(PRAYER: Tax Case Appeal Nos.366, 367 and 368 of 2005 are filed under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal 'B' Bench, Chennai dated 05.01.2005 passed in ITA Nos.2585 (Mds)/94, 2297(Mds)/96 and 255(Mds)/96 respectively.
W.P.Nos.38858, 38859 and 38860 of 2005 are filed under Article 226 of the Constitution of India for the issue of a Writ of Mandamus forbearing respondents 1 and 3 from in any manner enforcing the demand contained in the order of the first respondent dated 22.07.2005 in No.8577J/ACIT/BC-VIII/2005-2006 for the assessment year 1992-93, 1991-92 and 1993-94 pending disposal of Tax Case Nos.366, 367 and 368 of 2005, pending on the file of this Court.
W.P.No.7279 of 2008 is filed under Article 226 of the Constitution of India for the issue of a Writ of Certiorarified Mandamus calling for the records of the first respondent in Proceedings CHE/Coord/106(misc)/200708 dated 19.2.2008 and to quash the same as illegal and to consequently direct the first respondent to furnish information to the petitioner as sought in application dated 29.12.2007 under Clause (b) of sub section (1) of Section 138 of the Income Tax Act, 1961.
W.P.No.25811 of 2008 is filed under Article 226 of the Constitution of India for the issue of a Writ of Mandamus by forbearing the second respondent from bringing the property situate at Flat No.26, Hindi Prachar Saba Street, T.Nagar, Chennai-600 017, Town Survey No.6711 & 6712, Block No.143, T.Nagar Division, Chennai-600 017 for sale pursuant to notice dated 22.09.2008.
W.P.No.25812 of 2008 is filed under Article 226 of the Constitution of India for the issue of a Writ of Mandamus by forbearing the second respondent from bringing the property situate at No.609A & 609B, Spencer Plaza Phase II, Anna Salai, Chennai-600 006, Survey No.26/2, 26/3 (Part) & 27/2(Part), Block No.4, Mount Road Division No.105, Sub Registration District of Thousand Lights, Chennai-600 006 for sale pursuant to notice dated 22.09.2008.
W.P.No.25813 of 2008 is filed under Article 226 of the Constitution of India for the issue of a Writ of Mandamus by forbearing the second respondent from bringing the property situate at No.19, Krishnapuram, Royapettah, Chennai-600 014, T.S.No.1100/33, in Block No.23 of Mylapore Division, Chennai, for sale pursuant to notice dated 22.09.2008.)
CHITRA VENKATARAMAN, J.
The assessee has preferred Tax Case (Appeals) Nos.366 to 368 of 2005 as against the order of the Income Tax Appellate Tribunal, raising the following substantial questions of law:
(i) Whether on the facts and circumstances of the case, there was any evidence or materials before the Income Tax Appellate Tribunal to come to the conclusion that the appellant did not act as an agent of Indian Bank?
(ii) Whether on facts and circumstances of the case, when admittedly as per the instructions of Indian Bank the broker (appellant) had drawn the demand drafts to and in favour of the public sector undertakings (the depositors) and the appellant acted as an agent to convey these drafts, was the Appellate Tribunal right in law in holding that there was no diversion of title?
(iii) Whether Income Tax Appellate Tribunal was right in law in holding that the findings of Principal Special Judge for CBI cases was not binding and had no relevance for deciding the case especially when they had waited for ten long years for ascertaining the outcome of the decision before disposal of the same appeals?
(iv) Whether the Tribunal was right in law in not considering the evidence placed before it, ignoring essential facts and arriving at a conclusion based on illusory assumptions?
(v) Whether the Tribunal was right in law in ignoring the fact that the respondent had accepted the appellant's stand on the same facts of the case for the earlier assessment year?
(vi) Whether the findings of the Tribunal without due and proper consideration of the entire materials before it were not perverse but right in law and ignoring the fact that there was triple taxation of the same income in the hands of appeal, Indian Bank and PSUs?
2. The assessment years under consideration herein are 1991-92, 1992-93 and 1993-94 respectively. He is a stock broker registered with the Madras Stock Exchange. He is stated to be an approved broker of the Indian Bank for carrying out certain security transactions on their behalf during the previous years relevant to the assessment years 1991-92, 1992-93 and 1993-94. The assessee is an individual and the proprietor of Chandrakala and Company.
3. It is seen from the facts herein that in the course of the assessment proceedings for the assessment year 1991-92, the assessee was asked to submit the report on the types of security transactions done by the assessee, the transactions made in securities, profit and loss accounts for each head of income, transactions in shares and debentures where the assessee acted as a broker and transactions in shares and debentures where the assessee had acted on his own. Apart from that, details sought for also included the details of call money transactions and the brokerage received. The assessee accordingly submitted these details.
