Bombay High Court
Smt. Premlata Purushottam ... vs The Commissioner Of Income Tax-1 on 1 August, 2017
Bench: M.S. Sanklecha
1 Itl19.11.odt
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH : NAGPUR
INCOME TAX APPEAL NO.17 OF 2011
with
INCOME TAX APPEAL NO.18 OF 2011
with
INCOME TAX APPEAL NO.19 OF 2011
with
INCOME TAX APPEAL NO.20 OF 2011
.....
INCOME TAX APPEAL NO.17 OF 2011
Smt. Premlata Purshottam Paldiwal,
C/o. Paldiwal Nursing Home,
Giripeth, Amravati Road,
Nagpur.
Tah. & Dist. Nagpur
State of Maharashtra. ... APPELLANT
.. Versus ..
The Commissioner of Income-tax-I,
Aaykar Bhawan, Civil Lines,
Nagpur
Tah. & Dist. Nagpur
State of Maharashtra. ... RESPONDENT
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
Mr. C.J. Thakar & Mr. S.C. Thakar, Advocates for the Appellant.
Mr. A. Parchure & Mr. B. Mohta Advocates for the Respondent.
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
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2 Itl19.11.odt
INCOME TAX APPEAL NO.18 OF 2011
Smt. Premlata Purshottam Paldiwal,
C/o. Paldiwal Nursing Home,
Giripeth, Amravati Road,
Nagpur.
Tah. & Dist. Nagpur
State of Maharashtra. ... APPELLANT
.. Versus ..
The Commissioner of Income-tax-I,
Aaykar Bhawan, Civil Lines,
Nagpur
Tah. & Dist. Nagpur
State of Maharashtra. ... RESPONDENT
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
Mr. C.J. Thakar & Mr. S.C. Thakar, Advocates for the Appellant.
Mr. A. Parchure & Mr. B. Mohta Advocates for the Respondent.
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
INCOME TAX APPEAL NO.19 OF 2011
Smt. Premlata Purshottam Paldiwal,
C/o. Paldiwal Nursing Home,
Giripeth, Amravati Road,
Nagpur.
Tah. & Dist. Nagpur
State of Maharashtra. ... APPELLANT
.. Versus ..
The Commissioner of Income-tax-I,
Aaykar Bhawan, Civil Lines,
Nagpur
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3 Itl19.11.odt
Tah. & Dist. Nagpur
State of Maharashtra. ... RESPONDENT
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
Mr. C.J. Thakar & Mr. S.C. Thakar, Advocates for the Appellant.
Mr. A. Parchure & Mr. B. Mohta Advocates for the Respondent.
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
INCOME TAX APPEAL NO.20 OF 2011
Smt. Premlata Purshottam Paldiwal,
C/o. Paldiwal Nursing Home,
Giripeth, Amravati Road,
Nagpur.
Tah. & Dist. Nagpur
State of Maharashtra. ... APPELLANT
.. Versus ..
The Commissioner of Income-tax-I,
Aaykar Bhawan, Civil Lines,
Nagpur
Tah. & Dist. Nagpur
State of Maharashtra. ... RESPONDENT
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
Mr. C.J. Thakar & Mr. S.C. Thakar, Advocates for the Appellant.
Mr. A. Parchure & Mr. B. Mohta Advocates for the Respondent.
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
CORAM : M.S.SANKLECHA &
MANISH PITALE, JJ.
RESERVED ON : July 21, 2017.
PRONOUNCED ON : AUGUST 01, 2017.
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JUDGMENT (Per M.S. SANKLECHA, J.)
These appeals under Section 260-A of the Income Tax
Act, 1961 (the Act) challenge a common order dated 30 th May,
2011 passed by the Income Tax Appellate Tribunal, Nagpur
(Tribunal). The impugned common order relates to the
assessment years 1998-1999, 1999-2000, 2000-2001, & 2001-
2002. Hence the four appeals.
2. All the four appeals were admitted on 14th
December, 2011 on the following identical substantial question
of law :
'Whether the judgment of Delhi High Court in the case
of Paragon Construction (I) Private Limited .vrs.
