TaxTMI 
TaxTMI 
2012 (12) TMI 417
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....i) Whether on the facts and circumstances of the case, there was any evidence or materials before the Income Tax Appellate Tribunal to come to the conclusion that the appellant did not act as an agent of Indian Bank? (ii) Whether on facts and circumstances of the case, when admittedly as per the instructions of Indian Bank the broker (appellant) had drawn the demand drafts to and in favour of the public sector undertakings (the depositors) and the appellant acted as an agent to convey these drafts, was the Appellate Tribunal right in law in holding that there was no diversion of title? (iii) Whether Income Tax Appellate Tribunal was right in law in holding that the findings of Principal Special Judge for CBI cases was not binding and had no relevance for deciding the case especially when they had waited for ten long years for ascertaining the outcome of the decision before disposal of the same appeals? (iv) Whether the Tribunal was right in law in not considering the evidence placed before it, ignoring essential facts and arriving at a conclusion based on illusory assumptions? (v) Whether the Tribunal was right in law in ignoring the fact that the respondent had accepte....
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....carried on behalf of Indian Bank was paid as by way of additional interest to certain public sector undertakings on the deposits made with the Indian Bank. According to the assessee, his role was only that of a conduit for taking demand drafts in respect of additional interests payable to the public sector undertakings and the "demand drafts taken" on behalf of the Indian Bank did not form part of the total income of the assessee. According to the Assessing Officer, this gave the assessee a profit of Rs.16,74,79,420/-. According to the assessee, a sum of Rs.15,17,44,653/- represented additional interest payable by Indian Bank to eight public sector undertakings who had made fixed deposits with Indian Bank. The assessee pointed out that a sum of Rs.14,78,91,000/-, in fact, did not belong to the assessee and they, in fact, represented money belonging to Indian Bank, which were utilised for the purpose of taking demand drafts in favour of eight public sector undertakings, namely towards additional interest payable by Indian Bank on the deposits kept by the public sector undertakings; the details were as follows: 1. Indian Railway Finance Corporation : Rs. 1,77,48,000/- ....
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....nterest payable to the Public Sector Undertakings as part of the purchase price and to pay for the securities as per the market value. Thus the difference was used for working out the interest payment over and above what is normally paid. 6. The Assessing Officer pointed out that of the eight public sector undertakings, three of them - Oil and Natural Gas Commission, Bharat Dynamics Ltd. and Nuclear Power Corporation, confirmed the receipt of demand drafts. The rest of them - National Thermal Power Corporation, Minerals and Metals Trading Corporation Limited, State Trading Corporation, Indian Railway Finance Corporation and Delhi Development Authority, however, denied to have received any such demand drafts either from the assessee or from Indian Bank. The Officer pointed out that there was no agreement between the assessee and the Indian Bank about this payment. 7. The assessee submitted that at no point of time, the sum of Rs.14,73,91,000/- was held by the assessee as an income or as part of the consideration for the purchase of securities or by way of commission. The said amount was really the money given by Indian Bank for getting Demand Drafts for payment o....
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....the sum of Rs.14,73,91,000/- was diverted at source itself as money due to Indian Bank. Immediately on the receipt of the money from the Indian Bank, there was an implied contract to take demand drafts in favour of the eight public sector undertakings. In the circumstances, the question of inclusion of the said amount as income of the assessee did not arise. Referring to the decision reported in [1985] 155 ITR 696 (AP) (Commissioner Of Income-Tax Vs. M.D. Manohar Rao), the first appellate authority pointed out that as far as the case on hand was concerned, the question was not as to whether, in the event of the assessee not taking the demand drafts, such an agreement could be enforceable in law. Hence, the facts established that the assessee had taken Demand Drafts at the instance of Indian Bank and paid the same to Indian Bank for making them available at the hands of the eight public sector undertakings who had made fixed deposits with the Indian Bank. Thus, on an appreciation of the evidence and the facts herein, the First Appellate Authority agreed with the assessee that the sum of Rs.14,73,91,000/- was meant for taking demand drafts as by way of extra interest payable by India....