4. It is seen from the facts herein that one of the transactions undertaken by the assessee related to purchase of securities for and on behalf of Indian Bank. The facts herein were that the assessee herein acted as a broker for Indian Bank in purchasing securities at a particular rate quoted by the Bank and selling them to Indian Bank. 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. In respect of the transactions done on behalf of Indian Bank, the assessee was paid certain commission. On enquiry with Bank of Madura, it was found that the assessee had directed them to buy the securities at a particular rate from banks or financial institutions and sell the same only to Indian Bank at a particular price. Under instructions from the Indian Bank, a portion of the amount realised from the security transactions carried on behalf of Indian Bank was paid as by way of additional interest to certain public sector undertakings on the deposits made with the Indian Bank. According to the assessee, his role was only that of a conduit for taking demand drafts in respect of additional interests payable to the public sector undertakings and the "demand drafts taken" on behalf of the Indian Bank did not form part of the total income of the assessee. According to the Assessing Officer, this gave the assessee a profit of Rs.16,74,79,420/-. According to the assessee, a sum of Rs.15,17,44,653/- represented additional interest payable by Indian Bank to eight public sector undertakings who had made fixed deposits with Indian Bank. The assessee pointed out that a sum of Rs.14,78,91,000/-, in fact, did not belong to the assessee and they, in fact, represented money belonging to Indian Bank, which were utilised for the purpose of taking demand drafts in favour of eight public sector undertakings, namely towards additional interest payable by Indian Bank on the deposits kept by the public sector undertakings; the details were as follows:
1. Indian Railway Finance Corporation Â Â Â Â Â Â Â : Rs. 1,77,48,000/-
2. Minerals and Metals Trading Corpn. Ltd.Â Â Â Â Â : Rs. 1,97,06,000/-
3. Delhi Development AuthorityÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â : Rs. 2,49,50,000/-
4. Bharat Dynamics Ltd.Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â : Rs. 2,79,49,000/-
5. Oil and Natural Gas CommissionÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â : Rs. 1,10,38,000/-
6. National Thermal Power Corporation Â Â Â Â Â Â : Rs. 2,67,17,000/-
7. State Trading CorporationÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â : Rs. 14,33,000/-
8. Nuclear Power CorporationÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â : Rs. 1,78,52,000/-
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â ---------------------
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Rs.14,78,91,000/-
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â ---------------------
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Bank charges Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â : Rs. 33,715/-
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â ---------------------
The assessee submitted that the sale proceeds received from Indian Bank was in the nature of advance and not his earnings. He filed a confirmation letter from Indian Bank, which confirmed about the receipt of Demand Drafts favouring the Public Sector Undertakings amounting to Rs.14,78,91,000/- as for additional interest on deposits received by the Bank.
5. On enquiry made with the public sector undertakings, it was learnt that these organisations did not have any agreement with the assessee. On enquiry, Indian Bank pointed out that during the period 01.04.1990 to 31.03.1991, the Bank's advances were more than the prescribed rate of term liabilities and current liabilities. If the Bank had to borrow heavily in call money market, it would have to pay exorbitant rate of interest ranging upto 72%. The total interest paid for the year was around Rs.212 crores. In order to contain this expenditure, the Bank approached the Public Sector Undertakings to make huge term deposits with them, on the premise that the Bank would pay an interest higher than the normal rate of interest. In order to pay higher interest, the Bank requested the assessee as a broker to purchase security in its behalf at a prescribed price which was adequate to cover the market price of the security/brokerage/ incidental charges, apart from covering the extra interest payable to Public Sector Undertakings. Thus the assessee was asked to take Demand Drafts from out of the purchase money paid to the assessee to the tune of Rs.14,78,91,000/- and the assessee was paid the brokerage and the expenses for taking the demand drafts. In the circumstances, in order to entice public sector undertakings to make/keep the deposits, the Bank utilised the services of the assessee as a broker and purchaser of securities, to include higher interest payable to the Public Sector Undertakings as part of the purchase price and to pay for the securities as per the market value. Thus the difference was used for working out the interest payment over and above what is normally paid.
6. The Assessing Officer pointed out that of the eight public sector undertakings, three of them - Oil and Natural Gas Commission, Bharat Dynamics Ltd. and Nuclear Power Corporation, confirmed the receipt of demand drafts. The rest of them - National Thermal Power Corporation, Minerals and Metals Trading Corporation Limited, State Trading Corporation, Indian Railway Finance Corporation and Delhi Development Authority, however, denied to have received any such demand drafts either from the assessee or from Indian Bank. The Officer pointed out that there was no agreement between the assessee and the Indian Bank about this payment.
