract/agreement for payment of interest in the instant case. He has contended that it is only when the payment of interest is on the basis of an agreement or some statutory provision that the interest payment is chargeable to tax as per decision of the Hon’ble Supreme Court. He has also cited Dr. Shamlal Narula v. CIT (1964) 53 ITR 151 (SC). He has specifically drawn our attention to para 3.5 of the learned Commissioner’s (Appeals) order. He has also cited CIT v. Periyar & Pareekanni Rubbers Ltd. (1973) 87 CTR 666 (Ker) and also referred to CBDT’s Circular No. 225/51/1996-ITA 11, dated 29-2-1996, as placed on pages 1 and 2 of the assessee’s Paper Book filed in ITA No. 1491/Jp/1996. He has also contended that the details of facts of Udasar cases of Bikaner regarding the land acquisition are mentioned in the common order of Tribunal, Jaipur, dated 30-4-1998, passed in ITA Nos. 2339/Jp/1995 to 2350/Jp/1995 in the cases of Shri Amar Sukh and Shri Mohan Ram Udasar, placed on pages 3 to 7 of the assessee’s said P.B. He has also referred to an assessment order dated 25-3-1997 for assessment year 1985-86 passed in the case of assessee Shri Ashuram, Bikaner, in compliance of Board’s circular as placed on page 8 of the said Paper Book. In the alternative the learned authorised representative of assessee has contended that this interest amount of Rs. 2,06,862 is not taxable in one year but is to be spread over the respective assessment years involved in the period for which the interest has been paid. For this he has cited-Rama Bai v. CIT (supra), Bikkam Singh & Ors. v. Land Acquisition on Collector & Ors, (1997) 224 ITR 551 (SC) and CIT v. N.K. Zanjale (1991) 191 ITR 223 (Bom). He has also contended that because of the pendency of matter of interest in the court the interest amount is not taxable and has cited CIT v. Hindustan Housing and Development Trust Ltd. (1987) 161 ITR 524 (SC) in his support. He has contended that if his other pleas are not accepted then also interest amount received by the assessee is not taxable in this year.

12. In rejoinder the learned Departmental Representative of revenue has contended that interest has been awarded by the court under section 34, CPC and that the same was claimed by the assessee stating that the interest is payable. He has contended that the assessee has not claimed the interest as compensation. He has also contained that the two citations of the Honble Supreme Court referred to by the learned authorised representative of assessee do not help the assessee inasmuch as the same are in favour of the revenue holding that interest in chargeable as there was breach of contract by the Government and the payment of interest was not ex gratia, and so the interest was revenue receipt and chargeable to tax, and that it is linked with commercial transaction with the government. He has also contended that the CBDT’s circular pertains to agriculturist of village Udasar of District Bikaner (Rajasthan) so land was acquired for defence purposes by the State Government as per direction of the Central Government and that after long pendency of the matter the compensation was ultimately allowed to the said agriculturists by the order of the High Court and the interest was also allowed thereon. The government ultimately made payment of compensation together with interest. He has contended that the total demand raised by the Income Tax Department came to be more than the amount of compensation received by the agriculturists who approached the Central Government and the Central Government sympathetically considered the matter whereupon at the instance of the Finance Ministry, the CBDT issued instructions vide F.No. 225/51/96-ITA II, dated 29-2-1996, informing the Chief Commissioner, Jaipur, that the payment of compensation made to the agriculturists of village Udasar in Bikaner District was covered by the decision of Hon’ble Kerala High Court (1973) 87 ITR 666 (Ker) (supra), and so the decision of Hon’ble Supreme Court in the case of Dr. Shamlal Narula (supra) shall not apply. He has contended that the CBDTs circular was issued in special circumstances and applicable to farmers of village Udasar, Dist. Bikaner, Rajasthan, in specific only. He has also contended that as regards the learned authorised representative’s contention regarding spreading over of interest over several years involved in the period, the department could not take action in earlier years as it was not quantified and that it is only now on the decision of the court that the interest has been quantified so now alone the action can be taken by the department. He has also contended that as regards the pendency of matter in the Honble High Court the provision regarding exemption is contained in section 10 of Income Tax Act wherein there is no provision that disputed income is exempt from tax. He has also contended that while receiving payment of the amount of interest by the assessee in pursuance of the orders of the court, the assessee has given only bond and no security has been pledged to government.

