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COMMISSIONER OF INCOME TAX-II Versus THE SIRUPUR PAPER MILLS LTD.

2016 (5) TMI 1265 - ANDHRA PRADESH HIGH COURT

Liquidated damages received for delay in supply of a boiler - whether was in the nature of a capital receipt or revenue receipt - Held that:- Determination of liquidated damages was not based upon the calculation made in respect of loss of profit on account of supply of the boiler, but was directly linked with the procurement of a capital asset. Delay in supply would result in delay in the coming into existence of a profit making apparatus, rather than a receipt in the course of profit earning p .....

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Justice Ramesh Ranganathan) This appeal under Section 260-A of the Income Tax Act, 1961 is preferred against the order passed by the Income Tax Appellate Tribunal, Hyderabad in I.T.A.No.1060/Hyd/2004 dated 16.11.2012. The Revenue is aggrieved by the order of the Tribunal to the limited extent it held that the liquidated damages received by the respondent-assessee, for delay in supply of a boiler, was in the nature of a capital receipt. Sri B.Narasimha Sarma, learned Senior Standing Counsel for .....

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ed into an agreement with M/s.IBIL Technical Limited for supply of boiler at a cost of ₹ 843 lacs; the condition stipulated was that delivery of all major equipment and materials should be completed in such a manner that the boiler should be commissioned, and commercial production should start by a particular date; the supplier failed to adhere to the time frame stipulated in the agreement; and, consequently, the assessee had encashed the bank guarantee for a sum of ₹ 124.45 lacs for .....

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damages was nothing but a revenue receipt; the payment of liquidated damage did not result in reduction in the cost of the asset; the liquidates damages did not have any impact on the depreciation worked out; and, consequently, it was a revenue receipt. The order of the Assessing Authority was affirmed in appeal by the Commissioner of Income Tax. Aggrieved thereby, the respondentassessee carried the matter in appeal to the Tribunal. By the time the appeal came to be heard by the Tribunal, the ju .....

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of the contract by the supplier; they could not be considered as a reduction of the cost of acquisition of the asset; and, consequently, liquidated damages received by the assessee was a capital receipt not taxable in the hands of the assessee. In Saurashtra Cement Limited2, liquidates damages were received by the assessee for failure on the part of the supplier to supply machinery within the stipulated time frame. On the question whether the amount received towards liquidated damages was a cap .....

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