The Delhi High Court recently comprising of a bench of Justice Manmohan and Justice Manmeet Pritam Singh Arora held that the income tax is not leviable on the interest income from Fixed Deposit Receipts (FDRs) till the date of the final arbitral award were the ownership of such FDRs was finally established. (PCIT v. M/s Rajdarbar Heritage Venture Limited)
Facts of the case
The present Income Tax Appeals were filed challenging the common Impugned Order dated 5th October, 2020 passed by the Income Tax Appellate Tribunal (‘ITAT’) for the Assessment Years 2012-13 & 2013-14.
Learned Counsel for the Appellant stated that the ITAT has erred in deleting the additions of Rs.8,57,25,871/- & Rs.16,15,54,801/- for the Assessment Years 2012-13 & 2013-14 respectively made by the Assessing Officer, ignoring the fact that the FDR is in the name of the Assessee and interest has accrued and been credited in the name of the Assessee only and the share of the disputed parties in the interest will arise only after payment of due taxes.
Learned counsel for the appellant emphasized that the dispute between the parties was with regard to 100 crores, whereas the amount deposited was in excess of Rs.190 crores. He also stated that under the final settlement agreement dated 20th January, 2015 between the Assessee Company and M/s Pramerica ASPF II Cyprus Holding Ltd. Assessee Company paid Rs.70 crore to M/s Pramerica ASPF II Cyprus Holding Ltd. from the FDR amount and that this agreement was accepted by the Delhi High Court Mediation and Conciliation Centre on 8th April, 2015, pursuant to which a final order dated 9th April 2015 was passed by this Court.
Courts Observation and Judgment
The bench taking note of the facts of the case remarked, "Having perused the paperback, this Court finds that in the present cases, the FDRs were made in the name of the respondent-assessee by virtue of a consensual order dated 7th October, 2021 passed by the Arbitral Tribunal comprising three retired judges."
The bench dismissing the appeal remarked, "Consequently, this Court in agreement with the finding of the two Appellate Authorities below that till the final award was passed by the Arbitral Tribunal determining the ownership of the fixed deposits and interest, it could not be said that the interest income had crystallized in the respondent’s hands and the same cannot be held to be income of the respondent-assessee under Section 5(1) of the Income Tax Act, 1961 (‘the Act’).
Accordingly, no substantial question of law arises for consideration in the present appeals and the same are dismissed."
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