TMI Blog2022 (3) TMI 1309X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that there is a pre-existing overriding title and interest in the property of the company in favour of its secured creditors comprising of Financial Institutions and Banks on paripassu basis by virtue of joint equitable mortgage credit on 1st June 1994. Since assessee has defaulted and not able to service any of the loan to the financial institutions, by virtue of failure, the assets belong to the assessee with the overriding title and interest in the property is already passed to the secured creditors. Based on the direction of the Hon'ble Rajasthan High Court the financial institutions are directly secured the property and collected the sale proceeds. The sale proceeds were distributed among the financial institutions without there being any involvement of the assessee. Since the property transferred was with pre-existing lien with the overriding title and technically assessee is not the owner of the property which was duly transferred. Therefore, the assessee cannot be asked to pay the tax on the same. Accordingly, we are not in agreement with the finding of the Ld.CIT(A). See SITALDAS TIRATHDAS [ 1960 (11) TMI 17 - SUPREME COURT] - Decided in favour of assessee. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earned the compensation of ₹.2,73,35,724/- on acquisition of land for construction of NH-76. From the said amount of compensation of ₹.2,73,35,724/-, the assessee has reduced sum of ₹.62,90,149/- on account of compensation received for existing depreciable assets which has been dealt separately under the Short term capital gain. Further, the assessee has also reduced the indexed cost of land and incidental expenses therefrom. On further scrutiny Assessing Officer observed that the assessee has reduced sum of ₹.1,26,96,360/- on account of payment made directly to financial institutions and banks towards principle amount of loans out of compensation amount in pursuance of Hon'ble Rajasthan High Court's order. On examination of the details furnished by the assessee, Assessing Officer observed that a part of factory loans earned was acquired by the Central Government for NHAI for construction of NH-76. Further, it is seen that the said amount of ₹.1,26,96,360/- has been directly paid to the banks and financial institutions as per order of the Hon'ble Rajasthan High Court. Further, it is pertinent to mention here that assessee company is owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not diversion of income by overriding charges. Therefore, assessee was held not entitled to deduction of amount paid for discharge of debt in computation of capital gains. Applying the ratio of these decisions to the appellant's case the claim cannot be accepted. (ii) The argument that such claim was expenditure in connection with transfer or for perfecting title is also not acceptable in view of above decisions. (iii) Regarding the contention that further appeals are pending and the receipt of enhanced compensation cannot be assessed, it is seen that in Dy. CIT vs. Padarna Prakash (HUF) (2007) (2008) [288 ITR 1] (Del Trib), the land of the assesses was acquired under the Land Acquisition Act and compensation was awarded by the Land Acquisition Officer. The said award was not accepted and challenged before the civil court to claim higher compensation. The civil court (Addl. Distt. Judge) awarded higher compensation along with interest in all the cases. Enhanced compensation along with interest and certain other amounts was received by the assessee was assessed on receipt basis in terms of section 45(5)(b) of Income Tax Act. This was objected on the ground, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SICA Act. The assessee s appeal before AAIFR was dismissed vide order dt.22.12.1999. 7. Against the orders of BIFR and AAIFR, the company filed a writ petition before the honourable Rajasthan High Court which ordered maintenance of status quo vide an order dt.07.01.2000. 8. Thereafter, the assessee filed a petition (No.9/2003) before the honourable Rajasthan High Court u/s.391 of the Companies Act, 1956 for sanction of scheme of arrangement and compromise with secured creditors of the company who held paripassujoint equitable mortgage over the company s immovable properties. 9. The honourable Rajasthan High Court passed an order dt.19.04.2004 sanctioning the scheme of arrangement and compromise with the secure creditors. Under the scheme, the time for payment of balance One Time Settlement (OTS) dues was extended and directions were issued for deposit of land acquisition compensation receivable from Central Government [National Highway Authority of India (NHAI)] in a designated bank account for distribution among secured creditors in terms of the sanctioned scheme. 10. Meanwhile the Rajasthan Financial Corporation issued a notice u/s. 29/30 of SFC Act on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, and Arbitration and Conciliation Act, 1996, the award and compensation was enhanced by ₹ 1,09,96,587/-. After deduction of tax at source, ₹ 1,07,51,332/- were deposited with Canara Bank as per the directions of the honourable Rajasthan High Court and paid to the secured creditors. The company further filed an appeal before the Session Court for enhancement of compensation which is still pending. 7. Further, Ld. AR submitted in written submissions that while computing capital gains, the assessee reduced ₹.1,26,96,360/-, being principle amount of loan repaid to financial institutions from the compensation received from NHAI because it got diverted at source because of pre-existing paripassu right of banks and financial institutions created by joint equitable mortgage executed on 01.06.1994. Alternatively, the assessee claimed deduction of the impugned amount u/s.48(1)(i) for removal of encumbrance and perfecting the title of the property to be given to NHAI. The computation of total income is at Page No.96 to 98 of the paper book filed. 8. Further, he relied on the decision of Hon'ble Supreme Court in the case of SitaladasTirathdas (41 ITR 367) by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, right and title in favour of the Central Government. In the circumstances the amount which the company had become entitled to receive was deposited by the Competent Authority in a No Lien Deposit Account with Canara Bank being one of the Secured Creditor, as per orders of Hon'ble High Court of Rajasthan, Jodhpur, who has distributed the amount so deposited to the Secured Creditors (including to themselves and amount kept in reserve for remittance to Kotak Mahindra Bank Ltd.). Further in the similar circumstances any further compensation amount would become entitled to receive would be deposited by the Competent Authority in a no lien deposit account with any one of the Secured Creditor. The balance surplus amount if any, after paying to the creditors, who have pre existing. Overriding title and interest in the property of the company, would be paid forthwith directly to the company by the Competent Authority and/or such secured creditor . 11. From the above observation of the Hon'ble Rajasthan High Court it is clear that there is a pre-existing overriding title and interest in the property of the company in favour of its secured creditors comprising of Financial I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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