The Principal Commissioner Of ... vs M/S Jharkhand Tourism ...
2023 Latest Caselaw 813 Jhar

                                        1

IN THE HIGH COURT OF JHARKHAND AT RANCHI
                     Tax Appeal No. 21 of 2019
                           With
                     Tax Appeal No. 22 of 2019
The Principal Commissioner of Income Tax, Ranchi,
Having its office at Central Revenue Building, 5A,
Main Road, P.O.- G.P.O, P.S.-Chutia, Ranchi              .....   Appellant
                                                               (in both cases)
                                  Versus
M/s Jharkhand Tourism Development Corporation Limited,
a Government of Jharkhand Undertaking and having
its office at Hotel Birsa Vihar Complex, 5, Main Road,
P.O GPO, P.S. Chutia, Ranchi                           .....   Respondent
                                                               (in both cases)
                               ---------

CORAM:          Hon'ble Mr. Justice Aparesh Kumar Singh
                Hon'ble Mr. Justice Deepak Roshan
                               ---------
For the Appellant       : Mr. Ratnesh Nandan Sahay, Sr. Standing Counsel
For the Respondent      : Mr. Sumeet Gadodia, Advocate
                          Ms. Aakansha Mittal, Advocate
                               ---------
13/ 21.02.2023     Tax Appeal No. 21 of 2019 is directed against the order

dated 13.08.2018, passed by the Income Tax Appellate Tribunal, Ranchi Bench, Ranchi (in short ITAT), in the case of the revenue being ITA No. 136/Ran/2018 for the assessment year 2014-15, whereby learned ITAT dismissed the appeal of the revenue; whereas, Tax Appeal No. 22 of 2019 is directed against the order dated 27.02.2019, passed by the ITAT in the case of the revenue being ITA No. 226/Ran/2016 for the assessment year 2012-13, whereby learned ITAT dismissed the appeal of the revenue. Thus, both the appeals filed by the Revenue before the Tribunal were dismissed and the order passed by CIT (appeal) for both the assessment years were sustained.

2. In Tax Appeal No. 21 of 2019, the respondent which is a Jharkhand State Government undertaking incorporated with the object to promote tourism in the State with PAN No. AABCJ4014D, filed its return of income for the A.Y. 2014-15 on 28.11.2014 declaring total income of Rs. 1,45,47,290/-; whereas, in Tax Appeal No. 22 of 2019, the respondent had filed the return of income for the A.Y. 2012-13 on 29.09.2013 declaring total income of Rs.1,02,48,950/-.

In Tax Appeal No. 21 of 2019 the return was processed u/s 143(1) of the Income Tax Act, 1961 and selected for scrutiny through CASS. Subsequently notice u/s 143(2) was issued to the respondent corporation on 23.09.2015 and the assessment proceedings were undertaken; whereas in Tax Appeal No. 22 of 2019, notice u/s 143(2) was issued to the respondent

corporation on 07.08.2013 and the assessment proceedings were undertaken.

3. In T.A. No. 21 of 2019, the final assessment order was passed on 13.12.2016 by the Deputy Commissioner of Income Tax Circle -1, Ranchi whereby the interest amount earned on the fixed deposits by the Respondent Assesse amounting to Rs.4,63,76,660/- was taken as the income earned during the A.Y. 2014-15 and added to the total income. Thus, the income of the Respondent was assessed at Rs.6,09,23,950/-; whereas in T.A. No. 22 of 2019, the final assessment order was passed on 31.01.2015 whereby the interest amount earned on the fixed deposits by the Respondent Assesse amounting to Rs.3,23,99,958/- was taken as the income earned during the A.Y. 2012-13 and added to the total income. Thus, the income of the Respondent was assessed at Rs.4,26,48,908/- u/s 143 (3) of the I.T. Act, 1961.

Being aggrieved by the two assessment orders, the Assesse preferred two separate appeals being Appeal No. CIT (A) 163/Ranchi/Oth/14-15 against the assessment order dated 31.01.2015 and Appeal No. CIT (A) Ranchi/10490/2016-17 against the assessment order dated 13.12.2016 and the CIT (Appeals) allowed the respective appeals of the Assesse and disallowed the addition made by the Assessing Officer for both the assessment years.

The Revenue being aggrieved by the two orders dated 12.04.2016 and 06.02.2018 passed by the CIT (Appeals), disallowing the addition made by the AO; preferred two separate appeals before the learned Income Tax Appellate Tribunal (ITAT), Ranchi Bench, Ranchi being ITA No. 226/Ran/2016 and ITA No. 136/Ran/2018. The learned ITAT vide its order dated 27.02.2019 and order dated 13.08.2018 upheld the respective orders of the CIT (Appeals) and dismissed the appeals of the appellant. The Revenue is now before us by filing the aforesaid appeals.

