TMI Blog2014 (12) TMI 433X X X X Extracts X X X X X X X X Extracts X X X X ..... penses cannot be allowed but if there is some income in the prior period then definitely the expenses can be set off against such income – Decided against revenue. Deletion of STCG – Held that:- The assessee has originally purchased an industrial plot bearing NO. B-77, Ph VII, IA, Mohali through auction - The auction was conducted by sale committee appointed by Court on winding upon of Punwire - The sale was challenged before the Company judge by Sun Group - what has happened is that by setting aside the same the Hon'ble Supreme Court has cancelled the original sale made to the assessee-company - sale in favour of WINSOME in respect of item No. 17, 19 & 20 shall stand set aside and sale of said items No. 17 (plot no. B-77 and structure thereon has been confirmed in favour of SUNGROUP) – also in Smt. C. Kamala Versus Commissioner Of Income-Tax, Bangalore [1978 (4) TMI 80 - KARNATAKA High Court] the similar matter has been decided - if sale itself is set aside by a Court then it can be said that the assessee never acquired any interest in such property - sale has been set aside by the Hon'ble Supreme Court and therefore it cannot be said that the assessee ever acquired any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. and other case laws. 3. Ground No. 1 is of general nature and therefore no separate adjudication is required. 4. Ground No. 2 - After hearing both the parties we find that during assessment proceedings the Assessing Officer noticed that during the year the assessee has debited prior period expense of ₹ 6031289/- to profit and loss account. On further enquiry it was noticed that in fact prior period expenses were ₹ 7101769/-. This amount was adjusted against prior period income of ₹ 1070480/-. Net prior period expenses were added to the income in the computation chart. The Assessing Officer observed that since the assessee was following mercantile system of accounting, therefore prior period expenses should not be allowed in the present year. Accordingly he disallowed a sum of ₹ 1070480/-. 5. On appeal before the Ld. CIT(A) it was mainly contended that prior period expenses were required to be disallowed and on the same analogy even the prior period income was excludible. The assessee had adjusted the prior period expenses against prior period income and the balance amount has already been added to the income. In this regard reliance was placed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady assessed previous year income in the present year, we find no reason to disallow the claim of the assessee regarding previous year expenses since there expenses are lesser than such incomes, but at the same time, this has to be seen as to whether such previous year expenses are otherwise allowable or not because we have noted that some of the expenses are on account of penalty and some of the expenses are infrastructure expenses which may not to be found otherwise allowable. We, therefore set aside the order of the Ld. CIT(A) on this issue and restore this matter back to the file of the Assessing Officer for fresh decision. The Assessing Officer should examine the nature of these expenses and the same should be allowed if it is found that these expenses are otherwise allowable. This ground of the assessee is allowed for statistical purpose. Above clearly show that the LD. CIT(A) has correctly adjudicated the issue. Normally prior period expenses cannot be allowed but if there is some income in the prior period then definitely the expenses can be set off against such income. Therefore in our opinion, the Ld. CIT(A) has correctly adjudicated this issue and we uphold his orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of the lease from the name of Punwire to the name of Winsome on 29.12.2004. In pursuance of it Winsome applied to PSIEC for transfer of the lease in its favour and on payment of a transfer fee of ₹ 1178550/- the lease in respect of plot no. B-77 was transferred to Winsome and the lease deed was executed on 25.10.2005 for a period of 99 years from the date of allotment to the original allottee. 