TMI Blog2000 (7) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... was not liable to tax under the Income-tax Act, 1961 ? 2. Whether, on the facts, and in the circumstances of the case, the Tribunal was correct in law in holding that the sum of Rs. 1,79,547 being the amount guaranteed by the bank was not liable to tax under the Income-tax Act, 1961?" The factual position as indicated in the statement of the case is as follows: For the assessment year 1972-73, corresponding to the previous year ending on March 31, 1972, additions were made by the Assessing Officer in respect of the amounts relatable to forfeiture of security deposit and the amount received on encashment of a bank guarantee. The assessee is a Government of India undertaking dealing extensively both inside and outside the country, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act of sale, the assessee received the above amount from the Bank of India on encashment of the bank guarantee. Both the amounts indicated above were claimed to be exempt from tax, by the assessee. However, the Assessing Officer held that the receipts were in the normal course of business and, therefore, amounted to trading receipts assessable to income-tax. In appeal before the Appellate Assistant Commissioner (hereinafter referred to as "the AAC"), the assessee's stand was that both the amounts were capital receipts. The order of assessment was confirmed by the Appellate Assistant Commissioner who did not accept the assessee's plea. The Tribunal was moved in second appeal. Drawing a distinction between trading receipt and capital receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was inflicted on the capital asset of the assessee and giving up the contractual right on the basis of the principal agreement had resulted in loss of source of the assessee's income and it was a capital receipt. Whether a payment of compensation for termination of an agency is a capital or revenue receipt has to be considered by finding out whether the agency was in the nature of a capital asset in the hands of the assessee or whether it was only part of his stock-in-trade (see CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 (SC)). Compensation for injury in trading operations, arising from breach of contract or in consequence of exercise of sovereign rights, is revenue. Such transactions are distinguishable from another class of cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Wharves Ltd. v. Attwool (Inspector of Taxes) [1968] 70 ITR 460 (CA) at page 488 as: 'Where, pursuant to a legal right, a trader receives from another person compensation for the trader's failure to receive a sum of money which, if it had been received, would have been credited to the amount of profits (if any) arising in any year from the trade carried on by him at the time when the compensation is so received, the compensation is to be treated for income-tax purposes in the same way as that sum of money would have been treated if it had been received, instead of the compensation'." The logic of the principle is that the assessee's right to recover the compensation was to place the assessee in the same position as if the breach had n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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