7. The assessee submitted that at no point of time, the sum of Rs.14,73,91,000/- was held by the assessee as an income or as part of the consideration for the purchase of securities or by way of commission. The said amount was really the money given by Indian Bank for getting Demand Drafts for payment of additional interest to the public sector undertakings. In the circumstances, the question of including the said amount at the hands of the assessee as business income did not arise. The assessee also took alternative plea that in the event of the Officer not accepting the case of the assessee, the amount of Rs.14,73,91,000/- be treated as business expenditure arising in the normal course of business.
8. The Assessing Officer, however, rejected the case of the assessee that the payments made to the public sector undertakings were not falling under the category of diversion of income by overriding title at source. The Assessing Officer held that the letter from Bank of Madura revealed that Bank of Madura was purchasing securities from various Banks and financial institutions at a particular rate and selling the same to Indian Bank at a very high rate and debiting and crediting the amounts in the account of the assessee. Bank of Madura was charging only service charges. The amounts were duly credited to the account of the assessee and thereafter, the Demand Drafts were taken in favour of the Public Sector Undertakings. The Assessing Officer viewed that only when the income is diverted at the source by an overriding title before it started flowing into the assessee's account, then the same could be excluded from the assessee's assessable income. Thus, applying the decision reported in  74 ITR 17 (SC) (Commissioner of Income Tax Vs. Imperial Chemical Industries), the Assessing Officer rejected the assessee's case and thereby, to include the amount at the hands of the assessee.
9. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who allowed the assessee's case, holding the view that the assessee had constructively refunded the sum of Rs.14,73,91,000/- to the Indian Bank after taking demand drafts in favour of eight public sector undertakings. The receipt was confirmed by the Indian Bank in writing. The Commissioner of Income Tax (Appeals) also pointed out that what was received by Indian Bank in the form of Demand Drafts was ostensibly the excess consideration paid towards the purchase of securities over their market value. Agreeing with the assessee that the agreement need not be in writing and inferring it from the conduct of the parties, the First Appellate Authority pointed out that the sum of Rs.14,73,91,000/- was diverted at source itself as money due to Indian Bank. Immediately on the receipt of the money from the Indian Bank, there was an implied contract to take demand drafts in favour of the eight public sector undertakings. In the circumstances, the question of inclusion of the said amount as income of the assessee did not arise. Referring to the decision reported in  155 ITR 696 (AP) (Commissioner Of Income-Tax Vs. M.D. Manohar Rao), the first appellate authority pointed out that as far as the case on hand was concerned, the question was not as to whether, in the event of the assessee not taking the demand drafts, such an agreement could be enforceable in law. Hence, the facts established that the assessee had taken Demand Drafts at the instance of Indian Bank and paid the same to Indian Bank for making them available at the hands of the eight public sector undertakings who had made fixed deposits with the Indian Bank. Thus, on an appreciation of the evidence and the facts herein, the First Appellate Authority agreed with the assessee that the sum of Rs.14,73,91,000/- was meant for taking demand drafts as by way of extra interest payable by Indian Bank to the eight public sector undertakings. Even though there might not be any written agreement, yet, as noticed above, the evidence available pointed out as to the existence of an agreement honoured by the assessee. In the light of the finding that the amount could not be assessed as income at the hands of the assessee, the First Appellate Authority allowed the appeal. The First Appellate Authority agreed with the alternative plea made, holding that the assessee was justified in claiming it as an expenditure under Section 37(1) as an expenditure wholly and exclusively laid out for the purpose of business within the meaning of Section 37(1) of the Income Tax Act.
10. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the Revenue went on appeal before the Income Tax Appellate Tribunal. It is a matter of record that in the meantime, criminal prosecution was laid against the assessee as accused No.2 and on Mr.Gopalakrishnan, the then Chairman of Indian Bank as accused No.1 before the Principal Special Judge of C.B.I. in C.C.No.17 of 1999 and the criminal case was decided on 27.04.2004. On the appreciation of evidence, the C.B.I. Court held "the charges had not been proved beyond reasonable doubt and the circumstances taken collectively cannot be said to be compatible only with the hypothesis of the guilt of the accused and totally incompatible with their innocent. However, there have been some irregularities committed in the matter of crediting of cheques in A2's amount for payment of interest to PSUs in violation of the procedure and RBI circulars etc, and those irregularities give rise to a strong suspicion in regard to the bona fides of the officials of the Indian Bank and their link with such officials of the counter party Bank and A2, but that suspicion cannot be a substitute for proof. " Thus the Criminal Court held that the prosecution had not established its case beyond all reasonable doubt against A1 and A2 and hence acquitted them of the charges.
