TMI Blog2020 (10) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... r that the settlement received from the Government of India is not coming under the purview of the business income as there was no business during the period. Besides, the contracts between the assessee and the Government of Iraq was not completed due to war situation and UN Sanctions. There was no hope for the assessee to conduct any business, but foreign exchange loans extended to assessee through Exim Bank and SBI by Government of India was a liability to the assessee. Thus, the settlement received in lieu of this will not form the revenue receipt. Thus, the contentions of the assessee that the receipt are not revenue in nature is sustained and Ground Nos. 1 to 4 of assessee s appeal are allowed. Disallowance of prior period expenses - CIT(A) held that the assessee has not given any evidence as to expenditure was booked in present assessment year? - HELD THAT:- There is no evidence that expenses have been crystallized during the year, even though they pertained to earlier years. Thus, in absence of evidence, the CIT(A) confirmed this addition correctly. Before us as well the assessee could not demonstrate the same as to how the expenditure was booked in present assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract which was supposed to be executed in the year 1991 will not form the receipt of revenue in nature, but capital in nature. Therefore, Ground No. 1 to 3 of the assessee s appeal are allowed. Employee s contribution to P.F. - assessee company has deposited sums received from employees towards contribution to provident fund after the due date including grace period of 5 days - HELD THAT:-Assessee company has deposited employer s contribution to the P.F. after the due date mentioned in schedule but deposited before the due date of filing of return of income. Thus AO was not right in disallowing these expenses claimed by the assessee company for the employer s contribution to the P.F. as per the provisions of Sec 43B if the same is deposited prior to the due date mentioned in the respective statute as held by the Hon ble Apex Court in case of CIT v. Vinay Cement Ltd.[ 2007 (3) TMI 346 - SC ORDER] and CIT v. Alom Extrusions Ltd.[ 2009 (11) TMI 27 - SUPREME COURT] - Ground No. 7 of the Assessee s appeal is allowed. - ITA No. 4710/Del/2010 And ITA No. 2199/DEL/2005 And ITA No. 2200/DEL/2005 - - - Dated:- 23-9-2020 - Ms Suchitra Kamble, Judicial Member And Shri P. Maharis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the tax Audit Report amounting to ₹ 8,90,796/- without appreciating the fact that the company s liability accrued in the year under assessment on the basis of Sanction Acceptance and these have been accounted by appellant consistently over the years in the same manner. Interest income: Income From Other sources or Business Income: 6. On the facts and circumstances of the case and in law, lower authorities have erred in treating the interest income of ₹ 7,29,95,567/- as income from Other Sources instead of Business Income. 7. Lower authorities have failed and erred to apply the decision of hon ble ITAT in AY 1998-99 in ITA no., where under the same facts circumstances of the case, interest income was held to be Business Income. Guest House Expenses: ₹ 183,894/- 8. On facts circumstances of the case and in law, lower authorities have erred in disallowing the transit and mess expenses merely on the basis of its accounting head as Guest House Expenses on the basis of Tax Audit Report, in total disregard to the submissions of the assessee. General: 9. The lower authorities have acted arbitrarily in haste and has fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive claim made during the assessment proceedings, that such interest on receivables, under deferred payment agreements between Govt of Iraq Govt of India, has not actually accrued to the assessee to be taxed on the basis of real income concept and the fact that no DPA has been renewed since 1991 between the two sovereign states. 6. On facts circumstances of the case, the Lower Authorities have erred and were not justified in concluding that for the purpose of appropriate relief u/s 220(7) of the IT Act, the prerequisite of the existing tax default is necessary, meaning thereby that interest chargeable u/s 220(2) shall be leviable. If such is the interpretation of the law, it would amount to deliberate denial of justice which has been exclusively provided in the Act. PF Dues u/s 43B: 7. On the facts circumstances of the case, the lower authorities have erred in making the disallowance of ₹ 32,88,338/-, in so far as the said sum relate to Employees Contribution to Provident Fund Scheme, as per provisions Act. The due date for the purpose of the Act, has to be reckoned with the date of actual payment of salary instead of the last date of the relevant mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey retained from contract receipts. The Government of Iraq was not in a position to pay such deferred dues till the year 1995-96 and the chances had further receded with the trade sanctions placed on Iraq by the United Nations, following the war between Iraq and Kuwait in August, 1990. The Government of India had extended foreign exchange loans to the assessee through Exim Bank and SBI to enable it to make off with contracts in Iraq following the deferment of its contracts