2025 (2) TMI 186 - AT - Income Tax

Determining the tax payable on the amount declared by the assessee under DTVSV - Addition made by the AO Principal damages plus pre-award interest and interest - CIT(A) deleted the addition made towards Principal damages plus pre-award interest and held that the entire interest is taxable in the year 2019-20 - HELD THAT - DR though did not dispute the factual position submitted that the assessee has filed Form 1 for these two AYs and Form-2 has not yet been issued. Accordingly the ld DR submitted that the appeals cannot become infructuous since Form-1 filed by the assessee is pending disposal. AR to counter the said arguments submitted that the time line for determining the tax payable by the authorities has expired as per section 92(1) of DTVSV and therefore the Form-1 filed is automatically become not accepted. Undisputed fact that the interest additions made by the AO in AYs 2017-18 and 2018-19 are already included in the interest amount declared under Form 1 for AY 2019-20 and that the assessee has also paid the tax on the said amount as evidenced by the Form-2 as extracted in the earlier part of this order. Further the facts that Form-1 filed by the assessee for AYs 2017-18 2018-19 have not been processed by the designated authority within the time limit and that the tax on the amount declared is already paid in AY 2019-20 have not been controverted by the revenue before us. Therefore there is merit in the submission of the AR that the appeal filed by the revenue for AYs 2017-18 and 2018-19 do not survive and have become infructuous.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are as follows:

i. Whether the principal damages plus pre-award interest amounting to Rs. 4,40,56,45,664 received by the assessee should be treated as a capital receipt not chargeable to tax.

ii. Whether the interest income totaling Rs. 50,24,13,109 earned by the assessee should be taxable in the year 2019-20 or spread across the assessment years 2017-18, 2018-19, and 2019-20 as per the Assessing Officer's (AO) additions.

iii. The applicability of the Direct Tax Vivad se Viswas Scheme, 2024 (DTVSV) to the disputed amounts and the effect of the assessee's submissions under this scheme on the ongoing appeals.

ISSUE-WISE DETAILED ANALYSIS

Issue i: Taxability of Principal Damages and Pre-Award Interest

- Relevant Legal Framework and Precedents: The determination of whether a receipt is capital or revenue in nature is crucial in tax law, impacting its taxability. The CIT(A) held that the principal damages plus pre-award interest were capital receipts not chargeable to tax.

- Court's Interpretation and Reasoning: The Tribunal considered the CIT(A)'s decision and the fact that the assessee treated these as capital receipts, not taxable under the Income Tax Act.

- Key Evidence and Findings: The principal damages and pre-award interest were awarded by the Bombay High Court in favor of the assessee, following arbitration proceedings.

- Application of Law to Facts: The Tribunal noted that the assessee had already declared the amount under the DTVSV and paid the corresponding tax, thus rendering the revenue's appeal on this issue infructuous.

- Treatment of Competing Arguments: The revenue's contention that these amounts should be taxable was countered by the assessee's compliance with the DTVSV, which resolved the tax liability.

- Conclusions: The appeal by the revenue regarding the taxability of principal damages and pre-award interest was dismissed as infructuous due to the assessee's declaration under the DTVSV.

Issue ii: Taxability of Interest Income

- Relevant Legal Framework and Precedents: Interest income is generally taxable under "Income from Other Sources" unless it bears the character of a capital receipt.

- Court's Interpretation and Reasoning: The CIT(A) had ruled that the entire interest income should be taxable in the AY 2019-20, contrary to the AO's distribution across multiple years.

- Key Evidence and Findings: The interest income was derived from fixed deposits and other sources related to the arbitration award.

- Application of Law to Facts: The Tribunal acknowledged the assessee's declaration of the interest income under the DTVSV, which included the amounts disputed for earlier years.

- Treatment of Competing Arguments: The revenue's appeals for earlier years were rendered moot by the assessee's comprehensive declaration and tax payment under the DTVSV for AY 2019-20.

- Conclusions: The appeals by the revenue for AYs 2017-18 and 2018-19 were dismissed as infructuous, and the assessee's appeal for AY 2019-20 was dismissed as withdrawn.

Issue iii: Impact of DTVSV on Appeals

- Relevant Legal Framework and Precedents: The DTVSV provides a mechanism for settling tax disputes, allowing taxpayers to declare disputed amounts and pay the determined tax.

- Court's Interpretation and Reasoning: The Tribunal considered the forms filed by the assessee under the DTVSV and the issuance of Form-2, indicating tax payment.

- Key Evidence and Findings: The assessee filed Form-1 and received Form-2 for AY 2019-20, confirming tax payment on both principal and interest amounts.

- Application of Law to Facts: The Tribunal found that the appeals for earlier years were covered by the DTVSV declaration for AY 2019-20.

- Treatment of Competing Arguments: The revenue's argument regarding pending Form-1 for earlier years was countered by the expiry of the statutory timeline for processing these forms.

- Conclusions: The Tribunal held that the revenue's appeals for earlier years were infructuous, and the assessee's appeal for AY 2019-20 was dismissed as withdrawn due to the DTVSV settlement.

SIGNIFICANT HOLDINGS

- The principal damages plus pre-award interest are considered capital receipts not chargeable to tax, aligning with the CIT(A)'s decision and the assessee's DTVSV declaration.

- The entire interest income is taxable in AY 2019-20, as declared under the DTVSV, rendering revenue's appeals for earlier years infructuous.

- The DTVSV effectively settled the tax disputes for the amounts declared, leading to the dismissal of both the revenue's and assessee's appeals.

- The Tribunal emphasized the finality of the DTVSV process, noting the statutory timelines and the issuance of Form-2 as conclusive evidence of tax settlement.