INCOME TAX OFFICER v. BINANI BROTHERS (P) LTD
[Citation -1984-LL-1030-4]

Citation 1984-LL-1030-4
Appellant Name INCOME TAX OFFICER
Respondent Name BINANI BROTHERS (P) LTD
Court ITAT
Relevant Act Income-tax
Date of Order 30/10/1984
Judgment View Judgment
Keyword Tags payment of interest • alternative claim • enhanced value • debit note • ex gratia
Bot Summary: Thereafter, the assessee was entitled to interim interest and interest on judgment at the rate of six per cent per annum and cost. Chalia, the Departmental Representative, referred to the plaint submitted by the assessee and the decision of the High Court and urged that the assessee itself claimed interest for the delayed payment under s. 61 of the Sale of Goods Act, 1930, and under the Interest Act, 1839. Under the above circumstances, the assessee cannot claim that the High Court awarded compensation, when the High Court directed the defendant to pay awarded compensation, when the High Court directed the defendant to pay interest to the assessee. Chalia referred to all the decisions cited by the assessee before the CIT and, distinguishing them on facts, urged that these decisions do not help the assessee. The assessee supplied goods to Hindustan Cables Ltd. The assessee could not recover the principal amount in time, according to the contract. The assessee filed suit and the assessee claimed the principal amount and interest thereon for delayed payment as well as for the payment of interest which was made by the assessee to its banker. The assessee itself included the interest of Rs. 1,807 as interest realised by the bank from the assessee.


Y. UPADHYAY, VICE PRESIDENT Order Both appeals, one preferred by Department and other filed by assessee, are heard together and disposed of by this common order. In Departmental appeal, following grounds have been taken by Department : (1.) That learned CIT (A) has erred both on facts and in law in holding that sum of Rs.1,50,472 is not taxable receipt. (2.) That learned CIT (A) has erred in interpreting High Court's order awarding interest of Rs. 1,52,470. (3.) That learned CIT (A) has not been justified in directing ITO to allow interest under s. 214, in consequence of relief given by him. 2. assessee is private limited company. assessee filed its return on 10th July, 1978, showing income of Rs. 2,95,682. revised return was filed on 5th Aug., 1978, in which income of Rs. 1,46,632 was shown. assessee, while filing revised return, claimed that sum of Rs. 1,52,470 received from Hindustan Cables Ltd., as per Calcutta High Court's decision, being compensation was exempt. assessee and Hindustan Cables Ltd. agreed vide their letters dt. 12 th Feb., 1966 and 14th March, 1966, about supply of 1100 tons of pig lead of 99.99 per cent purity and letters dt. 6th Dec., 1965 and 8th Dec., 1965 for import and supply of 800 tons of pig lead. terms about supply and payments were agreed upon by both parties. assessee in June 1966 intimated Hindustan Cables Ltd. that as result of devaluation of Indian rupee, cost shall be enhanced, to which latter agreed. assessee supplied 1100 tons of pig lead and from time to time, it was getting payments. assessee claimed that it was not paid balance sum of Rs. 2,14,139.92, in respect of supply of 1100 tons of pig lead. Therefore, assessee along with interest claimed amount at Rs. 2,28,229.33. dispute in respect of second supply also arose due to enhanced value on account of devaluation of rupee. assessee supplied 598.0815 tons of pig lead before devaluation, and balance quantity of 200 tons was supplied, which was affected by devaluation. assessee, on this ground, inclusive of interest, claimed amount of Rs. 28,345.20. matter was not settled in between parties and ultimately, assessee filed two Suit Nos. 710 and 722 of 1967 before Hon'ble Calcutta High Court. Hon'ble High Court in respect of Suit No. 710 determined amount payable by Hindustan Cables Ltd. to assessee-company on agreed basis at Rs. 2,10,7 12 .44 with interest of nine per cent per annum from 25th Jan., 1967 till 5th April, 1967. assessee was also entitled to interim interest and interest on judgment, both at rate of six per cent per annum thereafter. decree in respect of Suit No. 722 was for sum of Rs. 28,345.20 with interest of nine per cent from 22nd Aug., 1966 till 5th April, 1967. Thereafter, assessee was entitled to interim interest and interest on judgment at rate of six per cent per annum and cost. interest so awarded by Calcutta High Court, in both cases, had been worked out at Rs. 1,52,470. This amount was claimed by assessee as exempt, being in nature of compensation. assessee before ITO took main plank on terms of contract. It was indicated by assessee that there was no