C.I.T. (2005) 274 I.T.R. 413 (Del) has been correctly
appreciated and distinguished by ITAT?'
3. It is an agreed position between the parties that
above substantial question of law arises on identical facts in the
four appeals. Therefore, facts in any one of the four appeals
would be sufficient to answer the above substantial question of
law raised in all the four appeals. Therefore, by consent of the
parties we shall refer to the facts in Income Tax Appeal No.19 of
2011 relating to Assessment Year 1998-99.
5 Itl19.11.odt
4. The brief facts giving rise to the appeals are as
under :-
(a) The appellant/assessee owned agricultural land in
village Borkhedi, Dist. Nagpur. This agricultural land was
compulsorily acquired by Government of India issuing a
notification dated 5th March, 1992 under Section 4 of the Land
Acquisition Act, 1894. The Land Acquisition Officer in
September, 1995 granted a compensation of Rs.9.33 Lakhs
(inclusive of interest) to the appellants on acquisition of the
notified land.
(b) As the appellant was aggrieved by above
compensation it ensured a Reference was filed under Section 18
of the Land Acquisition Act by the Collector to the Civil Judge,
Senior Division. By an order dated 21st September, 1996, Civil
Judge, Senior Division enhanced the compensation to Rs.63.33
Lakhs (including interest of Rs.17.57 Lakhs).
(c) Being aggrieved with the order dated 21st September,
1996 passed by the Civil Judge Senior Division, the State filed
an appeal bearing F.A. No.716 of 1996 before this Court. In the
above appeal, this Court by an interim order dated 9th July,
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1997 permitted the appellant/assessee to withdraw the amount
of Rs.63.33 Lakhs on her furnishing a bank guarantee of Rs.35
Lakhs and solvent surety for the balance to the satisfaction of the
Court. Consequent to complying with the above, the enhanced
compensation of Rs.63.33 Lakhs was received by the
appellant/assessee on 19th August, 1997.
(d) The appellant/assessee thereafter deposited the
entire amount of Rs.63.33 Lakhs in Fixed Deposit with the
Banks. The appellant/assessee earned interest of Rs.3.40 Lakhs
on the Fixed Deposit with the bank for the Assessment Year
1998-99. The Assessing Officer sought to tax the interest
received on Fixed Deposit of Rs.63.33 Lakhs of the Banks as
income from other sources. The appellant/assessee resisted the
same on the ground that the issue of compensation has not yet
been finally decided and the income on account of compensation
would accrue to her only on final determination of the
compensation by the High Court. The Assessing Officer did not
accept the appellant/assessee's claim and by order dated 28th
November, 2003, brought the interest of Rs.3.40 Lakhs received
on Fixed Deposit to tax as income from other sources for the
subject assessment year. Identical orders were passed by the
7 Itl19.11.odt
Assessing Officer for the other three assessment years.
(e) Being aggrieved the appellant/assessee carried the
issue in appeal to the Commissioner of Income Tax (Appeals)
(CIT(A)). By consolidated order dated 14th September, 2004
for Assessment Year 1996-97 to 2001-02 the CIT(A) allowed the
appeals of the appellant/assessee. The appeals which were
before the CIT(A) were with regard to the Assessing Officer
bringing to tax the compensation and the interest on enhanced
compensation for the Assessment Years 1996-97 and 1997-98
under the Land Acquisition Act, while the appeals for the
balance Assessment Years 1998-99 to 2001-02 was on interest
on the fixed deposit made with the bank by the
appellant/assessee on receipt of compensation amount of
Rs.63.33 Lakhs, consequent to the interim order of the Court
dated 14th September, 2004. These appeals were allowed by
holding that the issue with regard to enhanced compensation
had not yet been finally determined. Consequently, no income
could have been said to have accrued during the subject
assessment year as same was subject to final decision of the
High Court in the pending appeal. It held that till issue of
compensation was finally determined, no income on account of
8 Itl19.11.odt
compensation and interest thereon can said to accrue. Further,
it invoked the principle of restitution to hold that the interest on
fixed deposit accrued would be subject to restitution under
Section 144 of the Civil Procedure Code. Consequently, it held
that interest earned on the fixed deposit was also subject to the
final conclusion of the proceeding in respect of compensation
for acquisition of land by the High Court.