4. Both the appeals i.e. T.A. No. 22 of 2019 & T.A. No. 21 of 2019 were admitted vide order dated 14.12.2020 & 21.02.2022, respectively on following questions of law:

i. Whether on the facts and in the circumstances of the case and in law, the learned Income Tax Appellate Tribunal is justified in holding that the interest income earned on the fixed deposit is not an income of the Assessee, despite the said interest income being covered under the 'Income from Other Sources' as defined in the Income Tax Act, 1961? ii. Whether on the facts and in the circumstances of the case and in law, the learned Income Tax Appellate Tribunal is

justified in holding that an executive guideline (guideline issued by the Ministry of Tourism in the case) can override the statutory provisions of the Income Tax Act, 1961?

5. Mr. Ratnesh Nandan Sahay, learned counsel for the Revenue submits that the learned ITAT was not justified in holding that the interest income earned on the fixed deposit is not the amount of Assesse in spite of the fact that the said interest income is covered under the "Income from other sources" as defined under the Income Tax Act. The learned ITAT should have appreciated that an executive guideline of the Ministry of Tourism cannot override a statutory provision of the Act. As a matter of fact, the learned ITAT as well as CIT (Appeals) should have appreciated that the Assesse holds the fixed deposit account in its own name and the TDS was deducted by the Bank on the interest income earned in such account which has also been shown and claimed by Assesse.

He lastly submits that the orders passed by the CIT (Appeals) for both the assessment years as well as the respective impugned orders passed by the learned ITAT is incorrect and not sustainable in the eye of law, as such the impugned orders for respective assessment years be quashed and set aside.

6. Mr. Sumeet Gadodia assisted by Ms. Aakansha Mittal, learned counsel for the respondent submits that the Assesse is a government undertaking working under the instruction of the Government. Even the investment in term deposit was made on behalf of the Government in view of the memorandum dated 16.12.2006 and as a matter of fact, the Assesse never became the owner of the money, as such there was no question of any income by the Assesse on the interest earned by it and thus, the question of tax does not arise.

He further submits that there are concurrent findings of two forums not only for these two years but also for previous years and as such both the appeals should be dismissed.

7. Having heard learned counsel for the parties and after going through the impugned orders and other relevant documents it appears that the Assesse is a Jharkhand State Government undertaking incorporated with the object to promote tourism in the State to create, operate and maintain infrastructure for tourism on behalf of the Central and State Government. The funds from Central/State Government were disbursed to the Assesse for making payment in accordance with the guidelines of the Government for approved projects and are liable to refund the unutilized funds as and when government makes requisition for the same. Thus, the funds always remained the property

of the Government and Assesse was authorized to use the funds as well as was duty bound to obey the direction on how to manage the surplus.

It further transpires from record that the Assesse under the directions of the Government keeps a portion of unutilized funds in short term bank deposits and interest earned from these deposits is transferred to the respective fund accounts of the Government. As a matter of fact, an office memorandum dated 06.12.2006 issued by the Joint Secretary, Ministry of Tourism, Govt. of India had directed to the Assesse that funds released as installments of Central Financial Assistance (CFA) from the Ministry of Tourism were to be deposited in saving accounts or fixed deposits in banks and as a result a substantial amount accrues as interest on deposits made out of CFA.

It was also directed to ensure utilization of earned interest on deposits for the execution and completion of concerned projects without deviation to any other head of expenditure. In case there is no scope to utilize the amount of interest for execution of the concerned project, such amount may be returned to the Ministry of Tourism.

8. Thus, the income never reached the Assesse and was diverted at source by an overriding title.

The law is well settled by a long catena of cases to the effect that in event of there being a diversion of income by overriding title, question of income being assessed in the hands of Assesse does not and cannot arise.

Reference in this regard may be made to the case of Commissioner of Income Tax, Bombay City II, Bombay vs. Shri Sitaldas Tirathdas, Bombay, reported in AIR 1961 SC 728 wherein at para 16 it has been held as under:

"16. These are the cases which have considered the problem from various angles. Some of them appear to have applied the principle correctly and some, not. But we do not propose to examine the correctness of the decisions in the light of the facts in them. In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he

were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable. In our opinion, the present case is one in which the wife and children of the assessee who continued to be members of the family received a portion of the income of the assessee, after the assessee had received the income as his own. The case is one of application of a portion of the income to discharge an obligation and not a case in which by an overriding charge the assessee became only a collector of another's income. The matter in the present case would have been different, if such an overriding charge had existed either upon the property or upon its income, which is not the case. In our opinion, the case falls outside the rule in Bejoy Singh Dudhuria case [(1933) 1 ITR 135] and rather falls within the rule stated by the Judicial Committee in P.C. Mullick case [(1938) 6 ITR 206]."