stipulation in contract for interest and, therefore, even though High Court has termed it as interest, it was in nature of compensation. assessee relied on Govinda Choudhury & Sons vs. CIT (1977) 109 ITR 497 (Ori.). said case was distinguished by ITO on facts. assessee further placed reliance in IRC vs. Ballantine (1924) 8 TC 595 (C. Sess.), T.N.K. Govindaraju Chetty vs. CIT 1977 CTR (Ori) 190 : (1967) 66 ITR 465 (SC) and CIT vs. Periyar & Pareekanni Rubbers Ltd. (1973) 87 ITR 666 (Ker.). ITO, on basis of plaint and decision of Hon'ble High Court, found that cases relied upon by assessee are not helpful. He further concluded matter against assessee, holding that interest received by assessee was chargeable to tax. 3. assessee came in appeal before CIT (A) and contended that receipt of Rs. 1,52,470 was not taxable. It was stated that even though High Court might have termed payment as interest, High Court awarded on ex gratia basis and, therefore, it was in nature of compensation. assessee relied on Govinda Choudhury & Sons' case (supra) and T.N.K. Govindaraju Chetty's case (supra). CIT (A) concluded matter in favour of assessee, in para 5 of order in following words : " 5. I have considered various facts and circumstances of case. I find there is much strength in contention made by authorised representative of appellant company. Even though word 'interest' finds place in plaints of appellant and is also mentioned in orders of High Court, it is quite clear that no interest was payable to appellant company by Hindustan Cables Ltd., as per terms of contract. In this connection, my attention was again drawn to letter of Hindustan Cables Ltd., dt. 9th Nov., 1966, wherein it is categorically stated that no interest charges would be payable to appellant company as 'no such charges have been provided under terms and conditions of order', placed on it. My attention has been also drawn to order of Tribunal, Chandigarh Bench, in IT Appeal No. 929 of 1976-77, dt. 30th Sept., 1978, where similar issue came up for consideration. In this order of Tribunal, there is clear finding that award of interest by High Court, as has been done in appellant's case, is award of interest pendente lite which is entirely different from interest simpliciter. It may be mentioned here that Tribunal had taken into consideration cases cited earlier in order as well as English judgment in case of IRC vs. Ballantine (1924) 8 TC 595 (C. Sess.). In appellant's case too, interest receipt arose out of orders of High Court and arose solely out of discretion of Court and not by any right that appellant had to such payment. Hence, in my opinion, payment of this amount, totalling up to Rs. 1,52,470, is in nature of compensation and not taxable receipt. ITO is directed to exclude this sum of Rs. 1,52,470 from total income of appellant company for asst. yr. 1978-79. " 4. Chalia, Departmental Representative, referred to plaint submitted by assessee and decision of High Court and urged that assessee itself claimed interest for delayed payment under s. 61 of Sale of Goods Act, 1930, and under Interest Act, 1839. High Court, after discussion and referring matter to defendant, has awarded interest to assessee. Under above circumstances, assessee cannot claim that High Court awarded compensation, when High Court directed defendant to pay awarded compensation, when High Court directed defendant to pay interest to assessee. If decision of High Court, as interpreted by assessee, is taken into consideration, it would amount to give different interpretation to decision. Chalia referred to all decisions cited by assessee before CIT (A) and, distinguishing them on facts, urged that these decisions do not help assessee. interest had been awarded by High Court and, therefore, it was correctly subjected to tax by ITO. 5 . K.V. Singh, counsel of assessee, on other hand, very strongly supported order of CIT (A) with help of paper-book containing 62 pages. paper-book of assessee included decision of High Court in Suit Nos. 710 and 722 of 1967, various letters exchanged between assessee and Hindustan Cables Ltd., decision of Orissa High Court in Govinda Choudhury & Sons case (supra) and decision of Chandigarh Tribunal in IT Appeal Nos. 929 and 933 of 1976-77. Singh referred, particularly, to judgment in Suit No. 710 of 1967 and urged that assessee was only awarded damages and not interest. He urged that on similar facts, Orissa High Court in Govinda Choudhury & Sons' case (supra) has accepted plea of assessee and similar view has been taken by Chandigarh Bench of Tribunal. Consequently, he urged that finding of CIT (A) should be maintained. 