TaxTMI 
TaxTMI 
2019 (1) TMI 1273
X X X X Extracts X X X X
X X X X Extracts X X X X
....al was admitted for hearing on the following substantial question of law:- "Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in holding that the loss of money of the appellant caused by forfeiture of advance/deposit towards proposed purchase of plot, unilaterally deducted by HSIDC is a capital loss and not deductible as a Revenue loss incurred in the course of the assessee's running business as no capital asset was acquired or transferred by the Appellant." 3. Facts are not in dispute and are only required to be noted in brief. 4. The appellant-assessee is a company and was carrying on manufacturing activities from its factory at A-13, Industrial Area, Phase-I, Mayapuri, New Delhi.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ited, (2003) 259 ITR 114 (Raj.), observing that deposit of money while bidding for the industrial plot did not partake character of a capital asset and, therefore, forfeiture of earnest money cannot be treated as a capital loss. The appellant-assessee had neither acquired any capital asset nor the assessee had obtained any benefit of enduring nature. Forfeiture of earnest money was incidental to the business of the appellant-assessee and hence in the nature of a revenue loss. 9. However, the appeal preferred by the Revenue has been accepted by the impugned order passed by the Tribunal, which holds that the expenditure/payment made was for acquiring a capital asset and, therefore, the forfeiture of Rs. 3,93,327/- would be a capital loss, as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....istic classification of the legal rights, if any, secured, employed or exhausted is the process." The question must be viewed in the larger context of business necessity or expediency. If the outgoing expenditure is so related to the carrying on or the conduct of the business that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure. See Bombay Steam Navigation Co. (1953) Pvt. Ltd. v. CIT [AIR 1965 SC 1201 : (1965) 1 SCR 770 : (1965) 56 ITR 52]. The same test was formulated by Lord Clyde in Robert Addie and Son's Collier....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "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 any) arising in any year from the trade carried on by him at the time when the compensation is so received, the compensation is to be treated for income tax purposes in the same way as that sum of money would have been treated if it had been received, instead of the compensation." 13. Following the above dictum in Commissioner of Income Tax versus State Trading Corporation of India Limited, [2001] 247 ITR 114 it was held that amounts received by State Trading Corporation on forfeiture of security deposits, as the b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for sale of old rubber trees but the vendee after paying earnest money and advance had defaulted in payment of the balance amount. It was held that the amounts received by the assessee from the vendor would be a capital receipt. Similar view was expressed by the Madras High Court in K.R. Srinath versus Assistant Commissioner of Income Tax, [2004] 268 ITR 436 (Mad.) wherein on cancellation of agreement to sell of an immovable property, which was held as a capital asset, amount received on giving up the right for specific performance was held to be a capital receipt. Madhya Pradesh High Court in Commissioner of Income Tax versus Smt. Laxmidevi Ratani and Others, [2008] 296 ITR 363 (MP) had observed that consideration received for giving up ri....