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of <h1>Tribunal rules Rs. 10 lakh receipt on letter of intent transfer as capital, not business income</h1> <h3>General Industrial Society Limited. Versus Deputy Commissioner Of Income-Tax.</h3> The Tribunal ruled in favor of the assessee regarding the taxability of a Rs. 10 lakh receipt on the transfer of a letter of intent for white cement ... Capital Asset, Capital Receipt, Carrying On Business Issues:1. Disallowance of amalgamation expenses as capital expenditure.2. Taxability of Rs. 10 lakh receipt on transfer of letter of intent as business income.Analysis:1. The first issue pertains to the disallowance of amalgamation expenses as capital expenditure. The Tribunal decided against the assessee based on judgments of the Allahabad High Court and the Calcutta High Court. The expenses of Rs. 41,700 were deemed capital expenditure, leading to a decision against the assessee.2. The second issue revolves around the taxability of a receipt of Rs. 10 lakh on the transfer of a letter of intent for the manufacture of white cement. The Assessing Officer treated it as capital gains, but the CIT (Appeals) directed it to be taxed as business income. The assessee argued that the receipt should be considered a capital receipt, citing the decision of the Madras High Court. The Tribunal analyzed the nature of the transaction and concluded that the receipt was indeed a capital receipt, not arising from the business activities of the assessee.3. The Tribunal emphasized that the assessee was not engaged in the business of dealing in letters of intent. The receipt from the transfer of the letter of intent was linked to the right to establish a white cement factory, which would have been a capital asset for the assessee. The Tribunal found no evidence of the assessee dealing in such transactions previously, supporting the view that the receipt was a capital receipt, not business profit.4. The Tribunal distinguished the case from precedents cited by both parties, highlighting that the sale price was related to the capital asset of establishing a cement factory. The Tribunal concluded that the receipt of Rs. 10 lakh could not be taxed as business profit and allowed the assessee's appeal partially. The decision was based on the nature of the transaction and the absence of evidence indicating a business activity related to dealing in letters of intent.
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