2011 (7) TMI 112 - AT - Income Tax

Addition - excess dividend recovered - the assessee has always maintained that the dividend received by it which were lawfully payable to the transferee of shares were not its money - Further the dividends were received on shares which were held as investments - At the time of receipt of the dividends, the shares did not form part of the investment portfolio of the assessee and, therefore, it cannot be said that it was received by the assessee in its character as an investor - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the CIT(A) erred in deleting the addition of Rs. 14,33,000, being excess dividend recovered by the assessee during the year which was not refunded to the rightful owners.
2. Whether the principle of consistency applies in this case.
3. Applicability of the Supreme Court decision in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542.

Analysis of the Judgment:

Issue 1: Deletion of Addition of Rs. 14,33,000
The revenue contested the deletion of the addition of Rs. 14,33,000 by the CIT(A), which was excess dividend received by the assessee and not refunded to the rightful owners. The assessee, a Non-Banking Finance Company, had sold shares in earlier assessment years, and the dividend declared on those shares was paid to the assessee as the transfer of names had not been recorded. The assessee showed this amount as "Excess Dividend received refundable" in the balance sheet. The Assessing Officer treated this amount as income, relying on the Supreme Court decision in Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542.

The CIT(A) accepted the assessee's stand that the dividend received on sold shares does not constitute its income, as the assessee is neither the actual nor the beneficial owner of the shares. The CIT(A) noted that the assessee refunds the dividend to the rightful owner upon proof of ownership and, if unclaimed for five years, credits it to miscellaneous income and offers it to tax. This accounting policy had been accepted by the Revenue in earlier years.

The Tribunal upheld the CIT(A)'s decision, stating that the assessee had no lawful right to the receipt in question, and thus, it did not assume the character of income. The Tribunal emphasized that only receipts which are in the character of income can be assessed to tax, and without a legally enforceable right, there can be no accrual of income.

Issue 2: Principle of Consistency
The CIT(A) also relied on the principle of consistency, noting that the Revenue had accepted the assessee's accounting policy in earlier years. The Tribunal agreed, stating that the method of accounting adopted by the assessee was reasonable and had been consistently followed and accepted by the Revenue. Therefore, the addition made by the Assessing Officer was not warranted.

Issue 3: Applicability of Supreme Court Decision in Chowringhee Sales Bureau (P.) Ltd.
The Tribunal distinguished the present case from the Supreme Court decision in Chowringhee Sales Bureau (P.) Ltd. In that case, the assessee, an auctioneer, collected Sales Tax and did not pay it to the State Exchequer, treating it as part of its trading receipts. In contrast, the assessee in the present case received dividends on shares it no longer owned and maintained that the dividends were not its money. The Tribunal concluded that the Supreme Court decision was not applicable to the present case, as the facts were different.

Conclusion:
The Tribunal dismissed the appeal by the revenue, upholding the CIT(A)'s decision to delete the addition of Rs. 14,33,000. The Tribunal found that the assessee had no lawful right to the receipt in question, and the method of accounting adopted by the assessee was reasonable and consistently followed. The Tribunal also distinguished the present case from the Supreme Court decision in Chowringhee Sales Bureau (P.) Ltd., concluding that it was not applicable.