TaxTMI 
TaxTMI 
2004 (12) TMI 17
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....circumstances of the case, the Tribunal was legally correct in affirming taxability thereof, as income, in the case of the assessee? (iii) Whether there was any material for the Tribunal to come to the conclusion that interest received in relation to the funds which got deployed with scheduled/nationalised banks remained lying with the appellant Nigam, and there was no diversion of the same, at the very source, in favour of the State Government? (iv) Whether the findings about the taxability of receipts amounting to Rs. 47,23,315 are not vitiated in law as having been arrived at without giving due consideration to the relevant materials/information, particularly to the effect that (a) the amount in question stood credited in a separate account classified as 'Interest payable to Government'; (b) the State Government never gave up its claim for the said sum; (c) the Nigam at its part had already taken effect steps for making over the said sum as stood comprised in the over all credit balance under the head 'Interest payable to State Government' with such governance; and (d) other relevant/attendant facts and circumstances of the case, (v) Whether the Tribunal was le....
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....ger account with the treasury and in case the funds are placed with commercial banks in any form, then the interest earned on such funds shall belong to the Government itself. The State Government has been issuing instruction/notification from time-to-time in order to regulate the said stipulations. During the assessment years 1994-95 and 1995-96 the Nigam had received a sum of Rs. 71,96,225 and Rs. 47,23,315, respectively towards the interest accrued/received on fixed deposits made by it. Before the Assessing Officer it was contended on behalf of the Nigam that interest on F.D.Rs., which had not been shown in the income of the Nigam but in the footnote of the balance sheet that it is income of the State Government, is not the income earned by the Nigam but it belonged to the State Government and, therefore, on the principle of diversion of income by overriding title the Nigam claimed that it was not its income. The Deputy Commissioner of Income-tax, Special Range, III, Lucknow, while framing the assessment order in each of the two years did not accept the plea of the Nigam and held it to be its income and accordingly imposed tax thereon. Feeling aggrieved the Nigam preferred separ....
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....am has not been treating the amount of interest accrued/received on fixed deposits/receipts from the commercial banks as its income and that is why it was not showing in the profit and loss account and a note was made in the balance-sheet/profit and loss account that the said amount belonged to the State Government. He next submitted that the amount of interest did not belong or accrue to the appellant and in the present case the concept of real income should be employed. He further submitted that the board of directors of the Nigam had passed a resolution on March 23,1998, in which out of the amount of interest accrued/received on fixed deposits in respect of the grant made by the State Government, it was resolved that Rs. 350 lakhs be converted in the share capital. He further submitted that in respect of the assessment year 1981-82 the Tribunal itself had held that the interest accrued on the fixed deposits was diverted by overriding title to the Government of Uttar Pradesh. Learned counsel for the appellant raised an alternate plea that in case the amount in question is treated to be the income of the Nigam there was a corresponding liability towards the State Government upon t....
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....the Tribunal for which specific finding has been recorded by the Tribunal, we are not permitting learned counsel for the appellant to raise this plea before us. Learned counsel, however, submitted that in the grounds of appeal such a plea was specifically raised and in fact he had argued the same before the Tribunal. Be that as it may, we are taking the facts recorded by the Tribunal on this aspect as final unless it is rectified by the Tribunal in the appropriate proceedings. We are supported in the view which we have taken by the decision of the apex court in the case of State of Maharashtra v. Ramdas Shrinivas Nayak, AIR 1982 SC 1249. After hearing learned counsel for the parties we find that the Nigam had been depositing the amount of grant received by it from the Government of Uttar Pradesh in the commercial banks notwithstanding the Government orders dated March 7, 1979, and April 3, 1980. It has been enjoying income from interest for the last more than 15 years and it has not bothered to pay the amount of interest to the State Government except making a provision in its books of account towards liability for payment of interest to the State Government. The State Governmen....
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....een received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable." In the case of Moti Lal Chhadami Lal Jain [1991] 190 ITR 1 the apex court has held that the existence of a mere obligation is not sufficient to constitute diversion of income. It has held as follows: "In the above passage, it is clear that the expressions 'reaches the assessee' and 'has been received' have been used not in the sense of the income being received in cash by one person or another. What the passage emphasizes is the nature of the obligation by reason of which the income becomes payable to a person other than the one entitled to it. Where the obligation flows out of an antecedent and independent title in the former (such as, for example, the rights of dependants to maintenance or of coparceners on partition, or rights under a statutory provision or an obligation imposed by a third party and the like), it effectively slices away a part of the corpus of the right of the latter to receive the entire income and so it would be a case of di....
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....ing the debtors account and not reversing that entry-but taking the interest merely in suspense account cannot be such evidence to show that no real income has accrued to the assessee or been treated as such by the assessee. (8) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within well-recognised limits. We were invited to abandon legal fundamentalism. With a problem like the present one, it is better to adhere to the basic fundamentals of the law with clarity and consistency than to be carried away by common cliches. The concept of real income certainly is a well-accepted one and must be applied in appropriate cases but with circumspection and must not be called in aid to defeat the fundamental principles of the law of income-tax as developed." In the case of Shiv Prakash Janak Raj and Co. P. Ltd. [1996] 222 ITR 583 the apex court has approved the view taken by this court in the case of State Bank of Travancore [1986] 158 ITR 102 that if there is any diversion of income at source under any statute or by overriding title, then there is no income to the assessee and the co....
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....er attached to an income, and a similar obligation attaching to the source of the income. If the obligation is on the source of the income it is a case of diversion of income by overriding title, but if the obligation is to spend the money in a particular manner it is only an application of the income. In the case of Godhra Electricity Co. Ltd. [1997] 225 ITR 746 the apex court has held that income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about the hypothetical income which does not materialise. In the case of National Handloom Development Corporation Ltd. [2004] 266 ITR 647 this court has held that a basic concept in income-tax law is that the assessee must have received or have acquired a right to receive the income before it can be taxed. There must be a debt owed to him by somebody, if the amount is to be taxed on mercantile (accrual) basis. Unless a debt has been created in favour of....
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.... record the specific orders by which the Government of Uttar Pradesh had given the grant and whether such orders contained any such stipulation that the amount of interest which may accrue if the grant is invested/kept in commercial banks, shall be the income of the Government of Uttar Pradesh and shall be added to the grant earned. In the absence of any such material having been placed on record it is not possible to hold that the interest did not belong to the Nigam. By the Government order, dated March 7, 1979, the State Government undertakings/corporations/boards were directed to deposit the amount of grant in the personal ledger account in the treasury and in future also they were required to deposit the amount in the treasury and all amounts which have been deposited in the commercial banks should be withdrawn and deposited in the personal ledger account of the treasury. In the order dated April 3, 1980, the State Government had expressed its opinion that if in any special circumstances the amount of grant is not deposited in the personal ledger account in the treasury and the same is invested in the fixed deposit account, then the amount of interest should be added to the Go....