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TMI Blog2019 (4) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... at the AO had applied her mind to the contents of Hon’ble Bombay High Court judgment. Wherever the AO found that inference was required to be drawn against the assessee, such inference was drawn. The same judgment had directed Ferani to maintain account in respect of sums collected from Flat purchasers and further directed Ferani to invest the amounts collected in Fixed Deposits which would be governed by the final order of the Trial Court. If interpreting the said directions of the Court to mean that the deposits were made by Ferani and in that view, the AO did not include the interest in the assessed total income then it would only mean that the AO had followed one of the legal course permissible in law. Since in AO's opinion interest on FD was not assessable as assessee's income, the AO also did not allow the credit for taxes paid by way of TDS from interest on FD which by CIT's own admission was reported by the Bank in Statement-26AS. According to us, in such circumstances it was not a case where there was any failure on the part of the AO to conduct proper enquiries and gather relevant information. The AO had in fact gathered relevant material and information from Ferani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. did not belong to the appellant and as such interest on FDs made in the name of Ferani Hotels Pvt. Ltd did not constitute appellant's income and in that view of the matter the AO had rightly not included such interest in the assessed income of the appellant for A.Y. 2013-14. 3. For that on the facts and in the circumstances of the case, the CIT was wrong in holding that because the tax deduction in respect of interest oil by Indian flank was reported against Permanent A/c No. of the appellant the said interest was liable to be assessed as income of the appellant. 4. For that on the facts and in the circumstances of the case, the CIT ought to have appreciated that in the appellate orders for the preceding years the appellate authorities having held that the amounts unilaterally collected by Ferani Hotels Pvt. Ltd; during the pendency of legal proceedings did not belong to the appellant any FD made out of such receipts also did not belong to the appellant and in that view of the matter interest accrued on such FD was not chargeable to tax as income of the appellant. 5. For that on the facts and in the circumstances of the case, the CIT wrongly held that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of land owned by the Estate were considerably encroached upon by the unauthorized occupiers. Besides, after coming into force of ULCA in 1976, there was a danger to the lands belonging to Estate of EFD being declared and held as excess land. In the circumstances, in order to protect the interest of the beneficiary of the Estate of EFD, the Administrator with the consent of the beneficiary i.e. Baehoobai entered into two Development Agreements dated 02-01-1995 with Ferani Hotels Pvt. Ltd (Ferani) Ivory Properties Hotels Pvt. Ltd respectively. Under the Development Agreement dated 02-01-1995 Ferani was granted right to construct buildings upon land admeasuring 478.50 Acres. It was agreed that in consideration of the Estate EFD granting rights of development in favour of Ferani, the Estate of EFD would receive 12% of the sale price that would be realized upon sale of spaces constructed by Ferani on the demarcated land. The Agreement dated 02-01-1995 had envisaged that the sale of constructed spaces would be carried out by Ferani to independent third parties and not to parties which were related or which acted as fronts for Ferani to depress the actual sale price. Pursuant to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Estate of EFD as well as its Banker i.e. ICICI Bank was not receiving or accepting the payment of 12% share of the sale proceeds but Ferani suo motto opened a Current A/c bearing No.843 184512 with Indian Bank, Bandra Branch, Mumbai under the nomenclature/ cause title of Ferani Hotels Pvt. Ltd-NN Wadia share . Although such A/c was opened by Kerani, the Administrator was never informed about opening of such an A/c. The Administrator came to know about existence of such A/c only in 2012 when the statement was made before Hon ble Bombay High Court in that behalf. 