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TMI Blog1986 (2) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rajasthan in August, 1959. There was a clause in the contract into by the assessee with the Government of Rajasthan providing for some sort of arbitration in case of disputes numbered as cl. 25. By about May, 1963 the execution of contract was completed and on11th May, 1964the assessee received the last payment of about Rs. 1,032. In the meantime some disputes arose between and the Chief Engineer, Irrigation Project of the State ofRajasthan, in which the assessee claimed some additional amounts as due to him in the execution of he contract. On the failure of the assessee to settle this dispute by correspondence, the assessee issued a notice under s. 80 of the civil Procedure Code read with ss. 8 and 20 of the Indian Arbitration Act, 1940 to the State ofRajasthanclaiming an additional sum of Rs. 1,20,130 as due to him together with interest. The assessee also suggested in the alternative that the matter be referred to the arbitration under the said cl. 25. As there was no positive response from the side of the State Government, the assessee moved an application before the Civil Judge,Agraunder the Indian Arbitration Act as Suit No. 37 of 1965. The State of Rajasthan opposed this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Act, 1940 alleging that no valid reference for arbitration was made and the reference to Mr. Mathur was illegal and without jurisdiction. The Civil Judge disposed of this petition against the Government. The State Government filed an appeal in the Allahabad High Court against the judgment praying inter alia that cl. 25 of the contract did not amount to an arbitration clause and that the appointment of an arbitrator was void ab initio. The prayer made before the High Court was that the award must be set aside. The High Court stayed the execution of the judgment passed by the Civil Judge,Agrawith the condition that the entire amount in dispute, namely Rs. 1,21,139 and Rs. 1,24,051 amounting to Rs. 2,45,190 should be deposited with the Court. The State Government complied with this order. After the amount was deposited, the execution Court allowed the assessee to withdraw the sum on the assessee furnishing a bank guarantee before the execution Court. Thereafter the assessee by way of precaution deposited the entire amount with the Bank so that as claimed by him in case the judgement of the Hon ble High Court went against him, the amount could be immediately paid back by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also was taxable in the year under appeal. The ld. Accountant Member, however, held to the contrary. He held that under the IT Act income is something which falls within the four corners of what is considered income under the IT Act, such income must be the amount over which the assessee had absolute right title and interest. The assessee should have the right of disposal of such amount without an encumbrances. The facts of the case showed that the amount received by the assessee was burdened with encumbrances because there was a direction in the High Court order that in case of final decision of the Court went against the assessee, the amount would have to be refunded to the Government. The Govt. of Rajasthan was questioning the very validity of the appointment of arbitrator and it was that point that was sub-judice in the High Court and therefore, an amount received by an award given by an arbitrator, whose validity of appointment was in jeopardy in further litigation, could not be said to have been received by the assessee as income although it is a receipt. It is on account of these divergent opinions expressed that the matter has been referred to me by the Hon ble President. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as a consequence of application filed in the High Court challenging the very validity of the appointment of arbitrator and when the High Court stayed the operation of the decree, no right to those amounts accrued to the assessee within the meaning of s. 5 of the IT Act, so as to say that those amounts were the income of the assessee. The mere receipt of the money by furnishing a bank guarantee does not mean that the assessee received the amount as and by was of income. It is only tentative receipt attached with the liability of repayment in case the suit was decided against it. While the ld. Judicial Member took the view that because the amount was received by the assessee, it constituted his income. In other words, while according to the ld. Accountant Member no right to receive the income accrued to the assessee consequent on the filing of a suit by the Government in the High Court, the ld. Judicial Member felt otherwise. The question, therefore, boils down to whether in a situation like this a right to receive the income accrued to the assessee or not. In other words when a suit is filed in the High Court questioning the decree passed by the lower authorities and when the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry gave an award for a sum of Rs. 12,13,000. After this award the amount was deposited but the assessee did not accept this award of compensation. He moved reference petition under s. 18 of the Land Acquisition Act for the determination of compensation by the Government. The Additional District Judge determined the compensation by enhancing it by Rs. 3.58 lacs. Still dissatisfied the assessee filed appeal for further enhancement in the High Court. The Government also filed a counter appeal against the enhancement granted by the Additional District Judge in the High Court Both the appeals were pending in the High Court, During the pendency of the appeals the assessee was allowed to withdraw the enhanced compensation by furnishing securities for restitution. Then the question arose before the High Court (i) whether on the facts and in the circumstances of the case it could be held that capital gains was assessable in the hands of each assessee for the present year under s. 45 of the IT Act (for the asst. yr. 1966-67) and (ii) whether on the facts and in the circumstances of the case the Tribunal was right in taking into account the compensation received by each of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount is contingent inasmuch as it is likely to be defeated by the acceptance of the appeal of the Government. The liability to pay additional or enhanced compensation is an incneats or contingent right not creating a debt." It will be seen from this judgment that with the filing of the appeal by the government against the determination of compensation by the District Judge, the amount fell into jeopardy, that the right to receive the enhanced compensation was clearly unsettled, that the withdrawal of the amount was subject to the contingent right inasmuch as it was likely to be defeated by the acceptance of the appeal of the government. The liability to pay additional or enhanced compensation was, then an incheate or contingent right not creating a debt. This pronouncement of law by the Delhi High Court even though under the Land Acquisition Act settles in my opinion the issue that when an appeal is filed by the government the amount in question becomes unsettled and the right of the assessee becomes contingent and the fact that the amount was withdrawn by the assessee or was allowed to be withdrawn by the assessee was likely to be defeated and, therefore, no right accrues to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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