ITTA/464/2012 of M/S. G.H.REDDY AND ASSOCIATES Vs THE INCOME TAX OFFICER, on 6 February 2026

1. . The present appeal has been filed chailenging the order passed by the Income Tax Appellate Tribunal, Hyderabad Bench A' in ITA'No.S t3 / Hyd,/2009(Ay -2006-0r), dt. rr.o4.2oL2.

2. The t,rief facts of the case are that the appellant/assessee was allotte<l a work contract by M/s Krishna Bhagra Jala Nigam Limited (KEIJNL) uid.e agreement, dt.13. L2.lggg, for construction of a canal rrnd during the course of execution of the said work, disputes an'ose between the parties, pursuant to which the appellant/assessee raised an arbitration claim against KBJNL and the matter was referred to an arbitrator, who allowed the said claim uide order dt.24.O1.2003. Assailing the said orders, KBJNL preferred an appeal before the District Court, which was partly confirmed. There-against, KBJNL filed appeal before the Hon'ble High Court of Karnataka at Bangalore, and the High Court uide interim order dt.2l.l2.2OOS stayed the operation of the District Court's order and directed KBJNL to deposit a sum of Rs.3 crores to the appellant/assessee as an interim measure, pending disposal of the appeal.

3. Pursuant thereto, KBJNL deposited the said amount of Rs.3 crores (excluding the TDS amount) in the account of the appellant/assessee. Further, the Assessing Officer treated the said amount as revenue receipt and brought it to tax as income in the year of receipt uide order, dt.31 .12.2OO8.

4. Aggrieved by the said assessment order, the appellant/assessee preferred an appeal before the CIT(A) and the CIT(A), by order dL2g.O4.2OOg, allowed the appeal directing the Assessing Officer to delete the addition of said amount as revenue receipt for the relevant assessment year, holding that the amount \

is liable to be taxed in the year in which the dispute with KBJNL attains finaiity in favour of the assessee

5. Assailing the order of the CIT(A), the respondent/Revenue has filed the underlying appeal in ITA.No.B13/Hyd/2oo9, before the learned ITAT and the ITAT, by the impugned order, dt.11.O4.2O12, set aside the order,of the CIT(A), dt.29.04.2}09 and affirmed the orders of the Assessing Authority. The said order of the learned ITAT is under challenge before this court and the appeal is ad mit.ted on the follo'*'ing substantial questions of law: "Whettrcr in the facts and circumstances of tlrc cese, the Income Tax Appellate Tribunal is igLtt in holding that the q"mourtt receiued by waA of an iruterim order from the Honourable High Court of Karnataka is taxable in the year of receipl when the matter hoLs not attained. any finatity and. tle disputz fs sfl/l pending before the Hon'ble Supreme Court of India Jbr final decision?"

6. Heard the learned counsel Sri R. Siva Raman, iearned counsel representing Sri B.Vrjay Kumar, for the appellant/as;sessee and Ms. J. sunitha, learned Senior standing Counsel for .[ncome Tax for respondent/Revenue.

,li

7. karned counsel for the appellant/assessee contended that the amount of Rs.3 crores (excluding the TDs amount) was deposited by KBJNL as an interim measure arising out of arbitral proceedings and that the said deposit cannot be treated as income in the year of receipt and it would become taxable only in the year in which the dispute finally resolves between the parties in favour of the assessee and in any event ii the dispute ends against to the interest of the assessee they hre liable to return the sarne to KBJNL.

8. The learned counsel for the petitioner placing reliance on the order passed by the Division Bench of this court in commissioner of Income Tox-0fi & sr, Indira pouter Energies Lim.itedr contended that the order passed by the ITAT is perverse and against to the law taid down by the Honble supreme court in the case of commtssioner of rncome Tqx a, rrindustan Houslng & Lqnd Deuelopment rrttst Limited2, and contend.ed that the learned ITAT has erroneously reversed. the well-reasoned ord.er passed by the CIT(A) and is in violation of the settled principles of law 1 ITTA.No.327 of 2OL2, dt.02.O8.2013 2 t986 161 ITR 524

9. Per contra, the learned Senior Standing Counsel for Revenue would corLtend that the Tribunal is justified 1n passing the impugned order and that as the amount had already been deposited :n the account of the appellant/assessee, it is nothing but incomr: of thc assessee/comparly and liable to be taxed in the year of rec:ipt and contended that the orders passed by the ITAT are justifierl and valid, thus, praved'to dismiss the instant appeal.

10. We have given earnest consideration to the submissions made the It:arned counsel on either side and perused the material on record.

11. The rihort point that arises for consideration before this Court is, vrhether the sum of Rs. 3 crores (excluding the ?DS amount) decosited in the account of the assessee pursuant to an interim ord,3r, dt.21.12.2005, on the file of the Hon'ble High Court for the State of Karnataka, is taxable as income of the assessee in the year of receipt or whether the said amount is exigible to tax after the final resolution of the dispute, and upon such final resolution, whether it would then be treated as income of the assessee for the relevant period.

