TaxTMI 
TaxTMI 
2012 (3) TMI 321
X X X X Extracts X X X X
X X X X Extracts X X X X
....28.86 crores for the assessment year 1991-92 constituted a diversion by overriding charge? 2. Whether on facts and circumstances, the Tribunal was right in law in directing the Assessing Officer to allow the expenditure incurred by the assessee on construction of flyovers and pedestrian facilities as revenue expenditure?" 3. The following questions of law have been raised and referred for adjudication of this Court at the instance of the assessee Delhi Tourism and Transport Development Corporation Ltd. in Income Tax Reference Nos. 30 - 33/1997: "Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the sum of Rs.2,04,35,870/- in assessment year 1990-91 and Rs.5,39,02,166/- in assessment year 1991-92 did not stand diverted by overriding title and therefore, constituted taxable income in the hands of the assessee?" 4. ITA Nos. 166/2001, 161/2004 and 320/2004, have been filed at the instance of the Revenue and there are no cross-appeals or cross-objections by the assessee. The substantial questions of law raised by the Revenue in these three appeals were admitted to hearing vide orders dated 20th March, 20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ise Department, Delhi Administration. It was decided that this retail trade should be transferred to the assessee w.e.f. 15th May, 1989. The minutes of the said meeting record that this would generate a surplus of Rs. 100 crores in three financial years from 1989 to 1992 and enable construction of 20 flyovers and a substantial number of pedestrian facilities. The relevant portion of the minutes read as under:- "a) The Articles of Association and objectives of the Delhi Tourism Development Corporation (DTDC) be expanded so as to include investments in transport infrastructure, particularly bridges, grade separators, underpasses and pedestrian cross over bridges or subways. The Corporation be renamed as the Delhi Tourism & Transportation Development Corporation (DTTDC). b) The retail trade in country liquor and 50 degree U.P. Rum which has so far been undertaken departmentally by the Excise Department, be transferred to DTTDC w.e.f. 15th May, 1989. That will give DTTDC a surplus of over Rs.100 crores in the three financial years, 1989 to 1992 which will enable it to construct about 20 road flyovers and a fairly substantial number of pedestrian facilities. The Corporation will also....
X X X X Extracts X X X X
X X X X Extracts X X X X
....een sounded and has indicated its readiness to take the construction contract from us. It is proposed to establish a group of officers consisting of E-in-C, MCD, CE(I) PWD, a representative of the Roads Wing of the Ministry of Surface Transport and a representative of Finance to negotiate with the U.P. Bridges Corporation, the most advantageous turnkey prices and other terms and conditions. All important consideration will be to lay down a short time frame for construction and a substantial penalty for delay. Construction of at least four flyovers will be commenced in June, 1989. With subsequent batches taken up at intervals of three to four months." (iii) In terms of the said minutes, the assessee took over retail trade for sale of country liquor and 50 degree U.P. Rum in Delhi. However, the requisite details were left undetermined. For the assessment years 1990-91 and 1991-92, the assessee filed its return of income on 31st December, 1990 and 31st December, 1991, declaring income of Rs.90,11,968/- and Rs.91,79,000/- respectively. Returns of incomes were without audited accounts. Return of income for the assessment year 1990-91, was revised on 27th December, 1991 to Rs.1,28,83,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rom time to time. As a continuing and ongoing consideration for DTTDC be obliged to construct fly-overs and substantial number of pedestrian facilities etc. as per directions issued by Delhi Administration to the DTTDC from time to time, and, on competition of such infrastructure facilities, DTTDC shall be obliged to hand over same to the appropriate Government office's on a FOC basis, subject to execution of a deficiency charge report. Yours faithfully (ALKA DEWAN) DY. SECRETARY (FINANCE)" TRANSPORT INFRASTRUCTURE UTILISATION FUND (TIUF) 6. The tribunal has held that the amount deposited in TIUF Fund was income of the assessee and accordingly has to be included in the profit and loss account. Receipts were income/earnings. It has also been held that the expenditure incurred by the assessee on construction of flyovers, pedestrian facilities etc. was expenditure incurred by the assessee under Section 37 of the Act and accordingly have to be reduced/deducted for computing taxable income. In ITR Nos. 30 - 33/1997, at the instance of the assessee the question of law raised is whether the aforesaid amount stands diverted at source by way of overriding title to the Government o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the fact that at present the assessee can only show Work in Progress and Whether the assessee would derive any income from their construction, so as to entitlte it to claim depreciation on them. 8. Both the CIT (Appeals) and tribunal have disagreed with the aforesaid findings and held that the expenditure incurred out of TIUF was revenue expenditure and not capital expenditure. They are correct. The assessee was entitled to a specified amount towards administrative and other expenses from the sale proceeds. The amount which was retained and kept in TIUF was for construction of the flyovers. The assessee was required and mandated to make the said expenditure as a condition for undertaking the country liquor trade. The assessee was given