2019 (11) TMI 797

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....g grounds of appeal: ''1. The Order of the Commissioner of Income Tax (Appeals)-1, Chennai dated 07-09-2016 insofar as it confirms the order of the Assessing Officer in bringing to tax the sum of Rs. 4,65,30,500/- being compensation received from Butterfly Gandhimathi Appliances Limited for loss on account of non-exercise of commercial exploitation/development rights on account of 99 years lease to run the said Butterfly Gandhimathi Appliances Limited is erroneous, against the provisions of law and contrary to the facts and circumstances of the case. 2. The Commissioner of Income Tax (Appeals) should have found that the Memorandum of Understanding dated 29-03-2012 provides for compensation to the appellant on account of its inability ....

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.... and passed with total lack of application of mind to the facts and circumstances of the case and render justice''. 3. The brief facts of the case are as under: The appellant namely M/s. Butterfly Marketing Private Ltd is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing household appliances. The return of income for the AY 2012-13 was filed on 02.05.2013 disclosing total income of Rs. 2.72,34,320/-. Against the said return of income, the assessment was completed by the Dy. CIT, Corporate Circle-I(2), Chennai (hereinafter called "AO") vide order dated 13.02.2015 passed u/s. 143(3) of the Income Tax Act, 1961 (in short 'the Act') at total income of Rs. 7,46,42,470/- aft....

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..... Gangathar Baggnath (1972) 86 ITR 19 and CIT vs. Manna Ramji (1972) 86 ITR 29. Further, the Assessing Officer taking note of the fact that property was sold by the assessee company to the same party i.e. M/s. Butterfly Gandhimathi Appliances Ltd to whom the property was leased for 99 years, inferred that it is a part of sale consideration. 5. Being aggrieved, an appeal was preferred before the Ld.CIT(A) who vide impugned order confirmed the action of the Assessing Officer (AO). 6. Being aggrieved by the order of the ld. CIT(A), the appellant is in appeal before us in the present appeal. It is contended that the Assessing Officer ought not have inferred that compensation paid is part of the sale consideration, in as much as, the stated ....

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.... of the term of MOU. He should have examined the other parties to find out the purpose of the impugned payment, which the Assessing Officer had chosen not to do so. Therefore the MOU has to be believed and the amount received should be held to be compensation towards termination of long term lease. Then the question boils down to whatever compensation received on account of termination of long term lease of 99 years can be treated as revenue receipts and liable to tax. Any compensation received towards loss of source of income cannot be treated as Revenue receipts but capital receipts which is not liable to be taxed. The Hon'ble Supreme Court in the case of Karam Chand Thapar Bros (P) Ltd vs. CIT (1971) 80 ITR 167, wherein it was held as ....