2012 (5) TMI 315 - AT - Income Tax

Taxability of an amounted received after an order of High Court in an interim order - accrual of income - held that - the impugned receipt will have to be brought to tax as trading receipt in this assessment year and if and when the assessee pays the said impugned amount back to the concerned party it would be entitled to claim deduction for the assessment year during which the amount ought have been paid/ refunded to the said party. - Decided in favor of revenue.

Issues Involved:
1. Taxability of Rs. 3 crores received by the assessee in the assessment year under consideration.
2. Applicability of relevant case laws to the facts of the case.
3. Treatment of interim receipts pending final adjudication on merits.

Issue-Wise Detailed Analysis:

1. Taxability of Rs. 3 crores received by the assessee:
The primary issue revolves around whether the Rs. 3 crores received by the assessee pursuant to an interim order by the Karnataka High Court is taxable in the year of receipt. The assessee argued that the amount was an ad-hoc and interim payment, pending final adjudication, and thus should not be considered as income accrued in the year of receipt. The Assessing Officer, however, held that since the High Court did not attach any conditions or riders to the payment, it should be taxed as income in the year of receipt.

2. Applicability of relevant case laws:
The Revenue relied on several judgments to support their stance. The case of CIT vs. Smt. M. Sarojini Devi was cited, where the court held that interest accrued on enhanced compensation could be taxed even if the appeal was pending before the Supreme Court. Similarly, the Polyflex (India) Pvt. Ltd. vs. CIT case was referenced, where the Supreme Court held that a statutory refund should be taxed in the year of receipt, irrespective of pending appeals.

The assessee, on the other hand, referenced the Hindustan Housing & Land Development Trust Ltd. case, where the Supreme Court held that compensation received under dispute and subject to refund should not be taxed until the dispute is resolved. The assessee also cited other cases like Godhra Electricity Company Ltd. and Highway Construction Company to argue that interim receipts pending final adjudication should not be taxed.

3. Treatment of interim receipts pending final adjudication:
The Tribunal examined the nature of the Rs. 3 crores received by the assessee. It was noted that the amount was collected in the ordinary course of business and retained as a trading receipt, despite being subject to a dispute. The Tribunal referred to several precedents, including Chowringhee Sales Bureau P. Ltd. v. CIT and Sinclair Murray and Co. Pvt. Ltd. v. CIT, which established that the true nature and quality of the receipt, not its entry in the account books, determine its taxability.

The Tribunal concluded that the interim receipt of Rs. 3 crores should be taxed in the assessment year it was received. If the amount is later refunded due to an adverse judgment, the assessee can claim a deduction in the year of refund. This approach aligns with the judgment in CIT Vs. KCP Ltd. and CIT Vs. M. Sarojini Devi.

Conclusion:
The Tribunal set aside the order of the CIT(A) and restored the order of the Assessing Officer, holding that the Rs. 3 crores received by the assessee should be taxed in the year of receipt. The appeal of the Revenue was allowed. The Tribunal emphasized that the true nature of the receipt as a trading receipt should guide its taxability, and the assessee can claim a deduction if the amount is refunded later.

Order:
The appeal of the Revenue is allowed, and the order of the CIT(A) is set aside in favor of the Assessing Officer's decision.

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