TaxTMI 
TaxTMI 
2008 (5) TMI 299
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....r alia, the scope of work to be done by it as well as its responsibility in connection with the global tender of Delhi Transport Corporation for their passenger buses. A return of income for the year under consideration was filed by it on November 30, 1998, declaring a loss of Rs. 5,38,200. In the said return, interest income of Rs. 88,583 earned by the assessee-company was declared as business income and after claiming the deduction on account of expenses claimed to be incurred in connection with the business, a net loss of Rs. 5,38,200 was determined. The case of the assessee was selected for scrutiny assessment and in the assessment completed vide his order dated March 5, 2001, passed under section 143(3), the interest income declared by the assessee as business income was held to be chargeable to tax by the Assessing Officer under the head "Income from other sources" relying, inter alia, on the decision of the honourable Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 and that of the honourable Rajasthan High Court in the case of CIT v. Rajasthan Land Development Corporation [1995] 211 ITR 597. Having held that the only inc....
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....s and the scope of the work had been specified in clause 2 of the memorandum of understanding which mainly included the collection and communication official information concerning the DTC tender ; advice and assistance in preparing and submitting tender documents ; watch over the processing of tender and giving clarifications, etc. ; advise and assistance in concluding the contract with DTC. According to the learned Commissioner of Income-tax (Appeals), the scope of work was such that the duties of the assessee-company in terms of clause 4 of the memorandum of understanding were only in connection with the conclusion of the contact between DMIL and DTC and it was not to be concerned with the execution of the contract. He noted that the assessee-company had received a sum of Rs. 3 crores from DMIL in terms of clauses 8 to 11 of the memorandum of understanding which read as under : "8 That in consideration of the work, duties and functions under taken by MIL to be performed under the memorandum of under standing, DMIL will pay to MIL fee in the sum equal to one per cent. of the value of the contract that may be awarded by the DTC to DMIL pursuant to the DTC tender, subject ....
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....e signing of the contract without there being any condition precedent to earning thereof. 6. Keeping in view the aforesaid aspects of the matter noted by him, the assessee-company was asked by the learned Commissioner of Income-tax (Appeals) to show-cause in terms of section 251(2) of the Act as to why its income be not enhanced by treating the sum of Rs. 3 crores as income in view of substantive position emerging from the terms of its memorandum of understanding (MOU) with M/s. DMIL. In reply, a submission in writing was made on behalf of the assessee-company which was considered and dealt with by the learned Commissioner of Income-tax (Appeals) in his appellate order as under : "It was submitted by the appellant that the amount was reflected as a security deposit in its accounts which represented a true presentation of the terms of the memorandum of understanding and was in line with the law pertaining to accrual/arising and taxability or income. I find no substance in this argument. By now it is well-settled that the way in which entries are made by an assessee in his books of account is not determinative of the question as to whether profit has been earned ....
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....nt of view as held by the Bombay High Court in the case of CIT v. Scindia Workshop Ltd. reported in [1979] 119 ITR 526. It was claimed that on perusal of the memorandum of understanding the amount of Rs. 3 crores cannot be characterized as income and the amount represented an interest-free security deposit and could be forfeited only in the event of DMIL withdrawing from its offer against the DTC tender or no order being placed on it by DTC for any reason whatsoever. It was claimed that there was no evidence on record to show that such an eventuality had occurred before March 31, 1998, and as such the receipt of Rs. 3 crores could not be characterized as income during the financial year ended March 31, 1998. There is no dispute about the legal proposition that all receipts are not income. However, character of the receipt has to be determined from commercial point of view on the analysis of the term of the memorandum of understanding. As stated earlier, the appellant has acquired a vested right in the sum of Rs. 3 crores on the signing of the agreement. This in fact is a signing amount though stated to be a interest-free deposit." 7. Keeping in view all the aspects of t....
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....n behalf of the assessee raising mainly the following contentions : (i) By virtue of clauses 9 and 11 of the memorandum of understanding, the sum of Rs. 3 crores did not accrue to the assessee in the assess ment year 1998-99 nor it got a character of non-refundable money in that year as none of the two events as specified in clause 11 took place in the previous year relevant to the assessment year 1998-99. There was thus no question or occasion for the assessee or even for the Department to treat the security deposit of Rs. 3 crores as income of the assessee pertaining to the assessment year 1998-99. (ii) The decision of the Tribunal and its findings recorded in the appellate order passed in the quantum proceedings could be considered only with reference to making the addition and the criterion and yardstick are totally different for the purpose of levy of penalty under section 271(1)(c). The confirmation of addition by the Tribunal does not automatically justify the levy of penalty. (iii) There was no concealment of any particulars of its income by the assessee as the receipt of Rs. 3 crores was duly shown in the liability of the relevant balance sheet a....