license to conduct and carry on liquor trade in Delhi on the basis of the minutes of the meeting held on 24th April, 1989. Construction of flyovers etc was a pre-condition or an obligation imposed and had to be complied with to enable the assessee to conduct business of sale of country liquor in Delhi. The minutes mandated and required the assessee to construct the flyovers/pedestrian facilities. Prior to that sale of country liquor was ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The contention of the Revenue that as an immovable superstructure of enduring benefit has come into existence and, therefore, expenditure incurred is of capital nature, is flawed. A contractor/builder who constructs a building for sale to third parties is creating or creates an immovable asset but in the hands of the said builder the said asset, is stock in trade, though in the hands of the purchaser/buyer it may be a capital asset. The expenditure incurred by the assessee, therefore, is a revenue expense and not a capital expense. The tribunal has rightly pointed out that the minutes of the meeting dated 24th April, 1989 stipulated and provided that the exact modalities would be worked out subsequently. These minutes were not final. This is also apparent from the letter dated 5th February, 1992, with reference to sale proceeds of country liquor. The letter specifically states that the Executive Council's decision dated 25th April, 1989 was amended from time to time. The second letter dated 5th February, 1992, with regard to TIUF is more erudite and states that the assessee was obliged to construct flyovers and substantial numbers of pedestrian facilities as per directions issued b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....axable income in the hands of the assessee. In the present case, the factual findings recorded are that the assessee on the directions of the Delhi Administration had got flyovers and infrastructure facilities constructed. The contract of construction of flyovers and other facilities was awarded by the assessee. It may be relevant to reproduce here the resolution of the Board of Directors of the assessee which has been quoted in the impugned order passed by the tribunal:- "Resolved that i) The action to create a Transportation Infrastructure Utilisation Fund in respect of margin equivalent to Rs. 1/- (Rupee one only) per bottle sold during the year as per the direction of delhi Admn. to the Company to manage the trade of country liquor and to construct flyovers and pedestrian facilities therefrom, and ii) The action to charge 5 paise (five paise) per bottle of the country liquor sold as administrative expenses towards its Corporate Office expenses against the Transportation Infrastrucutre Utilisation Fund. Be and are hereby approved." 13. The aforesaid resolution clearly shows that it was the obligation of the assessee to construct flyovers and pedestrian facilities out....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., an HUF was the owner of that immovable property. The Supreme Court did not agree to exclusion of the rent receivable by the trust, from the income of the HUF on the ground that there was diversion of income at source. In the said decision, the Supreme Court noticed that cases of sub-partnership can be categorized as border line matters, for commercial compulsions that had resulted in formation of sub-partnerships. In Muralidhar Himatsingka vs. CIT, (1996) 62 ITR 323 (SC), it has been held that profits received under sub-partnership can represent diversion of income at source. The Supreme Court observed that this analogy cannot be extended to the cases like the said one. 16. We fail to understand how the assessee can plead diversion of income at source as in the present case, the amount received remained with the assessee. It did not part away or pay the said amount to any third party. A part of the said amount i.e. 5 paise per bottle was retained by the assessee to meet their administrative and other corporate expenses and the other part of that was to be used for construction of flyovers and pedestrian facilities by the assessee. The said 95 paise was not transferred or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erred to TIUF is also income of the assessee and is accordingly taxable. 20. Decision of this Court in the case of the assessee reported in (2010) 324 ITR 234 (Del.) is not apposite. The assessee had filed preferred writ petition challenging the notices issued under Section 147/148 of the Act in respect of assessment years 1997-98, 1998-99 and 1999-2000. The writ petition was allowed on the ground of change of opinion recording, inter alia, that the Assessing Officer does not have power to review its earlier decision. Accordingly, it was held that the jurisdictional pre-condition for reopening was not satisfied and the action of the Assessing Officer was without jurisdiction. It was clarified that the Bench had dealt with point of jurisdiction i.e. whether or not pre-conditions for reopening under Sections 147/148 were satisfied and not the merits of the issue with regard to taxability of the amount transferred to TIUF. Thus, this decision does not help the assessee. Thus the aforesaid questions of law in ITA Nos. 166/2001, 161/2004 and 320/2004 are decided in negative and in favour of the Revenue and against the assessee. The question No. 2 raised for ITR 166/2001 relates to ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enue that the question of diversion of income by way of overriding title till letter dated 5th February, 1992 was issued does not arise. However, till that date i.e. 5th February, 1992, the respondent assessee did not have any dominion or control over the aforesaid amount credited under the OGES head. 25. Every receipt or amount received/accounted, is not income. Amount received is income in the hands of the assessee if he has title/right over the said amount in form of dominion and right to use the said amount. When examining, the concept of 'income' one has to keep in mind, commercial reality, specialty of the situation rather than pure theoretical or doctrine aspects. The business aspect of the matter has to be viewed as a whole but without disregarding the statutory language. Depending upon the nature and character of the deposits/payments, treatment should be given to hold whether or not the amount received was income/profit. 