13. We have considered the rival contentions, relevant materials on record as also the cited decisions, copies of which have been furnished on record. As regards the taxability of interest the legal position is quite settled. In (1964) 53 ITR 151 (SC) (supra), the Honble Supreme Court has clearly propounded that the amount of interest paid for use of money by the State and the claimant being kept out of his money, the interest is chargeable to tax as income. In (1967) 66 ITR 465 (SC) (supra), the Hon’ble Supreme Court has laid down that the principle of Dr. Shamlal Narula’s case (supra) will apply if interest is payable under agreement express or implied. In the instant case, the assessee was contractor and payment in respect of contract works of PWD executed by him remained outstanding and it was for the delayed payment of such amount that the interest was awarded by Court. Obviously, this interest has been allowed to assessee for the reason of the assessee having been kept out of the use of money during the period of pendency of the litigation. Obvious as it is in view of the legal position as propounded in the aforesaid two decisions of the Hon’ble Supreme Court such an interest amount is liable to tax as income. The decision of Honble Kerala High Court, (1973) 87 ITR 666 (Ker) (supra), has no relevance whatsoever in the matter in hand inasmuch as the same pertains to a compensation for compulsory acquisition of land and interest on such compensation. It has been laid down by the Hon’ble Kerala High Court in the said judgment that when land is taken possession of by the government under Land Acquisition Act, 1894, the property (land) gets vested in the government from the date of taking over of possession of land in view of the provision of sections 16 and 17 of the Land Acquisition Act, 1894. It has also been held therein that when the possession is taken over by the government under some other provision of law or by agreement or unauthorisedly, there being no such statutory provision as contained in sections 16 and 17 of the Land Acquisition Act vesting the property in the government with the assumption of the possession of the land there continues the claimant’s deprivation of land property inasmuch as the property in land will vest in the government only when the award of compensation is passed. Therefore, the amount of interest paid for the period from the date of taking over of possession of land by government upto the date of passing of the award constituted compensation for land and as such capital receipt and that the interest on compensation for the period subsequent to the date of passing of the award for compensation will be distinct and of different nature and will not be compensation for land and will be revenue receipt. As such the facts being entirely different, the present assessee does not in anyway get any advantage from the said decision of the Hon’ble Kerala High Court, nor similarly from CBDT’s circular referred to above. We may clarify that we are deciding here the taxability of interest as such in view of the contentions raised before us in this context, and we are not drawing here any final conclusion in respect of the specific amount involved in this appeal for the reason that there are several other contentions as well before us which we shall deal with ahead and only thereafter we will draw our ultimate conclusion in the matter.

14. As regards the contention of the learned authorised representative of the assessee that the entire amount of interest of Rs. 2,06,863 is not taxable in one year but should be spread over the respective assessment years, the Honble Supreme Court has held in the case of Ramabai (supra) that the interest on compensation order by court accrues not on the date of the order of the court granting compensation but from the date when possession of land was taken over and the accrual is year after year. It has also been held that such interest cannot be assessed to income-tax in one lump sum in the year in which the order is made by court. Similarly, in the case of Bikram Singh (supra) also the Honble Supreme Court has held that the appellants were entitled to spread over the income (interest received on delayed payment of compensation) for the period for which the payment came to be made so as to compute the income for assessing tax for the relevant accounting year. As such respectfully following the aforesaid decisions of the Apex Court we hold that the assessee is legally entitled to spread over of the income by way of interest receipts in the assessment years involved in the period for which the same has been received so as to compute the income for assessing tax for the relevant accounting year. However, this finding of ours is also subject to our conclusion which we are going to draw ahead ultimately.