6. issue, in dispute, is whether sum of Rs. 1,52,470 received by assessee was only for delayed payment or it was in nature of compensation. assessee supplied goods to Hindustan Cables Ltd. from time t o time in two separate contracts. goods were supplied and, in meantime, there was devaluation of Indian rupee. Consequently, money value of goods supplied enhanced. There was some dispute between assessee and buyer and ultimately, matter went to High Court where decision was in favour of assessee and High Court directed buyer to pay principal amount along with some additional sum. This additional sum has been taken by ITO as interest, whereas same had been termed by assessee as compensation. 7. If assessee had received compensation, same is not taxable in view of decisions in Govinda Choudhury & Sons' case (supra) and T.N.K. Govindaraju Chetty's case (supra). But if amount received by assessee is in nature of interest, it is taxable. Now, question is, what is nature of additional amount received by assessee. 8 . assessee supplied goods to Hindustan Cables Ltd. assessee could not recover principal amount in time, according to contract. assessee filed suit and assessee claimed principal amount and interest thereon for delayed payment as well as for payment of interest which was made by assessee to its banker. assessee in Suit No. 710 of 1967 in plaint made claim as follows : Rs. Principal sum due as per Annexure 'D' 2,14,139.92 Interest at nine per cent per annum thereon up to 6,610.39 15-3-1967 Interest for delayed payment of bills . Debit note BB/1/66, dt. 3-11-1966 6,441.22 Debit note BB/2/66, dt. 3-11-1966 1,037.80 2,28,229.33 Similar claim in Suit No. 722 of 1967 was made as hereunder : Balance five per cent of price of said 28,345.20 200 metric tonnes of pig lead ingot Interest at nine per cent per annum from 22- 8-1966 to 15-3-1967 on principal sum due 1,439.78 . 29,784.98 Interest realised by bank as aforesaid 1,807.00 . 31,591.98 assessee has also made alternative claim in plaint. High Court had discussed claim of assessee. It was also referred to defendant and after that High Court directed buyer to pay principal amount with interest. observation, in this connection, of High Court in Suit No. 710 of 1967 is quoted below : " Interest has been claimed by plaintiffs under Interest Act as also under s. 61 of Sale of Goods Act by way of damages. notice was given on 25th Jan., 1967, by which defendant was informed that interest would be charged at rate of nine per cent per annum from date of presentation of bills if payment was not received within seven days of receipt of such notice. It is not in dispute that this notice dt. 25th Jan., 1967 (at p. 12 2 of Ext. A) was served or that bills were submitted to defendant. It has been contended on behalf of defendant that this notice is not in strict compliance with Interest Act, as it has not been stated therein that notice was being given under that Act and interest had been claimed, retrospectively. Be that as it may, defendant, in any event, is entitled to interest by way of damages under s. 61 of Sale of Goods Act, which Court in its discretion may allow. It is in evidence that bank was charging interest from plaintiff at rate of nine per cent per annum. On facts and in circumstances, I hold that plaintiff is entitled to interest from defendant at rate of nine per cent per annum from time said sum of Rs. 2,10,7 12 .44 became due. I answer this issue to extent, as indicated above, in affirmative and in favour of plaintiff. " 9. It is clear from above decision of High Court that High Court considered claim of assessee under s. 61 of Sale of Goods Act and Interest Act and was satisfied that assessee suffered loss due to non- payment of principal amount in time and, accordingly, High Court directed buyer to pay principal amount along with interest. assessee itself included interest of Rs. 1,807 as interest realised by bank from assessee. Therefore, there is no ambiguity in order of High Court. High Court plainly awarded principal with interest. High Court order cannot be read otherwise. assessee only received interest for delayed payment and additional amount awarded by High Court was not in nature of compensation. Under above circumstances, after considering facts, decision of High Court in Suit Nos. 710 and 722 of 1967, decisions in Govinda Choudhury & Sons' case (supra) and T.N.K. Govindaraju Chetty's case (supra), order of Chandigarh Bench of Tribunal in IT Appeal Nos. 929 and 933 of 1976-77 and paper-book, it is concluded that sum of Rs. 1,52,470 received by assessee was income from interest and it was rightly taxed by ITO. 10. and 11.(These paras are not reproduced here as they involve minor issues). *** INCOME TAX OFFICER v. BINANI BROTHERS (P) LTD
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