Madras High Court
Commissioner Of Income Tax vs T. Jayachandran on 21 June, 2021
Tax Case Appeal Nos.920 to 922 of 2013
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 21.06.2021
CORAM
THE HON'BLE MR.JUSTICE M. DURAISWAMY
AND
THE HON'BLE MRS.JUSTICE R.HEMALATHA
Tax Case Appeal Nos.920 to 922 of 2013
Commissioner of Income Tax,
Chennai ... Appellant in all the TCAs
Vs.
T. Jayachandran,
Prop.M/s.Chandrakala & Co.,
167, Thambu Chetty Street,
Chennai – 600 001. ... Respondent in all the TCAs
Common Prayer: Appeals filed under Section 260A of the Income Tax
Act, 1961 against the orders of the Income Tax Appellate Tribunal,
Madras "D" Bench, dated 01.07.2013 passed in ITA.Nos.759, 760 &
761/Mds/2013 for the assessment years 1991-92, 1992-93 and 1993-94.
For Appellant : Mr.M. Swaminathan
in all the TCAs Senior Standing Counsel
assisted by Mrs.V.Pushpa
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Tax Case Appeal Nos.920 to 922 of 2013
For Respondent : Mr.M.P.Senthil Kumar
in all the TCAs
COMMON JUDGMENT
( Judgment of the Court was delivered by R. HEMALATHA, J.)
These appeals filed by the assessee under Section 260A of the
Income Tax Act, 1961 ('the Act' for brevity), are directed against the
orders dated 01.07.2013 passed by the Income Tax Appellate Tribunal,
Madras "D" Bench, ('the Tribunal' for brevity) in ITA.Nos.759, 760 &
761/Mds/2013 for the assessment years 1991-92, 1992-93 and 1993-94.
2. The Assessee (respondent) is an individual and Proprietor of
M/s.Chandrakala & Co., a Stock Broker registered with the Madras
Stock Exchange. During the assessment years 1991-92, 1992-93 and
1993-94, the Assessing Officer disallowed the payments made by the
assessee to Public Sector Undertakings. On an appeal, the Income Tax
Appellate Tribunal vide its order in ITA.No.s.2585/94 and 255 &
2297/Mds/96 dated 05.01.2005 confirmed the additions made by the
Assessing Officer. Thereafter, the Assessing Officer initiated penalty
proceedings and levied minimum penalties of Rs.8,25,32,755/-,
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Tax Case Appeal Nos.920 to 922 of 2013
Rs.1,40,55,563/- and Rs.17,68,928/- respectively for the assessment
years 1991-92, 1992-93 and 1993-94 vide orders dated 22.07.2005 under
Section 271 (1) (c ) of the Act holding that the assessee furnished
inaccurate particulars of income.
3. Aggrieved over the above orders passed by the Assistant
Commissioner of Income Tax, appeals were filed by the assessee in
ITA.Nos.369, 370 & 371/2005-06 before the Commissioner of Income
Tax (Appeals). The appeals were allowed on 28.12.2012. Thereafter,
the Revenue filed appeals before the Income Tax Appellate Tribunal. In
the meanwhile, the Deputy Commissioner of Income Tax, Chennai, also
filed a Civil Appeal in C.A.No.4341 of 2018 (arising out of Special
Leave Petition (c ) No.22112/2013 before the Hon'ble Supreme Court
against the order of this High Court dated 29.10.2012 in Tax Appeal
No.368 of 2005 wherein the Division Bench of this court allowed the
appeal filed by the respondent/assessee, by absolving the additional tax
liability imposed by the Assessing Officer on 25.01.1996.
4. Since the Income Tax Appellate Tribunal confirmed the order of
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Tax Case Appeal Nos.920 to 922 of 2013
Commissioner of Income Tax (Appeals), the present appeals are filed by
the Revenue on the following substantial question of law :-
(i) Whether under the facts and circumstances of
the case, the Hon'ble Income Tax Appellate Tribunal
right in law in upholding the order of the Commissioner
of Income Tax (Appeals) deleting the levy of penalty
under Section 271 (1) (c )?
5.. We have heard Mr.M. Swaminathan, learned Senior Standing
counsel assisted by learned counsel Mrs.V.Pushpa, and Mr.M.P. Senthil
Kumar, learned counsel for the respondent/assessee.
6. Counsels on both sides contended that the Hon'ble Supreme
Court dismissed the appeals filed by the revenue and the observations
and conclusion of the Hon'ble Supreme Court in Civil Appeal No.4341
of 2018 arising out of Special Leave Petition (c ) No.22112 of 20123 are
extracted hereunder:
“10) The answer to the short question whether the
alleged interest payable to the PSUs can be assessed as
an income of the Respondent depends on the
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Tax Case Appeal Nos.920 to 922 of 2013
determination of true nature of relationship between the
Indian Bank and the Respondent with regard to the
transactions in question and the capacity in which he
held the amount of 14,73,91,000/-. Now, coming to the
question of relationship between the Indian Bank and the
Respondent, the normal settlement process in
Government securities is that during transaction banks
make payments and deliver the securities directly to each
other. The broker’s only function is to bring the buyer
and seller together and help them to negotiate the terms
for which he earns a commission from both the parties.