under DPA. The assessee-company and other similarly placed Indian contractors approached the Government of India to help them out to this situation. The Government of India granted settlement of such dues from Iraq Government by issuance of bond on assignment of their dues from the Government of Iraq to Government of India. The bonds issued were handed over to the Exim Bank and SBI for being adjusted towards the foreign exchange loans due to them from the Indian Contractors working in Iraq. The assessee company received the following sums from the Government of India under such settlement: a) Retention of money default account (being the amount credited to income in the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the assessee from A.Y. 1984-85 onwards. Thus, the whole receipt of ₹ 297.46 crores was taxed as profits from execution of foreign project by the Assessing Officer. The Assessing Officer further held that the assessee will be eligible to deduction of 50% of such income i.e. ₹ 148.73 crores as deduction u/s 80HHB in accordance to the CBDT Circular No.711 dated 24.07.1995. The Assessing Officer further observed that the assessee has created foreign project reserves of ₹ 85.00 crores during this year as required by Section 80HHB of the Act. Hence, the deduction was limited to ₹ 85 crores only being lower than the eligible amount by the Assessing Officer. Therefore, the assessee was granted a deduction of ₹ 85.00 crores u/s 80HHB, limited to the extent of reserve created u/s 80HHB and the taxable income before the Chapter-VIA deduction. 4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 5. The Ld. AR submitted that the only matter of dispute is the sum of ₹ 297,46,41,205/- credited to the profit and loss account of the year ending 31.03.1995 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following decisions: i) Universal Radiators vs. CIT 201 ITR 800 ii) CIT vs. Xylon Holdings Pvt. Ltd. (Bom HC) iii) UCO Bank vs. CIT (SC) iv) ACIT vs. Arvind Construction Co. Pvt. Ltd. (Del. Tri.) 6. The Ld. DR submitted that the main issue that needs to be decided in respect of A.Y. 1995-96 is whether compensation of ₹ 297.47 crores received by the assessee by way of bonds issued by RBI on behalf of the Government of India is to be treated as income liable to tax or whether it was capital receipt as claimed by the assessee. The assessee has disputed the order of the Assessing Officer and the CIT(A) in Grounds of Appeal being Ground Nos. 1 to 4 stating therein that the revenue was not justified in treating the compensation of ₹ 297.47 crores as income, received by way of bonds directly issued by RBI to the lending banks of the company, on behalf of the Government of India/ECGC, in discharge of the assessee s loan liability. The assessee has claimed the amount as a capital receipt not exigible to tax. 6.1 The Ld. DR submitted that the grounds raised by the assessee are based on an incorrect understanding of the facts at hand and interpretation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer. 6.2 The Ld. DR submitted that the Assessing Officer observed that the assessee has been paid the said sum of ₹ 297.46 cr on account of deferred contract receipts which are pure business receipts. As per CBDT circular No 711 dated 24.07.1995, the value of the bonds received are to be treated as a deemed receipt of the convertible foreign exchange for purpose of taxable income and grant of deduction u/s 80HHB. The expenditure related to foreign projects of the assessee has already been allowed as expenditure in the earlier years. No separate addition is required as the sum already stands credited to the P L account by the Assessee Company in his books of account. The department has been allowing deferred contract expenses in the year it has been incurred. The sum of ₹ 211.06 crore on account of variation in foreign loans has been claimed by the assessee in his P L Account and has been allowed by the department. This issue has been discussed by the CIT(A) and observed that a debt has been created in favour of the assessee. This is an enforceable right of the assessee. He has the right to receive income. The assessee also follows the mercantile syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, in terms of covers issued by the corporation and the MOU dated 20.10.1993 following claims are payable to the assessee s company: * As the Govt. of India have finalized these issues only now, the Corporation has commenced the process of settling the dues from March 1994. It has been decided to settle the claims payable upto March 31, 1995 in cash * In terms of decision taken by the Govt. of India the claim payments from corporation in cash and bonds would be made to the project exporters/banks/EXIM Bank of India in the proportion as outlined in the datasheets forwarded by the EXIM bank 6.3 The Ld. DR submitted that from the perusal of the relevant extracts of the various documents, it becomes clear that the receipts of ₹ 297.47 crore received by the Assessee company is in the nature of deferred contract receipts which is clearly taxable as income as held by the Assessing Officer and the CIT(A). The CBDT passed Circular No. 711 of 1995. In this circular issued after consultation with Department of Economic Affairs, it is clearly mentioned that the RBI/ECGC bonds are in place of unrealized funds of projects exporters in Iraq. In para 