TMI Blog2016 (12) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... ing any offer relating to business / professional commitment in the field of investment bank from any other entity. If the assessee is able to establish these facts certainly the amount received by the assessee from FirstRand Bank Ltd., South Africa, can be treated as compensation received for financial loss suffered due to cancellation / termination of the contract, thereby, rendering it as a capital receipt, hence, not taxable. In view of the aforesaid, we are inclined to set aside the impugned order of the learned Commissioner (Appeals). - ITA no.876/Mum./2013 - - - Dated:- 30-9-2016 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER For The Revenue by : Shri H.P. Mahajani For The Assessee by : Shri Prakash R. Mane ORDER PER SAKTIJIT DEY, J.M. Instant appeal by the Revenue is directed against the order dated 8th November 2012, passed by the learned Commissioner (Appeals) 20, Mumbai, for the assessment year 2009 10. Effective grounds raised by the Department are as under: 1. On the facts and in the circumstances of the case and in law, whether the Ld. CT(A) was correct in deleting ₹ 56,872/- disallowed u/s. 14A co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure for earning dividend income no disallowance under section 14A is called for. 6. We have considered the submissions of the parties and perused the material available on record. Undisputedly, the assessee during the relevant previous year has earned exempt income by way of dividend, however, the assessee had not made any disallowance under section 14A r/w rule 8D on the plea that no expenditure was incurred for earning the dividend income. This argument of the assessee may be correct insofar as the disallowance of direct expenditure and interest expenditure in terms of rule 8D(2)(i) and 8D(2)(ii) are concerned. However, as far as the administrative / indirect expenses are concerned, the same has to be disallowed in terms of the provisions of section 14A(3) irrespective of the fact whether the assessee has actually incurred any expenditure in relation to the exempt income. Therefore, the same disallowance has to be made under section 14A r/w rule 8D(2)(iii). However, in the present case, undisputedly, the total exempt income earned by the assessee during the relevant previous year is ₹ 31,232. Therefore, the expenditure relatable to such exempt income cannot exceed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rand Bank Ltd., South Africa, nor assessee had been employed in banking related activities after termination of the agreement. He observed, there is no change in the income earning activities of the assessee in the years before he entered into agreement and after the termination of the agreement. Therefore, there is no revenue loss to the assessee as a result of non fulfillment of the employment terms of the agreement. He further observed, the assessee had also paid tax on the compensation amount which demonstrates that the assessee himself was not convinced about the nature of receipt as capital receipt. He, therefore, disallowing assessee s claim that the amount received is capital in nature treated it as income of the assessee under the head Other Sources . Being aggrieved of such addition to the income, the assessee preferred appeal before the learned Commissioner (Appeals). 8. The learned Commissioner (Appeals) considering the submissions of the assessee was of the view that as per the letter issued by the Bank, the amount received by the assessee is towards compensation for loss of existing business or competition. Thereafter, the learned Commissioner (Appeals) relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld (I) P. Ltd. v/s JCIT, [2010] 37 SOT 45 (T Mum.). 11. We have considered the submissions of the parties and perused the material available on record in the light of the decision relied upon. The issue arising for consideration is whether the amount received by the assessee from FirstRand Bank Ltd., South Africa, is capital or revenue receipt. While the assessee has claimed it as capital receipt, hence, not taxable, the Department has treated it as revenue in nature. 12. Before deciding the issue, it is necessary to deal with certain factual aspects. It is the claim of the assessee that since FirstRand Bank Ltd., South Africa, shelved its investment banking project in India for which the assessee was to be considered as a preferred partner, the compensation was paid due to the financial loss the assessee suffered on account of non implementation of project in India. In this context, it is necessary to refer to the letter dated 2nd April 2007 of FirstRand Bank Ltd., South Africa, the contents of which are as follows: Sub: Preferred Partner for investment banking business in India. Ref: Various meetings and discussions over the last few months. Dear Sir, We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid facts. Reference to letter dated 3rd March 2009 of FirstRand Bank Ltd., South Africa, to the assessee further reveals, though, the assessee was given an offer to become a preferred partner but ultimately the partnership was not formalized and after a gap of two years, the bank shelved its plan of setting up its investment banking business in Indian sub continent. To constitute a binding contract between the parties, there must be an offer by one of the parties and acceptance of such offer by the other. In the present case, though, it appears from the letter dated 2nd April 2007 and 3rd March 2009 of FirstRand Bank Ltd., South Africa, there was an offer to the assessee to become a preferred partner in the investment banking business of the Bank in Indian sub continent, however, there is nothing on record to suggest that the assessee had accepted the offer made by the Bank. Though, the letter dated 2nd April 2007, speaks of formalization of partnership at a future point of time, nothing has been brought on record to demonstrate that there was formal partnership between the assessee and the bank on the terms and conditions stated in the letter under reference. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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