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TMI Blog2013 (3) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... , (1962 (3) TMI 6 - SUPREME Court “the substance of the matter is the income”. Also in Poona Electric Supply Co. Ltd. vs. CIT, (1965 (4) TMI 20 - SUPREME COURT) it was held that “Income-tax is a tax on the real income i.e., the profits arrived at on commercial principles subject to the provisions of the Income Tax Act.”. These principles were followed in the judgment in Godhra Electricity Co.Ltd. vs. CIT [1997 (4) TMI 4 - SUPREME COURT] in holding that even though the assessee was following a mercantile system of accounting and had made entries in its books regarding enhanced charges for the electric supply made to the consumers, no real income had accrued in respect of those enhanced charges in view of the fact that soon thereafter the assessee had been subjected to litigation in a suit filed by the consumers. It would be wholly unreasonable to deduct tax at source on an amount which has not accrued to the Petitioner as income during the financial year in question, the entitlement of the Petitioner being contingent on the outcome of the challenge to the arbitral award. Moreover, it has also not been disputed on behalf of the Petitioner and it is fairly conceded by Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es (the contention of DSL being that the total amount due inclusive of interest was Rs.265 crores). Against the order of the Division Bench, Special Leave Petitions were filed before the Supreme Court both by DSL and by MSEDC. The Supreme Court modified the conditions on which a stay of execution of the award was granted by the Division Bench in the following terms: We are of the view that interests of justice would be served if the terms subject to which stay is granted are modified as follows: (a) MSEDC shall deposit Rs.65 crores with the Bombay High Court on or before 20.6.2009. DSL will be at liberty to draw the said sum of Rs.65 crores by furnishing an unconditional Bank Guarantee to the satisfaction of the Prothonotary and Senior Master of the High Court. (b) MSEDC shall furnish a Bank Guarantee for the remaining Rs.200 crores on or before 20.6.2009 to the satisfaction of the Prothonotary and Senior Master. The said Bank Guarantee shall be kept current during the pendency of the appeal. (c) The Bank Guarantee that is furnished by DSL for withdrawing Rs.65 crores, shall confirm that the Bank shall not object to any claim under the Guarantee on the ground t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontained in the communication dated 29 May 2012 to the Petitioner. Consequently, since the order of 14 May 2012 of the CIT had not been specifically set aside, the Income Tax Officer (TDS) was bound by the order of the CIT. In that view of the matter, the Division Bench quashed and set aside the order of the ITO (TDS) dated 22/23 November 2012 and made it clear that by the order of the Court dated 29 October 2012, the order of the CIT dated 14 May 2012 had also been set aside. The ITO (TDS) was directed to pass a fresh order on merits. 6. Thereafter, a notice to show cause was issued to the Petitioner on 21 January 2013 stating inter alia as follows: On going through the application dated 3.4.2012 and all other documents submitted from time to time, the following points emerge: (i) There is no business income during the FY 2012-13; (ii) The applicant company has income from deposits under the head income from other sources aggegating Rs.6,07,07,750/-. The taxability arising out of such income has been stated by you at Rs. Nil in your application submitted in Form No.13. The fact remains that there is positive income and estimated tax liability would be of Rs.2.06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... award is upheld, the Petitioner would be liable to refund the entire amount of Rs.65 crores which has been withdrawn and would be liable to provide restitution to MSEDC under Section 144 of the Code of Civil Procedure, 1908. In the circumstances, it was urged that the interest which has resulted from the fixed deposit maintained with the Indian Bank in respect of the amount of Rs.65 crores is not income which has accrued since the entire amount inclusive of interest is contingent upon the outcome of the pending proceedings. 9. On the other hand, it has been urged on behalf of the Revenue that: (i) While there can be no dispute about the fact that the Petitioner has no vested right in respect of the amount of Rs.65 crores which has been permitted to be withdrawn by the Supreme Court against the furnishing of a Bank Guarantee, the interest which has been earned on the amount is income which has accrued to the Petitioner; (ii) DSL is a sick industrial Company and the Revenue would be justified in securing its interest by declining a certificate under Section 197; and (iii) In any event no prejudice would be caused to the Petitioner if tax is deducted at source since the Petitioner w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f costs and for the payment of interest. 11. The basis on which a show cause notice was issued to the Petitioner on 21 January 2013 is that what was disputed before the Division Bench of this Court is only the quantum of compensation. The show cause notice also proceeded on the basis that the Petitioner has absolute ownership of the funds to the extent of Rs.65 crores. There is a fallacy in both these assumptions. The scope of the appeal before the Division Bench is the validity of the order of the Learned Single Judge dismissing the objection to the arbitral award and it is not only the quantum of compensation which is in dispute in the Letters Patent Appeal that has been filed against the order of the Learned Single Judge. Moreover, it would be fallacious to postulate that the Petitioner has absolute ownership of the funds to the extent of Rs.65 crores. Even the impugned order of the ITO (TDS-I) proceeded on the fallacious assumption that the Petitioner has an absolute right to receive an amount of interest. So long as an appeal against the order of the Learned Single Judge on the Arbitration Petition is pending, the Petitioner does not have an absolute entitlement either to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave accrued... 13. The submission of the Revenue is that the order of the Supreme Court only required the Petitioner to furnish a Bank Guarantee of Rs.65 crores in respect of the amount which was deposited by the MSEDC and withdrawn. However, it is urged that there was no direction in regard to the interest which would accrue on the amount of Rs.65 crores and there is no link as such between the fixed deposit upon which interest has been earned and the Bank Guarantee which was required to be furnished for the withdrawal of Rs.65 crores. In our view, it would not be possible to accede to the submission for the simple reason that the interest on the fixed deposit does not represent a crystallised entitlement of the Petitioner during the financial year in question. The Petitioner would have an indefeasable entitlement in respect of the principal amount of Rs.65 crores as well as the interest earned only if the proceedings which are pending in regard to the challenge to the arbitral award conclude in its favour. Unless those proceedings attain finality, the Petitioner would be subject to a possible order of restitution not merely in respect of the principal amount of Rs.65 crores, b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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