11. It is seen from a reading of the judgment of the C.B.I. Court in C.C.No.17 of 1999 dated 27th April 2004 that charges were framed under Section 120-B read with Section 409, 109 read with Section 409 of I.P.C. and Section 13(2) read with 13(1)(c) and (d) of the Prevention of Corruption Act, 1988 against A1 and A2; under Section 409 IPC and 13(2) read with Section 13(1)(c) and 13(1)(d) of the Prevention of Corruption Act, 1988 against A1; under Section 109 read with 409 IPC (6 counts) and 109 IPC read with Section 13(2) read with Section 13(1)(c) and Section 13(1)(d) of the Prevention of Corruption Act, 1988 against A2, the assessee herein.
12. A reading of the charges made thus makes it clear that the allegations made on Gopalakrishnan were that as a public servant, entrusted with dominion over public funds, he abused his position by permitting the assessee herein to deal with the money in the securities transactions and to credit the cheques issued for purchase of securities in favour of Bank of Madura Ltd., in the account of Chandrakala and Co., the assessee herein with Bank of Madura and convert the excess amount of Rs.4,92,13,000/- paid on the subscription of securities for Indian Bank for payment of interest in excess of 8% interest permitted by the Reserve Bank of India to M/s.Bharat Dynamics Limited and other Public Sector Undertakings and thereby committed the offence punishable under Section 120 I.P.C. read with Section 409 I.P.C. It was further alleged that A1 had dishonestly disposed of public funds by purchasing securities at market rate and selling them to Indian Bank at exorbitant rates, causing loss to Indian Bank. In considering the question as to whether there was any criminal conspiracy, Shri.B.B.Shetty, P.W.3, who happened to be the Executive Director of Indian Bank, pointed out in his evidence that the Bank had accepted deposits from more than 10 public sector undertakings and the deposits were there for three years. The banks were competing with each other and were quoting competitive interest rate.
13. As regards the role of the assessee as a broker and the authority given to act so, P.W.3 – B.B.Shetty deposed that the notes put up for confirmation of the securities transactions were signed in the order of the Chief Officer, AGM, GM, Executive Director, i.e., himself, and the Managing Director. It was also deposed by B.B.Shetty that the price of securities were loaded for the purpose of giving higher rate of interest to the public sector undertakings. The said statement was reiterated in the evidence of P.W.6 – Nagappan, the then AGM, Investment Department of Indian Bank. He further deposed that the decision for purchase and sale of securities was to be taken by the Chairman, Executive Director and the General Manager collectively. Once a decision was taken, steps were taken to effect sale or purchase of the securities. He pointed out that the availability, saleability and the price would be informed to the Chairman, Executive Director and General Manager. Once the deal was concluded, it would be placed before the Chairman through the Executive Director and the General Manager. P.W.42, the Investigating Officer, deposed that he had examined the assessee-A2. P.W.42 deposed that the assessee had nothing to do with the interest or additional interest. He deposed that the arrangement of funds was between the Bank and the Public Sector Undertakings.
14. On analysing the evidence thus deposed, the Criminal Court pointed out that the evidence clearly established that the purchase of all the securities was carried out by the Investment Department in the normal course of business. It further pointed out that the decision to purchase securities was a collective decision of all the authorities concerned in the Bank.
