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TMI Blog2004 (9) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... On conversion of OCS into Videsh Sanchar Nigam Limited (VSNL), the assessees were entitled to retirement benefits from OCS, which was retained by the employer for seven years from 1-1-1990 to 31-12-1996. On this retained amount being the retirement benefit, the assessees received interest, which according to the Assessing Officer was did not disclose in their return. As per section 143(1)( a ) and in the light of the CBDT Circular No. 689, dated 24-8-1994, an amount of interest received on retirement gratuity of the impugned amount to be added to the total income of the assessee raising addition demand under section 143(1)( a ) and interest thereon payable under section 234B. The CIT(A) held the adjustment made by the Assessing Officer was beyond the scope of prima facie adjustment since the amount was less than the monetary limit prescribed by the Board for filing of appeal. The Revenue could not further appeal also. 3. According to the Assessing Officer, he reopened the assessment by issuing notices under section 148 read with section 147 since interest amount was not disclosed in the original return by the assessees, which according to the Assessing Officer was not covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y after issuance of notices under section 148, for the assessment year 1997-98. This offer is an afterthought, i.e. after the reopening of the assessments of earlier six years. Hence, he brought the entire amount as taxable income the year in which the assessees received. Aggrieved by the above, the assesses are in apeal before the first appellate authority. 5. One of the grounds urged by the assessees was that the Assessing Officer was erred in adding the entire interest of the seven years, which was received as retirement benefit in one year i.e. assessment year 1997-98 without appreciating that only the interest amount accrued during the relevant assessment year under consideration. The assessee also objected the charging of interest under section 234B. 6. The CIT(A) records vide para 3 of his order that the entire retirement benefit was retained by the earlier employer, a Government of India concern viz. OCS on its conversion by the Government of India into VSNL, an Autonomous Body. It was submitted before the CIT(A) that office memorandum on 5-7-1989, dated 5-7-1989 issued by the Government of India, Ministry of Pensioners Welfare, the terms and conditions wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be allowed to choose and implement the Supreme Court s decision in part to the extent that the interest accrued pertaining to this assessment year 1997-98 only be taxable in this year. Hence, he held that the Assessing Officer was correct in judging the conduct of the assessees in practice the assessees follow the receipt system of accounting. Alternatively, he held that even in the system of mercantile accounting in the circumstances of the case where the entire interest was blocked by the Government of India for seven years, it can never be claimed that it accrued for a span of seven years, since the blocking was in pursuance of Government of India Notification. He further held, the assessees conduct cannot be treated as far as the assessees had not shown any taxable income. Merely filing a writ petition in the Court does not grant any immunity to the assessees from not showing any taxable receipts as non taxable until the final verdict of the Competent Authority/Court is rendered. Hence, he held that the entire income was exigible to tax. Aggrieved by the above order, the assessees are in appeal before the Tribunal. 9. The assessees Representative challenged the very ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable in nature." 13. First, we will advert to the objection of the learned D.R. as to whether the party before the Tribunal could address a Bench on a ground of appeal that has not taken in its grounds of appeal. The Appellate Tribunal Rules, 1963, Rule 11 "Grounds which may be taken in appeal" reads as under : "The appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal, but the Tribunal in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule : Provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground." 14. The reading of section and proviso together make it clear that the appellant cannot urge or support any of the grounds not set forth in the memorandum of appeal except by the leave of the Tribunal. But the Tribunal in deciding the appeal shall not be confined the grounds set forth in the memorandum of appeal or taken by the leave of the Tribunal under the Rule. The on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyees working in Overseas Communication Service (OCS), a Department under the Ministry of Communication, Government of India. In the wake of liberalization and decentralization policy adopted by the Government of India by a Union Cabinet decision, it was decided to convert OCS into an independent autonomous entity namely Videsh Sanchr Nigam Ltd. (VSNL), a wholly Central Government owned company. VSNL absorbed en masse the entire staff of OCS with effect from 1-4-1986 on the same scale of pay but without deputation allowance vide office memorandum dated 5th July, 1989 issued by the Government of India (GOI), Ministry of Personnel, Public Grievance and Pension (Department of Pension and Pensioners Welfare) terms and conditions applicable in the case of en masse transfer of employees from Government Departments to a public sector undertaking/autonomous body were laid down. 100 per cent lump sum amount/commuted value along with the retirement gratuity which the assessees were entitled to get upon their absorption into VSNL was compulsorily retained by the GOI and was to be paid on the expiry of a period of seven years from the date of permanent absorption into VSNL and it was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commuted value of one-half of such pension, such commuted value being determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognized tables of mortality. ( iii )any payment in commutation of pension received from a fund under clause (23AAB)]". 