4 of the said circular it is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cash and interest bearing bonds. These receipts are in the form of taxable receipts as they have been received in lieu of contract work done in Iraq in the form of cash and bonds. The assessee concern has changed its method of accounting to cash receipts to take cognizance of such receipts in his books of account. The assessee company has treated this receipt as income in books of account. Bridge loan has apparently not been adjusted against such dues as submitted before CIT (A) despite assessee s claim that such amount was issued for discharge of loan liability of the assessee company. The claim of the assessee that it may be treated as capital receipt or alternatively as LTCG has no locus standi based on the factual matrix of the case. Therefore, the Ld. DR submitted that the appeal of the assessee company be dismissed and the order of the CIT(A) be upheld. 6.5. The Ld. DR submitted that the assessee company has received deferred dues for contract work done in Iraq during the A.Y. 1995-96 in the form of cash and interest bearing bonds. These receipts are in the form of taxable receipts as they have been received in lieu of contract work done in Iraq in the form of cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Iraq to Government of India. The bonds issued were handed over to the Exim Bank and SBI for being adjusted towards the foreign exchange loans due to them from the Indian Contractors working in Iraq. The bonds were issued directly to the banks and not to the assessee in respect of the loan taken from the banks. The submission of the Ld. AR/Assessee that even if assuming the bonds were issued on behalf of the assessee company, the same is not taxable as the issue of bonds is amounting to repayment of loan and loan is always a capital receipt. In the present case, the assessee received ₹ 297,46,41,205 as compensation from Government of India/ECGC. This amount was a settlement against default receivable from Government of Iraq. The contention of the assessee was that it is not a business receipt from execution of contracts from Government of Iraq, but is only a financial assistance from the Government of India. Thus, it is capital receipt as per the assessee. In order to decide whether the receipt is capital or income/revenue receipt, the receipt has to be examined from a commercial point of view and also has to be examined what character of the receipt is in the hands of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Delhi High Court decision in case of CIT vs. M/s Arvind Cosnruction Co. Ltd. (ITA No. 1388/2006 order dated 04.12.2007), there were two questions of law: i) Whether interest earned by the assessee on RBI Bonds is the income derived by it from the business of industrial undertaking so as to be eligible for deduction under Section 80HHB of Income Tax Act, 1961 ii) Whether the Tribunal was correct in law in allowing deduction under Section 80IA of the Act to the assessee on receipts from transportation of sleepers. Both these questions were answered against revenue by observing that no substantial question of law arose in this regard and dismissed the appeal of the revenue by the Hon ble High Court. The Hon ble Supreme Court in case of CIT vs. M/s Excel Industries Ltd. held that income accrues when there arises a corresponding liability of the other party from whom the income becomes due to pay that amount. Income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n remote areas where the benefit of hotel was unavailable. Thus, the CIT(A) followed the Apex Court decision in case of Britannia India Ltd. vs. CIT (2005) 278 ITR 546 (SC) and upheld the addition. After hearing both the parties it can be seen that the CIT(A) was rightly confirmed this addition as there was no evidence shown by the assessee at the time of the assessment proceedings as well as at the time of the Appellate proceedings. Before us as well the assessee could not demonstrate the same. Therefore, Ground No. 8 of the assessee s appeal is dismissed. 11. In result, appeal being ITA No. 4710/Del/2010 filed by the assessee is partly allowed. 12. Now we are taking up the appeals for A.Y. 2001-02 filed by the assessee as well as by the Revenue. Firstly we are taking up assessee s appeal. A.Y. 2001-02 13. The assessee is a public limited company engaged in engineering and construction of major infrastructure projects acting as a contractor for an on behalf of Govt. Departments/ undertakings. In earlier years it had various overseas projects in Iraq Libya. The assessee filed its return of income on 30.10.2001 at a loss of ₹ 16,40,61,764/- and assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) of the Act and requested for deferment of the payment of tax, till the said sum is actually realized. Since the said sum is not repatriable by virtue of an agreement between the Govt. of India and Govt. of Iraq in 1983, as well as UN Trade Embargo in 1991, the case is fully covered under Section 220(7). This stand of the assessee has already been accepted by the department in the preceding years. The Assessing Officer has not allowed the relief u/s 220(7) and has deferred for consideration as separate proceedings. 14. