The Madras High Court ruled that the income is taxable on receipt of income in reality and not taxable for mere physical receipt of income.
The Assessee (respondent), T. Jayachandran is an individual and Proprietor of M/s.Chandrakala & Co., a Stock Broker registered with the Madras Stock Exchange. During the assessment years 1991-92, 1992-93 and 1993-94, the Assessing Officer disallowed the payments made by the assessee to Public Sector Undertakings. On an appeal, the Income Tax Appellate Tribunal vide its order confirmed the additions made by the Assessing Officer. Thereafter, the Assessing Officer initiated penalty proceedings and levied minimum penalties of Rs.8,25,32,755/-, Rs.1,40,55,563/- and Rs.17,68,928/- respectively for the assessment years 1991-92, 1992-93 and 1993-94 vide orders dated 22.07.2005 under Section 271(1)(c) of the Act holding that the assessee furnished inaccurate particulars of income.
The orders passed by the Assistant Commissioner of Income Tax, appeals were filed by the assessee before the Commissioner of Income Tax (Appeals). The appeals were allowed. Thereafter, the Revenue filed appeals before the Income Tax Appellate Tribunal. In the meanwhile, the Deputy Commissioner of Income Tax, Chennai, also filed a Civil Appeal before the Supreme Court against the order of this High Court wherein the Division Bench of this court allowed the appeal filed by the respondent/assessee, by absolving the additional tax liability imposed by the Assessing Officer.
The assessee has raised the issue whether under the facts and circumstances of the case, the Hon’ble Income Tax Appellate Tribunal right in law in upholding the order of the Commissioner of Income Tax (Appeals) deleting the levy of penalty under Section 271 (1)(c).
The division bench of Justice of Justice M.Duraiswamy and Justice Hemalatha while relying on the decision of the Supreme Court in Civil Appeal No.4341 of 2018 wherein it was held that the the Respondent had acted only as a broker and could not claim any ownership and that the receipt of money was only for the purpose of taking demand drafts for the payment of the differential interest payable by Indian Bank and that the Respondent had actually handed over the said money to the Bank itself, we have no hesitation in holding that the Respondent held the said amount in trust to be paid to the public sector units on behalf of the Indian Bank based on prior understanding reached with the bank at the time of sale of securities and, hence, the said sum cannot be termed as the income of the Respondent.
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