(f) Being aggrieved with the common order dated 14th
September, 2004 of the CIT (A), the Revenue filed six appeals,
one each for the Assessment Years 1996-97 to 2001-02 to the
Tribunal. By the impugned order dated 30th May, 2011, the
Tribunal recorded the fact that the parties are agreed that the
original compensation and enhanced compensation received on
account of land being acquired is not taxable, for the reason it is
agricultural income. However, so far as interest on enhanced
compensation under Section 28 of the Land Acquisition Act for
Assessment Years 1996-97 and 1997-98 is concerned, it restored
the same for reconsideration, to the Assessing Officer. So far as
the appeals for Assessment Years 1998-99 to 2001-02 are
concerned, it allowed the Revenue's appeal by holding that
interest received on fixed deposit with banks is taxable. It held
that the decision of Delhi High Court in Paragon Construction
9 Itl19.11.odt
(I) Private Limited .vs. C.I.T. (2005) 274 I.T.R. 413 being
relied upon by the appellant is not well founded. This is so as it
would not be applicable to the facts of the present case in as
much as in that case the interim order of the Court allowing the
party to withdraw the amount provided for payment of interest
in case the applicant/assessee loses at the final hearing of the
proceeding seeking to challenge the award by an Arbitrator. In
this case, the interim order of the Court dated 9th July, 1997
which allowed the appellant to withdraw the amount of
Rs.63.33 Lakhs did not provide for any such interest to be paid
by the appellant/assessee in case it failed at the final hearing
before the High Court. Thus, the impugned order dated 30th
May, 2011 of the Tribunal allowed the Revenue's appeals for
Assessment Years 1998-99 to 2001-02 by holding interest on
fixed deposit is taxable as income under head income from other
sources.
5. The appellant/assessee is in appeal before us from
the impugned order of the Tribunal only for the Assessment
Years 1998-99 to 2001-02 where the interest earned on fixed
deposit has been brought to tax as income from other sources.
10 Itl19.11.odt
6. Mr. Thakkar, the learned counsel for the appellant, in
support of the appeal submits as under :-
(a) The amount received as interest on fixed deposit of
Rs.63.33 Lakhs could not be said to have accrued to the
appellant/assessee, as the income earned thereon was a
continuance of the compensation and interest thereon, awarded
by order dated 21.09.1996 of the Civil Judge, Senior Division.
This is so as the compensation and interest was not final, but
pending the decision of the High Court.
(b) The issue arising herein stands covered by the
decision of the Delhi High Court in Paragon Construction
(supra). It is submitted that on identical facts, the Delhi High
Court held that where amount has been received by the assessee
at an interim stage subject to the condition that in case assessee
failed at the final hearing he would refund the amount to the
respondent along with interest at the rate prescribed in the
interim order the amount earned on.
(c) In any view of the matter, on the principle of
restitution as provided in Section 144 of the Civil Procedure
Code the appellant/assessee would be obliged to return the
11 Itl19.11.odt
amount of Rs.63.33 Lakhs along with all further benefits
obtained by her (including the interest on fixed deposit) on the
aforesaid amount to the successful party.
7. As against the above, Mr. Parchure, learned counsel
for the Revenue, submits as under :-
(a) In the present facts, the appeals are only concerned
with the issue of bringing to tax, interest earned on the fixed
deposit made by the appellant/assessee. It has no connection
with the compensation to be finally awarded along with interest
in the land acquisition proceedings before the High Court.
