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J.C.I.T., Special Range-19, New Delhi Versus Mohinder Singh & Co.

2012 (12) TMI 1131 - DELHI HIGH COURT

ITA Nos. 4168/Del/2000 & 3443/Del./2001 - Dated:- 17-12-2012 - Rajpal Yadav (Judicial Member) And A. N. Pahuja (Accountant Member) For the Assessee : Ajay Vohra & Rohit Garg, ARs For the Revenue : G. Prasad & A. K. Singh, DRs ORDER A. N. Pahuja (Accountant Member) These two appeals filed on 13.10.2000 & 10.8.2001 by the Revenue against two separate orders dated 28.7.2000 & 24.5.2001 of the ld. CIT(A)-XX, New Delhi for the AYs 1997-98 and 1998-99 respectively, raise the following .....

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59, 343/- on the basis of arbitration award was not a revenue receipt and therefore not taxable in the hands of the assessee. ii) allowing the depreciation on car amounting to ₹ 6.62.852/- though there is no business activities of the assessee. 2. The appeal in I.T.A. no.4168/Del./2000 in the AY 1997-98, earlier disposed of vide order dated 11.3.2004 was recalled vide order dated 19th May, 2006 in M.A. no.133/Del./2006. Since similar issues are involved in these two appeals, accordingly, t .....

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urse of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee received a sum of ₹ 2, 05, 06, 266/- in terms of award of an arbitrator in consequence of the arbitration proceedings with the Airport Authority of India in Bombay .which was included in the income of the firm. However, an amount of ₹ 1, 96, 72, 751/- received by the assessee by way of interest was not included in the income and instead, credited to the capital amount of four partners in e .....

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rence no.1, allowing interest @ 12% p.a. from the date of decree till the payment was made. In the second award, the arbitrator awarded ₹ 3 lacs as compensation. The Hon ble High Court by a decree passed on 6.9.1995 allowed interest of ₹ 2, 91, 000/- @ 12% p.a on the awarded amount from the date of decree till the payment was made. In reference number three, the arbitrator awarded ₹ 1, 99, 35, 431/- with interest @ 12% pa from the date of decree i.e. 6.9.95. The Hon ble Bombay .....

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des decision of ITAT Delhi Bench in the case of Hazarilal Marwah and Sons, 41 ITD 1 (Delhi) while contending that the contract did not envisage any payment of interest to the contractor. However, the AO did not accept the submissions of the assessee. While referring to the following amounts in terms of the award:- (i) an award for ₹ 2, 71, 797/- was granted for disputes between the two parties. (ii) Award number 2 was given in lieu of profit that the assessee firm would have earned if the .....

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14(b). (for ₹ 76, 64, 572) ₹ 20, 11, 984.74 Payment due under contract clause 14(a) for labour escalation due to statutory order of the Government. (for ₹ 1, 43, 14, 791) ₹ 54, 76.302.34 Payment due on account of material procured for the work as per drawing and lying with IAAI store. (for ₹ 14, 99, 958) ₹ 6, 91, 459.34 Total amount of award - (i) + (ii) + (iii) ₹ 2, 05, 06, 266/- the AO observed that the awards were given to the assessee either as compe .....

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rdinary course of business and was on account of delay in payment of bills, price escalation, labour escalation aII governed by the terms of the contract i.e. the amount being compensation for loss of earnings during the period the funds were withheld, the profit which the assessee would have otherwise earned during the course of business had the payments/settlements been made on time having been compensated by grant of interest, accordingly, the AO concluded that the interest amount received by .....

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interest of ₹ 1, 96, 72, 751/- as revenue receipt. 3.1. For similar reasons, the AO brought to tax an amount of ₹ 3, 33, 59, 343/- in the AY 1998-99 in terms of award in consequence of dispute with Maharashtra State Electricity Board[MSEB]. 4. On appeal, the ld. CIT(A) allowed the claim of the assessee in AY 1997-98, holding as under:- 12. I have considered the submissions of the learned counsel and I have also perused the assessment order carefully and also gone through the assessm .....

