9911796707
TMI Blog2024 (5) TMI 955X X X X Extracts X X X X X X X X Extracts X X X X ..... ainty of realization of interest income for the Assessee herein, taxing the said unrealized/hypothetical interest income in the hands of the Assessee would only result in gross injustice to the Assessee . By following the ratio laid down in the case of Messrs. Shoorji Vallabhdas and Co. [ 1962 (3) TMI 6 - SUPREME COURT] , Godhra Electricity Company Ltd. [ 1997 (4) TMI 4 - SUPREME COURT] and Excel Industries [ 2013 (10) TMI 324 - SUPREME COURT] we hold that the interest income has to be taxed in the instant case on receipt basis or when certainty regarding interest income is reached thereon between the Assessee and UP Forest Corporation whichever is earlier. Accordingly, we delete the additions made by the A.O. by setting aside the orders of the Ld. CIT(A) on allowing the Grounds of Appeal of the assessee. - Shri M. Balaganesh, Accountant Member And Shri Yogesh Kumar U.S., Judicial Member For the Appellant : Sh. Ashish Raj Shukla, Adv For the Respondent : Sh. A. S. Rana, Sr. DR ORDER PER YOGESH KUMAR U.S., JM: These four Appeals are filed by the assessee against the orders of the Ld. Commissioner of Income Tax Appeals-2 - (Camp at Dehradun) ( Ld. CIT(A) for short), dated 31/10/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned by it from time to time, as per RBI guidelines, to the petitioner corporation, from the date of filing of the writ petition. (vi) That the U.P. Forest Corporation has filed Special Appeal No. 51/2017 before the division bench of the High Court denying liability to pay the amount; and the assessee has also filed SA No. 17/2017 against direction of the Court to pay interest after six months in case of failure to pay the amount within six months. (Page-11-12 of the order). 5. BECAUSE the Id. Commissioner of Income-tax (Appeals) has erred on facts and in law in upholding the taxability of interest in the hands of the assessee which is now contrary to the judgement of the High Court of Uttarakhand dated 23.11.2016 (supra). 6. BECAUSE the Id. Commissioner of Income-tax (Appeals) has erred on facts and in law in not appreciating the law that hypothetical income which is yet to materialize cannot be taxed and it is only the real income which has either accrued or was received that alone can be taxed. 7. BECAUSE the Id. Commissioner of Income-tax (Appeals), after having issued a direction for computation of income u/s 11 of the Act (vide para-5.2 at page 11 of impugned order), has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.2013 has apportioned to the assessee corporation the interest share on the FDRs held earlier by the UP Forest Corporation, as the state of UP was divided in two parts wef. 01.04.2011, and therefore as per the such interest amount was assessable in the hands of the assessee appellant. Accordingly, the AO arrived to his satisfaction on the basis of the following observations of the Hon'ble Lucknow High Court- 2 In this case an information was received from the DCIT, Range-1, Lucknow vide letter F. No. DCIT/R- 1/LKO/UPFC/2013-14 dated 31.03.2014 in which it has been informed that the cases for A.Y. 2002-03 to 2004-05, 2007-08, 2008-09 and 2011-12 have been completed u/s 254/143(3) of the IT Act, as the per direction of Hon'ble High Court, Lucknow Bench, Lucknow. The Hon'ble High Court vide order dated 30.09.2013 has observed as under - The State was divided on 01.04.2001. Thereafter, the assets of the two States were divided as per Notification dated 13.02.2004 in the ratio of 46:54 between the State of Uttar Pradesh and Uttaranchal. Accordingly, the FORS were also divided. Uttaranchal Forest Development Corporation is separate and legal entity and is liable to pay the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order- The reply of the assessee has been considered and it is found that the assessee has failed to substantiate the facts why the interest income awarded by the settlement of Ministry of Home Affairs dated 28.07.2004 should not be taxed in the hands of the assessee as a right awarded to the assessee. Hon bile High Court Lucknow Bench, Lucknow vide order dated 30 09 2013 has also confirm the order of the Id. ITAT. The Hon'ble ITAT Lucknow Bench A Lucknow has passed common order vide ITA No. 785/Luc/05, 243/Luc/06 619/Luc/07 dated 06.03.2009 for the A.Y. 2002- 03 to 2004-05 Vide para No. 35 the Hon'ble ITAT has held 54% share of interest is taxable in the hands of Uttaranchal Forest Development Corporation for which Assessing Officer can initiate action in accordance law Keeping in view of Hon'ble ITAT order the interest income is fully farable in the hands of the assessee. Accordingly the interest income amounting to Rs. 23.28 73.578/- is added to the income of the assessee Penalty notice u/s 271(1)(c) of the IT. Act, is issued separately for furnishing inaccurate particulars of its income. 7. Aggrieved by the assessment order for Assessment Year 2008- 09 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of Uttaranchal Forest Corporation (assessee herein). Further submitted that the said order of the Tribunal has been affirmed by Hon'ble High Court, therefore, the same is binding on the assessee, therefore the Authorities have rightly assessed with 54% of the interest amount at the hand of the Assessee, hence, the Tribunal cannot find fault with the orders of the Lower Authorities. 10. Heard the parties perused the material. The Assessee is constituted by a legislative enactment adopting U.P. Forest Corporation Act, 1974 on the creation of a new State of Uttarakhand out of erstwhile State of Uttar Pradesh in the year, 2000. The assets and liabilities of U. P. Forest Corporation as on 01.04.2001 were to be divided in the ratio of 54% and 46% between the Assessee and the U.P. Forest Corporation respectively by a Notification dated 13.2.2004 issued by the Government of India. The above said division of the assets and liabilities has been re-affirmed by the Ministry of Home Affairs by letter dated 28.07.2004, which was subject to settlement of disputed liability pending in the courts. The assets and liabilities with reference to reserve and surplus could not be settled du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the perusal of the aforesaid statement, it may be seen that the amount available for apportionment is Rs. 394.62 Crore. The amount apropos share of the Uttaranchal Forest Development' Corporation would be a sum of Rs. 185.51 Crores. 10- That the above amount, however, would be subject to its 54% share of income-tax liability of Rs. 322.74 crores as stated in para- 3 (supra), namely, Rs. 174.27 crores liable to be adjusted against Rs. 185.51 Crores. Thus, the remaining amount to which Uttaranchal Forest Development Corporation is entitled would be only Rs. 11.24 Crores (185.51-174.27). 