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....n 13(1)(c) and 13(1)(d) of the Prevention of Corruption Act, 1988 against A1; under Section 109 read with 409 IPC (6 counts) and 109 IPC read with Section 13(2) read with Section 13(1)(c) and Section 13(1)(d) of the Prevention of Corruption Act, 1988 against A2, the assessee herein. 12. A reading of the charges made thus makes it clear that the allegations made on Gopalakrishnan were that as a public servant, entrusted with dominion over public funds, he abused his position by permitting the assessee herein to deal with the money in the securities transactions and to credit the cheques issued for purchase of securities in favour of Bank of Madura Ltd., in the account of Chandrakala and Co., the assessee herein with Bank of Madura and convert the excess amount of Rs.4,92,13,000/- paid on the subscription of securities for Indian Bank for payment of interest in excess of 8% interest permitted by the Reserve Bank of India to M/s.Bharat Dynamics Limited and other Public Sector Undertakings and thereby committed the offence punishable under Section 120 I.P.C. read with Section 409 I.P.C. It was further alleged that A1 had dishonestly disposed of public funds by purchasing secu....
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....he or the Assistant General Manager verified the quotation of the broker and accordingly instructed the broker to identify the securities. The rates quoted by A2, the assessee herein, were verified by the Investment Department or the AGM. On a specific question as regards the rates of the assessee as a broker, P.W.8 Sri. Vairavan, the then Chief Officer of the Indian Bank, deposed about the contract between the assessee and the Indian Bank, and the contract note issued by the members of the stock exchange acting for the constituent as broker, was an agreement between the issuer and the buyer/seller. The contract note contained the date of contract, the buyer, the seller, the securities face value, rate, date of delivery, default condition and arbitration. In the background of this, the contract note was stamped as per the Stamp Act and was a legally enforceable document. In the face of this document, the Criminal Court came to the conclusion that the assessee was engaged as a broker for Indian Bank for buying and selling securities. On an analysis of the evidence, the Criminal Court further pointed out that none of the witnesses had spoken about the dishonest intention of A1 and A2....
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....ey. The Criminal Court thus held that A2, viz., the assessee herein, had no role to play in the Indian Bank's acceptance of fixed deposit at high rate of interest and the system of payment of higher interest was there even prior to these transactions. Thus the Criminal Court gave the benefit of doubt, holding that the prosecution had not proved its case. 16. It is a matter of record that the appeal before the Tribunal at the instance of the Revenue was adjourned for quite some time on account of the pending criminal proceedings, wherein, the transactions which were the subject matter of consideration, for assessment was the core of the charge there. Thus, in the criminal prosecution, when judgment was passed on 27.04.2004, the criminal Court discharged the assessee as A2 as well as the Chairman as A1. Before the Income Tax Appellate Tribunal, the assessee placed reliance on the evidence and the findings therein touching on the transaction in support of the contention that he had merely acted as a broker for Indian Bank and that the money given and taken as drafts were that of Indian Bank for payment of additional interest to public sector undertakings. However, the Tri....
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.... 18. He further pointed out that the Bank, right through, had acted on the basis of the contract note and the parties herein were fully aware of the nature of relationship between them. In the background of the said facts, the Commissioner of Income Tax (Appeals) rightly came to the conclusion that the amount could not be added on as the income of the assessee. Commenting on the observation of the Income Tax Appellate Tribunal on the relevance of the CBI Court's decision, he submitted that it is no doubt true that the scope of the charges framed before the CBI Court were totally different from the disputed question raised in the Tax Appeal, but one cannot easily brush aside the evidence let in by the bank officials on the subject transactions which were the basis of the criminal prosecution and which were the subject of assessment. As regards the role of the assessee herein vis-a-vis the bank, going by the evidence of the Executive Director and the investment sector and the other witnesses speaking on behalf of the prosecution, it is clear that the role of the assessee was only that of a broker, who was given the money for taking demand draft for payment of interest to the publi....
