TMI Blog2013 (10) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals)-XIX, New Delhi dated 26.3.2012 pertaining to the Assessment Year 2008-09. 2. Facts in brief:- The assessee is a Company and is engaged in the business of manufacturing and trading of facilities of sponge iron from iron ore, steel melting section for manufacturing of MS ingots from sponge iron and MS scrap, a rerolling mill for manufacturing of constructional and structural steels from MS ingots/billets. 3. The facts of the issue that arises for our consideration are brought out by the Ld.Commissioner of Income Tax (Appeals) at para 25 which is extracted for ready reference. "25. The assessee company entered into the Memorandum of Understanding (MOU) with Shri R.Charuchandra Prop. Of M/s Shree Nidhi Mines on 03.01.2004 for developing of mines, production/extraction of ore etc. for a period of 5 years from the date of renewal of mining lease that was extendable for further period. The area of the mines in question was of 45 hectares of land situated at survey no.1 of Kallahalli Village Hospet Taluk. The mines was closed due to orders from Forest Department since 1997. The permission for mining operation was granted on 30.11.2004 to Shri Charu Chandra in respect of Shrre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of the case and in law the Ld.Commissioner of Income Tax (Appeals) erred in deleting the addition of Rs.12,80,00,000/- made on account of receipt of compensation treating the same as revenue receipts. 1.1. On the facts and in the circumstances of the case and in law the Ld.Commissioner of Income Tax (Appeals) erred in holding that the receipt of Rs.12,80,00,000/- was in the nature of capital receipt. 2. On the facts and in the circumstances of the case and in law the Ld.Commissioner of Income Tax (Appeals) erred in deleting an addition of Rs.1,12,12,446/- which was made on account of the fact that the amount receivable was written off without any rhyme and reason. 3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego, any grounds of appeal at any time before or during the hearing of appeal." 9. The Ld.D.R. Mr.A.K.Mishra submitted that all the grounds raised by the Revenue are inter related and pertain to the same issue. He submitted that the sole issue that has to be adjudicated by the Tribunal is whether the compensation received by the assessee from R.Charu Chandra is a capital receipt or a revenue receipt. He referred to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m vs. CIT (ITA no.1286/2008, judgement dt. 29.1.2013( Del) iii. CIT vs. Prabhu Dayal (1971) 82 ITR 804 (SC) iv. CIT vs. Saurashtra Cement Ltd. (2010) 192 Taxman 300 (SC) v. Godrej Co. vs. CIT (1959) 37 ITR 381 (SC). 12. He emphasized that the argument of the Ld.D.R. that all activities of the assessee have to be looked at, for claiming that the receipt in question is capital receipt, is against the propositions laid down by the Hon'ble Supreme Court. On facts he pointed out that the assessee company never had any business of mining either in the past or in the future and it was only vide this MOU, the assessee had obtained mining rights. 13. Ground no.2, he submitted that it is a case of double addition and that the Ld.CIT(Appeals) has rightly deleted the same. 14. On the contention of the department that Mr.R.Charu Chandra had no mining rights Mr.Amit Goel submitted that Mr.R.Chaur Chandra always had mining rights and it was only a case of forest department permission to commence mining operations, that was in issue. 15. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record as well as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Iron Ore Lumps/mined moved out of mines every month within 1st week. The amount of Royalty fixed is based on the maximum rate M/s MMTC has fixed for Iron Ore fines as on 1.1.2004 which is Rs. 880/- for Iron Ore fines of 65% Fe grade. The present rate of Royalty i.e. Rs. 70 per MT shall continue till 31.12.2004. Any raise in the rate by M/s MMTC after 31 st December of 2004, a proportional raise of 7% shall be raised in the Royalty rate payable by the second party to the first party." "In consideration for the services rendered by the second party, the first party has agreed to supply the entire quantity of ore produced to the second party or his assignee @ Rs. 140 per MT. All the expenses such as transportation, wages, crushing, screening including sales tax, ESIC, EPF etc should be borne by the second party only. In this respect out of Rs. 140/- Rupees 70/- will be counted as Royalty to the 151 Party as mentioned in the above. The balance amount of Rs. 70/- will be deducted by the second party towards charges for mining, crushing, screening, wages, transportation including sales tax, ESIC and EFP etc. Incase of any increase in Royalty then the selling rate is counted as Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed fact is that, the copyright remained fully in tact as a capital asset. Only the injury by way of infringement was received as compensation. The facts of the assessee's case are different. The mining lease which is a capital asset is terminated. The capital asset in this case is not in tact. Hence this case law does not apply to this case. 23. The decision in the case of Kailashnath Associates vs. ITO (supra) we find that the issue whether the amount received is capital or revenue has not been discussed and what was discussed is the year of taxability. The Tribunal has specifically said that it was not going into the merits of the matter. Thus this case law does not apply. 