TaxTMI 
TaxTMI 
TaxTMI 
2013 (10) TMI 518
X X X X Extracts X X X X
X X X X Extracts X X X X
....1.2004 for developing of mines, production/extraction of ore etc. for a period of 5 years from the date of renewal of mining lease that was extendable for further period. The area of the mines in question was of 45 hectares of land situated at survey no.1 of Kallahalli Village Hospet Taluk. The mines was closed due to orders from Forest Department since 1997. The permission for mining operation was granted on 30.11.2004 to Shri Charu Chandra in respect of Shrree Nidhi Mines, Kallahalli, Hospet. Shri Charu Chandra had been making contravention of the agreement time and again. The assessee company came to know that Shri R.Charuchandra entered into a fresh contract with M/s Raj Shree Mineral, Bangalore in the year 2007 for extraction and screening of iron ore in without taking the permission of the assessee and without resolving the issue of assessee company's right. The assessee company filed suit against Shri R.Charuchandra and his concerns which ultimately resulted into out of court settlement and as a result of which the assessee company received compensation of Rs.12,80,00,000/-. A sum of Rs.1,12,12,446/- was outstanding receivable in the assessee's books from the party from whom....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... modify, alter, add or forego, any grounds of appeal at any time before or during the hearing of appeal." 9. The Ld.D.R. Mr.A.K.Mishra submitted that all the grounds raised by the Revenue are inter related and pertain to the same issue. He submitted that the sole issue that has to be adjudicated by the Tribunal is whether the compensation received by the assessee from R.Charu Chandra is a capital receipt or a revenue receipt. He referred to the facts of the case as well as the MOU and submitted that as on the date of MOU i.e. 03.01.2004, Mr.R.Charu Chandra did not have required permission from the Forest department for undertaking mining operations. He pointed out that the permission was received only on 30.11.2004 and under those circumstances, he cannot decide that the assessee has source of income by virtue of this MOU. He submitted that the MOU was terminated in the year 2005 and there was an out-of-Court settlement and the assessee received compensation in the FY 2007-08 relevant to the Assessment Year 2008-09. He submitted that on the facts and circumstances of the case the receipt in question is a Revenue receipt as rightly held by the Assessing Officer. While relying on th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tly deleted the same. 14. On the contention of the department that Mr.R.Charu Chandra had no mining rights Mr.Amit Goel submitted that Mr.R.Chaur Chandra always had mining rights and it was only a case of forest department permission to commence mining operations, that was in issue. 15. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record as well as the orders of the authorities below and case laws cited, we hold as follows. 16. The relevant terms and conditions of the MOU dt. 3.1.2004 have been brought out at page 17 and 18 of the Ld.Commissioner of Income Tax (Appeals)'s order which is extracted for ready reference. "The second party has agreed to carryout the development of work of mines, production of ore by mining in a scientific and systematic manner at the expense of the second party for which this mutual agreement has been executed upon with the various terms and conditions herein under" "WHEREAS the second party herein has assured the First Party that he would perceive the renewal of mining lease application pending for consideration with the competent authorities and seek the renewal f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s tax, ESIC, EPF etc should be borne by the second party only. In this respect out of Rs. 140/- Rupees 70/- will be counted as Royalty to the 151 Party as mentioned in the above. The balance amount of Rs. 70/- will be deducted by the second party towards charges for mining, crushing, screening, wages, transportation including sales tax, ESIC and EFP etc. Incase of any increase in Royalty then the selling rate is counted as Rs. 70/- (mining charges) + the applicable royalty rate from time to time. For ego Present mining charge Rs. 70 + Royalty Rs. 70/- = Total Rs. 140/-" 17. The assessee, as recorded by the Ld.Commissioner of Income Tax (Appeals), had incurred expenditure in pursuance to MOU. The expenditure incurred up to 31.3.2006 was Rs.1,12,12,446/-. This amount was not claimed as a revenue expenditure by the assessee. 18. The essence of the MOU is to enable the assessee to carry on the business of mining. As already pointed out the assessee was not in this line of business and was in the business of manufacturing and trading. The assessee chose to enter into a new line of business by way of this MOU. 19. The undisputed fact is that the assessee received compensation on termi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....case of CIT vs. Chari & Chari Ltd. (supra), the facts are that the assessee company was carrying on business in tobacco and other commodities and also acted as a managing agent for the 'N' company and two other companies. The managing agency agreement with the 'N' company was terminated when the State Government acquired the undertaking of 'N' company. In those circumstances the Hon'ble Supreme Court held as follows:- "(ii). Ordinarily, compensation for loss of office or agency is regarded as a capital receipt; but this rule is subject to an exception that payment received even for termination of an agency agreement, where the agency is one of many which the assessee holds, and the termination of the agency does not impair the profit making structure of the assessee, but is within the frame work of the business, it being a necessary incident of the business that existing agencies may be terminated and fresh agencies may be taken, is revenue and not capital. However, in the absence of evidence as to what effect the determination of the managing agency of the N company had upon the business of the respondent, the mere circumstance that the respo9ndent had managing agencies of two ot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the hotel to any other person, the same was required to be offered first to the assessee (operator) or its nominee. This right to exercise its option was given by a supplementary agreement which was executed in September, 1975 between the receiver and the assessee. It was agreed that the receiver would be at liberty to sell or otherwise dispose of the said property at such price and on such terms as he may deem fit and was not under any obligation requiring the purchaser thereof to enter into any agreement with the operator (assessee) for the purpose of operating and managing the hotel or otherwise and in its return, agreed consideration was as stated above in clause X. On the basis of the said agreement, the assessee has received the amount in question. The amount was received because the assessee, had given up its right to purchase and or to operate the property. Further, it is loss of source of income to the assessee and that right is determined for consideration. Obviously, therefore, it is a capital receipt not a revenue receipt." (Emphasis ours) In this jdugement, the decision in the case of Chari & Chari Ltd.(supra) was also considered. At para 10 and 11, the Hon'ble Court....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se the assessee had given up its right to purchase or operate the property and thus it was a loss of a source of income. The receipt was accordingly held to be capital in nature. It was observed, after a review of the earlier cases, that ordinarily compensation for loss of office or agency is to be regarded as a capital receipt and the only exception where the payment received for termination of an agency agreement could be treated as revenue was where the agency was one of many which the assessee held and its termination did not impair the profit making structure of the assessee, but was within the frame work of the business, it being a necessary incident of the business that existing agencies may be terminated and fresh agencies may be taken. It is somewhat difficult to conceive of a professional firm of chartered accountants entering into such arrangements with international firms of chartered accountants, as the assessee in the present case had done, with the same frequency and regularity with which companies carrying on business take agencies, simultaneously running the risk of such agencies being terminated with the strong possibility of fresh agencies being taken. In a firm ....