R.K.AGRAWAL,J. - (1.) Leave granted.
(2.) The present appeal has been filed against the impugned judgment and order dated 29.10.2012 passed by the High Court of Judicature at Madras in Tax Case (Appeal) No. 368 of 2005 wherein the Division Bench of the High Court allowed the appeal filed by the respondent by absolving the additional tax liability imposed by the Assessing Officer, vide order dated 25.01.1996.
(3.) Brief facts:- (a) The Respondent - an individual and the proprietor of M/s Chandrakala and Company, is a stock broker registered with the Madras Stock Exchange. He is stated to be an approved broker of the Indian Bank. The assessment years under consideration herein are 1991-92, 1992-93 and 1993-94 respectively. During all these relevant assessment years the Respondent acted as a broker to the Indian Bank in purchase of the securities from different financial institutions. (b) It is the case of the Revenue that the Indian Bank, in order to save itself from being charged unusually high rate of interest on borrowing money from the market, lured Public Sector Undertaking (PSUs) to make fixed term deposit with it on higher rate of interest. The rate of interest offered to the PSUs for making huge term deposits was to the extent of 12.75% of interest on fixed deposits against the approved 8% rate of interest in accordance with the RBI directions. (c) In order to pay higher interest to the PSUs who made a fixed term deposit with the Indian Bank, the bank requested the Respondent to purchase securities on its behalf at a prescribed price which was unusually high but adequate to cover the market price of the securities, brokerage/incidental charges to be levied by the Respondent on these transactions, apart from covering the extra interest payable to the PSUs. The Respondent, on the instructions of Indian Bank, purchased securities at a particular rate quoted by the Bank and sold them to Indian Railways Finance Corporation. Bank of Madura was the routing bank through which the securities were purchased and sold to Indian Bank for which Bank of Madura charged service charges. The Respondent was paid commission in respect of transactions done on behalf of Indian Bank. Under instructions from Indian Bank, a portion of the amount realized from the security transactions carried on behalf of Indian Bank was paid by way of additional interest to certain Public Sector Undertakings (PSU) on the deposits made with the Indian Bank and out of eight PSUs three has confirmed the receipt of such additional interest through demand drafts. (d) The Respondent filed his return of income for the Assessment Year 1991-92 on 01.11.1993 and declared his income at Rs. 4,82,83,620/-. The total income was determined at 4,85,46,120/- vide order dated 30.06.1994. However, later on, the case was taken up for scrutiny and assessment was framed under Sec. 143(3) of the Income Tax Act, 1961 (in short 'the Act'). The Assessing Officer, vide order dated 25.01.1996, raised a demand for a sum of Rs. 14,73,91,000/- with regard to the sum payable to the PSUs while holding that the Respondent has acted as a broker in the transactions carried out for the Indian Bank rather as an independent dealer and that there was no overriding title in favour of the PSU's with regard to the additional amount earned out of the securities transactions and it is a case of application of income after accrual and, hence, the said amount is liable to be assessed as the income of the Respondent. (e) The Respondent, being dissatisfied with the order, preferred an Appeal before the Commissioner for Income Tax (Appeals). Learned Commissioner of Income Tax (Appeals), vide order dated 08.08.1996, set aside the demand for additional tax while deciding the issue in favour of the Respondent and held that the alleged additional interest payable to the PSUs could be considered as the income of the Respondent. (f) Being aggrieved by the order dated 08.08.1996, the Revenue filed an appeal bearing No. ITA No.2297(Mds)/1996 before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal'). The Tribunal, vide order dated 05.01.2005, allowed the appeal filed by the Revenue and held that the amount received at the hands of the Respondent which is alleged to be payable to the PSUs is the income of the Respondent and there is no overriding title exists in favour of the PSUs so as to cause diversion of income. (g) It is pertinent to note that in the meanwhile criminal proceedings which were initiated with respect to the present transactions in question against the Respondent along with others bearing No. CC 17 of 1997, was decided on 27.04.2004 by the CBI court. The court, while acquitting the Respondent has observed that the relationship between the Indian Bank and the Respondent is that of principal-agent and with regard to the transactions in question the Respondent acted in the capacity of a broker and as an individual dealer. However, the Tribunal refused to rely on the evidence produced in the trial court on the ground that the assessment proceedings are different from the criminal proceedings and the evidence adduced in the trial court couldn't be relied to absolve the Respondent from the tax liability. (h) Being aggrieved by the order of the ITAT dated 05.01.2005, the assessee filed Tax Case Appeal No. 368 of 2005 before the High Court. The High Court, vide order dated 29.10.2012, set aside the order of the Tribunal while relying on the evidence given in the criminal case in this regard. Hence, this appeal is filed before this Court. Point(s) for consideration:-;