2016 (5) TMI 1265

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....quidated damages received by the respondent-assessee, for delay in supply of a boiler, was in the nature of a capital receipt. Sri B.Narasimha Sarma, learned Senior Standing Counsel for the Income Tax Department, while drawing attention of this Court to the order passed by the Assessing Authority, would submit that the delay in supply of the boiler had resulted in loss of profits to the assessee, and the liquidated damages received by them is a compensation for such loss; and, consequently, the amount received towards liquidated damages constitutes a revenue receipt, and not a capital receipt. In the assessment order, the Assessing Authority observed that the assessee had entered into an agreement with M/s.IBIL Technical Limited for s....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....icals India Limited^1 was affirmed by the Supreme Court in Commissioner of Income Tax, Gujarat vs. Saurashtra Cement Limited. Relying on the said judgment of the Supreme Court, the Tribunal, in the order under appeal, held that the liquidates damages received by the assessee constituted capital receipts; they were not received towards the cost of acquisition of the capital asset, but were in the nature of penalties for non-performance of the contract by the supplier; they could not be considered as a reduction of the cost of acquisition of the asset; and, consequently, liquidated damages received by the assessee was a capital receipt not taxable in the hands of the assessee. In Saurashtra Cement Limited^2, liquidates damages were receive....