2005 (5) TMI 250 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of Rs. 23 crores received from M/s EEL.
2. Validity and enforceability of agreements between the assessee and M/s ABCL.
3. Interpretation of arbitration award and its binding nature.
4. Application of income vs. diversion of income by overriding title.
5. Claim for deduction under Section 80RR of the Income Tax Act, 1961.

Detailed Analysis:

1. Taxability of Rs. 23 Crores Received from M/s EEL:
The primary issue was whether the entire amount of Rs. 23 crores received by the assessee from M/s EEL should be taxed as the assessee's income for the assessment year 2001-02. The CIT(A) held that the entire amount was taxable as the assessee's income, arguing that the agreements with M/s ABCL were not genuine and were designed to avoid tax. The assessee contended that he was bound by agreements with M/s ABCL to hand over the income from engagements, except for feature films, and that the arbitration award dividing the income 30:70 between the assessee and M/s ABCL was legitimate.

2. Validity and Enforceability of Agreements Between the Assessee and M/s ABCL:
The agreements dated 10th Jan., 1995 and 11th Feb., 1995 between the assessee and M/s ABCL were scrutinized. The AO argued that these agreements were not signed by any representative of M/s ABCL and thus were unilateral and self-serving. However, upon verification, it was found that the agreements bore the common seal of M/s ABCL and were signed by its director, establishing their validity. The Tribunal had previously recognized these agreements as genuine in the context of assessing the receipt of Rs. 15 crores by the assessee from M/s ABCL.

3. Interpretation of Arbitration Award and Its Binding Nature:
The arbitration award dated 19th June, 2002, by Justice T.D. Sugla (Retd.), divided the income from KBC in a 30:70 ratio between the assessee and M/s ABCL. The CIT(A) and AO questioned the basis of this division and suggested that the award was a mechanism to avoid tax. The Tribunal, however, found that the arbitration was conducted following the provisions of the Arbitration Act, 1940, and that the award was binding on the parties involved. The Tribunal emphasized that the Revenue could not ignore the legal implications of the arbitration award and the agreements.

4. Application of Income vs. Diversion of Income by Overriding Title:
The AO argued that the payment to M/s ABCL was an application of income rather than a diversion by overriding title. The Tribunal disagreed, noting that the income, although received by the assessee, was subject to the obligations under the agreements with M/s ABCL. The Tribunal concluded that the 70% share of the income directed to M/s ABCL by the arbitration award constituted a diversion of income at source before it accrued to the assessee.

5. Claim for Deduction Under Section 80RR of the Income Tax Act, 1961:
The assessee claimed a deduction under Section 80RR for his participation in the KBC programme. The AO rejected this claim on the grounds that the required certificate in Form No. 10H was not furnished, and the programme was conceived, prepared, and broadcast in India. The Tribunal upheld the CIT(A)'s decision to deny the deduction, as the assessee did not press the claim during the hearing.

Conclusion:
The Tribunal ruled in favor of the assessee on the main issue, holding that the agreements with M/s ABCL were genuine and that the arbitration award was binding. As a result, only 30% of the income from KBC was taxable in the hands of the assessee, with the remaining 70% being considered as diverted to M/s ABCL by overriding title. The Tribunal confirmed the CIT(A)'s decision on the denial of the deduction under Section 80RR. The appeal was partly allowed.