1999 (4) TMI 107 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of interest payable by the Government under the Coal Mines (Nationalisation) Acts.
2. Accrual vs. receipt basis of interest income.
3. Application of income vs. diversion of income by overriding title.
4. Compliance with procedural directions from the Tribunal.

Detailed Analysis:

1. Taxability of Interest Payable by the Government:
The primary issue in these appeals is the taxability of the interest payable by the Government under the Coal Mines (Nationalisation) Acts. The assessee, a company incorporated under the U.K. Companies Act, had coal mines in Bihar, which were nationalised. The company was entitled to compensation and interest under section 9(2) of the Coal Mines Act. The interest was to be paid by the Central Government to the Commissioner of Payments, who would then distribute it to the creditors of the coal mines' owners. The assessee received Rs. 49,49,553 as interest, subject to furnishing a bank guarantee and keeping the amount in a fixed deposit account.

2. Accrual vs. Receipt Basis of Interest Income:
The Assessing Officer sought to tax the interest as income for the assessment year 1984-85, arguing that the right to receive the income crystallised in February 1983. The assessee contended that the interest should be taxed in the respective years of accrual (1972-73 to 1984-85). The CIT(A) found that the interest was not taxable either on receipt or accrual basis because the creditors had an overriding title to the interest. The Commissioner of Payments had disbursed the entire interest to the claimants, and not a penny reached the assessee.

3. Application of Income vs. Diversion of Income by Overriding Title:
The revenue argued that the interest accrued to the assessee and was later applied by the Commissioner of Payments to settle the dues of the claimants, making it a case of application of income. The CIT(A) and the Tribunal, however, held that the interest was diverted by an overriding title created by the Statutes. The Supreme Court's judgment clarified that the interest should be paid to the Commissioner of Payments to meet the debts and liabilities, not to the coal mine owners. This indicated a diversion of income before it reached the assessee, supporting the principle that the income never became the assessee's property.

4. Compliance with Procedural Directions from the Tribunal:
The revenue contended that the CIT(A) did not adhere to the Tribunal's directions to collect all relevant material and reconsider the issue in light of the Supreme Court's decision. They also argued that fresh evidence was considered without giving the Assessing Officer a reasonable opportunity. However, the Tribunal found that these procedural issues were not specifically raised before them and thus did not warrant consideration.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, concluding that the interest of Rs. 67,49,553 was not taxable as it was diverted by an overriding title created by the Coal Mines (Nationalisation) Acts. The appeals filed by the revenue were dismissed, affirming that the interest did not accrue to the assessee either on receipt or accrual basis due to the statutory diversion of income to meet the creditors' claims.