TaxTMI 
TaxTMI 
2022 (4) TMI 457
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....Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs. 3,20,56,139/- made by the AO treating the compensation received from Lafarge India Pvt. Ltd. as revenue receipts instead of capital receipts as claimed by the assessee?" 2."Whether on the facts & circumstances of the case and on points of law, the Ld. CIT(A) was justified in giving a finding that the alleged compensation from Lafarge India Pvt. Ltd. to assessee was a consideration for restrictive covenant to not to do business in the same line for a prescribed period, as against the facts on record that there is no loss or destruction of the earning asset of the assessee?". 3. "Whether on the facts & circumstances of the case and on points of law, the Ld. CIT(A) was justified in giving a finding that the alleged receipts of compensation by the assessee are capital in nature, thereby ignoring the facts on record that these payments from Lafarge India Pvt. Ltd. received by the assessee are in consideration of specific services and specified work/acts rendered and performed by the assessee?". 4. Whether on points of law and on facts & circumstances of t....
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....in the nature of compensation on account of closure/termination of its business activity which had resulted in to "loss of source of income", therein impairing its profit making structure, therefore, the same was rightly claimed by it as a "capital receipt". Observing, that as claimed by the assessee, and rightly so, the amount in question was paid by Lafarge India Pvt. Ltd. (LIPL) to the assessee company in lieu of cancellation/termination of its earlier MOU, dated 19.11.2001 on the basis of which the entire work of construction of railway track and siding was awarded to it, the CIT(Appeals) concurred with the claim of the assessee that as the said amount was towards compensation for the loss of source of income leading to impairment or sterilization of the profit making structure itself, the same, thus, being in the nature of a "capital receipt" was not chargeable to tax. Accordingly, the CIT(Appeals) on the basis of his exhaustive deliberations vacated the disallowance made by the Assessing Officer. 6. The Revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 7. At the very outset of hearing of the appeal, the Ld. Authorized Rep....
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....atives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the order passed by the Tribunal in the assessee's own case for the immediately preceding year i.e. AY 2011-12 in ITA No.157/RPR/2014 dated 23.10.2018. As observed by us hereinabove, it is the matter of fact borne from the record that an amount of Rs. 7,74,57,604/- was received by the assessee company from LIPL over the years in tranches, as under: A.Y. Amounts ( in Rs.) 2010-11 3,20,56,139/- 2011-12 3,01,47,107/- 2012-13 1,52,54,358/- Total 7,74,57,604/- Claiming receipt of the aforementioned amount as a compensation on account of "loss of source of income", the assessee company had held it as a "capital receipt", while for the Department on the other hand had brought the same to tax by re-characterizing it as a "revenue receipt". On a perusal of the order passed by the Tribunal while disposing off the appeal filed by the Revenue in the assessee's own case for the assessment year 2011-12 in ITA No.157/RPR/2014, dated 23.10.2018, we find that the issue in hand is squarely covered by the view therein taken. In its aforesaid order, the Tribuna....
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....work of construction of the Railway Track and Siding was its sole business and the isolated activity of acquisition of land for such Railway Siding was never visualized by it and further, that since LIPL continued to remain indecisive as to execution of entire work by the assessee & also unresponsive to problems faced by them, the execution of the work was stalled by the assessee and accordingly, came to a standstill. Subsequently, after numerous rounds of deliberations & meetings between LIPL and the assessee company, aforesaid MOU was executed on 31st January, 2009 leading to determination of compensation in lieu of cancellation/termination of the earlier MOU Dated 19th November, 2001 or in lieu of determination of its rights in the said MOU ultimately leading to loss of source of income. It is the construction of this MOU executed on 31st January, 2009 which ultimately decides the nature of receipt of the impugned amount termed as "Compensation". We find the assessee claimed such compensation as capital receipt being loss of source of income where as the Assessing Officer treated the same as revenue receipt. We find the Ld. CIT(A) allowed the claim of the assessee the reasons of....
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....apar & Bros. (P) Ltd. vs. CIT (1971) 80 ITR 167 (SC) : TC 13R.1235 discussed and held that in CIT vs. Chari & Chari Ltd. (1965) 57 ITR 400 (SC) : TC 38R.878 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, but was within the framework of me business, it being a necessary incident of the business that existing agencies may be terminated and fresh agencies may be taken. Thereafter the Court held that it was difficult to lay down a precise principle of universal application but various workable rules have been evolved for guidance. 4. Applying the aforesaid test laid down by this Court in the present case, in our view the Tribunal was right in arriving at a conclusion that it was a capital receipt. Reason is that as provided in art. XVIII of the first agreement assessee was having an opt on or right or lien, if owner desired to transfer the hotel ....
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....ntly engaged the attention of the Courts. It may be broadly stated that what is received for loss of capital is a capital receipt: what is received as profit in a trading transaction is taxable income. But the difficulty arises in ascertaining whether when s received in a given case is compensation for loss of a source of income, or profit in a trade transaction." After considering various decisions it was further held as under : These cases illustrate the principle that compensation for injury to trading operations, arising from breach of contract or in consequence of exercise of sovereign rights, is revenue. These cases must, however, be distinguished from another class of cases where compensation is paid as a solatium for loss of office. Suer: 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 m settlement 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 compe....
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....tion of office, as may be agreed upon between the managing agent and the company and in case of dispute, as may be determined by two arbitrators. By another clause, the managing agent was at liberty at any time to resign the office of managing agent by leaving at the registered office of the company previous notice in writing of its intention in that behalf. The agreement did not specify any period for which the managing agency was to enure. Besides the managing agency as aforesaid, the assessee held at all material times, managing agencies of five other companies. In pursuance to the conditions, the assessee therein decided to relinquish its managing agency to another person and accordingly received an amount to forgo the agency. The reasons for which the appellant agreed to relinquish were set out in a letter addressed to the members of the company. The managing agency was not, except in the circumstances set out in cl.2 of the agreement, liable to be determined at the instance of the company before the expiry of specified period and in the event of voluntary resignation, the principal company was not obliged to pay any compensation however, only to facilitate the appointment of ....
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....aluable only as indicating the matters that have to be taken into account in reaching a decision. That, however, is not to say that the question is one of fact, for these questions between capital and income, trading profit or non-trading profit, are questions which, though they may depend to a very great extent on the particular facts of each case, do involve a conclusion of law to be drawn from those facts [see CIT vs. Rai Bahadur Jairam Valji (1955) 35 ITR 148 (SC), P. H. Divecha vs. CIT (1963) 48 ITR 222 (SC), Kettlewell Bullen & Co. Ltd. vs. CIT (1964) 53 ITR 261 (SC), Gillanders Arbuthnot & Co. Ltd. vs. CIT (1964) 53 ITR 283 (SC), and CIT vs. Best & Co. (P.) Ltd. (1966) 60 ITR 11 (SC). 10. The question whether a particular income arising from the termination of one of the agencies of a multi agency concerned is a capital receipt or a revenue receipt is undoubtedly a difficult question to be answered. The difficulty is inherent in the problem itself. Decisions on this question are numerous. But none of them have laid down a precise principle of universal application, but various workable rules have been evolved for guidance. One of us, speaking for the Court in Kettlewell Bu....