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....out to the relationship between the assessee and the bank, which is in a statutory format. Hence, it is not open to the Revenue to ignore the same. Referring to the decision reported in [1996] 219 ITR 39 (Commissioner of Income-tax Vs Madras Race Club), he submitted that as held by this Court in the said decision, for proving the diversion by overriding title, it is not necessary that the agency and principal should be evidenced by a written agreement. 19. Countering the claim of the assessee, the Revenue pointed out that the proceeding under the Income Tax Act being an independent proceedings, rightly the Income Tax Appellate Tribunal rejected the assessee's contentions based on the Criminal Court's finding. Referring to the decisions reported in 53 ITR 21 (SC) (CIT v. L.W. Russell) and [2008] 301 ITR 37 (R.P. Vashisht Vs. Deputy Commissioner of Income Tax (Appeals)) (P&H), he submitted that the findings of the Criminal Court are not binding on the tax authorities to arrive at a finding as to whether the interest was the income of the assessee or not and hence, in the absence of any material to substantiate the case, no exception could be made to the order of the Tribuna....
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....dged trial, a Court of competent jurisdiction had pronounced on the relationship between the parties, that A2, the assessee herein, acted as a broker only, in the absence of any contra evidence produced by the Revenue, the Tribunal should have considered this finding as answering the question on the role of the assessee as a broker. 23. On an analysis of the evidence available, particularly that of the Executive Director who had spoken about the role of the assessee as a broker specifically engaged by the Bank for purchase of securities, the Bank had included the interest money too in the consideration paid for the purpose of taking Demand Drafts in favour of the Public Sector Undertakings, in fairness to the claim of the assessee and in the absence of any material otherwise from the side of the Revenue, the Tribunal should have given credence to those findings drawn from the evidence let in by the prosecution. We agree with the assessee's contention that contrary to the view of the Tribunal, the evidence spoken therein by the prosecution witnesses, clearly establish the role of the assessee as a broker, that he never acted as a principal to deal with the securities on hi....
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....re is no quarrel on the proposition that the decision of the Criminal Court would not be binding on the tax authorities. Yet, the oral evidence let in before the Criminal Court and by way of various documents filed therein as regards the relationship of the Indian Bank with the assessee, speak on the nature of services rendered by the assessee. In the circumstances, we reject the Tribunal's view that the evidence before the Criminal Court have no bearing on the issues raised before the Tribunal. We hold that the status of the assessee vis-a-vis Indian Bank was only that of a broker of Indian Bank and nothing else. 26. This takes us to the next question as to whether the sum of Rs.14,78,91,000/- could be treated as the income of the assessee. Given the fact that the assessee had acted only as a broker and could not claim any ownership on the sum of Rs.14,78,91,000/- and that the receipt of the money was only for the purpose of taking demand drafts for the payment of the differential interest payable by Indian Bank and that the assessee had actually handed over the said money to the Bank, a fact which is evidenced by the letter written by the Indian Bank dated 25.03.1994 ac....
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....rlooking the evidence before the Criminal Court. There is no quarrel over this proposition of law that an accused can be acquitted giving him the benefit of doubt and the assessment rests on preponderance of probabilities on the basis of the evidence on record. Thus when the question with reference to the status of the assessee as a broker had been clearly spoken to by the witnesses who are the officers of the Bank, who had understood the role of the assessee and accordingly instructed the assessee to act, the evidence thus recorded therein clearly prove on the status of the assessee vis-a-vis the Bank, even going by the theory of preponderance of probabilities, we have no hesitation in holding that the assessee could not be mulcted with any liability as regards the sum of Rs.14,78,91,000/- as his income. Consequently, we hold that the said amount cannot be included in his assessment. In the circumstances, we do not find any necessity to go into the question as to the applicability of Section 37. In the circumstances, the order of the Tribunal is set aside and the Tax Cases are allowed. 29. The decisions relied on by the Revenue, do not, in any manner, advance the case of....