2015 (7) TMI 410 - HC - Income Tax

Accrual of income - amount received under an interim order - Whether the Tribunal was justified in law in allowing the appeal of the assessee by deleting the entire addition of the amount received by virtue of an interim order of the Court and is not accrued to the assessee - Held that - What has happened in Karnataka High Court decision in the case of CIT v/s Mysore Sugar Co. Ltd. 1989 (11) TMI 33 - KARNATAKA High Court is that the assessee was permitted to collect the amount in question only pursuant to an interim order made by the court which was subject to several conditions to make the right absolute. Therefore, the collection made by the assessee at an enhanced rate at that stage was an inchoate one as this extra amount did not accrue to the assessee until the finalisation of the dispute pending before the Court. In fact, this is also the view taken by the Supreme Court in CIT v/s Hindustan Housing & Land Development Trust Ltd. 1986 (7) TMI 10 - SUPREME Court . - Decided against the revenue.

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding deletion of addition in income tax assessment for Assessment Year 1998-99 based on interim order; Interpretation of whether amount received under interim order constitutes accrued income subject to taxation.

Analysis:
1. The appeal challenges the order of the Income Tax Appellate Tribunal (the Tribunal) regarding the deletion of an addition of Rs. 93.34 lac in the income tax assessment for Assessment Year 1998-99. The main question raised is whether the Tribunal was justified in allowing the appeal of the assessee by deleting the entire addition based on the argument that the amount received under an interim order was not accrued income to the assessee.

2. The respondent-assessee, engaged in civil construction, had a dispute with Bombay Municipal Corporation (B.M.C.) over a terminated contract. The City Civil Court issued an interim order directing B.M.C. to pay Rs. 1.04 crores to the assessee against furnishing a bank guarantee of Rs. 44 lacs pending the suit's disposal. The Tribunal held that the amount received under the interim order was not income as there was no absolute right to receive it until the dispute was resolved, citing the Supreme Court's judgment in C.I.T. v/s Hindustan Housing & Land Development Trust Ltd.

3. The respondent-assessee argued that the difference between the amount received and the bank guarantee constituted accrued income subject to taxation for Assessment Year 1998-99. However, the counsel for the respondent relied on legal precedents, including the decision of the High Court and the Apex Court, to support the contention that the amount received under the interim order did not accrue as income until the final resolution of the dispute.

4. The High Court concurred with the Tribunal's decision and the legal principles established by previous judgments. It emphasized that the amount received under the interim order was not granted upon resolution of the dispute but pending the final decision. Therefore, it was held that no income had accrued to the assessee on the amounts received under the interim order. The Court dismissed the appeal, stating that no substantial question arose for consideration based on the settled legal position.

5. The resolution of the dispute between the respondent-assessee and B.M.C., with the entire compensation amount offered for taxation in a subsequent assessment year, further supported the conclusion that the amount received under the interim order was not accrued income during the relevant assessment year. The Court upheld the decision of the Tribunal, dismissing the appeal without costs.

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