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2022 (12) TMI 1076
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....rm as a compensation for pre-closure of its BOT projects and therefore, the said amount was a capital receipt not chargeable to tax. 2. The learned CIT(A) further erred in holding that the amount of Rs. 18,51,61,000/- was taxable as a revenue receipt in the hands of the assessee firm since it represented the net present value of the future cash flows to be received by the assessee. 3. The learned CIT(A) failed to appreciate that the amount received by the assessee was on account of pre-closure of its BOT projects and therefore, the same was a capital receipt and the provisions of section 28(ii)(d) were not applicable to the facts of the present case. 4. The learned CIT(A) ought to have appreciated that even thought the amount of compensation was quantified by considering the net present value of the future income, the income earning source of the assessee was extinguished and accordingly, the compensation received was a capital receipt in the hands of the assessee. 5. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal." 3. We next note that the Revenue's cross appeal ITA No.692/PUN/2019 challenges corr....
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....oss of source of income being the basis for treating the amount of Rs.18,51,61,000/- received as a capital receipt is not acceptable as the accounting treatment adopted by the assessee by crediting the amount of Rs.18,51,61,000/- to the capital accounts of the partners is a violation of provisions of Sec. 28(ii)(d) of the Income Tax Act, 1961. The relevant portion of Sec 28 Profits & Sains of Business or Profession is reproduced below: "28. The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",- (i) .. (ii) any compensation or other payment due to or received by,- (a).,(b)..(c).... (d) any person, for or in, connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business;" On perusal of the provisions of Sec, 28(ii)(d) if is evident that any amount received by way of compensation or other payment due to or received by any person for or in connection with the management of any property or business of the government or any corporation owned or cont....
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....se bifurcation of the compensation received is as under- Sr.No. Name of Project Amount of compensation received (Rs.) 1 Takilkazi Kharda Road Phase I & II 11,66,21,000 2 Nagar - Ashti 2,04,08,000 3 Dondaicha ROB 4,81,32,000 Total 18,51,61,000 1.3] The assessee in its return claimed the amount received as a capital receipt not chargeable to tax. The learned A.O. has not accepted the claim made by the assessee. According to him, the amount of compensation received is a revenue receipt. The learned A. O. has stated that the assessee has only received the net present value of the future cash flows that it would have received had the toll plazas were in operation. The learned A.O. stated that the Govt, of Maharashtra has given to the assessee present value of the future cash flow statements and according to him, the assessee has received the entire income stream at its present value. Hence, the learned A.O. has held that there is no loss of source of income to the assessee. The learned A.O. has also referred to the provisions of section 28(i)(d) and according to him, as per the said provision, the compensation received is a re....
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....ce on the following decisions - I. CIT vs Bombay Burmah Trading Corporation (1986) 161ITR 386 (SC) Compensation received for immobilization, sterilization, destruction or loss, total or partial of capital asset would be capital receipt. Where the agreement relates to the structure of assessee's profit making apparatus & affects the conduct of business, the sum received for cancellation or variation of such agreement would be capital receipt. II. Oberoi Hotels Pvt Ltd vs CIT (1999) 103 Taxman 236 (SC) Where certain amount was received because the assessee has to give up its right to purchase and / or to operate certain hotel & it was loss of source of income to the assessee, amount received by the assessee would be capital receipt. III. CIT vs State Trading Corporation (2001) 247 ITR 114 (Delhi) & CIT vs Prabhu Dayal(1971) 82 ITR 804 (SC) Whereby due to cancellation of contract, the trading structure of the assessee is impaired or such a cancellation results in loss of what may be regarded as the source of assesses's income, the payment made to compensate for cancellation of agreement is capital receipt. IV. Charge of in....
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....rojects which were in Public Private Partnership Model. Due to this decision of GOM all the three toll projects of the firm were closed down from 30.06.2014 (mid-night) on receipt of letters from the office of Executive Engineer, PWD. Due to this decision of the government, all its toll projects were taken over by the GOM right from 01.07.2014 before the concession period already agreed upon. The government then gave an amount of Rs 18,51,61,000/- as compensation for such action. 5.5 The appellant insisted before the AO that as all the projects of the appellant firm were closed based on the termination letters of the GOM, the appellant firm was left with no assets and the total source of income of the appellant firm was abandoned. Therefore, the appellant firm, on loss of source of income, has written off the cost of projects appearing in the books of account as capital loss & debited to partner's capital accounts in the profit sharing ratio. Similarly the firm credited the compensation received from the GOM on closure of all the toll projects of the firm to partner's capital account in the profit sharing ratio treating the same as capital receipt against the loss of sourc....
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.... receipt of Rs,18,51,61,000/- is a revenue receipts as it was lump sum compensation in lieu of expected revenue in future years calculated at Net Present Value. Accordingly, Ground No.1 of the appellant is DIMISSED." 5. There is hardly any dispute that the assessee had received the impugned compensation amount i.e. Rs.18,51,61,000/- from the government of Maharashtra in lieu of closure of its "BOT" projects at three locations with effect from 30.06.2014. Both the learned lower authorities have invoked section 28(ii)(d) of the Act (supra) that such a compensation received partakes character of a revenue receipt as taxable income only. Learned CIT(DR) has also quoted (2018) 97 taxmann.com 136 (SC) CIT V/s. Parle Soft Drinks Bangalore Pvt. Ltd. which is not found germane to the instant issue since not dealing with specific application of section 28(ii)(d) involving compensation received from a government as is the case before us. 6. It emerges during the course of hearing that the forgoing statutory provision section 28(ii)(d) stood inserted in the Act by the Finance Act 1973 with retrospective effect from 01.04.1972. Relevant memo of explanation thereto clarified that "Several ....
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....ss of Rs. 4,57,844 arose appropos of the compensation in pursuance to the taking over or nationalisation it should be deemed to be business loss and treated as such." The department being aggrieved with the Commissioner (Appeals) order came up in appeal before the Tribunal and the only contention raised was that the Commissioner (Appeals) was not justified in holding that the sum of Rs. 4,57,844 was a business loss and not a capital loss as held by the ITO. The Tribunal reversed the order of the Commissioner (Appeals) by observing, inter alia, that section 28(ii)(d ) of the Act had no application to the assessee's case and it was held that the loss of Rs. 4,57,844 was a capital loss and not a business loss. The reasoning given by the Tribunal may be found in paragraph 2 of their order which reads as follows : "The Commissioner of Income-tax (Appeals) held that as there was a provision for treating the compensation received as business income if there was a loss in the matter of take over of the business by the Government, the loss would be a business loss on the same analogy. The Departmental representative argued that here not only the management was taken ov....