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2016 (12) TMI 363 - HC - Income TaxSum received in excess on account of exchange gain - revenue receipt or capital receipt - Held that:- There can be no doubt that the project receivables as on 31st March, 1991 remained blocked for about 11 years. There was no chance of its recovery. Therefore, the project receivables, bearing the character of revenue, lost their character and became a capital investment. Only thing that happened during the period between 31st March, 1991 and the current year is that during the assessment year 1995-96 the assesse wrote off the debt. By writing off the debt the assesse did not cease to be a creditor of the Iraq Government. Therefore, when the money was realised it partook the character of a capital receipt. We are, as such of the opinion that the view taken by the learned Tribunal is a correct view in deleting the addition with regard to the gain on account of exchange fluctuation in relation to foreign projects receivable from Iraq treating it, as Capital receipts and not revenue receipts as assessed by the assessing officer - Decided in favour of assessee Capital receipt liable to capital gains - Held that:- The assesse continued to remain a creditor in a sum of ₹ 45 crores approximately though the cost of acquisition in his books of accounts had become zero by virtue of writing off the debt. The right to recover was transferred as a consequence whereof profit to the tune of ₹ 38 crores accrued. In the circumstances, all that he had to do was to refund, the benefit of bad debt received by him, under Section 41(4) of the Income Tax Act and to offer the balance sum on account of long term capital gain. In this case, the income could not have accrued to the assesse if the debt was not due from the Iraqi Government. We are, as such of the opinion that the entire balance sum of ₹ 38 crores approximately are taxable as long term capital gain without deduction of any cost of acquisition because the cost of acquisition had become zero by having been written off. The accounting entry which the assesse might have made is altogether irrelevant.
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