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C.I.T. v. M/S Yatindra & Company, Farrukhabad - INCOME TAX REFERENCE No. 180 of 1993  RD-AH 1827 (5 August 2005)
INCOME TAX REFERENCE No. 180 Of 1993.
The Commissioner of Income-tax, Agra. Applicant
M/S Yatindra & Company, Farrukhabad Respondent.
Hon'ble R. K. Agrawal, J.
Hon'ble Rajes Kumar, J.
(By Hon'ble Rajes Kumar, J)
At the instance of the Revenue, the Income Tax Appellate Tribunal, Allahabad has referred the following questions of law under section 256 (1) of the Income Tax Act, 1961, hereinafter referred to as "the Act" for opinion to this Court for the assessment year 1979-80.
"1. Whether on the facts and in the circumstances of the case the Hon'ble ITAT was correct in law in holding that no income has accrued to the assessee on account of decretal amount?
2. Whether on the facts and circumstances of the case, the Hon'ble ITAT was correct in law in deleting the addition of Rs. 75,043/- by holding that the receipt of the decretal amount could not be said to be revenue receipt and assessable in the year under consideration till the finality of the litigation?"
The brief facts of the case are as follows:
The assessee opposite party (hereinafter referred to as "the assessee") is san exporter and assessed to tax in the status of registered firm and followed merchandile system of accountancy. In this case, the Civil Judge, Farrukhabad had by an order dated14.12.1977 passed the decree against the Insurance Company for a sum of Rs.1, 55,003/- in favour of the assessee. Against the said decree appeal was filed which was pending in the Hon'ble High Court. As the matter was still subjudice the assessee did not show an amount of decree as his income during the assessment year. The assessing officer did not accept the contention of the assessee and treating the amount on accrual basis as the income of the assessee added the said amount of decree towards damage of potatoes amounting to Rs. 75, 043/- which was not allowed for the year 1973-74when the damage had actually taken place. Assessee, being aggrieved filed an appeal before the Commissioner of Income Tax (Appeal), who has confirmed the addition.
Against the order of the Commissioner of Income Tax (Appeals), the assessee filed second appeal before the Tribunal. The Tribunal vide order dated31.12.1992 allowed the appeal and held that the receipt of the decretal amount by the assessee under the orders of the High Court was not liable to tax in the hands of the assessee in the year under consideration. The Tribunal observed as under:
" We have heard the parties at length and we are of the opinion that the arguments advanced by the learned counsel of the assessee have force. The case decided by the Bench of the Allahabad Tribunal in I.T.A.T. no.697 (Alld) of 1982 (supra) dated 19.1.1984 applies with full force to the present case. Practically in the said case too the facts were similar. There was a dispute between the contractor and his principal and it was decreed by the Court. The principal, which was the State Government in this case, had filed an appeal to the Hon'ble High Court and the decretal amount was got deposited in the High Court under the orders of the Hon'ble High Court and the same was released in favour of the contractor on his furnishing a bank guarantee of the said amount. In the said case, it was held that since an appeal had been filed to the High Court, against the order of the Additional Civil Judge, the appeal destroyed the finality of the judgment and consequently neither the amount of compensation of damages nor the amount of interest nor any cost become taxable with reference to the date of the judgment of the Additional Civil Judge falling under the assessment year 1977-78. Here in this case too the assessee had filed a suit for damages and the suit was decreed by the Civil Judge and the appeal was filed by the defendant in the High Court. Copies of the suit and the appeal have been filed in the compilation. From the perusal of both, it is evident that the defendant had challenged the order of the Civil Judge regarding the very factum of any compensation to the assessee. The amount so paid under the orders of the High Court after the execution of a bank guarantee by the assessee. Thus, the litigation was still pending and the finality of the same could not be said to have been achieved till the assessment year. Hence, adopting the same reasoning as given out by the Tribunal in the case of Ideal Contractors, Deoria (Supra). We hold that in this case too the appeal is still pending in the Hon'ble High Court. The receipt of the decretal amount by the assessee under the orders of the High Court at this stage cannot be said to be a revenue receipt by the assessee and thereby taxable in his hands in the year in question. The issue is decided accordingly.
As a result, the appeal is allowed."
We have heard Sri A.N.Mahajan, learned Standing Counsel appearing on behalf of the Revenue and Sri Shakeel Ahmad, learned counsel appearing on behalf of the assessee and has perused the order of the Tribunal and the authorities below.
In the present case, there was a dispute between a contractor assessee and his principal State Government in which a decree was passed against the Insurance Company for a sum of RS. 1,55,003/- in favour of the assessee by the Civil Judge, Farrukhabad. Against the said order, appeal was filed before the High Court and in pursuance of the court order, decretal amount was deposited and was released in favour of the assessee on furnishing of a bank guarantee of the said amount in the year under consideration. The case of the assessee was that since the matter was subjudice and had not yet become final, the amount received against the bank guarantee should not be treated as the taxable income during the year under consideration.
In the case of Commissioner of Income Tax, West Bengal Versus Hindustan Housing and Land Development Trust Ltd reported in 161 ITR 524, the land was compulsorily acquired under the land acquisition proceedings. The arbitrator fixed additional compensation. Against the said award, the Government preferred appeal. In pursuance of the Court's order, the amount was deposited and the court permitted the assessee to withdraw the amount only on furnishing of security. The Tribunal held that the amount did not accrue during the relevant previous year, therefore, not liable to tax. The Calcutta High Court has upheld the view of the Tribunal. The Apex Court has dismissed the appeal filed by the Commissioner of Income Tax. The Apex Court held that although the award was made by the arbitrator enhancing the amount of compensation payable to the respondent, the entire amount was in dispute in the appeal filed by the State Government and the dispute was regarded by the Court as real and substantial because the respondent was not permitted to withdraw the amount deposited by the State Government without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There was no absolute right to receive the amount at that stage. If the appeal was allowed in its entirety, the right to payment of enhanced compensation would have fallen altogether. The extra amount of compensation was not income arising or accruing to the respondent during the previous relevant year.
The decision of the Apex Court in the case of Commissioner of Income Tax, West Bengal Versus Hindustan Housing and Land Development Trust Ltd (supra) has been followed by the Bombay High Court in the case of Commissioner of Income-Tax Versus Abdul Mannan Shah Mohammed reported in 248 ITR 614.
Respectfully following the ratio laid down by the Apex Court in the case of Commissioner of Income Tax, West Bengal Versus Hindustan Housing and Land Development Trust Ltd (supra) and the Bombay High Court in the case of Commissioner of Income-Tax Versus Abdul Mannan Shah Mohammed (supra), we are of the view that the amount received by the assessee during the year under consideration in pursuance of the order of the High Court against the bank guarantee was not accrued to the assessee during the year under consideration inasmuch as no absolute right to receive the amount at that stage vested as the appeal was pending before the High Court and the entire decretal amount was subject matter of dispute.
In view of the foregoing discussions, we answer the aforesaid questions referred to us in the affirmative i.e. in favour of the assessee and against the Revenue. However, there shall be no order as to costs.
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