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of <h1>Compensation of Rs. 4.25 crores ruled as taxable revenue, not capital; appeal dismissed, upholding tax authority's decision.</h1> <h3>Ansal Properties And Industries Limited. Versus Deputy Commissioner Of Income-tax, Central Circle - 20, New Delhi.</h3> Ansal Properties And Industries Limited. Versus Deputy Commissioner Of Income-tax, Central Circle - 20, New Delhi. - ITD 115, 443, [2008] 19 SOT 391 ... Issues Involved:1. Denial of deduction of Rs. 7,29,656/- on account of write-off of share issue expenses.2. Treatment of Rs. 4.25 crores received as compensation from Delhi Cloth & General Mills Co. Ltd. (DCM) as capital receipt or revenue receipt.Issue-wise Detailed Analysis:1. Denial of Deduction of Rs. 7,29,656/- on Account of Write-off of Share Issue Expenses:The first ground of appeal concerns the denial of deduction of Rs. 7,29,656/- for the write-off of 10% of share issue expenses incurred during the assessment year 1993-94. The appellant did not press this ground during the hearing. Consequently, due to want of prosecution, this ground was dismissed.2. Treatment of Rs. 4.25 Crores Received as Compensation from DCM:The primary issue in this appeal is whether the sum of Rs. 4.25 crores received as compensation from DCM should be treated as a capital receipt not chargeable to tax or as a revenue receipt chargeable to tax.Facts and Arguments:- The appellant, a reputed developer, entered into an agreement with DCM and Kailash Nath & Associates (KNA) to develop a project on 66.53 acres of land owned by DCM.- The agreement was terminated unilaterally by DCM, leading to disputes and a subsequent settlement agreement.- Under the settlement, the appellant received Rs. 4.25 crores as compensation for abandoning all rights, claims, and interests in the project.- The appellant claimed this amount as a capital receipt, arguing it was compensation for a restrictive covenant that prevented them from undertaking similar projects in the vicinity for three years.- The Assessing Officer and the learned Commissioner of Income-tax (Appeals) treated the amount as a revenue receipt, arguing it was compensation for loss of income, not loss of a profit-earning apparatus.Legal Analysis:- The Tribunal examined various case laws to determine whether the compensation was a capital or revenue receipt.- It was noted that compensation for termination of a contract in the ordinary course of business is generally treated as a revenue receipt.- The Tribunal emphasized that the compensation was for the loss of future profit and the development already undertaken by the appellant, which aligns with the nature of a revenue receipt.- The restrictive covenant preventing the appellant from undertaking similar projects in the vicinity was not deemed significant enough to classify the compensation as a capital receipt. The restriction was limited to three years and did not entirely prohibit the appellant from undertaking similar projects elsewhere.- The Tribunal concluded that the compensation was for the loss of future profit and the development already undertaken, making it a revenue receipt chargeable to tax.Conclusion:The Tribunal upheld the decision of the learned Commissioner of Income-tax (Appeals) and the Assessing Officer, concluding that the sum of Rs. 4.25 crores received as compensation from DCM was a revenue receipt and chargeable to tax. The appeal was dismissed in its entirety.
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