26. The Supreme Court in Poona Electric Supply Co. Ltd. vs. CIT, Bombay, (1965) 57 ITR 521 (SC) had drawn a distinction between payments out of profits and payments to earn profits. Distinction was drawn between deduction made for ascertainin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d it was observed :- "An acceptable formula of co-relating the notion of real income in conjunction with the method of accounting for the purpose of the computation of income for the purpose of taxation is difficult to evolve. Besides, any strait-jacket formula is bound to create problems in its application to every situation. It must depend upon the facts and circumstances of each case. When and how does an income accrue and what are the consequences that follow from accrual of income are well-settled. The accrual must be real taking into account the actuality of the situation. Whether an accrual has taken place or not must, in appropriate cases, be judged on the principles of real income theory. After accrual, non-charging of tax on the same because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted. In determining the question whether it is hypothetical income or whether real income has materialised or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the ipse dixit of the assessee which would then become a value judgment only. What ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... with assessee having no unfettered dominion over the same? (5) Does the assessee stand in the position of debtor in relation to those funds/deposits? (6) What is the primary purpose of collection of said amount? 33. It was elucidated and explained in S. Shahakari Shakkar Karkhanna Ltd. (supra) :- "These factors may broadly satisfy the first test applied in Bazpur Co-operative Sugar's case *1988+ 172 ITR 321 (SC). The following are the relevant observations in this regard (page 329) : "It is clear that these amounts which were deducted by the respondent from the price payable to its members on account of supply of sugarcane were deducted in the course of the trading operations of the respondent and these deductions were a part of its trading operations. The receipts by way of these deductions must, therefore, be regarded as revenue receipts and are liable to be included in the taxable income of the respondent." However, it needs to be clarified that the line of inquiry, in order to determine the true nature and character of the receipts, does not stop at ascertaining the mere fact whether the realisation was in the course of trading operations. The moment i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hare and only in the event of any balance being left, it was liable to be converted to share capital. The primary purpose for which the deposits were liable to be used were not to issue shares to the members from whose amounts the deductions were made but for discharging of liabilities of the respondent-society. In these circumstances, the receipts constituted by these deductions were really trading receipts of the assessee-society. . ." 34. Thus it is the true nature of the receipt and purpose thereof is the determinative factor and the relevant principle to apply to decide whether or not an amount should be included or excluded from the profit/income. This requires examination of the question from various angles as noticed above, do the receipts bear a character of income at the time when it reaches the hands of the assessee? Does the money vest with the assessee once and for all? Whether the assessee exercises complete dominion over the fund or is it to be regarded as the money of the depositors or a third person. When an assessee does not have dominion over the fund it is difficult to categorise the same as income. On consideration of the applicable byelaws, the Su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nds like Chief Minister's Relief Fund, the amount collected towards Area Development Fund is retained by the sugar factory itself and utilized as per the guide lines issued by the Government or the National Co-operatives Development Corporation. The collective body of the society and its elected representatives take the decision as to how much amount has to be spent and for what purposes. The Director of Sugar or other designated official, no doubt acts in a supervisory capacity to oversee that the funds are properly utilized. On that account, it cannot be said that the collection is made by the society as an agent of the Government or the proprietary interest in the funds is vested with the Government. The conclusion has been reached by the Tribunal mainly on the basis of the requirement of prior sanction of the Director of Sugar for incurring the expenditure. Such restriction prescribed in the larger interest of the society itself does not in any way detract from the fact that the societies con cerned do exercise dominion over the fund and deal with that money subject of course to the guidelines and restrictions evolved by the Government. The Tribunal failed to approach the quest....