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TMI Blog2011 (5) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... opriate orders including, if it is felt necessary, remand the matter to the Assessing Officer. - ITR 38/1995 - - - Dated:- 6-5-2011 - MR JUSTICE SANJAY KISHAN KAUL, MR JUSTICE RAJIV SHAKDHER, JJ. For the Appellant : Ms Prem Lata Bansal, Sr. Advocate with Mr Deepak Anand Ms Ruchir Bhatia, Advocates For the Defendant: Mr V.P. Gupta, Mr Basant Kumar Ms Priya Deep, Advocates. RAJIV SHAKDHER, J 1. The captioned reference has been preferred at the behest of the Revenue. The reference pertains to assessment year 1977-78 relevant for previous year ending on 30.09.1976. The Income Tax Appellate Tribunal (hereinafter referred to as Tribunal‟) by order dated 20.05.1994 has referred to us for adjudication the following question of law: Whether on the facts and in the circumstances of the case, the Tribunal is right in holding that surplus of Rs 58,32,100/- is not taxable in the assessee s total income?‟ 2. The brief facts, in so far as they are relevant for adjudication of the aforementioned question, which are required to be noted (as gleaned from the orders passed by the authorities below), are as follows: The assessee entered into an agreement dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emergency legislation, whereby amongst other prohibitive measures, not only orders were issued restraining the payment of dues to Indian nationals but also exports of cement to India was banned. 2.7 Consequently, both PPCIL and NBP refused to honour their obligation under the agreement. Being aggrieved the assessee referred its dispute for arbitration to the International Chamber of Commerce (in short ICC‟), in terms of an arbitration clause, contained in the agreement. 2.8 Upon conclusion of the arbitration proceedings, two (2) awards dated 01.03.1971 and 03.03.1972, were passed in favour of the assessee. However, the arbitration awards were made subject matter of further legal proceedings. Proceedings were taken out both in the High Court at London as well as in the House of Lords. By virtue of the judgments passed by the High Court and the House of Lords on 04.05.1977 and 20.07.1977 respectively, the arbitration awards were upheld. The litigation on merits thus came to an end finally on 20.07.1977. 2.9. It is pertinent to note that, in the interregnum, NBP pursuant to the awards, had paid on 31.05.1976 to the assessee a total sum of 35,49,634/- towards sale consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred during the course of assessment, thus applied the amended Rule 115 while, calculating the surplus , which according to him accrued on the principal sum out of the money received from BNP, on account of fluctuation in the rate of foreign exchange. It may be noticed that in the assessment order the Assessing Officer has entered a caveat that, the amended Rule 115 was being applied subject to the revenue‟s right to carry the matter in appeal to the Supreme Court. At this juncture we may note that both counsels, have not been able to inform us, as to whether, as a matter of fact, the judgment of this court dated 11.02.1980 passed in CWP 1278/1978 was carried in appeal to the Supreme Court. 3.4. Be that as it may, the Assessing Officer came to the conclusion that a surplus, in the sum of Rs 58,32,100/- had accrued to the assessee which according to him had to be brought to tax. The calculation in that regard as contained in the assessment order is as follows: principal amount under the Agreement dated 24.7.62 as fixed by Arbitrator: 18,21,721* Value of this amount in Indian rupees by applying Amended rule 115 of the IT Rules, 1962: Rs 2,66,51,778/- Less principal bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility on account of interest accrued to it. In this respect some reference has been made to proceedings in the Calcutta High Court and the Tribunal pertaining to assessment year 1973-74. These aspects, however, do not concern us and therefore we are not elucidating upon them. Suffice it to say that the Assessing Officer thus concluded, that the surplus on account of the fluctuation in the rate of exchange, ought to be added to the income of the assessee being in the nature of revenue. 3.8. Being aggrieved, the assessee carried the matter in appeal to the Commissioner of Income Tax (Appeals) [in short CIT(A)‟]. The CIT(A) by order dated 22.05.1982 reversed the order passed by the Assessing Officer. The material observations in regard to the question in issue are made in paragraphs 21(a) to (c) and 22(a) to (b) of his order. 3.9. Against the order of the CIT(A) appeals to the Tribunal were preferred both by the revenue as well as the assessee. By the impugned judgment, the Tribunal dismissed the appeal of the revenue and partially allowed the assessee‟s appeal. What is relevant for our purposes is that in respect of the question at hand, the revenue‟s appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal had set aside the addition of surplus sum on three grounds: First, that the principal sum of 18,21,721/- was kept on capital account i.e., was a capital asset. Second, the money lay unutilized in a fixed deposit and hence, was not used for business purposes. Third, that profit or loss would arise on account of appreciation or depreciation in the value of foreign currency only when, there was actual conversion of foreign currency. Since no such conversion took place, the surplus crystallized was a notional sum, which could not be brought to tax in the assessment year in issue. In rebuttal to the alternative submission of the learned counsel for the revenue, Mr. Gupta contended that since this court was called upon only to answer the question of law as framed, it could not issue a direction of the nature suggested by the revenue. 4.4 In support of his submissions, Mr Gupta relied upon the following judgments :- CIT vs Tata Locomotive Engg. Co. Ltd. (1966) 60 ITR 405; CIT vs Canara Bank Ltd (1967) 63 ITR 328; Liquidator of Mahamudabad Properties (P) Ltd vs CIT (1980) 124 ITR 31 and CIT vs J.V. Gupta Sons (HUF) (2000) 241 ITR 861. 5. Having heard the learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was not as if the monies received under the award had been blocked or immobilized and hence, could not be used for business purposes. Thus, the argument of the assessee which, found favour with the CIT(A) and the Tribunal that, since these were unutilized funds lying in fixed deposit they could not have been used for the purposes of business; does not find favour with us. It is precisely for this reason that we also find it difficult to accept the reasoning of both the Tribunal and the CIT(A) that 18,21,721/- was held by the assessee on capital account. If this reasoning were to fail, as it does, then the judgment of the Supreme Court in Satluj Cotton Mills (supra) would have no application. 6.2 The details of the transaction, as noticed above by us, based on the records of the case, would clearly establish that on furnishing a bank guarantee in favour of NBP the assessee was free to deal with the money any which way. The fact, however, remains that there was uncertainity as to whether or not the assessee would receive any amount, i.e., whether or not the awards would be upheld and also as regards the exact extent to which the award would be sustained, i.e., the quantum of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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