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....es in the garb of security deposit from DMIL which is undisputedly non-refundable and admittedly being non refundable even till date. The honourable ITAT very carefully examined the whole issue in its true perspective and has clearly held as under : 'Therefore, when the amount of Rs. 3 crores was received as security deposit, it was in fact and truth not a deposit at all but the receipt of minimum fee of Rs. 3 crores in terms of clause 8 therefore, arguments such as that there was no accrual of income or that the asses see did not keep their right to appropriate any part of the deposit as its income and so on, are wholly irrelevant for the purposes of deciding the present appeal.' The honourable ITAT after examining clause 11 has further held that this clause has been very carefully drafted (if we may say so) and further held that by a clever piece of drafting, the syntax of clause 11 has been so structured so as to give the impression that except only on happening of either of those two contingencies, the security deposit cannot be appropriated by the assessee as its income. In other words, the ITAT has held that it is a case where Rs. 3 crores were being....
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.... not satisfy the requirement of the law since requirement of the statute is that the particulars of income should be correctly shown. In that situation, the assessee was required to show this receipt as his income in the financial accounts and not as a liability under the head "security deposit". Thus merely by showing a receipt in the books of account it cannot be said that since the assessee has declared the particulars of receipts, no penalty can be levied, the true requirement of the statute is that every receipt should be shown truly and correctly and thus if it is in the nature of an income, it necessarily has to be shown as income. Here this is not the situation. This leads to a conclusion that the assessee has not correctly and truly disclosed the receipt of Rs. 3 crores. The honourable ITAT has even gone to the extent by commenting that the assessee has acted very mindfully by cleverly drafting the said clause 11 so as given apparently a different meaning and different interpretation to the contents of the said clause 11. It has also further gone to the extent that a clever piece of drafting cannot change the real nomenclature and real interpretation of a particular docume....
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....t the claim of the assessee that the sum of Rs. 3 crores did not constitute its income for the year under consideration was based on one possible view. He submitted that this also makes it clear that all the relevant facts relating to the receipt of a sum of Rs. 3 crores from DMIL were placed on record by the assessee-company before the Assessing Officer during the course of assessment proceedings itself. In this connection, he relied on the decision of the honourable Calcutta High Court in the case of CIT v. Jagabandhu Prasanna Kumar Ruplal Sen Poddar [1982] 133 ITR 156 and in the case of CIT v. Calcutta Credit Corporation [1987] 166 ITR 29 to contend that where two views are possible, adopting one of them can scarcely be viewed as mala fide with an intent to evade payment of tax. He also relied on the decision of the Delhi Bench of the ITAT in the case of Devsons Logistics Pvt. Ltd. v. ITO (ITA No. 1049/Del/2005 dated July 29, 2005) wherein it was held that when all the facts had been placed by the assessee before the Assessing Officer and a particular legal stand was taken on the relevant issue which was not found to be acceptable, it could not be said that the assessee was guil....
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....he said memorandum of understanding has not been challenged in the quantum proceedings by any authority. He submitted that the conclusion drawn by the appellate authorities in the quantum proceedings on interpretation of memorandum of understanding that the moment the amount of Rs. 3 crores was received by the assessee-company, the same became its income thus was not correct especially when the entries in the books of account of the assessee, confirmation of security deposit from DMIL and the memorandum of understanding fully supported the version of the assessee that the amount in question was nothing but a deposit as far as the year under consideration, i.e., the assessment year 1998-99 was concerned. 14. Relying on the decision of the honourable Supreme Court in the case of Dilip N. Shroff v. Joint CIT [2007] 291 ITR 519, learned counsel for the assessee contented that the term "concealment" inherently carries the element of mens rea and it is, therefore, to be established, by the Revenue for imposing penalty under section 271(1)(c) that the assessee has consciously made concealment or furnished inaccurate particulars of income. He contended that no such conscious or delibera....
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....g of the relevant clauses clearly show that the amount of Rs. 3 crores stated to be deposited was never refundable by the assessee and there was no eventuality wherein the said amount would have been required to be refunded. He pointed out from the order of the Tribunal placed at page No. 40 of the assessee's paper book that this position was accepted by the Tribunal while holding that the amount of Rs. 3 crores was not refundable by the assessee in any circumstances. He contended that the said amount thus was a trading receipt of the assessee even though the nomenclature given to it was "deposit". 16. As regards the stand taken by the assessee about the nature of the said amount being deposit relying on the relevant clauses of the memorandum of understanding, the learned Departmental representative submitted that the Tribunal has already held in its order passed in the quantum proceedings that the memorandum of understanding was drafted in such a manner that the assessee wanted to not only postpone the tax liability but even to evade the same. He relied on the decision of the honourable Bombay High Court in the case of CIT v. Chhatrapati Sahakari Sakhar Karkhana Ltd. [2000]....
