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2005 Supreme(All) 1363
ALLAHABAD HIGH COURT
R.K.Agrawal and Rajes Kumar, JJ.
Commissioner of Income Tax
Versus
Yatindra and Co.
Income Tax Reference 180 of 1993
Decided On : 05 August 2005
Income Tax Reference 180 Of 1993
A.N.Mahajan, SHAKEEL AHMAD,
The main legal point established in the judgment is that amounts in dispute in pending litigation may not accrue as income during the relevant previous year, and therefore may not be taxable.
Headnote:
Income Tax - Accrual of Income - Income Tax Act, 1961, Section 256(1)
Fact of the Case:
The assessee, an exporter, received a decretal amount under a court order, which was subject to pending litigation. The assessing officer added the amount to the assessee's income, but the Tribunal held that the amount was not taxable as it had not accrued to the assessee during the year under consideration.
Finding of the Court:
The court found that the decretal amount received by the assessee was not taxable as income during the year under consideration due to the pending litigation and lack of absolute right to receive the amount at that stage.
Issues: The main issue was whether the decretal amount received by the assessee was taxable as income during the year under consideration.
Ratio Decidendi: The court relied on the decision in Commissioner of Income Tax, West Bengal v. Hindustan Housing and Land Development Trust Ltd, where it was held that the amount in dispute in pending litigation did not accrue as income during the relevant previous year.
Final Decision: The court answered the questions referred to it in favor of the assessee and against the Revenue, holding that the decretal amount was not taxable as income during the year under consideration.
( 1 ) 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 Honble HAT 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 Honble 1tat 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?" 2. The brief facts of the case are as follows:
( 3 ) 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 dated 14. 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 Honble 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 assesses: 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 fax (Appeal), who has confirmed the addition.
( 4 ) AGAINST (the order of the Commissioner of Income Tax (Appeais), the assessee filed second appeal before the Tribunal. The Tribunal vide order dated. 31. 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 Honble High Court and the decretal amount was got deposited in the High Court under the orders of the Honble 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 alter the execution of a bank guarantee by the assessee Thus, the litigation was still pending and* the finality