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uent payment of interest, the claim and the amount of award has been reproduced by the Assessing Officer in the assessment order for the sake of convenience, the same is reproduced here also. [In Rs. ] As per final bill. balance to be paid on account of work done (for ₹ 3, 16, 24, 243) 1, 15.46, 851/- Claim on account of extra rate for quanti- Ties beyond+30% deviation limit. (for ₹ 20, 33, 088). 02, 08, 833/- Payment due to on account escalation under the price variation clause 14(b .....

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n to the assessee by the arbitrator in the ordinary course of business and is on account of delay in bills, price escalation, labour escalation all governed by the terms of the contract. It is compensation for loss of earnings during that period from the funds withheld. The profit which the assessee would have otherwise earned during the course of business had the payments/settlements been made on time has been compensated by grant of interest. She has also observed that if the amount is due and .....

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277 (Kerala), Abbasbhoy A. Dehgamwalla 195 ITR 681 (Bom) and Bishambarnath Swaroop Narain 119 ITR 681 (All). She has also tried to justify the case laws on which reliance has been placed by the learned counsel of the assessee and this is available at paras 8.1, 8.2 and 8.3 of the assessment order and accordingly has come to the conclusion that the interest received by the appellant is a revenue receipts. At the out set, I must say that the Assessing Officer has not been able to indicate any pro .....

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tood on what basis the Assessing Officer has come to the conclusion that certain amounts were not reduced due to the assessee and whose payments were deleted and for that delay payment has been paid. This is totally unsupported by any material on the record. Various observations made by the Assessing Officer in the assessment order has been explained by the learned counsel successfully. Further, I find that the Assessing Officer has given a lot of stress on observations of Hon ble Supreme Court .....

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High Court. 1. Whether on the facts and in the circumstances of the case, a sum of ₹ 2, 77, 692/- awarded to the assessee as interest was rightly held to be revenue receipt? 2. If the answer to question No.1 is in affirmative whether on the facts and in the circumstances of the case, the aforesaid sum of ₹ 2, 77, 692/- was rightly separated from the other amount under the head Award and Tax in full . 13. Since the High Court answered the first question in favour of the assessee that .....

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rmative naturally the Hon ble Supreme Court had to deal with the second question whether that amount of interest can be separated and taxed as income from other sources. While deciding this question, the Hon ble Supreme Court had made the observations at para 6 of the order which have been quoted by the learned Assessing Officer. Thus, it can be safely concluded that the observation of Hon ble Supreme Court pressed into service by the Assessing Officer and reproduced at page 5 of the assessment .....

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latter case, the Court must carefully tried to ascertain two principles laid down by the decision of the Supreme Court. It is not proper to pick out words or sentences from the judgment divorced from the context. Therefore, I do not agree with the Assessing Officer that the decision of Hon ble Supreme Court in the case of Govinda Chowdhary & Sons reported in 203 ITR 881 is relevant in the case of the appellant. In my above decision, I get support from the decision of ITAT, Cuttuck Bench, Cut .....

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me Court, it was ascertained by the learned DR that the pre-award interest is taxable. We are unable to give effect to this argument. The Supreme Court has taken note of the concession made on behalf of the assessee in the course of arguments and has not recorded any definite conclusion or any considered opinion regarding the taxability of the interest. This will be clear from the fact that the Court itself stated that in view of the concession they expressed no considered opinion on the questio .....

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se, the interest received by the appellant is neither contractual or statutory, therefore, I hold that the interest of ₹ 1, 96, 72, 751/- is not taxable in the case of the assessee. The addition made on this account is deleted. 5. On further appeal, the ITAT in an exparte order dated 11/3/2004 relied upon the decision of Hon ble Apex Court in CIT Vs. Govinda Choudhary and Sons, 203 ITR 801;& 63 ITR 485(SC); and allowed the appeal of Revenue. This order was subsequently recalled in M.A. .....

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ble Apex Court in Govinda Chowdhary & Sons 203 ITR 881 (S.C.), followed subsequently in CIT Vs. B.N. Aggarwal and Co. 259 ITR 754 (S.C.). 8. On the other hand, the ld. AR on behalf of the assessee while referring to the decision of the Honble High Court in the case of Govinda Chowdhary & Sons (supra) and decision of the Hon ble Apex Court in the said case, vehemently argued that since the relevant contracts did not envisage any payment of interest nor the interest was provided in any St .....