15. It is further seen from the evidence of P.W.14 Sri.Balasubramaniam, dealer, Investment Department, Indian Bank, that at times, he or the Assistant General Manager verified the quotation of the broker and accordingly instructed the broker to identify the securities. The rates quoted by A2, the assessee herein, were verified by the Investment Department or the AGM. On a specific question as regards the rates of the assessee as a broker, P.W.8 – Sri.Vairavan, the then Chief Officer of the Indian Bank, deposed about the contract between the assessee and the Indian Bank, and the contract note issued by the members of the stock exchange acting for the constituent as broker, was an agreement between the issuer and the buyer/seller. The contract note contained the date of contract, the buyer, the seller, the securities face value, rate, date of delivery, default condition and arbitration. In the background of this, the contract note was stamped as per the Stamp Act and was a legally enforceable document. In the face of this document, the Criminal Court came to the conclusion that the assessee was engaged as a broker for Indian Bank for buying and selling securities. On an analysis of the evidence, the Criminal Court further pointed out that none of the witnesses had spoken about the dishonest intention of A1 and A2 to dispose of the property of Indian Bank; thus, the prosecution had failed to substantiate the charge under Section 120-B, I.P.C. It held "the prosecution has not let in any evidence to the effect that A2 had any role to play in Indian Bank's acceptance of the Fixed Deposits at allegedly higher rates of interest from BDL with regard to A1, the decisions were said to have been taken by the committee and the system of payment of higher rate of interest was in vague even during the period of Shri M.G.K.Nair, the predecessor of A". ... "The above evidence clearly established that the purchase of all the securities was carried out by the investment department in the normal course of business. The decision to purchase securities was a collective decision from the dealer to the Chairman. For obvious reasons to avoid default in SLR banks maintain little above the prescribed limit during the relevant period." On the deposits taken from public sector undertakings the Criminal Court pointed out to the evidence of Shetty and observed as follows:
" P.W.3, Shri . Shetty, the then Executive Director himself admits in the cross examination by A1 "To borrow from PSU for interest of little over 12% is more prudent than borrowing at the rate of 25% to 50% in the call money market". Therefore there is no surprise in the subject transaction and the decision with regard the payment of interest at the rate of 12.25% and 12.75% for Rs.80 crores (40+40)Deposit obtained from BDL when the choice was to get bulk deposits at a particular yield or borrowing call money market, since, call money market were, ruling very high bundling 50% and over and as such it could have been considered prudent to go for PSUs deposit at the rate 12.25% and 12.75% or so saving the banks prohibitive cost. RBI recognizing the need for allowing Banks to complete in getting funds in giving flexibility to banks in the matter of interest rates payment for bulk deposits, brought in scheme of certificate of Deposits wherein the Banks were free to fix interest rate. The Xerox copy of the Circular dt.12.4.91 under Ref.No.CPC.BC.III/279 A-91 issued to All Scheduled Commercial banks by Credit Planning Cell of Central Office, RBI, Bombay." The Criminal Court further pointed out that by resorting to taking deposits on call money market at an exorbitant rate, the Bank had saved substantial or large sums of money. The Criminal Court thus held that A2, viz., the assessee herein, had no role to play in the Indian Bank's acceptance of fixed deposit at high rate of interest and the system of payment of higher interest was there even prior to these transactions. Thus the Criminal Court gave the benefit of doubt, holding that the prosecution had not proved its case.
16. It is a matter of record that the appeal before the Tribunal at the instance of the Revenue was adjourned for quite some time on account of the pending criminal proceedings, wherein, the transactions which were the subject matter of consideration, for assessment was the core of the charge there. Thus, in the criminal prosecution, when judgment was passed on 27.04.2004, the criminal Court discharged the assessee as A2 as well as the Chairman as A1. Before the Income Tax Appellate Tribunal, the assessee placed reliance on the evidence and the findings therein touching on the transaction in support of the contention that he had merely acted as a broker for Indian Bank and that the money given and taken as drafts were that of Indian Bank for payment of additional interest to public sector undertakings. However, the Tribunal rejected the contention of the assessee that the Criminal Court's decision was not binding on the Tribunal and that it had no relevance in deciding the issue. So holding, the Tribunal set aside the order of Commissioner of Income Tax (Appeals) and restored the assessment. It held that the assessee had not substantiated that the amount was not the assessee's income. It further pointed out that having regard to the nature of the transaction, it was evident that the assessee had acted as principal and not as agent. Consequently, the question of diversion by overriding title did not arise. Consequently, it rejected the assessee's case that the amount paid to the public sector undertakings by way of demand drafts was not its income. Thus, the Revenue's appeal was allowed. Aggrieved by this, the assessee is on appeal before this Court.
17. Learned senior counsel appearing for the assessee, while taking us through the decision of the CBI Court in C.C.No.17 of 1999 dated 27th April 2004, pointed out to the evidence of the Executive Director of the Bank deposing before the Criminal Court about the status of the assessee as a broker in the matter of purchase of securities and the need for paying higher amount than what the securities were actually sold for. He pointed out that due to difficult financial circumstances in raising money from the open market at high interest rate as in the case of other Banks, Indian Bank also resorted to luring public sector undertakings to make fixed deposits by assuring them a higher rate of interest than the normal rate paid. For so paying higher interest, the Bank, in fact, had instructed the broker to use the differential amount to take Demand Drafts in favour of 9 of the public sector undertakings. Learned senior counsel further pointed out that Indian Bank had acknowledged receipt of the Demand drafts taken by the assessee. The bank and the assessee were thus fully aware of the nature of the transaction and their relationship and that the additional interest amount included in the purchase price paid by the Bank was not an amount payable to the assessee, but was to be used for purchasing demand drafts in the name of public sector undertakings for the additional interest payable by Indian Bank to the Public Sector Undertakings. Accordingly, the assessee was instructed to take demand drafts on the said amount.
