2012 (12) TMI 417 - HC - Income Tax

Determination of relationship with the bank - stock broker - agent and principal - triple taxation of the same income in the hands of appeal, Indian Bank and PSUs? - ITAT concluded that the appellant did not act as an agent of Indian Bank - whether the assessee could be termed as a broker for Indian Bank, that the assessee could not claim any interest on a sum of Rs.14,78,91,000/- at the time when Indian Bank paid the consideration for the purchase of securities. The second question herein is that whether the said sum could be held to have been given to the assessee for the purpose of taking demand drafts payable to the 9 public sector undertakings as by way of extra interest, payable by the Bank on the fixed deposits maintained by the public sector undertakings. The third question is as regards the relevance of the Criminal Court s decision. The Assessing Officer pointed out that of the eight public sector undertakings, three of them confirmed the receipt of demand drafts. The rest of them denied to have received any such demand drafts either from the assessee or from Indian Bank. The Officer pointed out that there was no agreement between the assessee and the Indian Bank about this payment. Held that - when after a full-fledged trial, a Court of competent jurisdiction had pronounced on the relationship between the parties, that A2, the assessee herein, acted as a broker only, in the absence of any contra evidence produced by the Revenue, the Tribunal should have considered this finding as answering the question on the role of the assessee as a broker. Contrary to the view of the Tribunal, the evidence spoken therein by the prosecution witnesses, clearly establish the role of the assessee as a broker, that he never acted as a principal to deal with the securities on his own without any instruction from the Indian Bank. The status of the assessee vis-a-vis Indian Bank was only that of a broker of Indian Bank and nothing else. - The assessee could not be mulcted with any liability as regards the sum of Rs.14,78,91,000/- as his income. - Decided in favor of assessee.

Issues Involved:
1. Whether there was any evidence or materials before the Income Tax Appellate Tribunal to conclude that the appellant did not act as an agent of Indian Bank.
2. Whether there was a diversion of title when the broker drew demand drafts in favor of public sector undertakings as per Indian Bank's instructions.
3. Whether the findings of the Principal Special Judge for CBI cases were binding or relevant for deciding the tax case.
4. Whether the Tribunal ignored essential facts and arrived at a conclusion based on illusory assumptions.
5. Whether the Tribunal ignored the fact that the respondent had accepted the appellant's stand for the earlier assessment year.
6. Whether the Tribunal's findings were perverse, ignoring the fact that there was triple taxation of the same income in the hands of the appellant, Indian Bank, and PSUs.

Detailed Analysis:

1. Evidence or Materials Before the Tribunal:
The Tribunal concluded that the appellant did not act as an agent of Indian Bank without substantial evidence. The High Court found that the evidence, including testimonies from Indian Bank officials and the contract notes, clearly indicated that the appellant acted as a broker for Indian Bank. The Tribunal's decision to ignore this evidence was incorrect.

2. Diversion of Title:
The appellant acted as a conduit for taking demand drafts in respect of additional interests payable to public sector undertakings on behalf of Indian Bank. The High Court held that the sum of Rs.14,78,91,000/- was not the appellant's income but was meant for taking demand drafts as additional interest payable by Indian Bank. The Tribunal's decision to include this amount as the appellant's income was reversed.

3. Relevance of CBI Court Findings:
The Tribunal rejected the relevance of the CBI Court's findings, which acquitted the appellant of criminal charges. The High Court emphasized that while the criminal court's decision is not binding on tax authorities, the evidence and findings regarding the appellant's role as a broker were relevant. The Tribunal should have considered this evidence.

4. Ignoring Essential Facts:
The Tribunal ignored essential facts and evidence, including the relationship between the appellant and Indian Bank, as established through testimonies and documents. The High Court found that the Tribunal's conclusion was based on illusory assumptions and not on the actual evidence presented.

5. Consistency with Earlier Assessment Year:
The Tribunal ignored the fact that the respondent had accepted the appellant's stand on similar facts in the earlier assessment year. The High Court noted this inconsistency and found it unjustifiable.

6. Triple Taxation and Perverse Findings:
The Tribunal's findings were deemed perverse by the High Court, as they ignored the fact that the same income was being taxed in the hands of the appellant, Indian Bank, and the PSUs. The High Court held that the sum of Rs.14,78,91,000/- should not be included in the appellant's income, thereby avoiding triple taxation.

Conclusion:
The High Court set aside the Tribunal's order, holding that the appellant acted as a broker for Indian Bank and the sum of Rs.14,78,91,000/- was not the appellant's income. The Tribunal's decision was reversed, and the tax cases were allowed in favor of the appellant. The related writ petitions were closed, as the demand and recovery proceedings against the appellant were set aside.

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