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2005 (12) TMI 227 - ITAT DELHI-HValidity of Order passed by the learned CIT u/s 263 - erroneous and prejudicial Order - highest bidder for providing basic telephony services - Compensation for termination of project agreements with Qualcomm - receipts - Capital receipt Or Not - HELD THAT:- As is evident from the relevant clause, of the settlement agreement reproduced above, different performance and financial guarantees were given by Qualcomm on behalf of the assessee-company. In order to get itself discharged of the obligations under the said guarantees, it was agreed by Qualcomm that it would pay Rs. 33.33 crores to the assessee-company and in turn, the assessee-company shall indemnify Qualcomm from any liability that may arise under the said guarantees during the period in which they were in force. It is pertinent to note here that all these guarantees were given in connection with the setting up of a state of art broad-band network on convergence platform in Rajasthan Telecom Circle for providing basic telephony services in terms of license granted to the assessee-company by DoT. The said guarantees were, therefore, clearly related to the capital structure of the assessee-company or for that matter to its profit making apparatus and the amount received by the assessee company from Qualcomm as compensation for discharging the latter from the liabilities under the said guarantees was a receipt on capital account. Hon'ble Supreme Court in the case of Kettlewell Bullen & Co. Ltd. [1964 (5) TMI 4 - SUPREME COURT] involving almost similar facts, is directly applicable to the present case wherein it was held that the compensation paid to the assessee for termination of managing agency was a loss of capital asset and it matters little whether the assessee did continue after the termination of the said managing agency. To the similar effect is the decision of Hon'ble Supreme Court in the case of Travancore Rubber & Tea Co. Ltd. [2000 (3) TMI 5 - SUPREME COURT] cited by the learned counsel for the assessee wherein it was held that the, quality and nature of a receipt for income tax purposes are fixed once and for all when the subject of the receipt is received and no subsequent operation can charge the nature of the receipt. We, therefore, find no merits in the contention raised by the learned CIT-DR in this regard and reject the same. As such, we are of the considered opinion that the amount in question received as compensation by the assessee-company from Qualcomm on account of cancellation/termination of project agreements was a "capital receipt" not liable to tax. In that view of the matter, we hold that the learned CIT was not justified in holding the same to be a revenue receipt chargeable to tax. The addition made on this issue to the total income of the assessee is, therefore, directed to be deleted. Ground Nos. 8 to 13 of the assessee's appeal are, accordingly, allowed. In the result, the appeal of the assessee is partly allowed.
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