18. He further pointed out that the Bank, right through, had acted on the basis of the contract note and the parties herein were fully aware of the nature of relationship between them. In the background of the said facts, the Commissioner of Income Tax (Appeals) rightly came to the conclusion that the amount could not be added on as the income of the assessee. Commenting on the observation of the Income Tax Appellate Tribunal on the relevance of the CBI Court's decision, he submitted that it is no doubt true that the scope of the charges framed before the CBI Court were totally different from the disputed question raised in the Tax Appeal, but one cannot easily brush aside the evidence let in by the bank officials on the subject transactions which were the basis of the criminal prosecution and which were the subject of assessment. As regards the role of the assessee herein vis-a-vis the bank, going by the evidence of the Executive Director and the investment sector and the other witnesses speaking on behalf of the prosecution, it is clear that the role of the assessee was only that of a broker, who was given the money for taking demand draft for payment of interest to the public sector undertakings. The evidence thus established the relationship of the bank as a principal and the assessee as a broker, that the payment to the assessee as a broker was under the appropriate authority of the bank. Consequently, the conduct of the parties must be looked at for the purpose of ascertaining whether the amount paid by the assessee could be termed as the income of the assessee. The evidence as regards the receipt of the amount by the broker, the purpose of the receipt and the demand drafts taken by the broker at the instance of the Bank for payment of additional interest to public sector undertakings by the Bank are all fully dealt with by the Criminal Court. The import of the transactions and the nature of relationship between the parties, which are factual matters, cannot be different for the purpose of Income Tax proceedings, since the result flowing from the transaction and the relationship between the parties were the very basis and the subject matter of consideration in the assessment made on the assessee. The assessee had thus proved his case through the evidence of all those who had a role in this transaction and the findings of the Criminal Court, based on the evidence thus have relevance and material value in considering the claim of the assessee. He further pointed out that even though the Revenue raised a question as regards the Commissioner of Income Tax (Appeals) accepting the case of the assessee on the alternative plea for deduction under Section 37, the Tribunal had not rendered its finding on this aspect. He further referred to the award passed by the learned Arbitrator in the arbitral proceedings between the assessee and the Indian Bank as regards its claim for reimbursement of the tax liability, interest and penalty on the additional interest amount treated as the assessee's income. He submitted that the award passed in favour of the assessee is pending in O.P. under Section 34 of the Indian Arbitration Act before this Court. He submitted that the fact is that the assessee's relationship with the bank was only that of a broker and at no point of time, the parties treated the sum of Rs.14,78,91,000/- as the income of the assessee. He further pointed out to the Tribunal's view on the absence of a formal agreement as referable to the status of the assessee as a broker and submitted that the contract note clearly pointed out to the relationship between the assessee and the bank, which is in a statutory format. Hence, it is not open to the Revenue to ignore the same. Referring to the decision reported in  219 ITR 39 (Commissioner of Income-tax Vs Madras Race Club), he submitted that as held by this Court in the said decision, for proving the diversion by overriding title, it is not necessary that the agency and principal should be evidenced by a written agreement.
19. Countering the claim of the assessee, the Revenue pointed out that the proceeding under the Income Tax Act being an independent proceedings, rightly the Income Tax Appellate Tribunal rejected the assessee's contentions based on the Criminal Court's finding. Referring to the decisions reported in 53 ITR 21 (SC) (CIT v. L.W.Russell) and  301 ITR 37 (R.P.Vashisht Vs. Deputy Commissioner of Income Tax (Appeals)) (P&H;), he submitted that the findings of the Criminal Court are not binding on the tax authorities to arrive at a finding as to whether the interest was the income of the assessee or not and hence, in the absence of any material to substantiate the case, no exception could be made to the order of the Tribunal.
20. Heard learned counsel appearing for the assessee as well as the learned Standing Counsel appearing for the Revenue and perused the material placed on record.
