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2017 (11) TMI 1311 - HC - Income TaxNature of amount received as award against damages for breach of contract - capital receipt or revenue receipt - Compensation of a settlement for loss of its bottling rights with Coca Cola Company, USA - whether the amount partakes the character of income in terms of section 2(24) of the Act and to be taxed as income from other sources? - Tribunal held that compensation received was a capital receipt, that was not taxable - Held that:- Tribunal concluded that the receipt of compensation amount must be considered in the backdrop of the master agreement. Under the master agreement, the right of first refusal was vested with LFFL to carry out the bottling activities in the territory of Bangalore. There was a clear indication that there would be formation of Bangalore subsidiary and there would be an investment agreement also between the parties for this purpose. The necessary guidelines as to how the subsidiary would be formed, various assignments of the bottling rights only to such a newly formed company and to be held and formed by Parle Group and later on the Coca Cola Company will join in after subscribing 30% of the shares, are the provisions or guidelines in the master agreement itself. It was to this subsidiary company that the bottling rights were to be given in the territory of Bangalore. This subsidiary company was formed as Parle Soft Drinks Pvt. Ltd. Thus, the assessee company was formed only for carrying out bottling activities in the territory of Bangalore. There was, thus, no dispute that the assessee was entitled to receive the compensation amount on the breach of this agreement from Coca Cola Company. Thus, even though the right of first refusal was with LFFL, but it was always agreed upon by the parties that the same should be for the newly formed subsidiary at Bangalore. That Bangalore subsidiary is the assessee company only. Once these bottling activities were to be carried out for the Coca Cola Company and the Bangalore territory that the assessee was formed. It was not necessary that the assessee should have installed entire plant and machinery for carrying on such business. The right of first refusal itself stated a substantial right and foundation on which the assessee could have built its bottling business. If such right would have been assigned to the assessee, it would have been the source of assessee's income and profit making apparatus. The assessee has also submitted its business plans and various modes for carrying out the bottling business to the Coca Cola Company. There is no dispute that the Coca Cola Company has breached the agreement and particularly the right of first refusal by not assigning the rights. It was on account of breach of this agreement that the compensation amount was settled between the parties. The fundamental right for starting the bottling business was taken away as a result of breach of the right of first refusal by the Coca Cola Company. That is the reason why the Coca Cola Company paid this amount to the assessee and not to LFFL. To our mind, therefore correct conclusion has been arrived. See Hon'ble Supreme Court has in the judgment in the case of Kettlewell Bullen and Co. Ltd. vs. Commissioner of Income Tax, Calcutta (1964 (5) TMI 4 - SUPREME Court). We do not think that the view of the Tribunal is any way erroneous or illegal. Thus, it is not vitiated by any error of law apparent on the face of the record of perversity. - Decided in favour of assessee. Tribunal concluded that the Commissioner of Income Tax (Appeals) was right that sale proceeds on a capital assets cannot be held to be a revenue receipt and after the sale, the block of assets have been reduced and accordingly whatever is there in the block of assets, deprecation has to be allowed in accordance with the provisions of law. Thus, the finding of fact recorded by the Commissioner of Income Tax (Appeals) has been endorsed and confirmed by the Tribunal. We do not think that this finding of fact is perverse or vitiated by an error of law apparent on the face of the record.
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