12. Admittedly, the said amount of Rs.3 crores (excluding the TDS amount)lnas been deposited in the account of the assessee in pursuance of an interim arrangement made during the pendency of the appeal, in compliance with the directions issued by the Honble High court of Karnataka. At this stage, apparently the right of the appellant/assessee over the said amount has not attained finality and the crystallization of said deposit into income is in a fluid state and depends upon the final determination in the High Court of Karnataka.

13. It is v'ell settled that until and unless a competent court of law decides the said issue conclusively, the said amount cannot be said to have crystallized as income and the assessee shall not derive any right over the said amount.

14. The very sarne issue carne up for consideration before the Division Bench of this court in the case of M/s R.s. Ra ngad,as, rrgderabad, I/s. Acrr, circre-Il(7), Hgderabads wherein by placing reliance on the judgment of the Honble supreme court in Hindustan Housing and Lo.nd. Development rntst Limited, (supra) and also by the judgment of the Honble High court of 3 ITTA.Nos.68,97 and 168 of 2003, dt.O2.Og.2Ol4 \ \

Bombay in the case of SGP Ltd. a. Commissioner of Income Tax4, the said issue is no more res integra.

15. The Hon'ble Supreme Court in Hindustan Housing and Land Deuelopment Tntst Limited's case(supra) has categorically held that unless and until the amount in question is finaily crystallizerl, the question of the treating the same as income in the year of re,:eipt does not arise. The Honble Supreme Court has affirmed tr the legal position as clarified by the Gujarat High Court in Topandas Kundanmq.l a. Commissioner of Income- tax, Gujan'ort, which reads as under: u......,...the legal position which emerges is that there is no liability in praesenti to pay an enhanced compensation till it is judicially determined by the final court since the entire question, namely, whether the offer made by the Land Acquisition Office:r is inadequate and the claimant is entitled to an aclditiona-l compensation and if yes, at u,hat rate is in llux till the question is set at rest finally, we do not think that any enforceable right to a particular amount of compensation arises. The offer made by Land Acquisition Officer, by his award, if not accepted by a claimant would not result autonratically in a liability to pay additional corrprlnsation as claimed by party aggrieved." 4 (2010) 226tT? 444

L6. The principle of law involved in the said judgment would squarely apply in the instant case as the very right of the appellant-assessee to receive the amount is under dispute and is not conclusively determined in favour of the assessee and the sarne is also not quantified and crystallized.

17. Thus, in view of the law laid down by the Honble supreme court in Hindustan Housing and Land Deuelopment rntst (supra) read u,ith the judgments in Topandas Kundanmal (supra) and sGP .Ltd. (supra), we are of the considered view, that the amount of Rs.3 crores, deposited in pursuance of the direction of the Honble High court of Karnataka, cannot be treated as revenue receipt or as income taxable of the assessee in the year of receipt. Moreso, it is always open to the Assessment officer to subject the said amount to tax in the assessment year in which the dispute is finally resolved in favour of the assessee crystallizing the right of the assessee.

18. tn that view of the matter, the impugned order passed by the Income Tax Appellate Tribunal is nothing but ex facie illegal, arbitrary and perverse and accordingly, the substantial question \ \

of law is anrrwered in favour of the appellant/assessee and against the respond ent / Revenue.

19. In vie,,r, of the above findings, the appeal is allowed and the impugnedord'erinITA.No.B|3lHydl2oo9(AY-2006-o7|, dt.11.O4.2012 is hereby set aside. Consequently, the assessment ord.er, dt.3,.|2.2OOB, is hereby quashed, rvith a direction to the assessing officer to pass appropriate orders after final determination of the dispute under arbitral proceedings, by following dr.te process of law. No order as to costs'

As a sequel, miscellaneous petitions pending, if any' shall stand close1. SD/- K.SHYLESHI JOINT REGISTRAR //TRUE COPY// SECTION OFFICER One Fair Copy to the Hon'ble Sri Justice P. SAM KOSHY (For His Lordships Kind Perusal) AND One Fair Copy to the Hon 'ble Sri Justice SUDDALA CHALAPATHI RAO (For His Lordships Kind Perusal)

1. The lncome Tax Appellate Tribunal Hyderabad "4" Bench Hyderabad

2. The Conrmissioner of lncome Tax(Appeals)-lll Hyderabad.

3. 11 LR Copies

4. The Under Secretary, Union of lndia Ministry of law, Justice and Company Affairs, New Delhi

5. The Secretary Telangana Advocates Association, Library, High Court Buildings Hyderabad

6. One CC to SRl. B VIJAY KUMAR Advocate [OPUC]

7. One CC t:o Ms. J. SUNITHA (SENIOR SC FOR INCOME TAX) TOPUCI

8. Two CD r3opies I I To Kul/PSL

HIGH COURI' DATED:0510212026 Note L.R. Copy to bc nrarked

ORDER

ITTA.No.464 o1'2012 ALLOWING THE APPEAL WITHOUT COSTS lab I 6 '{ irfl 2026 t o * THE S * t a"