TMI Blog2015 (1) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... lant to produce a product as regards which it i.e., appellant does not have the arrangement or machinery - an equipment with altogether different specifications was to be acquired only, to meet the needs of M/s. P&G. Barring that, there was no other necessity for the appellant to install that machinery - Obviously for that reason, the agency agreed to provide funds for installation - the machinery was installed and hardly before the test run was completed, M/s. P&G resiled from the contract. The new machinery installed by the appellant was exclusively for the purpose of manufacturing a specialized product and the contract in that behalf was terminated even before the production has commenced - the amount received by the appellant from M/s. P&G being ₹ 87,33,056/- certainly deserves to be treated as capital receipt - the amount cannot be kept outside the purview of the taxation - The machinery installed for manufacturing the new product has already become part of assets - the written down value of the assets has been fixed - once the appellant has the advantage of receiving a sum towards installation of machinery alone, the same deserves to be deducted from the WDV, to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 87,33,056/- was treated as revenue receipt. Aggrieved by that, the appellant preferred an appeal before the Commissioner of Income Tax (Appeals)-II, Hyderabad. The appeal was rejected on 26.12.2002. Thereupon the appellant filed I.T.A.No.294/Hyd/2003 before the Hyderabad Bench B of the Income Tax Appellate Tribunal (for short the Tribunal). The appeal was dismissed by the Tribunal through order dated 31.03.2004. Hence, this appeal, in which, the following four questions are raised: 1. Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in law in holding that the issue of notice under Section 148 of the Income Tax Act, 1961 for reopening the assessment already concluded under Section 143(1) of the Act pursuant to a return disclosing full and true particulars of income is permissible? 2. Whether on the facts and circumstances of the case the Tribunal was correct in law in distinguishing the decision of the Uttaranchal High Court in the case of CIT vs Sedco Forex International Drilling Company Limited (264 ITR 320) and in holding that the levy interest under Section 234B of the Act is permissible? 3. Whether on the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel representing Sri J.V. Prasad, learned Standing Counsel for the respondent, on the other hand, submits that the order placed upon the appellant by M/s.P G even for manufacture of Vicks 1000 was in the ordinary course of business; and the mere fact that the appellant had to make special arrangement for it, does not make much difference. She submits that the amount paid by M/s. P G albeit calling it as sterilization charges is nothing but the compensation for business loss, and is revenue receipt, pure and simple. She placed reliance upon the judgment of the Supreme Court in Commissioner of Income Tax, Nagpur v. Rai Bahadur Jairam Valji and others 35 ITR 148. In all fairness, the learned counsel for the appellant has given up question Nos.1 and 2. Question No.4 is nothing but a facet of question No.3 and it would arise only in the event of the answer to question No.3 being in favour of the appellant. The distinction between the capital receipt on the one hand, and the revenue receipt on the other hand, is not that easy to maintain. Obviously because, the implication of the classification of the amounts received by the assessee into either of the categories would entai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stinction between the capital receipt on the one hand and the revenue receipt on the other hand, would depend upon factors such as (1) whether the amount was received in the ordinary course of business or otherwise; and (2) whether it was paid as a measure of compensation or consideration for loss of earnings or profits or towards compensation or sterilization partly or fully for profit earning sources (capital asset). If it is former, it is the revenue receipt and if it is latter, it is capital receipt. The expression in the course of ordinary business needs to be analysed carefully. Every activity undertaken by an assessee cannot be treated as part of its ordinary course of business. Sale of a manufactured product can certainly, be treated as an act in the ordinary course of business. However, the installation of machinery or carrying repairs therefor, does not fall into that category. The facts in Barium Chemicals Ltds case are similar to the case on hand. The assessee therein placed an order for installation of machinery on an English company and half way through, the contract was abandoned. The manufacturing capacity of the machinery so installed remained at 30% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra). That was a case, in which, the assessee was an ordinary supplier of limestone and dolomite and one of its customers, who placed orders for fairly long period, stopped the orders on the grounds of lack of economic feasibility. The amount was paid in the form of damages. It was not even alleged that any special machinery was erected or installed for execution of the order placed by the purchasers. Even while rejecting the contention of the assessee that the amount deserves to be treated as capital receipt, their Lordships observed that in case it is established that any item or machinery was installed or was brought into existence, to honour the order of the customer, the amount paid as compensation for stoppage of the work, deserves to be treated as capital receipt. Their Lordships observed as under: Dr. Radha Binode Pal, who appeared for him, argued that for the purpose of carrying out the agreement dated January 5, 1935, the respondent had executed works of a capital nature such as construction of quarters, tenements and the like, and had incurred expenses exceeding ₹ 4 lakhs on that account, that all this had to be thrown away when the quarry at Paraghat had to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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