(b) The interest earned on the fixed deposit by the
appellant-assessee is not a continuation of the compensation
proceedings along with interest thereon which are receivable
consequent to the land acquisition. Thus the two should not be
linked.
(c) The decision of the Delhi High Court in Paragon
Construction (supra) would have no applicability to the present
facts. This is as observed by the Tribunal for the reason that in
the interim order dated 9th July, 1997 passed by the High Court
12 Itl19.11.odt
allowing the appellant/assessee to withdraw the amount of
Rs.63.33 lakhs contained no stipulation that in case
appellant/assessee loses before the High Court, then the assessee
was obliged to return the amount of Rs.63.33 Lakhs along with
interest, as was the case in the case of Paragon Construction
(supra).
(d) Section 144 of the Civil Procedure Code would have
no application to the present facts, in absence of successful
party i.e. the State making an application to the Court for
restitution.
8. We have considered the rival submissions. The only
substantial question of law raised relates to the impugned order
of the Tribunal completely misconstruing the decision of the
Delhi High Court in Paragon Construction (supra) which
according to the appellant would apply on all fours to the
present facts. The facts in Paragon Construction (supra)
before the Delhi High Court were as follows:-
(a) The assessee therein was entitled to a sum of money
from the Municipal Corporation consequent to award of the
Arbitrator.
13 Itl19.11.odt
(b) The assessee moved the High Court seeking a
direction that the Arbitrator be directed to file the original
award in Court for making it the rule of the Court. This was
objected to by the Corporation. In those proceedings the
Corporation deposited the amount of the award without
prejudice to its objection to the award.
(c) The Court by an interim order allowed the assessee
therein to withdraw the amount deposited subject to furnishing
a bank guarantee and an undertaking that in case the
Corporation succeeds, the assessee will refund the amount to the
Corporation along with the interest.
In the present facts although the interim order allowed the
assessee to withdraw the amount of Rs.63.33 lakhs, there was
no stipulation in the interim order that in case the appellant
loses, she was obliged to return the amount to the State along
with interest. Therefore, the facts in the present case are
completely distinguishable from the decision of the Delhi High
Court in Paragon Construction (supra). The requirement of
returning the amount along with interest thereon by a
subsequent order of the Court is uncertain. Therefore, such an
uncertain event cannot by itself divest the accrual of interest
14 Itl19.11.odt
income on the fixed deposit in subject assessment year in the
hands of the appellant-assessee. Further as pointed out above,
there was no obligation in terms of the order allowing the
appellant to withdraw the amount of Rs.63.33 lakhs, to deposit
the same in fixed deposits and return it along with interest
received on fixed deposit to the State in case it loses in the
appeal filed by the State before the High Court. Therefore, the
interest if awarded at the final hearing would not necessarily be
related to the interest earned on the fixed deposit in the absence
of any such direction being made in the interim order. Thus the
impugned order of the Tribunal has correctly held that the
decision of the Delhi High Court in Paragon Construction
(supra) would have no application in view of the above
distinction to the present facts.
9. In fact the above findings of ours would dispose of
the substantial question of law in favour of the Revenue.
However, we have considered the further submissions made by
the appellant-assessee challenging the impugned order. This as
we heard the parties on the same at length. The core issue
which arises for our consideration is whether interest received
on fixed deposit for the subject assessment year has accrued to
15 Itl19.11.odt
the appellant-assessee for being taxed. The main limb of the
appellant-assessee's case as canvassed before us is that the
interest on the fixed deposit should not be brought to tax in the
subject assessment year as the source of the deposit on which
the interest has been earned is the compensation received by her
in land acquisition proceedings. It is a settled issue between the
parties that the amounts received at the interim stage in the land
acquisition proceedings cannot be brought to tax not only for the
reason that it is agricultural income but also for the reason that
final determination of the enhanced compensation receivable by
the appellant-assessee has not yet been finally determined. Mr.