22. It is the case of the Revenue that under Chapter 3 which deals with the income that does not form part of the total income, what is exempted under section 10A is only the amount of commutation of pension received under the Civil Pensions (Commutation) Rules of the Government or under any similar schemes applicable to Government servants Central or the State. Therefore, it is the case of the Revenue that interest arising from the amount received is not exempted and it is to be taxed as interest arising is taxable. 23. As is stated herein above, the assessees, Central Government employees working in OCS was converted into an independent autonomous entity by the Government and the staff en masse was also absorbed by the new autonomous body. On this change, the Government also issued an office memorandum by virtue of which the assessees pensionary benefits were a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of providing telecommunication services." 26. This Explanation was introduced with effect from 1-4-1991 by Finance Act, 1991, Explanation ( ba ) came into statute book with effect from 1-4-1998 onwards. This means the interest arising to these Central Government employees, who had been absorbed into the wholly owned Central Government Undertaking i.e VSNL, who were absorbed and whose pensionary benefits were not paid by it but kept by the Government for seven years and the interest arose to them on this pensionary benefits is also is exempted, but with effect from 1-4-1998. 27. Explanation 1A was substituted by Finance Act, 2001 w.e.f 1-4-2002. Before the change Explanation 1A states "for the purpose of this sub-clause, expression "interest" shall not include interest paid on delayed payment of loan or on default." 28. The learned Representative for the assessee submitted that the amount retained by the Government for seven years, which was due to the assessee, is infact nothing but a delayed payment. This is to be considered as a loan and since there is a default in paying the interest by the Government. So Explanation 1A below section 10(15) applies. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the holder of the rights thereupon executed a usufructuary bond in favour of the assessee under which they were put in possession of certain agricul- tural property for the purpose of realizing the sum due to them." Their Lordship held that the bond was merely a security for the debt and no taxable income accrued to the assessee. 33. Coming to the decisions relied on by the assessees, these decisions are also not directly on the point. However, the decision in the case of Accountant General, Karnataka ( supra ) states - "There might be a scheme for payment in commutation of pension different from the provisions in the Civil Pensions (Commutation) Rules and persons not governed thereby and accordingly relief should be granted to persons who would not be receiving payments under the Commutation Rules as such but also under other schemes. Whatever be the amount actually received under the Commutation Rules, the relief would be limited to the extent of the amount receivable thereunder. So far as the several schemes are concerned, relief would be available to the extent the payment in commutation of pension would be received under those respective schemes. The relief or exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral Provident Fund deposits from time to time for the period they remain with the Government." 35. In the light of the above discussion it is clear that income by way of interest arose to the assessees before 1-4-1998. Since the assessees were declared as industrial undertaking for the purpose of Income-tax Act with effect from 1-4-1998, assessees are entitled for benefit from that date onwards. Assessees plea that they are entitled for benefit from 1-4-1996 prior to the notification date is devoid of merits. Explanation (1)( ba ) provides that it is applicable to the assessees w.e.f. 1-4-1998. 36. Now coming to the assessees plea that in the instant case the interest arises from year to year and there is no justification in treating the entire amount in the year of receipt, it is to be accepted. The wording " earn interest at the rate prescribed for General Provident Fund deposits from time to time for the period they remain with the Government " quoted above makes it clear that interest arises from year to year and not in the year of receipt i.e. after 7 years locking. 37. Interest levied under section 234B is consequential. 38. Appeal by the assessees are al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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