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elied upon by both sides. The issue before us is as to whether the interest awarded by Hon ble Bombay High Court from date of decree till payment was made i.e. interest of ₹ 1, 96, 72, 751/- paid by Airport Authority of India on 30.7.1996 to the assessee, is income and is liable to be included in its assessment for the AY 1997-98. As is apparent from the aforesaid facts, the AO brought to tax interest amount of ₹ 1, 96, 72, 751/-in the AY 1997-98 & amount of ₹ 3, 33, 59, 34 .....

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k in I.T.A. No.169/90 in the case of J.C. Budhraja Vs. Income-tax Officer, which in turn followed the decision in Govinda Choudhary & Sons vs. CIT, 109 ITR 497(Orissa) regarding pre award interest. Whereas in the instant case interest was awarded by Hon ble Bombay High Court from date of decree till payment was made i.e .interest of ₹ 1, 96, 72, 751/-was paid by Airport Authority of India on 30.7.1996 to the assessee in the AY 1997-98. In the AY 1998-99, issue relates to interest of &# .....

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ward .Hon ble High Court in the light the ratio indicated in Govindarajulu Chetty's case [1967] 66 ITR 465 (SC), held that though the arbitrator styled the payment as interest, it was indeed an ex gratia payment by way of compensation worked out through the medium of interest and, therefore, the amount could not be treated as income exigible to tax. On appeal by the Revenue, before the Hon ble Apex Court, ld. counsel on behalf of the assessee conceded the answer to the question regarding tax .....

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payable either by statute or by contract and was purely discretionary. On the other hand, ld. DR while relied upon decision in B.N. Aggarwal and Co.(supra).In this decision Hon ble Apex Court observed as under: It is now brought to our notice that the decision of the Orissa High Court in Govinda Choudhury and Sons v. CIT [1977] 109 ITR 497 was brought to this court in appeal and has since been disposed of, which is reported in CIT v. Govinda Choudhury and Sons [1993] 203 ITR 881. In the said dec .....

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f the opinion that it was a concession rightly made and is correct in law. Accordingly, we hold that interest is income and it has to be assessed as a business receipt. The question referred is accordingly answered in favour of the Revenue and against the assessee in the above terms. The appeals are disposed of accordingly. 9.1 Though the ld. AR on behalf of the assessee relied upon the decision in Ghanshyam(supra), we find that the question in that case was as to whether additional amount under .....

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ue, hence it was a part of enhanced compensation or consideration which is not the case with interest under s. 34 of the 1894 Act. So also additional, amount under s. 23(1A) and solatium under s. 23(2) of the 1961 (sic-1894) Act forms part of enhanced, compensation under s. 45(5) (b) of the 1961 Act. In fact, this is reinforced by the newly inserted cl. (c) in s. 45(5) by the Finance Act, 2003 w.e.f. 1st April, 2004, Hon ble Apex Court concluded. We fail to understand as to how the observations .....

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0 ITR 246, which has been subsequently reversed by Hon ble Apex Court in aforesaid decision reported in 259 ITR 754(SC) wherein Hon ble Apex Court followed their own decision in Govinda Choudhary & Sons vs. CIT, 203 ITR 881. Hon ble Apex Court in this decision observed that it is true that on the question whether the interest constitutes income or not, the said decision is based upon a concession but we are of the opinion that it was a concession rightly made and is correct in law. According .....

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ers Union [1995] 211 ITR 993 (Orissa) and CIT v. Lenka (A.) and Partners [1995] 215 ITR 298 (Orissa), two different Division Benches of the Hon ble Orissa High Court in referring to the decision of the Supreme Court on appeal in the case of Govinda Choudhury's case [1993] 203 ITR 881, have held that the earlier decision of that High Court was no longer a good law. Following the ratio of the Supreme Court decision it was held that the interest out of award was taxable. Similar view was taken .....

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of the above discussion and the legal position emerging from the aforesaid decisions, it must be held that the receipt of pre-award and post-award interest is a revenue receipt attributable and incidental to the business carried on by the assessee and it bears the same character of receipts payment of which it was otherwise entitled to under the contract. The disputed amount of interest is only an accretion to the assessee's receipts from the contract business. Accordingly, we have no hesita .....

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