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 15. The Ld. AR submitted that the assessee company is engaged in the business of civil engineering construction as in earlier years. During the year under consideration, the assessee filed return of income declaring loss of ₹ 16,40,61,764/-(business loss of ₹ 1,68,73,394/- and long term capital loss at ₹ 14,71,88,370/-). The return was processed u/s 143(1) of the Income Tax Act, 1961 on 26.02.2002. The case was selected for scrutiny. During the year under consideration, the assessee company has shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The WDV under IT Act is much higher ₹ 14,99,41,079/- The net sum of ₹ 5,99,58,523/- (₹ 20,98,99,602/- less ₹ 14,99,41,079/-) has been credited to the Profit Loss account. Since, the sum of ₹ 20,98,99,602/- (net of the legal fees) received by the company from UN is not connected with any business done by it with UN, it is not a business receipt. The amounts of contract dues and retention money aggregating to ₹ 9,68,04,741/- accounted as income in the past/earlier years, which has been written off are allowable as bad debts. However, the Fixed Assets Current Assets amounting to ₹ 5,31,34,338/-written off are not allowable as expenses. The Ld. AR submitted in the alternate, while not admitting it, that since the assets have been held prior to 1990, against which the compensation has been received, it will be a long term Capital Gain after setting off the indexed cost of the assets lost in Iraq against which the compensation may be deemed to have been received. The tentative long term Capital Gain (subject to detailed workings) will be as under: A. Gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such dues are to be addressed through normal mechanism. In the case of the assessee company, Commission recommended following compensation: S.No. Particulars Amount awarded by UNCC 1 Retention Money of Karkh Project US $ 3841142 2 Ashtar 89 Project Work Completed US $ 592271 3 Loss of Property and Equipment US $ 11583862.91 Total US $ 16017275.91 Amounts received by the assessee company as follows: 1st Installment US $ 25,000.00 ₹ 10,89,500/- F.Y. 2000-01 2nd Installment US $ 49,75,000.00 ₹ 23,21,33,002/- F.Y. 2000-01 3rd Installment US $ 1,10,17,275.91 ₹ 52,86,08,899/- F.Y. 2001-02 Total US ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to INR 18,26,96,656/- on avg.) is in respect of Karkh Water Supply project at Iraq. As part of all major civil construction projects, clients withheld a part of the bills as retention money as security for performance and which is payable on successful conclusion of the contract. This retention money is part of revenue receipt accounted by the assessee company on accrual basis and the amount of retention money which is withheld by the client is shown as receivables in the balance sheet. Therefore, the aforesaid amount of US $ 3.84 mn. Equivalent to INR 83.42 mn. At exchange rate prevalent in the year of accrual, is already accounted for as income by the assessee. The surplus of ₹ 8,82,73,132/- (INR 182696656 INR 83423524), broadly represent exchange difference on retention money shown as receivables. The retention money represent contract receipt as per discussion on UNCC in para 193. Retention money was already accounted for as contract receipt in the year of accrual. Further such retention money was to be released by the client on issuance of final certificate and the lapse of the maintenance period. Since consequent to war, these conditions could not be fulfilled, UNC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt the assessee company stated that out of the said amount it had already accounted for ₹ 1,33,81,216 as income, the difference of ₹ 1,47,88,969 represents foreign exchange fluctuation and thus is a capital receipt. It further stated that as UNCC was not under any contractual obligation to pay the said amount and therefore, it does not fall under Section 28 of the Income Tax Act and hence is not taxable. 21. The Assessing Officer observed that there is no doubt about the source of the receipt which is the business of the assessee company. The source is linked to the performance of work on Ashtar-89 project in Iraq and the payment of retention money withheld by the clients in Iraq as per the contract agreement. Both represented the contract receipts taxable in the hands of the assessee company. Further, even if there is an element of foreign exchange fluctuation in the proceeds received by the assessee company on account of its business, the same is taxable as revenue receipt. The claim of the assessee that the receipt is not taxable as the recommending body, i.e., UNCC was not under any obligation to do so, and hence the amount so recommended and paid is not tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any was asked to substantiate its claim and to produce evidentiary proof of the value of the assets lost/confiscated. On the basis of details filed by the assessee company and the earlier years records available in this office, it has been seen that the total value of block of assets relinquished/taken over by the Iraqi authorities during the war was at ₹ 1,23,60,483/- instead at ₹ 2,11,68,472/- claimed by the assessee company as on 31.03.1992. From the assessment records of A.Y. 93-94. It has been found that the assessee company has claimed depreciation on the block of assets taken over by the Iraqi authorities upto 31.03.1992. In the A.Y. 93-94, the assessee company has reduced the value of block of assets