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.... (10) of the memorandum of understanding to sufficiently support the stand of the assessee that the amount of Rs. 3 crores received as security deposit did not constitute the income accrued to the assessee during the year under consideration. According to him, in view of this clear and unambiguous stipulation in the memorandum of understanding, it is not necessary to see the surrounding circumstances in order to give different interpretation to such clear cut stipulation. 19. We have considered the rival submissions and also perused the relevant material on record. It is observed that the impugned penalty under section 271(1)(c) has been imposed by the learned Commissioner of Income-tax (Appeals) in respect of addition of Rs. 3 crores made by him to the total income of the assessee by way of enhancement on account of security deposit received by it from DMIL under memorandum of understanding treating the same as the income accrued to the assessee in the year under consideration. The said amount was undisputedly shown and declared by the assessee-company in its books of account as well as in the return of income filed as security deposit and as pointed out by learned counsel for ....
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....n the sum equal to one per cent of the value of the contract that may be awarded by the DTC to DMIL pursuant to the DTC tender, subject to a minimum of Rs. 3 crores. 9. That the fee payable by DMIL to MIL in terms of clause 8 ante, will be deemed to accrue on the date on which the contract between the DTC and DMIL is signed or on which the DTC places an order on the DMIL for the supply of the buses, as the case may be, and DMIL undertakes to make payment of the fee to MIL within 15 days of its accrual. 10. That DMIL will make an interest-free deposit of Rs. 3 crores with MIL within six months from the date of this memorandum of understanding, that this deposit will be adjusted against the fee that may become payable to MIL in terms of clause 8 ante. 11. That in the event of DMIL withdrawing from its offer against the DTC tender or no order is being placed on it by DTC for any rea son whatsoever, the amount paid to MIL under clause 10 ante, shall not be refundable by MIL". 21. A perusal of the aforesaid clauses shows that DMIL had agreed to pay to the assessee-company a fee for the services to be rendered by the latter in connection with the DTC tender ....
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.... matter of fact, the memorandum of understanding having been signed on February 23, 1998, there was hardly any possibility of such functions being actually performed by the assessee-company during the year under consideration ending March 31, 1998, making it entitled to receive any fees much less the fees to the tune of Rs. 3 crores. Moreover, the fees so receivable by the assessee from DMIL under the memorandum of understanding was to accrue to it on the date of signing of contract between DTC and DMIL or on the placement of an order by DTC on DMIL for the supply of buses as the case may be as stipulated specifically in clause 9. Although this basis was adopted as a deemed basis as mentioned in clause 9, the fact remains that the amount of fees was agreed to be paid by DMIL to the assessee within 15 days of such deemed accrual and this material aspect cannot be overlooked while giving an interpretation to the relevant clauses of the memorandum of understanding in order to decide the date or period of accrual of income to the assessee on account of fees. Undisputedly, none of these two events, i.e., signing of contract between the DTC and DMIL or placement of order by DTC on DMIL f....
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....e being accrued to the assessee in the assessment year 1998-99. As already discussed by us with reference to the relevant clauses of the memorandum of understanding that the claim made by the assessee about the nature of the said receipt on the basis of different interpretation given to the said clauses was also reasonably possible and the learned Commissioner of Income-tax (Appeals) thus, in our opinion, was not correct to say that there was only and only one interpretation which could possibly be given to the relevant clauses as done by the Tribunal. As a matter of fact, the submissions made on behalf of the assessee about such other possible interpretation were neither considered nor appreciated by the learned Commissioner of Income-tax (Appeals) in the penalty proceedings and the assessee was held liable for penalty under section 271(1)(c) by him relying mainly on the order of the Tribunal passed in the quantum proceedings. The treatment given by the assessee to the amount of Rs. 3 crores in question as security deposit was also held by the learned Commissioner of Income-tax (Appeals) as furnishing of inaccurate particulars of its income by the assessee-company which, in our op....
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....ITR 156 cited by learned counsel for the assessee, the honourable Calcutta High Court has held that adopting one of the possible views can scarcely be viewed as mala fide with an intent to evade payment of tax. In the case of Devsons Logistics Pvt. Ltd. the Delhi Bench of the ITAT has held that when all the facts had been placed by the assessee before the Assessing Officer and a particular legal stand was taken on the relevant issue which was not found to be acceptable, it could not be said that the assessee was guilty of concealment of income. 25. In the case of Delhi Development Authority v. Durga Chand Kaushish, AIR 1973 SC 2609 cited by learned counsel for the assessee, it was held by the honourable Supreme Court that in considering the document, one must have regard to the meaning of the words it has used and not to the presumed intention of the parties. If the memorandum of understanding between the assessee and DMIL especially the relevant clauses, i.e., clauses 8 to 11 thereof, is interpreted by applying this principle laid down by the honourable Supreme Court, it can be seen that the interpretation given by the assessee to the said document while taking the stand that t....