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2018 (2) TMI 1090 - AT - Income TaxAllowable busniss expenses u/s 37(1) - payment of damage for breach of contract - compensation/damages paid by TEDPL - Held that:- In the absence of any suggestion of bad faith or fraud, the true principle is that the taxing statute has to be applied in accordance with the legal rights of the parties to the transaction. When the transaction is embodied in a document, the liability to tax depends upon the meaning and content of the language used therein, and this must be determined in accordance with the ordinary rules of construction as held in CIT v. Motors General & Stores (P.) Ltd. (1967(5) TMI 3 - SUPREME Court). To recapitulate the ratio laid down in the above decisions, the payment of damage for breach of contract as in the instant case is an allowable expenditure u/s 37 of the Act. We hold so. The compensation of ₹ 20 crore arrived at by the arbitrator is not based on a calculation. During the course of hearing, the assessee files a written submission stating that had TET invested the amount in bank FDR, it would have earned interest @ 9.5%. As against this, the compensation paid @ 10.30% (interest amount is computed on advances of ₹ 49.23 crore on day to day basis till the date of refund in May 2012) was only marginally higher. As the award given by the arbitrator is bereft of calculation, we direct the AO to restrict the compensation/damages to 9.5% on ₹ 49.23 crore in place of 10.30% on day to day basis till the date of refund in May 2012. The assessee would file the details of before the AO. We hold that the compensation/damages paid by TEDPL is an allowable expense u/s 37 of the Act - Decided in favour of assessee.
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