15. In (1987) 161 ITR 524 (SC) (supra), the Land Acquisition Officer had awarded Rs. 24.97 lakhs as compensation and on an appeal preferred against the said decision, the arbitrator made an award on 29-7-1955, fixing the compensation at Rs. 30,10,873 and also allowed interest at the rate of 5 per cent. Against the said award of arbitrator the State Government went in appeal to the High Court. During pendency of the litigation in High Court, the additional amount of compensation being Rs. 7.36 lakhs was deposited by the State Government in the court and the Hon’ble High Court permitted the assessee-respondent to withdraw that amount on 9-5-1956, on furnishing a security bond for refunding the amount in the event of the appeal allowed. In such circumstances, a question arose in the said case as to whether the sum of Rs. 7.24 lakhs being the amount of additional compensation awarded by arbitrator over and above that which the Land, Acquisition Officer had awarded could be taxed as income of the assessee-respondent for assessment year 1956-57 on the ground that it became payable pursuant to the arbitrator’s award. The Tribunal held that this amount did not accrue to the respondent (assessee) as its income during the relevant previous year ending 31-3-1956, and was, therefore, not taxable in assessment year 1956-57. The Hon’ble High Court affirmed the Tribunal’s said order. The Hon’ble Supreme Court held that although the award was made by the arbitrator on 29-7-1955, enhancing the amount of compensation but the entire amount was in dispute in appeal filed by the State Government and the dispute was regarded by the High Court as real and substantial because the respondent was not permitted to withdraw the amount without furnishing a security bond for refunding the amount in the event of the appeal being allowed. The Hon’ble Supreme Court held that there was no absolute right to receive the amount at that stage and if the appeal were allowed in its entirety, the right to payment of enhanced compensation would have fallen altogether. The extra amount of compensation of Rs. 7.24 lakhs was not income arising or accruing to the respondent during the previous year relevant to assessment year 1958-59. In the instant case also, we find that the State Government has preferred appeal before Honble Rajasthan High Court and a copy of the appeal memo is placed on pages 19 to 33 of the Paper Book. From the perusal of the said memo appeal we also find that the entire judgment and decree of the court have been challenged in the memo of appeal and the award of interest by the court is a part of the decree and judgment of the court of ADJ. As such, the ratio decidendi of the cited case does apply in the instant case also inasmuch as the payment of interest stand disputed in appeal by the State Government filed before Honble High Court and here also the assessee has been permitted to withdraw the amount of decree deposited in the court on furnishing a bond undertaking thereby to refund the amount as and when the court decides against him. In the circumstances in view of the principle laid down by the Honble Supreme Court in the above cited judgment the present assessee’s right to receive interest cannot be said to have become absolute and accordingly, the aforesaid amount of interest cannot be said to have accrued during the previous year relevant to assessment year 1992-93 and in turn taxable as income at this stage in the relevant assessment.

16. However, the amount of interest received by the assessee shall become income of the assessee only when the appeal before the Hon’ble High Court or any further litigation gets finalised and the assessee’s right to receive interest is finally upheld thereby. We, therefore, direct the assessing officer to finalise the assessment in respect of interest payment on the finality of the aforesaid litigation and in accordance therewith, keeping in view the observations/conclusions by us above. This disposes of revenue’s appeal being ITA No. 1360/Jp/1994 as also the assessee’s CO No. 10/Jdpr/1998.

17. Now we take up ITA No. 967/Jp11996. The learned Departmental Representative of revenue has contended that this has now become infructuous inasmuch as in consequence of the order of the first appellate authority the set aside reframed assessment has already taken place and the subsequent round of appeal, etc., has already set in. The learned Departmental Representative of assessee has raised his combined contention as already mentioned and has not raised any further material contention. In our considered opinion in view of the contentions of the learned Departmental Representative of revenue and the fact-situation of the case this appeal has now remained only academic/infructuous.

18. Now we take up ITA No. 1491/Jp/1996 and the assessee’s CO No. 1/Jp/1997. This appeal and C.O. also pertain to the very same assessment years 1992-93 and all the aspects involved in the matter have already been considered by us above in revenue’s appeal being ITA No. 1360/Jp/1994 and the assessee’s C.O. No. 10/Jdpr/1998 and so no further discussion nor any further decision is any more required and we follow our decision made above in the revenue’s Appeal No. 1360/Jp/1994 and assessee’s CO No. 10/Jdpr/1998 and the said decision concludes and disposes of this appeal of revenue bearing No. 1491/Jp/1996 and the assessee’s CO No. 1/Jp/1997.

19. In the result, revenue’s Appeal No. 967/Jp/1996 is dismissed as having become infructuous.

20. The revenue’s appeal being Nos. 1360/Jp/1994 and 1491/Jp/1996 as also the assessee’s CO Nos. 10/Jdpr/1998 and 1/Jp/1997 are disposed of as indicated above.

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