Reference can also be made to the case of Dalmia Cement Ltd., Rajasthan vs. Commissioner of Income Tax, New Delhi reported in (1999) 4 SCC 124 wherein at para 12 to 17 it has been held as under:

"12. While at the first blush the reasoning seems to be rather attractive but on consideration of the issue on a wider perspective the High Court cannot but be said to be in clear error. For the year 1965-66 when the order of assessment was made, the profits were ascertained on 30-9-1964 and the property was itself transferred, as such question of accrual of profit on account of the transferred assets does not and cannot arise. Be it noted that completion of sale transaction ought to be attributed its normal meaning and in this regard contextual facts should also be looked into and considered in the proper perspective. The sale transaction in fact has taken place and as such there being any contingency, as was there at the earlier point of time, does not arise. The event has taken place and the supplemental agreement dated 2-11-1962 makes the situation clear and categorical. The parties agreed the relevant date to be 30-9-1962 and not the completion of sale. Clause 3 of the agreement to which the High Court made a special reference and interpreted that by reason of the contingent event which would be subsequent to the accrual of profits, the profit cannot but be treated to be in the hands of the assessee does not withstand the test of correctness. The High Court has not laid any importance to the event which stands completed by reason of the sale agreement. There is no question of enabling the assessee to retain the profit in its own hand after the "sale agreement". The event as noticed above, has taken place and by reason of the event and in terms of the provisions of the agreement question of tracing the profit in the hands of the assessee does not and cannot arise. In any event profits of a business do not accrue from day to day but at the end of the accounting year. Profits were ascertained on 30-9-1964 when the property was transferred as such for the year 1965-66 as noted above, so question of profit accruing to the assessee does not arise. As a matter of fact the profit stands diverted to the purchaser in terms of and in accordance with the agreement dated 24-7-1962 read with the supplemental agreement dated 2- 11-1962 and the date of actual transfer of the factory in question which, in fact, had taken place on 30-9-1964 does not alter the situation. The income stands diverted by an overriding title as a matter of fact even before the accrual.

13. The concept of diversion of income by an overriding title has been very lucidly explained by this Court in CIT v. Sitaldas

Tirathdas [(1961) 41 ITR 367: AIR 1961 SC 728] in the manner following:

"In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, the law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable."

14. In Travancore Sugar & Chemicals case [CIT v. Travancore Sugar and Chemicals Ltd., (1973) 3 SCC 274 : 1973 SCC (Tax) 186 : (1973) 88 ITR 1] this Court reiterated the same test and observed: (SCC p. 284, para 22) "It is thus clear that where by the obligation income is diverted before it reaches the assessee, it is deductible. But, where the income is required to be applied to discharge an obligation after such income reaches the assessee it is merely a case of application of income to satisfy an obligation of payment and is therefore not deductible."

15. In this context, reference to a Bench decision of the Calcutta High Court in the case of CIT v. Jhanzie Tea Assn. [(1989) 179 ITR 295 (Cal)] also seems to be apposite. S.C. Sen, J. (as his Lordship then was) in the last-noted decision observed:

"It is true that the income tax liability cannot be assigned by any agreement. The Revenue is entitled to proceed against the person who earned the income but where the income has been diverted by an overriding title even before accrual, then the Income Tax Officer cannot proceed to assess the income thus diverted as the income of the transferor. In this case, not only had the tea estates been transferred but the income accruing therefrom had also been transferred to the purchaser with effect from January 1, 1969. All its manufacturing activities as from that date were on behalf of the purchaser. The income attributable to the manufacturing activity accrued to the purchaser. I fail to see how the income realised from sale of such tea can be assessed as the income of the vendor.

In this connection, reference may be made to the observations made by G.K. Mitter, J. in the case of CIT v. Tea Producing Co. of India Ltd. [(1963) 48 ITR 200 (Cal)] where it was stated that before a person could be assessed under Section 10, it must be shown that it was he who carried on the business, profession or vocation and in the case of a business, it was open to any person to put another person in charge thereof although ostensibly such person appeared to be carrying on the business, in reality the business was that of the person who owned it and under Section 10 of the Act such owner of the business would be the assessee. It was observed in that case that (at p. 206):

'If a business carried on by A is transferred to B as from a

certain point of time, B alone can be assessed to tax in respect of the period subsequent to the change of the ownership. A and B may agree that any profits or loss of the business as from a date anterior to that of the change of ownership will be on B's account. In such a case, A will have to account to B for the income and profits of the business covered by the period of the agreement and A may be held to have carried on the business as B's agent from the agreed date.' "

16. Similar is the view expressed by the Bombay High Court in the case of CIT v. M.D. Kanoria [(1982) 137 ITR 137 (Bom)].

17. The law thus seems to be well settled by a long catena of cases to the effect that in the event of there being a diversion of income by overriding title, question of the income being assessed in the hand of the assessee does not and cannot arise."

9. By going through the aforesaid judgments passed by the Hon'ble Apex Court and the facts of these cases, it is clear that the Assesse never becomes the owner of money and as such the addition made by the AO was not sustainable in both the assessment years. The learned CIT (Appeals) as well as the learned ITAT who has sustained the order of CIT (Appeals) did not commit any error in holding that the petitioner never became the owner of the money which came from interest and deleted the addition. We are of the considered view that no error ahs been committed by both the forums.

Consequently, both the questions of law are decided against the revenue. As a result, both the appeals are dismissed and the respective orders passed by the learned ITAT in case no. ITA No. 136/Ran/2018 and ITA No. 226/Ran/2016, are sustained.

(Aparesh Kumar Singh, J.)

(Deepak Roshan, J.)

Pramanik/