1981 (9) TMI 39 - HC - Income Tax

Rs. 24 lakhs from Premier Autos: Capital, Not Revenue Receipt. Revenue to Pay Costs.

Commissioner Of Income-Tax, Bombay City I Versus Automobile Products Of India Limited

Commissioner Of Income-Tax, Bombay City I Versus Automobile Products Of India Limited - [1983] 140 ITR 159, 26 CTR 116, 7 TAXMANN 327 Issues Involved:1. Whether the sum of Rs. 24 lakhs received by the assessee from Premier Automobiles Ltd. is a revenue receipt.2. Whether the Tribunal was right in permitting the Department to raise the alternative contention that any capital gains arising from the receipt should be assessed.Summary:Issue 1: Revenue Receipt or Capital ReceiptThe primary issue was whether the Rs. 24 lakhs received by the assessee from Premier Automobiles Ltd. (PAL) in terms of the agreement dated 29th April 1961, was a revenue receipt. The Income Tax Officer (ITO) held that the sum was a revenue receipt, arguing that the surrender of the diesel engine manufacturing business did not affect the overall structure of the assessee's business. The Appellate Assistant Commissioner (AAC) supported this view, stating that the amount was paid substantially for machinery and raw materials, and the surrender of one of the four effective licences did not affect the business structure.The Tribunal, however, upheld the assessee's contention that the amount was a capital receipt. It rejected the AAC's finding that the Rs. 24 lakhs represented the value of machinery and concluded that the licences formed the framework of the assessee's business. By giving up these licences, the framework was affected, making the amount a capital receipt. The Tribunal's conclusion was supported by several Supreme Court decisions, including CIT v. Vazir Sultan & Sons and Godrej & Co. v. CIT, which established that compensation for the loss of a capital asset is a capital receipt.Issue 2: Alternative Contention on Capital GainsThe second issue was whether the Tribunal was right in permitting the Department to raise the alternative contention that any capital gains arising from the receipt should be assessed. The Tribunal had directed that the matter should go back to the ITO for examination from the capital gains' angle. However, the Supreme Court in CIT v. V. Damodaran held that an aggrieved party must file a reference application to the High Court and cannot rely on a reference application filed by the other party. Since the assessee had not filed a reference application, the court refrained from answering this question.Conclusion:The court answered question No. 1 in the negative, agreeing with the Tribunal that the Rs. 24 lakhs was a capital receipt. The court refrained from answering question No. 2 due to procedural issues. The Revenue was directed to pay the costs of the reference to the assessee.