Thakar very fairly states that it is not appellant's claim that
interest received on the fixed deposits is not taxable because it is
agricultural income. Admittedly it is not agricultural income.
However, the interest accruing to the assessee on fixed deposit
is taxable only on the final determination of the compensation
receivable by her in the land acquisition proceedings pending
before this Court. This for the reason that it is a continuation of
the compensation receivable on acquisition of land and,
therefore, it has to be considered as a part of enhanced
compensation which is yet to be determined by the Court.
Therefore, when the compensation received at the interim stage
16 Itl19.11.odt
cannot be brought to tax, as it only accrues at the final
determination then on the same basis the interest earned on the
amount of fixed deposit should also follow the principal amount
of Rs.63.33 lakhs received at interim stage.
10. The above submission ignores the facts that once the
interim compensation has been received by the appellant-
assessee pending the final disposal by the High Court, she is free
to deal with the amount as she deems fit. There is no
requirement under the law nor any direction given by the Court
while passing an interim order allowing the appellant to
withdraw the sum of Rs.63.33 lakhs so as to invest the same in
fixed deposits and account for the interest earned thereon. The
moment the appellant-assessee receives/withdraws the amount
of Rs.63.33 lakhs from the Court, it becomes a part of her pool
of income/wealth to be utilised/disposed of as she deems fit.
Therefore, the fixed deposit which is made in the Bank at the
time of deposit loses its character as compensation amount
received at the interim stage from the High Court. This
link/connection is broken. It is a deposit made in the Bank by
the appellant-assessee in her own capacity as an individual and
not as a trustee appointed by the Court to make fixed deposit for
17 Itl19.11.odt
the benefit of any accrual or interest arising therefrom for the
benefit of successful party in the litigation before it.
Therefore, there is no continuity as submitted on behalf of the
appellant so as to exclude the interest earned on the fixed
deposit from exigiblity to tax.
11. The source of funds to earn income cannot determine
the taxability of the income earned on the capital amount which
has been invested. This in the absence of any statutory mandate
otherwise. The income earned would be chargeable to tax
irrespective of the source of the funds from which the income
has been earned. In the mercantile system of accounting,
income accrues when the right to receive the same arises, even
though the actual receipt could be at a later date. In the present
case it is an accepted position that the right to receive the
interest from the fixed deposits already accrued to the
appellant-assessee. In such circumstances, the interest on the
fixed deposit would be chargeable to tax, as sought to be done
by the Assessing Officer under the head income from other
sources.
12. It was next submitted that in any view of the matter
on the principle of the restitution as provided under Section 144
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of the Civil Procedure Code , the appellant-assessee would be
obliged to return the amount of Rs.63.33 lakhs along with all
benefits obtained by her to the successful party i.e. the State.
Section 144 of the Code of Civil Procedure would only be
triggered if the successful party makes an application to the
Court for restitution. This application for restitution by the
successful party is not a certainty. An application for restitution
may or may not be made by the successful party. In any event
even if application is made, the benefit which the assessee would
have gained out of benefit/income out of the amount of
Rs.63.33 lakhs would be net of tax. In those circumstances, the
requirement for the appellant to pay to the State would be only
the net amount received by her after payment of taxes due.
Thus we find no merit in the submission that no tax is payable
on the income earned on the fixed deposits as the same could
be subject to proceedings of restitution under Section 144 of the
Code of Civil Procedure.
13. In the above view, the identical substantial questions
of law as raised for our consideration in all the four appeals are
answered in the affirmative i.e. in favour of the respondent-
revenue and against the appellant-assessee.
19 Itl19.11.odt
14. Hence all four appeals are dismissed. No order as to
costs.
(Manish Pitale, J.) (M.S. Sanklecha, J.)
waghmare/halwai, p.s.