4. Be the same as it may, even after Estate of EFD terminated the Agreement in May 2008, Ferani continued to construct and thereafter sale the constructed Flat/Unit to the Purchasers and continued to deposit 12% share in the Bank A/c with Indian Bank. Since Ferani was creating third party interest in the property belonging to Estate of EFD, the Administrator was advised to move a Notice of Motion in the pending Suit No. 1628 of 2008, seeking Injunction, restraining Ferani from acting upon the Power of Attorney dated 02-01-1995 from alienating, encumbering, parting with possession, transferring or creating any third p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ani not to put any party either genuine third party or related parties in possession of the constructed premises except with the approval of the plaintiff pending the Suit. The Court also directed that the issue relating to limitation would be decided first on 26-07-2010 being the jurisdictional issue. Since in the order dated 19-07-2010 Hon ble Bombay High Court had issued injunction against Ferani from handing over possession to the Flat purchasers, an appeal No. 817 of 2010 was moved before the Division Bench of Hon ble Bombay High Court by Ferani. Similarly, since the injunction as sought for by Estate of EFD was not granted, counter appeal No. 806 of 2010 was filed by Estate of EFD before Division Bench of Hon ble Bombay High Court. The Division Bench of Hon ble Bombay High Court by its judgment dated 19-07-2012 decided these Cross Appeals which arose from the judgment of Hon ble Bombay High Court dated 19-07-2010 passed in relation to Notice of Motion No. 1863 of 2010 seeking ad interim relief. This is apparent from the opening para of the Judgment which reads: - These appeals arise from a judgment dated 19.07.2010 of a Ld. Single Judge on a Motion for interim relief i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , creating third party interest and handing over possession. 6. The CIT (International Taxation)-2, Mumbai passed revision order u/s 263 of the Act dated 08.02.2018 for the A.Y. 2013-14 directing AO to pass an assessment order afresh by bringing the sum of ₹ 4,06,41,567/- to tax in accordance with the discussions made by him in the Revision Order. According to CIT prior to passing of the assessment order u/s 143(3) of the Act, the AO had not applied her mind and had failed to consider taxability of interest received by the assesse from Indian Bank during FY 2012-13, which made the assessment order erroneous and prejudicial to the interest of Revenue. The assessee objected to the validity of the proceedings u/s 263 of the Act as also to the findings recorded by the CIT holding that interest of ₹ 4,06,41,567/- allegedly paid/credited on FDRs by Indian Bank was legally chargeable to tax as assessee's income for the A.Y. 2013-14. Ld Counsel argued that it is incorrect on the part of the CIT to interpret hold that the judgment of Hon ble Bombay High Court dated 19-07-2012 finally adjudicated upon the rights and obligations of the parties arising from the Development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Agreement dated 02-01-1995, the assessee had sought restitution of the property in its original form and the Court had categorically directed that the amounts invested by Ferani in fixed deposit would abide by the further orders of the Trial Judge trying the Suit filed by Estate of EFD. 9. Ld Counsel also stated that the Court was very categorical in its direction that the amount collected by Ferani would remain under its exclusive control and over which Estate of EFD would neither have any control or access. Even CIT acknowledged in para 2.2 of supplementary show cause notice u/s 263 of the Act dated 24.11.2017 as follows: - Even though the amount is not accessible to assessee, as per Court Order it is paid / accrued to assessee in his Bank A/c. Hence, Ld Counsel argued that once the CIT admitted that the amount deposited in the designated A/c or Fixed Deposit made out of such designated A/c was not accessible to the assessee then he could not record a conclusion that the assessee was liable to account the amount received in its books. The CIT was factually and legally wrong in holding that as per the Court Order the amount was paid to the assessee in his Bank A/c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 367 to 353 of the assessee Paper Book. It would be noted from the said Bank statements that even though certain entries appeared in the Bank statement indicating transfer of funds from Current A/c to Fixed Deposit A/c, there is no entry appearing in the Bank statement which in any manner shows that Indian Bank had actually paid or credited any interest on FD to the A/c No. 843184512. Even the statement of FDs for F.Y.2012-13 nowhere indicates that during F.Y. 2012-13 the Bank had actually paid any interest on FDs made with the said Bank. 11. Ld Counsel in view of the above facts argued that in the Show cause notice u/s 263 of the Act the CIT however alleged that the AIR Data available with the AO indicated that it contained 10 entries which pertained to Indian Bank totaling ₹ 4,06,41,567/- indicating payment of interest and TDS thereon. The CIT therefore came to conclusion that the interest of ₹ 4,06,41,567/- paid by Indian Bank should have been assessed in the assessee's hands for the A.Y. 2013-14. For AO's failure to include such interest in the total income of the assessee, the CIT treated the AO's order to be erroneous and prejudicial to the intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have