10. In the meantime Sun Group filed C.A. No. 72/2005 in Jan 2005 before the Company Judge offering to take over the entire assets of Punwire (item No. 1 to 25) as a going concern for a price of ₹ 12 crores. Company Judge vide order dated 30.3.2005 allowed the application of Sun Group in part and set aside the confirmation of sale dated 10.12.2004 and directed Winsome to deliver back possession of items 17, 19 20 to the official liquidator. Company judge further held that Winsome would be entitled to refund of the sale price along with interest paid by it to its bankers on the loans taken by it. The said order was challenged by Winsome in Company Appeal No. 11 of 2005 before the Division Bench of Hon'ble High Court of Punjab Haryana. The Hon'ble High Court v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insome forwards the refund of the sale price and as compensation for depriving Winsome from the enduring benefit of its capital assets. (ii) On receipt of the payments as aforesaid by Winsome and the official liquidator, the sale in favour of Winsome in respect of items 17, 19 20 shall stand set aside and sale of said items No. 17 (Plot No. B-77 and structures thereon) shall stand confirmed in favour of Sun group. The official liquidator shall issue afresh NOC to enable Sun group to obtain transfer of lease from PSIEC in respect of Plot No. B-77. In this way the assessee received ₹ 6.36 crores. According to the Assessing Officer this amount was received in extinguishment of its rights in Plot No. B-77, Ph VII, IA, Mohali. According to him as per the provisions of section 2(47)(ii) extinguishment of rights in a capital asset amounts to transfer and the capital gain arising thereon shall be taxable as per provisions of section 45. He further observed that the assessee acquired the said capital asset by making payment of ₹ 3.16 crores on 13.12.2004 and possession of the same was taken on 16.12.2004 whereas total sale consideration on transfer of the property to Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e vide para 37 which is as under: 'In the case of Saurashtra Cement (supra) the Hon'ble High Court was dealing with the compensation paid for delayed supply of a plant and it was held that the delay in supply could be of the whole plant or a part thereof but the determination of damages was not based upon the calculation made in respect of loss of profit on account of supply of a particular part of the plant. It is evident that the damages to the assessee was directly and intimately linked with the procurement of a capital asset, i.e. the cement plant, which would obviously lead to delay in coming into existence of the profit making apparatus, rather than a receipt in the course of profit earning process. Applying the ratio of this decision if the receipt is not connected with the loss or profit but intimately connected with the capital asset, the receipt would not be in the nature of revenue receipt but would be in the nature of capital receipt because the very source of income is capital asset. In the instant case the Hon'ble Supreme Court has concluded that the compensation is on account of depriving the appellant from the enduring benefit of capital asset. To q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. In this regard he referred to the order of the Hon'ble Supreme Court (copy of which is placed in the paper book at page 100-106). He particularly invited our attention to page 111 where it is clearly mentioned that sale which was confirmed in favour of Winsome by Hon'ble High Court is set aside. He contended that set aside of the sale would mean that the same becomes void ab-initio or non operational in the eyes of law. He explained this by way of an example by referring to the provisions of section 263 of IT Act and pointed out that if an assessment order is set aside by passing a revisionary order u/s 263 by the Commissioner then such assessment order is no more valid or operative in the eyes of law. Similarly when the sale is set aside by the Hon'ble Supreme Court then that sale was not valid in the eyes of law and such asset cannot be said to have been transferred leading to the consequences of capital gain. In this regard he referred to the decision of Hon'ble Karnataka High Court in case of Smt. C. Kamala v. CIT 114 ITR 159 (Kar H.C) where the auction sale was set aside by the Court and it was held that such asset cannot be transferred. He also submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted in purchasing Plot no. B-77 also and SUNGROUP was willing to offer the same price of ₹ 11.6 crores for the property (Item No. 17. Ld. Counsel for the Employees Union submitted that in the interest of workers, WINSOME should take a reasonable profit and give up the property in favour of SUNGROUP so that the workers and creditors will be benefited. At this stage, Ld. Counsel for the SUNGROUP stated that being interested in the welfare of the workers, in addition to the price of ₹ 11.6 crores offered by them for item No. 17, it will also pay exgratia, a sum of ₹ 50 lakhs to the employees of PUNWIRE as they have been without salary for quite sometime. In view of these submissions, we queried the Ld. Counsel for WINSOME as to whether WINSOME was interested in considering the offer of SUNGROUP. 