He does not handle either cash or securities. In this
respect, the broker functions like the broker in the inter
bank foreign exchange market. The conduct of the
Respondent in the transaction in question cannot be
termed to be strictly within the normal course of business
and the irregularities can be noticed from the manner in
which the whole transactions were conducted. However,
the same cannot be basis for holding the Respondent
liable for tax with regard to the sum in question and what
is required to be seen is whether there accrued any real
income to the Respondent or not.
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Tax Case Appeal Nos.920 to 922 of 2013
11) It is required to be seen in what capacity the
Respondent held the said amount-independently or on
behalf of the Indian Bank. The Assessing Officer, while
passing order dated 25.01.1996, has held that there
exists no agreement between the Respondent and the
Indian Bank about the payment of additional interest to
the PSUs and there was no overriding title in respect of
the additional interest for the PSUs. However, the
position in this regard is very much settled that an
agreement need not be in writing but can be oral also
and the same can be inferred from the conduct of the
parties.
12) Further, while considering the claim of the
Respondent and the view of the Assessing Officer, how
the bank itself had treated the Respondent, is a matter of
relevance. At the outset, learned counsel appearing on
behalf of the Revenue contended that the proceedings
under the Income Tax Act are independent proceedings
and the High Court committed a grave error in relying on
the findings of the criminal Court. We do not find any
force in the contention of the appellant herein as the
High Court has not held that the findings of the criminal
court are binding on the Revenue authorities. Rather the
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Tax Case Appeal Nos.920 to 922 of 2013
High Court was of the view that the findings arrived at by
the criminal court can be taken into consideration while
deciding the question as to the relationship between the
parties to the case. When the findings are arrived by a
criminal court on the evidence and the material placed
on record then in absence of anything shown to the
contrary, there seems to be no reason as to why these
duly proved evidence should not be relied upon by the
Court. The High Court has specifically appraised the
findings given by the CBI Court in this regard. The
relationship between the Indian Bank and the Respondent
is very much clear by the evidence led during the
criminal proceedings. The Executive Director of the Bank
has specifically spoken about the role of the Respondent
as a broker specifically engaged by the Bank for the
purchase of securities and that the Bank has included the
interest money too in the consideration paid, for the
purpose of taking demand drafts in favour of PSUs.
Further, the evidence led by other bank officials points
out that the price of securities itself were fixed by the
bank authorities and as per their directions the
Respondent had purchased the securities at the market
price and the differential amount was directed to be used
for taking demand drafts from the bank itself for paying
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Tax Case Appeal Nos.920 to 922 of 2013
additional interest to the PSUs. Further, the letter dated
25.03.1994 by the Bank wherein the Bank had
acknowledged the receipt of Demand Drafts taken by the
Respondent gives an unblurred picture about the capacity
of the Respondent in holding the amount in question.
Consequently, the conduct of the parties, as is recorded
in the criminal proceedings showing the receipt of
amount by the broker, the purpose of receipt and the
demand drafts taken by the broker at the instance of the
bank are sufficient to prove the fact that the Respondent
acted as a broker to the Bank and, hence, the additional
interest payable to the PSUs could not be held to be his
property or income.
13) The income that has actually accrued to the
Respondent is taxable. What income has really occurred
to be decided, not by reference to physical receipt of
income, but by the receipt of income in reality. Given the
fact that the Respondent had acted only as a broker and
could not claim any ownership on the sum of Rs.
14,73,91,000/- and that the receipt of money was only for
the purpose of taking demand drafts for the payment of
the differential interest payable by Indian Bank and that
the Respondent had actually handed over the said money
to the Bank itself, we have no hesitation in holding that
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Tax Case Appeal Nos.920 to 922 of 2013
the Respondent held the said amount in trust to be paid to
the public sector units on behalf of the Indian Bank based
on prior understanding reached with the bank at the time
of sale of securities and, hence, the said sum of Rs.
14,73,91,000/- cannot be termed as the income of the
Respondent. In view of the above discussion, the decision
rendered by the High Court requires no interference.”
8. In view of the dismissal of the appeal filed by the Revenue in
respect of the tax payable by the assessee by the Hon'ble Supreme Court,
the present appeals, which are filed against the levy of penalty, are also
liable to be dismissed. Hence, following the judgment of the Hon'ble
Supreme Court, the question of law is decided against the Revenue and
in favour of the assessee. Accordingly, the appeals are dismissed. No
costs.
[M.D., J.] [R.H., J.]
21.06.2021
Index : Yes/No
Internet : Yes
gv
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Tax Case Appeal Nos.920 to 922 of 2013
M. DURAISWAMY, J.
and
R.HEMALATHA, J.
gv
To
1. Income Tax Appellate Tribunal, Madras "D" Bench
2. Commissioner of Income Tax,
Chennai.
Tax Case Appeal Nos.920 to 922 of 2013
21.06.2021
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