pertaining to the projects taken over by the Iraqi authorities. The block of assets of these projects has been taken at nil thereafter and no depreciation was claimed by the assessee company. Any consideration, compensation or claims received by the assessee in excess of the w.d.v. of the block of assets against sale, extinguishment, relinquishment or acquisition of the block of assets is to be treated as short term capital gain in the hands of the assessee as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution Actual date of deposit 1 April, 2000 345,308 30.05.2000 2 June, 2000 334,989 02.09.2000 3 July, 2000 329,356 02.09.2000 4 August, 2000 305,421 13.10.2000 5 October, 2000 318,726 24.11.2000 6 November, 2000 355,085 22.03.2001 7 December, 2000 332,431 22.03.2001 8 January, 2001 350,613 22.03.2001 9 February, 2001 330,792 22.03.2001 10 March, 2001 610,024 11.07.2001 11 6,385 08.06.2001 Tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusal of Annexure 13 of the Tax Audit Report containing the detail of the prior period expenses, it has been seen that the expenses pertain to the payment of road tax, goods tax, fitness fee etc., to the RTO. Vide order sheet entry dtd 09.02.2004, the counsel of the assessee company was asked to produce copies of orders from RTO to ascertain the year in which the liability has actually occurred. The counsel of the assessee company did not furnish the copies of orders, however, has stated that the prior period expenses amounting to ₹ 27,54,279/- includes ₹ 4,73,404/- towards fine and penalties. The balance amount is paid towards Road Tax which is allowable u/s 43B on payment basis. Therefore, no addition is justified in relation to prior period expenses. The statement of the counsel has been found contrary to the findings of Auditor mentioned in the Tax Audit Report. The Auditor mentioned that ₹ 4,73,404/- in the nature of fine and penalty was the liability of the assessee company during the year and is the part of total expenses claimed by the assessee company for payment of road tax, etc. amounting to ₹ 48,49,728/- which is given in detail in Annexure-V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of retention money contract receipts (net of debts outstanding) or in other words, the net gain on devaluation is not taxable as it does not result in profits of business and were just fortuitous windfall due to devaluation. d. Amount of compensation as is attributable to assets abandoned in Iraq, is not liable for short term capital gains u/s 50, as there is no transfer and even if it is assumed that abandonment results in transfer then it becomes taxable in AY 1991-92, when abandonment actually took place. e. The interest receivable amounting to ₹ 8,21,49,466/- under unilateral deferred Payment Agreement between two sovereign governments does not result in any enforceable right to receive nor it has resulted in any real income and thus income does not accrue and should be excluded. f. The CIT(A) is not correct to hold that Section 220(7) becomes operative only when a demand is created subsequent to assessment order, because 220(7) is an exception to 220(1) and 220(1), 156 and 143(3) are to be read together. Alternative to c d: g. Without prejudice to above, the amount of compensation being a capital receipt may at most be liable for Long Term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee continued to account for interest at LIBOR rate in anticipation of renewal of such DPA in future. Subsequently, consequent to Iraq s invasion and occupation of Kuwait, the UN led war commenced in August 1990 against Iraq with the purpose of freeing Kuwait, disarm Iraq of nuclear weapons and restore world peace. At the onset of the heavy bombing of Baghdad in late January 1991, on the verbal orders of the Iraqi Authorities, the assessee s work force abandoned the Karkh Project leave its equipments behind and departed Iraq via overland desert route to Jordan. Subsequently, UN passed a resolution no 687 on 8th April, 1991 to compensate the victims of the UN led war due to Iraq s illegal invasion occupation of Kuwait for the damage injury caused. For the purpose of verifying the claims and evaluation of losses thereof a commission (UNCC) was constituted by the UN. The authority scope of UNCC is defined: The Commission is not a court or an arbitral tribunal before which the parties appear; it is a political organ that performs an essentially fact finding function of examining claims, verifying their validity, evaluating losses, assessing payments and resolving disputed c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from UNCC is honorary, compassionate gratuitous without any contractual obligation or agreement or insurance by UN with the assessee. The meaning of accrual envisages arising of an enforceable right in consideration of the performance. Since the compensation from UN is gratuitous, the same cannot be deemed to have accrued unless realized, inspite of a resolution being passed by it, (which itself is an internal affair its constituents member countries) and is always be subjected to review under the ever changing world socio-political scenario. For arguments, even if accrual system is to be adopted, the same can be deemed to have accrued on different dates and non of them falling during the relevant previous year. It is also a matter of great concern i.e. if accrual concept is