24. Coming to the judgement of Hon'ble Supreme Court relied upon by the Ld.D.R. in the case of CIT vs. Chari Chari Ltd. (supra), the facts are that the assessee company was carrying on business in tobacco and other commodities and also acted as a managing agent for the 'N' company and two other companies. The managing agency agreement with the 'N' company was terminated when the State Government acquired the undertaking of 'N' company. In those circumstances the Hon'ble Supreme Court held as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sired to transfer the hotel during the current year of the agreement. The assessee had subsequently gave up its right to exercise the option of purchase of hotel, by way of a supplementary agreement and in lieu thereof, the assessee received certain amounts. The questions before the Hon'ble Supreme Court was whether the amount received was a capital receipt or a revenue receipt. The Hon'ble Court at para 6 observed as follows:- "6. Applying the aforesaid test laid down by this Court in the present case, in our view, the Tribunal was right in arriving at a conclusion that it was a capital receipt. Reason is that as provided in article XVIII of the first agreement, the assessee was having an option or right or lien, if owner desired to transfer the hotel or lease all or part of the hotel to any other person, the same was required to be offered first to the assessee (operator) or its nominee. This right to exercise its option was given by a supplementary agreement which was executed in September, 1975 between the receiver and the assessee. It was agreed that the receiver would be at liberty to sell or otherwise dispose of the said property at such price and on such terms as he may d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of what is a substantive source of income from mining. It is a loss of source of income from mining. Hence a capital receipt. 28. In the case of Khanna Anandam ITA 1286/2008 judgement dt. 29.1.2013, the Hon'ble Delhi High Court at paras 7 and 8 held as follows:- "7. We may refer to one more judgment of the Supreme Court which is reported as Oberoi Hotesl P.Ltd. vs CIT(1999) 236 ITR 903. There the assessee was operating, managing and administering several hotels across the globe such as Cairo, Colombo, Kathmandu, Singapore etc. Its agreement with Hotel Oberoi Imperial, Singapore, which it was operating from 2.11.1970 was terminated and the assessee received a sum of Rs.29,47,500/- from the receiver of the Singapore Hotel. The Supreme Court held that the amount was received because the assessee had given up its right to purchase or operate the property and thus it was a loss of a source of income. The receipt was accordingly held to be capital in nature. It was observed, after a review of the earlier cases, that ordinarily compensation for loss of office or agency is to be regarded as a capital receipt and the only exception where the payment received for termination of an age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and held that in the case of Best Co.(supra) the assessee had innumerable agencies in different lines and it only gave up one of them and continued to do business without any apparent mishap and that the correspondence showed that the assessee gave up the agency without any protest "presumably because such termination of agencies was part of the normal course of its business." It was on account of this distinction that the ultimate decision went in favour of the revenue. The facts of the case before us, as noted earlier, are not in pari material with those in Best Co.(supra). In our view the facts are more akin to the case of Kettlewell Bullen Co.Ltd.(supra) and, therefore, the ratio laid down in that case is more appropriate to be applied to the present case." In this judgement the decisions of Best Co.(supra) was distinguished on the ground that the facts are not relevant. The distinction brought out applies to the facts of this case also. This is not a case where termination of an agency was part of the normal course of business. In the case on hand the profit making structure or apparatus of the assessee, which in this case was the mining lease was impaired. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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