TaxTMI 
TaxTMI 
2016 (1) TMI 504
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....provisions of Sections 143(2) and 142(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act). 3. Vide order dated 28.12.2010 (Annexure P-1), the Assessing Officer, reassessed the income by disallowing (i) the depreciation of goodwill and (ii) claim of capital receipt. The order stood affirmed by the Commissioner of Income Tax (Appeals), Shimla, in terms of order dated 12.12.2011 (Annexure P-2). Findings of fact returned by such authorities, on the point in issue, came to be affirmed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B, Chandigarh, vide order dated 02.04.2013 (Annexure P-3). 4. In the instant appeal, we are only concerned with the second issue i.e. as to whether the amount of compensation so received by the assessee is required to be computed as a capital or a revenue receipt. 5. Facts already stand fully considered and appreciated by the authorities below. It is a settled position of law that the burden to establish as to whether the character of the amount received is revenue receipt or not, is always upon the revenue. However once it is so established, whether it comes under the clause of exemption or not is for the assessee to establis....
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....particular facts of each case, do involve a conclusion of law to be drawn from those facts.' " " (Emphasis supplied) 7. Further in Shri P.H. Divecha (deceased) through LRs & Another Versus The Commissioner of Income-tax, Bombay City I, Bombay, AIR 1964 SC 758, the Apex Court held that:- "12. In determining whether this payment amounts to a return for loss of a capital asset or is income, profits or gains liable to income-tax, one must have regard to the nature and quality of the payment. If the payment was not received to compensate for a loss of profits of business, the receipt in the hands of the appellant cannot properly be described as income, profits or gains as commonly understood. To constitute income, profits or gains, there must be a source from which the particular receipt has arisen, and a connection must exist between the quality of the receipt and the source. If the payment is by another person it must be found out why that payment has been made. It is not the motive of the person who pays that is relevant. More relevance attaches to the nature of the receipt in the hands of the person who receives it though in trying to find out the quality of the recei....
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....ance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated) the receipt is revenue : Where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt." (Emphasis supplied) 9. Also in Travancore Rubber & Tea Co. Ltd. Versus Commissioner of Income Tax, Trivendrum, (2000) 3 SCC 715, the Apex Court observed that:- "19. In determining whether compensation received for breach of a contract is a capital or trading receipt, the relevant rule has been formulated by Diplock L. , J. in London and Thames Haven Oil Wharves Ltd. vs. Attwooll (Inspector of Taxes), (1968) 70 ITR 460, 488 (CA) as : "Where, pursuant to a legal right, a trader receives from another person compensation for the trader's failure to receive a sum of money which, if it had been received, would have been credited to the amount of profits (if ....
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.... Tower, Shooting Range Road, Surajkund, Faridabad - 121 009, Haryana. Its aim and object being diagnostic, laboratory solutions and chemical research. 13. M/s Sarabhai Zydus Animal Health Limited (hereinafter referred to as Zydus) was incorporated in the year 2000. The equity participation of the said company was in the following manner: (i) 50% with M/s Cadila Healthcare Limited (Cadila Group engaged in the business of Pharmaceuticals and Allied Industries - hereinafter referred to as Cadila) and (ii) 50% with: (a) Ambalal Sarabhai Enterprises Limited, a company incorporated under the Companies Act, 1956, having its registered office at Dr. Vikram Sarabhai Marg, Wadi Wadi, Vadodara 390 023; (b) Mautik Exim Limited, a company incorporated under the Companies Act, 1956, having its registered office at Shantisadan, Mirzapur Road, Ahmedabad; (c) Haryana Containers Limited, a company incorporated under the Companies Act, 1956, having its registered office at Dr. Vikram Sarabhai Marg, Wadi Wadi, Vadodara 390 023; and (d) Mr. Kartikeya V. Sarabhai, S/O Dr. Vikram Sarabhai, currently residing at Chidambaram, Usmanpura, Ahmedabad (hereinafter referred to as the Sellers). 14. It is th....
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....arnest Deposit Amount, whichever is higher, to the Purchaser, as follows: (a) where the Agreement is terminated in accordance with the provisions of Article 7.6(ii) above, then within 30 days of the date of such termination; (b) where the Agreement is terminated in accordance with the provisions of Article 7.6(iii) above, then within the 60-day period referred to in clause 14.2.2 of the shareholders agreement dated January 29, 2000 executed between the Other Shareholder and Ambalal Sarabhai Enterprises Limited (one of the Vendors herein) or the date on which the Other Shareholder purchases the Shares from the Vendors, pursuant to its Right of First Refusal, whichever is earlier; (c) where the Agreement is terminated in accordance with the provisions of Article 7.6(iv) above, then within 30 days of the date of such termination. (ii) Upon the actions specified in Clauses 7.7 (i) above, being completed to the full satisfaction of the Purchaser, the Escrow Agent will release, upon receipt of a written intimation from the Purchaser in this respect, to the Vendors the duly executed blank share transfer forms and the original share certificates relating....
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....re in contemplation in the SPA. What was the basis for arriving such compensation remains a shrouded secret. 22. It has been rightly held by the authorities that Zydus was engaged in the business, similar to that of the assessee, who was exploring the possibility of expanding its business interests. Compensation is not on account of any injury to any of the capital assets of the assessee. The assessee, as is evident from the order dated 28.12.2010 (Annexure P-1) had also entered into business acquisition agreement with M/s Wipro and Godrej Industries Ltd. The assessee was pursuing strategic inorganic growth through acquisitions. Zydus was in the similar business as that of the assessee. The intent was not to purchase the shares of Zydus but takeover its business for expansion. As observed by Assessing Officer even the view of the statutory auditors was similar to that of the revenue. 23. Noticeably it is the assessee, who had terminated the SPA and not the Sellers and as such there was no breach thereof, necessitating payment of compensation to the assessee. The SPA was conditional and subject to approval by Cadila. 24. Even otherwise it is well settled legal position that....