21. As far as the facts stated herein are concerned, there is absolutely no dispute on the purchase of securities at a price over and above what was normally quoted and that the Indian Bank had invested with the assessee, money, which included the value of the securities purchased. Evidence of the Executive Director and other officials point out that price of the securities itself were fixed by the Bank authorities and as per their directions, the assessee had purchased the securities at market price and the differential amount was directed to be used for taking demand drafts for paying additional interest to public sector undertakings. Leaving that aside, the question that arises for consideration herein is as to whether the assessee could be termed as a broker for Indian Bank, that the assessee could not claim any interest on a sum of Rs.14,78,91,000/- at the time when Indian Bank paid the consideration for the purchase of securities. The second question herein is that whether the said sum could be held to have been given to the assessee for the purpose of taking demand drafts payable to the 9 public sector undertakings as by way of extra interest, payable by the Bank on the fixed deposits maintained by the public sector undertakings. The third question is as regards the relevance of the Criminal Court's decision.
22. As far as the decision of the C.B.I. Court in the criminal case is concerned, we may point out herein that it is not the case of the assessee that the decision acquitting the assessee would be binding on the Revenue authorities. What the assessee seeks to submit herein is that the vital evidence let in in that case before the Criminal Court has relevance for the purpose of deciding the relationship between the parties herein. Thus, when the Tribunal had waited for the disposal of the criminal case wherein the assessee was arrayed as A2 and that the question that arose was as to whether the assessee herein could be treated as a broker, nothing prevented the Tribunal from referring to the evidence rendered therein. The factual finding drawn by the Criminal Court was based on the evidence and materials placed before the Court. Thus, when after a full-fledged trial, a Court of competent jurisdiction had pronounced on the relationship between the parties, that A2, the assessee herein, acted as a broker only, in the absence of any contra evidence produced by the Revenue, the Tribunal should have considered this finding as answering the question on the role of the assessee as a broker.
23. On an analysis of the evidence available, particularly that of the Executive Director who had spoken about the role of the assessee as a broker specifically engaged by the Bank for purchase of securities, the Bank had included the interest money too in the consideration paid for the purpose of taking Demand Drafts in favour of the Public Sector Undertakings, in fairness to the claim of the assessee and in the absence of any material otherwise from the side of the Revenue, the Tribunal should have given credence to those findings drawn from the evidence let in by the prosecution. We agree with the assessee's contention that contrary to the view of the Tribunal, the evidence spoken therein by the prosecution witnesses, clearly establish the role of the assessee as a broker, that he never acted as a principal to deal with the securities on his own without any instruction from the Indian Bank.
24. We had already narrated in the preceding paragraphs as to the evidence of P.W.3 - B.B.Shetty, P.W.14 - Balasubramaniam as to how the transaction of purchase of securities were finalised and how the prices were quoted. It is also a matter of relevance that P.W.8 – Vairavan, the Chief Officer of the Indian Bank, had also spoken on the presence of a contract note issued to the members of stock exchange acting for Indian Bank as a broker; that the contract note, in fact, is an agreement between the parties, which contained the date of the contract, the details of the said purchase, the Bank's conditions and the clauses on arbitration in the event of a dispute. It is no doubt true that the contract need not be in writing and it could be oral too. In the face of the fact that there existed a specific contract note, which is statutory in character, we do not find any justifiable ground in the Tribunal ignoring this as a material evidence as regards the relationship of the parties and as spoken to by the Bank itself. If the findings were arrived at in a summary proceedings before a forum without a full-fledged trial, then there may be a case for the Revenue to contend that the findings are not final. Given the fact that the evidence was let in in a trial before a Court of competent jurisdiction, even though the question raised in the criminal prosecution for the offences under the Indian Penal Code and the Prevention of Corruption Act, 1988, yet, the evidence let in, as spoken to by the prosecution witnesses, are relevant to this case for the purpose of determining the relationship between the parties and the purpose for which the assessee was engaged as well as as regards the issue relating to the amount paid for the purchase of securities over and above the market value. The evidence that was recorded were from parties who were privy to the transaction with the assessee. In the absence of any contra evidence from the Revenue's side to prove that the evidence considered by the Criminal Court are not relevant/complete and by persons who had no connection whatsoever with the transactions, we do not find any good ground to accept the Revenue's plea that the Tribunal was justified in rejecting this evidence.
25. As rightly pointed out by the learned senior counsel appearing for the appellant, there is no quarrel on the proposition that the decision of the Criminal Court would not be binding on the tax authorities. Yet, the oral evidence let in before the Criminal Court and by way of various documents filed therein as regards the relationship of the Indian Bank with the assessee, speak on the nature of services rendered by the assessee. In the circumstances, we reject the Tribunal's view that the evidence before the Criminal Court have no bearing on the issues raised before the Tribunal. We hold that the status of the assessee vis-a-vis Indian Bank was only that of a broker of Indian Bank and nothing else.