11- That, without prejudice to the above, if the disputed amount of income-tax liability of Rs. 143.07 pending before income-tax authorities is excluded, the share of Uttarakhand Forest Development Corporation in the income-tax amount of Rs. 179.67 Crore already paid would be Rs. 97.02 Crore. The balance amount with reference to 185.51 cores, would, thus, be Rs. 88.49 Crore (185.51-97.02). 13. Thus, the payment of principal and the interest amount was under dispute. The UP Forest Corporation is not only disputed the division of ratio of 54% and 46% but also not paid interest of FDR lying with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced copy of the minutes at Page No. 17 to 25 of the Paper Book 2. 17. No doubt the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz. the accrual of the income or its receipt: but the substance of the matter is the income . If income does not result at all there could be a tax, even though in book keeping, entry is made about hypothetical income, which does not materialized. The present case admittedly the assessee has not received any interest income which has not even crystallized between two states. Thus, the assessee is liable to account for its income in the year when the amount is received from UP Forest Corporation or when it is crystallized. It is contended that there is neither any entry in the books of the said corporation admitting the liability of any such amount of interest payable to the assessee nor there any such corresponding entry receivable amount of interest in the books of the assessee. 18. The Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs. Messrs. Shoorji Vallabhdas and Co. reported in (1962) 46 ITR 144 (S.C) held that, though the Income-tax takes into account two points of time at whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year were themselves sufficient to show that the income neither accrued to the assessee firm nor was received by it so as to become assessable. The decision of the Bombay High Court was approved by this court in Commissioner of Income-tax v. Chamanlal Mangaldas Co. 10. In Commissioner of Income-tax v. Chamanlal Mangaldas Co., the assessee was also the managing agent of a company, and under the agreement was entitled to receive commission at a certain rate. By another agreement, the commission earned by the managing agent for the calendar year 1950 was reduced by Rs. 1 lakh. That agreement took place during the previous year, and the resolution of the board of directors of the managed company was also in the previous year. It was, however, made final on April 8, 1951, at a meeting of the board of directors, but that was beyond the previous year. The High Court of Bombay held that by reason of the resolution during the currency of the previous year, the right of the assessee to commission ceased to be under the original agreement and depended upon and arose only after the decision of the board of directors to reduce the commission. The assessee was, therefore, not held liable on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges for supply of electricity has to be considered by taking the probability or improbability of realization in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the Assessee company in respect of the enhanced charges for supply of electricity which were added by the Income-tax Officer while passing the assessment orders in respect of the assessment years under consideration. The Appellate Assistant Commissioner was right in deleting the said addition made by the Income-tax Officer and the Tribunal had rightly held that the claim at the increased rates as made by the assessee-company on the basis of which necessary entries were made represented only hypothetical Income and the impugned amounts as brought to tax by the Income-tax Office did not represent the income which had really accrued to the assessee company during the relevant previous years. The High Court, in our opinion, was in error in upsetting the said view of the Tribunal. 20. The Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs Excel Industries (2013) reported in 358 ITR 295 (S.C) held that income tax cannot be l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it has really accrued to the assessee. 21. In so far as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement pass book, there was no corresponding liability on the customs authorities to pass on the benefit of duty free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is therefore not the income of the assessee. 22. In Godhra Electricity Co. Ltd. v. Commissioner of Income Tax, [1997] 225 ITR 746 (SC) this Court reiterated the view taken in Shoorji Vallabhdas and Morvi Industries. 23. Godhra Electricity is rather instructive. In that case, it was noted that the High Court held that the assessee would be obliged to pay tax when the profit became actually due and that income could not be said to have accrued when it is based on a mere claim not backed by any legal or contractual right to receive the amount at a subsequent date. The High Court however held on the facts of the case that the assessee had a C.A. No. 125 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly of electricity. The decision of the High Court was, accordingly, set aside. 27. Applying the three tests laid down by various decisions of this Court, namely, whether the income accrued to the assessee is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realisation of the benefits by the assessee considered from a realistic and practical point of view (the assessee may not have made imports), it is quite clear that in fact no real income but only hypothetical income had accrued to the assessee and Section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case. Essentially, the Assessing Officer is required to be pragmatic and not pedantic. 28. Secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under the advance licences or under the duty entitlement pass book do not represent the real income of the assessee. Consequently, there is no reason for us t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trary to what had been decided by the Commissioner of Income Tax in the earlier proceedings, a different and contradictory stand should have been taken. 31. It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up C.A. No. 125 of 2013 etc. Page 14 of 16 Page 15 in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flipflop on the issue and it ought let the matter rest rather than spend the tax payers money in pursuing litigation for the sake of it. 32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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