to be applied, then what is the actual date of accrual? i.e.: -the date when the war was waged by the UN against Iraq 9.8.1990 -the date when the CCL abandoned its assets in Iraq January 1991 -the date when the UN passed resolution 687 for compensation 8.4.1991 -the date when the UNCC sanctioned the claim 3.7.1998 -the date when the president of India sanctioned for payment 5.12.2001 F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that any compensation for loss or destruction of a capital asset or an amount received on loss of source of profit is a capital receipt, outside the preview of the taxation. a) compensation is a well known expression in law and therefore the word compensation must be given its normal and natural meaning SRY Sivaram Prasad Bahadur vs. CIT (1971) 82 ITR 527 (SC); Raja Shri VVRK Yachendra Kumaraja vs. ITO (1971) 82 ITR 527 (SC) b) Compensation received for sterilization, destruction or loss, total or partial, of a capital asset would be a capital receipt. CIT vs. Bombay Burmah Trading Corp. (1986) 161 ITR 386 (SC) c) If payment received is towards compensation for extinction or sterilization partly or fully of profit earning source (capital asset) such receipt not being in ordinary course of business, it must be construed as capital receipt. CIT vs. Barium Chemical Ltd. (1987) 168 ITR 164 (AP) d) The court held that all inclusive definition of term Capital Asset in Section 2(14) brings in its ambit property of any kind held by the assessee. Tribunal observed that what was acquired in such a case was undertaking as a composite unit and therefore merely because i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar does not amount to Transfer. a) There can be no transfer effected when asset stands destroyed either by fire or by sinking in the sea as in the present case. C. Leo Machode vs. CIT (1988) 172 ITR 744 (Mad.) b) approved in Vania Silk Mills (P) Ltd. vs. CIT (1991) 191 ITR 647 (SC); c) CIT vs. Hade Navigation (P) Ltd. (1999) 239 ITR 726 (Bom); d) Merybong Kyel Industries Ltd. vs. CIT (1997) 224 ITR 589 (SC) e) For the transaction to amount to transfer within the meaning of Section 2(47) minimum requirements are that there has to be agreement between parties, signed by parties, it should be in writing, it should pertain to transfer of property; transferee should have taken possession of property etc. Zuari Estate Development Investment Co. Pvt. Ltd. vs. J. R. Kanekar, Dy CIT (2004) 139 Taxman 209 (Bom) Further, according to the section, even if it is presumed for the sake of arguments but without admission, capital gains is chargeable to tax, then it is in the year in which the transfer took place. The assessee had abandoned the assets due to war in January, 1991 and thus if it becomes chargeable, if at all, it is in the assessment year 1991-92. During the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 1995-96 from Govt. of India and therefore the same arguments as given in the paras for 1995-96 would apply. As regards to the other grounds, the Ld. DR relied upon the Assessment Order and the order of the CIT(A). 31. We have heard both the parties and perused all the relevant material available on record. The Assessing Officer observed that the compensation is received by the assessee company on account of the amount due to the assessee company on performance of the project in Iraq and the retention money withheld in Iraq for non completion of the contractual obligation. The obligation of payment was of Iraqi Authorities which were met through UNCC. Even if, the compensation is paid by UNCC itself the same becomes taxable as it is in the course of the business of the assessee company and represents the contract receipts payable to the assessee company. But this is factually incorrect as the assessee could not conduct its business after the Iraq s invasion and occupation of Kuwait in the year 1990. Thus, the compensation received by the assessee company is in the course of its loss incurred in Iraq, the same is does not amount to revenue receipt. The contract receipt relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the point of view of the commercial aspect of the receipt it can be seen that the assessee received the amount from the United Nations Compensation Commission and not from the Government of Iraq. From the perusal of the records it can be seen that the compensation is not coming under the purview of the business income as there was no business during the period. Thus, compensation received in lieu of the losses of the contract which was supposed to be executed in the year 1991 will not form the receipt of revenue in nature, but capital in nature. Therefore, Ground No. 1 to 3 of the assessee s appeal are allowed. 32. As regards Ground No. 4 to 6, relating to benefit of Section 220(7) of the Act, the same will become redundant in light of the observations and findings given by us in respect of Ground No. 1 to 3. Therefore, Ground No. 4 to 6 are dismissed. 33. As regards to Ground No. 7 is concerned, the assessee company has deposited employer s contribution to the P.F. after the due date mentioned in schedule amounting to ₹ 24,33,055/-, but deposited before the due date of filing of return of income. Thus, the Assessing Officer was not right in disallowing these exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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