2004 (1) TMI 312 - AT - Income Tax

Summary

Issues Involved:

1. Sustenance of addition of Rs. 1,16,830.
2. Allowing interest under Section 214.
3. Deleting the addition on account of charging interest under Sections 215 and 216 of the Income Tax Act.

Detailed Analysis:

1. Sustenance of Addition of Rs. 1,16,830:

The assessee filed its return of income on 29th Aug., 1981, declaring an income of Rs. 1,25,700. The original assessment was passed at an income of Rs. 2,48,940, with an addition of Rs. 1,16,820 on account of income earned through an agreement with M/s P.C. Chanda & Co. (P) Ltd. The agreement required the assessee to incur litigation expenses in exchange for Rs. 10,000 towards the cost of litigation and 45% of the enhanced compensation if awarded by the court. The High Court awarded higher compensation, which was upheld by the Supreme Court. The assessee received Rs. 1,16,800 and claimed it as non-taxable, arguing the agreement was illegal and the amount was gratis. The AO taxed the amount, and the CIT(A) upheld this decision.

The assessee reiterated similar arguments before the Tribunal, emphasizing that the amount was a capital receipt and not taxable. The Tribunal, after considering rival submissions and relevant case laws, found that the CIT(A) was justified in not allowing the claim of the assessee. The Tribunal noted that the agreement was for rendering services and the amount received was taxable under Section 4 of the IT Act, regardless of the legality of the source. The Tribunal upheld the CIT(A)'s decision, citing the case of CIT vs. Piara Singh, which established that even illegal income is taxable.

2. Allowing Interest under Section 214:

The ground relating to allowing interest under Section 214 was not decided by the CIT(A). Therefore, the Tribunal restored this issue back to the file of the CIT(A) for a decision, as the ground was taken before him.

3. Deleting the Addition on Account of Charging Interest under Sections 215 and 216:

The issue of interest under Sections 215 and 216 was considered consequential in nature. The CIT(A) had already directed the AO to allow consequential relief to the assessee, if any. The Tribunal found no infirmity in these observations and confirmed the findings of the CIT(A) on this issue.

Conclusion:

In conclusion, the Tribunal allowed the appeal of the assessee in part for statistical purposes, restoring the issue of interest under Section 214 to the CIT(A) while upholding the decisions regarding the addition of Rs. 1,16,830 and the interest under Sections 215 and 216.