9911796707
TMI Blog2017 (2) TMI 1535X X X X Extracts X X X X X X X X Extracts X X X X ..... R.C. Bhandari during Financial year 2000-2001. The State of Rajasthan filed objections before the ld. District& Sessions Judge, Jaipur City, Jaipur which were rejected. Against the order of the ld. District & Sessions Judge, Jaipur City, Jaipur, the state of Rajasthan filed another appeal before the Hon'ble Rajasthan High Court alongwith stay petition. As an interim relief, the Hon'ble Rajasthan High Court vide their order dated 27.10.2005 directed the State of Rajasthan to release 50% of the amount awarded in favour of the assessee respondent, subject to submission of equal amount of Bank Guarantee by the assessee respondent. Even till date the matter is pending on merits before the Hon'ble Rajasthan High Court. The assessee has furnished Bank Guarantee equivalent of Rs. 9,159,305/- and the amount was released to the assessee. 2.1 The assessee has shown arbitration receipts in his books of accounts under the head "Current liabilities" and has not credited the same in the profit/loss account. As per the Assessing officer, the arbitration receipts cannot be treated as liability till the order of Supreme Court is received against the assessee and the same receipts was accordingly t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the final order of the Hon'ble High Court to be abided by the assessee. The assessee furnished solvent security of Shri Hitesh Kumar. Title deeds of the property were filed with valuation of the property which was verified. Statement of Shri Hitesh Kumar was recorded on oath that he would not sale or mortgage or take loan on the said property. Amount was received in March, 2004. The assessee considered it as current liability in Schedule "C" with the narration Arbitration receipt from XEN, Irrigation, Bundi Rs. 35,83,978/-."The AO assessed the amount as business income and not as capital gain. On perusal of decision in the case of Hindustan Housing and Land Development Trust Ltd. (supra) we find that therein arbitrator has enhanced the original award amount by 5,13,624/- with interest @ 5% per annum and further recurring compensation at Rs. 6272/- per month. The State appealed to Hon'ble High Court. During the pendency the State deposited the amount and the assessee was permitted to withdraw on furnishing security. The assessee credited the receipt of suspense Account. The assessee company was carrying on business of dealing in land, maintained accounts on mercantile system, amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the furnishing of bank guarantee for whole or part of the disputed excise duty pursuant to an order of the court is equivalent to payment of the amount of excise duty. It was held that the amount of disputed amount or duty i.e. secured by a bank guarantee cannot be held to be payment by the revenue hence there is no question of its refund. Thus the decision in the case of Somaiya Organics (India) Ltd. and Another vs. State of Uttar Pradesh and Another (supra) is not helpful to the revenue. The ld. CIT(A) in our view was therefore not justified in upholding the action of the AO in treating the amount Rs. 35,83,978/- as income of the assessee for the year and addition thereof in the income of the assessee. The receipts in the hands of the assessee was undisputed subject to the outcome of the appeal preferred by the State Government against the award. In other words in case State Government succeeds in appeal pending adjudication before the Hon'ble High Court the assessee will have to return the amount, thus the amount was not under the absolute ownership of the assessee. The assessee was rather trustee of the said amount pending adjudication of appeal preferred by the State Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the following conditions are satisfied: a. the amount of revenue can be measured reliably; b. it is probable that the economic benefits associated with the transaction will flow to the entity; c. the state of completion of the transaction at the end of the reporting period can be measured reliably; and d. the costs incurred from the transaction and the costs to complete the transaction can be measured reliably. In the instant case the ld. Assessing Officer has nowhere stated that amount received by the assessee will eventually flow to the assessee. Without holding the same it cannot be treated as revenue of the assessee. The assessee is liable to recognize a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the recipient for services rendered by the assessee. Had it been so, the State of Rajasthan would have little, if any, discretion to avoid the payment. However, in the instant case, the State of Rajasthan vehemently denies its liability to pay the amount demanded by the assessee respondent, adjudicated by the arbitrator and the learned District & Sessions Judge. We had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch receipt is not income and was rightly not returned as income by the assessee respondent and was rightly ignored for taxation in the original assessment proceedings u/s 143(3) of the Act. It was submitted that the amount received on furnishing of equivalent amount of bank guarantee is the liability of the assessee and assessee respondent hold's the amount received from State of Rajasthan (PWD) as a Trustee and which has also been shown by the Auditor in Audit Report issued u/s 44AB of the IT Act. We submit that after the final order of the jurisdictional High Court the said amount will be offered for taxation. In support of its contentions, the ld AR drawn our reference to the following authorities on the aforesaid issue: 1. CIT vs. Hindustan Housing and land Development Ltd 161 ITR 524 (SC) 2. CIT vs. L. Sambhashiva Reddy (2015) 62 Taxman.com 174 (Kar) 3. CIT vs Sarvatra Roadrunners P ltd 173 TAXMAN 141 (Del) 2.4 The ld. DR submitted that the assessee has took the plea that the order of Hon'ble ITAT in ITA No.1003/JP/2003 for the assessment year 2004-05 in assessee's own case, the identical issue was involved and decided in favour of the assessee. This plea cannot be ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in pursuance of an interim arbitration award, following the Hon'ble Supreme Court decision in case of Hindustan Housing and Land Development Trust Ltd held as under (Head notes): "As settled by various judgments, income-tax is not levied on mere right to receive compensation; there must be something tangible, in nature of debt or in nature of an obligation to pay an ascertained amount. Till such time, no income can be said to have accrued. The enhanced compensation accrues only when it becomes payable, i.e., when the Court accepts the claim. When assessee receives money, either under an award or by a decree of the Court, or under an award passed by the arbitrator, if the amount paid to him is not in dispute, then that amount represents his income. He should offer it to tax in the previous year of date of payment of the said amount. But if amount due to him is in dispute and is subject-matter of litigation and during pendency of litigation, if any interim order is made for payment of the said amount, the said payment is subject to the final result of the said proceedings. In case where assessee loses legal battle, then amount received by way of interim payment, has to be repai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter on merit and it was an interim arrangement to safeguard the interest of both the parties. Where the challenge to the arbitral award ends in favour of the assessee, the Revenue would be entitled to bring the same to tax. Conversely, where the challenge to the arbitral award ends against the assessee, the State of Rajasthan would be entitled to encash the bank guarantee and recover the amount paid to the assessee. In light of above well settled proposition in law, in the instant case, the amount received by the assessee cannot be regarded as income which has accrued unless and until the proceedings relating to arbitral award attains finality. Besides that, even from well-established accounting principles and accrual system of accounting as followed by the assessee, where the probability of receipts in favour of the assessee is contingent on final outcome of Court's proceedings, such contingent receipts have rightly been shown as liability and not reflected as taxable receipts in the profit/loss account. Similar issue was involved in AY 2004-05 where the Coordinate Bench in its decision referred supra has held such interim arbitration receipts pending final outcome as not taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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