1980 (10) TMI 129 - AT - Income Tax

Income Tax Tribunal: Capital vs. Taxable Income Decision

The Tribunal found that the Rs. 60,000 received from Rajapalayam Company was of capital nature and not taxable. However, the amounts of Rs. 2,53,214 and ... - Issues Involved:1. Taxability of Rs. 60,000 received from Rajapalayam Company.2. Taxability of Rs. 2,53,214 received from South Madras Electricity Supply Corporation.3. Taxability of Rs. 2,32,125 received from Mettur Chemical and Industrial Corporation.4. Determination of the assessment year for the above amounts.5. Whether the amounts received after the discontinuance of business are taxable.Detailed Analysis:1. Taxability of Rs. 60,000 received from Rajapalayam Company:The Tribunal had previously determined in ITA No. 155 (Mds)/1977-78 that the Rs. 60,000 received from Rajapalayam Company was a receipt of capital nature and was not taxable under s. 28(2)(c) of the IT Act, 1961. This finding was upheld, and the amount was excluded from the assessment for the year under consideration.2. Taxability of Rs. 2,53,214 received from South Madras Electricity Supply Corporation:The Tribunal, referencing its order dated 24th March, 1980, concluded that the amount of Rs. 2,53,214 accrued to the assessee on 10th August, 1970, when the general body of the company approved the accounts. The Tribunal held that this amount should be taxed in the assessment year 1971-72, as it was not of capital nature but remuneration for services rendered.3. Taxability of Rs. 2,32,125 received from Mettur Chemical and Industrial Corporation:Similarly, the Tribunal determined that the Rs. 2,32,125 accrued to the assessee on 5th September, 1970, upon the approval of the company's accounts by the general body. This amount was also deemed taxable for the assessment year 1971-72, being revenue in nature for services rendered.4. Determination of the assessment year for the above amounts:The Tribunal referenced its earlier decision and the Madras High Court ruling in CIT vs. South Madras Industrial Development Co. Pvt. Ltd. 120 ITR 913, to conclude that the amounts accrued during the previous year ending 31st March, 1971. Thus, they were correctly included in the assessment for the year 1971-72.5. Whether the amounts received after the discontinuance of business are taxable:The assessee argued that since it had ceased to carry on business, the amounts should not be taxed as business income. However, the Tribunal noted that the assessee had commenced a new business in electro medical equipment during the year 1971-72 and continued to carry it on. The Tribunal rejected the contention that the amounts could not be taxed due to the cessation of the managing agency business, emphasizing that the company retained its corporate character and had not intended to go out of business permanently.The Tribunal also discussed the insertion of sub-s. 3(A) in s. 176 of the IT Act, 1961, which provides for the taxation of sums received after the discontinuance of business in the year of receipt. However, this provision was not applicable as it was introduced w.e.f. 1st April, 1976, and the amounts in question were received before this date.Conclusion:The Tribunal concluded that the Rs. 60,000 received from Rajapalayam Company was a capital receipt and not taxable. However, the amounts of Rs. 2,53,214 and Rs. 2,32,125 received from South Madras Electricity Supply Corporation and Mettur Chemical and Industrial Corporation, respectively, were taxable in the assessment year 1971-72. The appeals were partly allowed, directing the assessment to be modified accordingly.