TaxTMI 
TaxTMI 
2021 (4) TMI 142
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.... admitted on the following substantial questions of law: "1)Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in allowing compensation received for refraining from carrying on competitive business was a capital receipt and not taxable during the assessment year 2002-03? 2)Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in dismissing the Department Appeal observing that the Finance Act, 2002 brought to tax the capital receipts under Section 28 (va) with effect from 01.04.2003? 3)Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in following the decision of the Apex Court in the case of M/s....
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.... of the particular case and it is not possible to lay down any single test as infallible or any single criterion as decisive. This Court in the case of Karam Chand Thapar & Bros. P. Ltd. v. Commissioner of Income Tax (Central, Calcutta: [1971] 80 ITR 167(SC) discussed and held that in Commissioner of Income Tax v. Chari and Chari Ltd : [1965] 57 ITR 400(SC), it was held that ordinarily compensation for loss of an office or agency is regarded as capital receipt, but this rule is subject to an exception that payment received even for termination of agency agreement would be revenue and not capital in the case where the agency was one of many which the assessee held and its termination did not impair the profit making structure of the assessee....
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....p 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 and not a revenue receipt. 5. Learned Counsel for the Revenue relied upon the decision in the case of Commissioner of Income Tax v. Rai Bahadur Jairam Valji and Ors. : [1959] 35 ITR 148 (SC) and submitted that assessee had the business of running the hotels in various countries and the amount which is received by him is for the termination of first contract which was executed in 1970 and, therefore, it should be considered his revenue receipt. In that case the Court was dealing with a trading contract and held that compensation pai....
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.... as a solatium for loss of office. Such compensation may be regarded as capital or revenue; it would be regarded as capital, if it is for loss of an asset of enduring value to the assessee, but not where payment is received in settlement of loss in a trading transaction." After analysing number of cases, the Court observed that following satisfactory measure of consistency in the principle is disclosed : "Where on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business, and such cance....
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.... loss of a source of assessees income or not. The Supreme Court in Gillanders Arbuthnot & Co. Ltd vs. CIT [ 1 964] 53 ITR 283 has brought out a dichotomy between receipt of compensation by an assessee for loss of agency and receipt of compensation attributable to the negative/restrictive covenant. If the compensation is received for the loss of agency, it is to be treated as a revenue receipt whereas, if the compensation is attributable to a negative/ restrictive covenant, then, it would amount to a capital receipt. The Supreme Court in Guffic Chem (P.) Ltd. Vs. CIT [2011] 332 ITR 602/198 Taxman 78/10 taxmann.com 105 examined this very question and in its paragraph 7 held that compensation received for refraining from carrying on competitiv....