gone through the detailed arguments made by Ld Counsel for the assessee. We have also heard LD CIT-DR and gone through case records. We noted that the amount of ₹ 4,06,41,567/- credited by Indian Bank on the FDs did not constitute income chargeable to tax for the A.Y. 2013-14 for the present assesse merely on the ground that the bank had deducted tax at source and the tax payment was reported against the PAN allotted in the name of Estate of EFD. We have notice from the judgment of Hon ble Bombay High Court dated 19.07.2012 that the relevant directions of the High Court were pronounced while disposing the appeal filed by Ferani against the judgment of the Single Judge disposing Notice of Motion for Interim relief. We are of the view that CIT was unjustified in drawing inference against the assessee on the ground that it was the assessee who had approached the Court and therefore assessee could not deny the fact that the fixed deposits were made in its favour on the basis of Court directions the FDs legally belonged to the assessee. We have noted the fact that the assessee had filed Suit before Hon ble Bombay High Court in 2008 after terminating the Agreement dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of the amounts collected and deposited in the designated A/c. The Hon ble High Court further directed Ferani (and not Estate of EFD) to make FDs out of the sums collected. The Hon ble High Court's order further clarified that the amount invested in the Fixed Deposit would abide by further orders of the Trial Judge. As such the directions of Hon ble Bombay High Court were express in their intent and language. Nowhere the order Court required Estate of EFD to take any steps with regard or with reference to amounts collected by Ferani. It was not for Administrator to keep account of the moneys collected. The directions of the Court expressly bound Ferani to deal with the amounts collected by it in a particular manner. Even though the Court permitted Ferani to proceed with collecting the sale proceeds from the Flat purchasers and the Court had required Ferani to maintain the accounts in respect of 12% share of the sale proceeds collected by it and further required Ferani to periodically keep such sale proceeds in fixed deposits so that Ferani did not have free and unfettered access to sums so collected. The Court also made it expressly clear that the amounts upon being i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed in Para-11 of the order that similar information was reported in Statement 26AS which reports the tax deductions made by the tax deductors from the payments made. According to CIT, if the Bank deducted the tax from interest and reported such tax deduction in Form-26AS of the assessee, then it was obligatory for the AO to assess the income because the tax was deducted at source from income reported in the name of Estate of EFD. We are of the view that an amount/receipt is assessable as income of an assessee only on the basis of charging provisions of Sec. 4 5 of the Act. Sec. 4 is the charging provision of the Act it is therefore necessary for the AO to prove that the receipt though received by some other person, constituted income chargeable to tax in the hands of the person sought to be charged. If however in law the receipt does not constitute income then the same cannot be taxed as income of the person merely because the tax is deducted from such amount by the payer of the sum. It may be true that See. 198 of the Act provides that the sums deducted in accordance with Chapter-XVII shall for the purpose of computing income of an assessee be deemed to be income rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . None of the said 3 persons were related with the affairs of Estate of EFD. The Bank further admitted that it never had in its possession any A/c opening or A/c operating documents which bore signature of Mr. N N Wadia even though the cause title of the a/c contained his name. As regards making of the fixed deposits the Bank admitted that the FDs were created or made on the basis of instruction letters issued by Ferani Hotels Pvt Ltd addressed to the Bandra Branch and not because of any instruction issued by the Administrator of EF Dinshaw. Lastly the Bank admitted that the TDS from interest was reported against PAN: AAEPD8394A belonging to Estate of EFD as per the instruction given by Ferani Hotels Pvt Ltd and based on such instructions only the TDS was reported by the Bank in the name of Estate of EFD. 18. Even from the perusal of the assessment order u/s 143(3) of the Act, it is apparent that the AO had conducted enquiry before completion of assessment. The AO had issued notices u/s 133(6) of the Act to Ferani as well as Indian Bank and obtained required information. The AO had also examined the judgment of Hon ble Bombay High Court dated 19-07-2012 and interpreted in her ow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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