TMI Blog2018 (4) TMI 1473X X X X Extracts X X X X X X X X Extracts X X X X ..... amount was directed to be used for taking demand drafts from the bank itself for paying additional interest to the PSUs. 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. 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 payable to the PSUs 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, no hesitation in holding that the Respondent held the said amount in trust to be paid to the public sector units ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Indian Bank in purchase of the securities from different financial institutions. (b) It is the case of the Revenue that the Indian Bank, in order to save itself from being charged unusually high rate of interest on borrowing money from the market, lured Public Sector Undertaking (PSUs) to make fixed term deposit with it on higher rate of interest. The rate of interest offered to the PSUs for making huge term deposits was to the extent of 12.75% of interest on fixed deposits against the approved 8% rate of interest in accordance with the RBI directions. (c) In order to pay higher interest to the PSUs who made a fixed term deposit with the Indian Bank, the bank requested the Respondent to purchase securities on its behalf at a prescribed price which was unusually high but adequate to cover the market price of the securities, brokerage/incidental charges to be levied by the Respondent on these transactions, apart from covering the extra interest payable to the PSUs. The Respondent, on the instructions of Indian Bank, purchased securities at a particular rate quoted by the Bank and sold them to Indian Railways Finance Corporation. Bank of Madura was the routing bank through w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the PSUs so as to cause diversion of income. (g) It is pertinent to note that in the meanwhile criminal proceedings which were initiated with respect to the present transactions in question against the Respondent along with others bearing No. CC 17 of 1997, was decided on 27.04.2004 by the CBI court. The court, while acquitting the Respondent has observed that the relationship between the Indian Bank and the Respondent is that of principal-agent and with regard to the transactions in question the Respondent acted in the capacity of a broker and not as an individual dealer. However, the Tribunal refused to rely on the evidence produced in the trial court on the ground that the assessment proceedings are different from the criminal proceedings and the evidence adduced in the trial court couldn t be relied to absolve the Respondent from the tax liability. (h) Being aggrieved by the order of the ITAT dated 05.01.2005, the assessee filed Tax Case Appeal No. 368 of 2005 before the High Court. The High Court, vide order dated 29.10.2012, set aside the order of the Tribunal while relying on the evidence given in the criminal case in this regard. Hence, this appeal is filed bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the High Court was well within the parameters of law and requires no interference. 9) We have heard learned counsel for both the parties and perused the factual matrix of the case. Discussion:- 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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