13. Counsel for WINSOME took time and after obtaining instructions, submitted though with some reluctance, that WINSOME was agreeable for the proposal provided it received a sum of ₹ 6.36 crores for items No. 17, 19 20 (Mae up of ₹ 3.36 crores towards the refund of price and ₹ 3 crores towards, interest, expenses and compensation for deprivation of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been confirmed in favour of SUNGROUP). Thereafter the Hon'ble Supreme Court has directed the official liquidator to issue fresh NOC to enable the SUNGROUP to transfer the property. This clearly show that Hon'ble High Court clearly cancelled the earlier sale otherwise the Court could have asked the assessee-company i.e. WINSOME to transfer the property to SUNGROUP. The Court has directed the official liquidator to issue fresh NOC so that SUNGROUP could obtain lease in their favour from PSIEC. This itself shows that sale in favour of WINSOME stands cancelled. 19. Identical issue came up for consideration before the Hon'ble Karnataka High Court in case of Smt. C. Kamala (supra). In that case the assessee was declared as the purchaser of a certain immovable property for ₹ 125 at a court auction held in 1962. The judgment debtors filed an application under rule 90 of Order 21 of the Code of Civil Procedure, to get the sale set aside. That application was dismissed by the executing court. Against the order of the executing court, the judgment debtors filed an appeal under Order 43, rule 1(j) of the Code of Civil Procedure, in R.A. No. 47/1967 on the file of the Ist A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany are issued then original shares can be said to have extinguished (Reference may be made to the decision of Hon'ble Supreme Court in case of CIT v. Mrs. Grace Collis and others, 248 ITR 323 (S.C.). However, when the asset never comes into existence then such asset cannot be extinguished. Therefore in our opinion, there is no extinguishment in the present case because the said property purchased through auction by assessee-company never came into existence because of the order of the Hon'ble Supreme Court through which sale itself was set aside. 21. The Ld. D.R for the revenue has strongly relied on the decision of Hon'ble Calcutta High Court in case of Pramia Engineering (P.) Ltd. (supra). In that case the assessee a resident company took on lease several plots of land within the premises known as Tagore Villa at Nos. 1 and 1A, Kali Kishen Tagore Street, Calcutta, for periods varying between 30 and 50 years. The assessee agreed to develop the plots at its own cost to lay roads, drainage, etc. and make out small plots for constructing buildings thereon for sale, the proceeds of which were agreed to be shared between the lessor and the lessee as per the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... somewhere in or about the year, 1950. In Feb 1971 the Defence Department wanted to resume the said land and served a notice dated Feb 22,1971, resuming the land and offering a sum of ₹ 87,887/- as the value of the building belonging to the assessee and existing on the said land. The assessee accepted the offer and received from the Defence Department compensation for the building amounting to ₹ 87,887/-. The ITO took the view that capital gain had arisen to the assessee from the transfer of the building to the Defence Department. 24. Hon'ble High Court on the above facts held as under: Held that by virtue of the acceptance of the offer made by the Govt of India (Defence Department) and the acceptance of compensation in lieu thereof the assessee's right in the said building stood relinquished in favour of Govt of India. There was thus a transfer of the said building within the meaning of section 2(47) of the IT Act, 1961 and the profit arising therefrom was a capital gain taxable under the Act. Thus in this case the facts are also identical to the case of Pramia Engineering (P.) Ltd. (supra). In this case also the sale was never set aside by any author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the agency or office. Where payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business or deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated), the receipt is revenue; where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt. From above it becomes clear that if amount is received as compensation in relation to surrender of profit making structure then such compensation is to be treated as capital receipt. 28. Similarly in case of Oberoi Hotel (P.) Ltd. (supra) the assessee-company was operating, managing and administering many hotels belonging to others for a fee at several places. As per the memorandum of association of the company, it was authorized to run hotels on its own account and also t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