26. This takes us to the next question as to whether the sum of Rs.14,78,91,000/- could be treated as the income of the assessee. Given the fact that the assessee had acted only as a broker and could not claim any ownership on the sum of Rs.14,78,91,000/- and that the receipt of the money was only for the purpose of taking demand drafts for the payment of the differential interest payable by Indian Bank and that the assessee had actually handed over the said money to the Bank, a fact which is evidenced by the letter written by the Indian Bank dated 25.03.1994 acknowledging receipt of the same, we have no hesitation in holding that the question of including the said sum of Rs.14,78,91,000/- as the income of the assessee, does not arise. Applying the principle of diversion by overriding title, the assessee is bound to succeed in the appeals before this Court.
27. As far as the claim made by the Revenue placing reliance on the decision reported in  53 ITR 231 (S.S.Gadgil Vs. Lal & Co.) is concerned, we do not find that the said decision would be of any assistance to the Revenue, for the simple reason that there is no quarrel over the proposition that the proceeding in an assessment is different from a civil dispute and the Assessing Officer having a duty to assess and recover tax, is not deciding a litigation between the citizen and the State as in a suit. The decision of Punjab and Haryana High Court reported in  301 ITR 37 (R.P.Vashisht Vs. Deputy Commissioner of Income Tax (Appeals)) (P&H;), relied on by the Revenue, is also not of any assistance to the Revenue. In the said decision, the Punjab and Haryana High Court held that the scope of a proceedings in a criminal case is different from the scope of proceedings in an income tax assessment. The criminal charge is required to be proved beyond all reasonable doubt, whereas, the assessment under the Act is on the basis of preponderance of probabilities on the basis of the evidence recorded.
28. As far as the above decision of the Punjab and Haryana High Court is concerned, we do not find anything repugnant therein to our view on the materials available, to speak on the status of the assessee vis-a-vis the Bank, for ascertaining the status of the assessee as a broker. In considering the claim of the assessee and the view of the Assessing Officer, how the bank itself had treated the assessee, is a matter of relevance. This has been spoken to before the Criminal Court by the Executive Director and other officials who were involved in the decision making process relating to the purchase of securities. The Revenue does not dispute the fact that in the course of the proceedings before the Criminal Court, the officials of the Bank had spoken about how the transactions took place. Therefore, there being no other material to touch on the status of the assessee, vis-a-vis the Bank, we do not find there is any justification in the Tribunal overlooking the evidence before the Criminal Court. There is no quarrel over this proposition of law that an accused can be acquitted giving him the benefit of doubt and the assessment rests on preponderance of probabilities on the basis of the evidence on record. Thus when the question with reference to the status of the assessee as a broker had been clearly spoken to by the witnesses who are the officers of the Bank, who had understood the role of the assessee and accordingly instructed the assessee to act, the evidence thus recorded therein clearly prove on the status of the assessee vis-a-vis the Bank, even going by the theory of preponderance of probabilities, we have no hesitation in holding that the assessee could not be mulcted with any liability as regards the sum of Rs.14,78,91,000/- as his income. Consequently, we hold that the said amount cannot be included in his assessment. In the circumstances, we do not find any necessity to go into the question as to the applicability of Section 37. In the circumstances, the order of the Tribunal is set aside and the Tax Cases are allowed.
29. The decisions relied on by the Revenue, do not, in any manner, advance the case of the Revenue, particularly in the face of the fact that even in the proceedings before the Income Tax Authorities, the Department did not have any evidence to counter the material that the assessee had to prove his relationship with the Bank as a broker and principal. In the circumstances, the Tax Cases stand allowed and the order of the Tribunal stands set aside.
30. As far as the writ petitions filed before this Court are concerned, in view of the fact that the liability of the assessee itself being set aside in the main Tax Cases, it is not necessary for us to go into the merits of the writ petitions which are as regards the non-furnishing of documents and as against the recovery proceedings. Since the demand itself is set aside, there can be no further recovery of tax and penalty from the assessee. Hence, no further orders are required in the writ petitions. Hence, the writ petitions stand closed. Connected T.C.M.P.Nos.314 to 316 of 2005, T.C.M.P.Nos.36 to 38 of 2007, T.C.M.P.Nos.11 to 16 of 2008, T.C.M.P. Nos.4, 5 and 6 of 2011, W.P.M.P.Nos.41609 to 41611 of 2005, M.P.Nos.1, 1, 1 of 2008 and M.P.No.1 of 2011 stand closed. No costs.