TMI Blog2021 (11) TMI 1072X X X X Extracts X X X X X X X X Extracts X X X X ..... see arising under the sale agreement with the original land owners were frustrated in view of another sale agreement of the same land parcels in favour of other party. The assessee received certain consideration by way of damages as a culmination of ongoing vexatious dispute towards rightful ownership of land parcels in question. The amount arose to the assessee by virtue of arbitral award adhered to by the parties to the dispute. The assessee has received consideration for its release of right to sue. Despite the definition of expression capital asset in the widest possible term of Section 2(14) of the Act, a right to a capital asset must fall within the expression property of any kind and must not fall within the exceptions. Section 6 of Transfer of property Act which uses the same expression property of any kind in the context of transferability makes an exception in the case of a mere right to sue. The issue is no longer res integra. There are long line of judicial precedents which echoes the view that the right to receive the compensation for release of right to sue on account of breach of contract for sale of land is not a capital asset and thus not chargeable to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 to Section 115JB of the Act is silent on exclusion of capital receipts. In tandem, on facts, the capital receipt has been credited in appropriation of profits account and is not regarded as income per se in the profit loss account prepared under schedule VI of Companies Act, 1956. Hence, when the factual position and law is read conjointly, it appears that such capital receipts are not susceptible to tax under s.115JB of the Act. The AO cannot bring such capital receipts to tax by including it in book profit artificially We concur with the view adopted by the CIT(A) in favour of the assessee towards inapplicability of MAT provisions to the impugned capital receipts. In parity with judicial precedents governing the field, we see no error in the conclusion drawn by the CIT(A) in this regard. - I.T.A. Nos. 1535/Ahd/2018 WITH CROSS OBJECTION No. 102/Ahd/2019 - - - Dated:- 22-11-2021 - SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER For the Revenue : Shri Vi rendra Ojha, CIT.D.R. For the Assessee : Shri Dhiren Shah with Ms. Nupur Shah, A.Rs. ORDER PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held that the compensation received for relinquishment of right to sue is a capital receipts not subject to tax as per provisions of the Income-tax Act, the alternate ground taken by the department that the Ld. CIT(A) could have treated the receipts as income from other sources is not justified. 4. That the Ld. CIT(A) has correctly held that the compensation received for relinquishment of right to sue being a capital receipts not subject to tax as per provisions of the Income Tax Act and therefore, it cannot be form part of Book Profit for tax liability u/s.115JB of the I.T. Act, 1961 while relying on various judicial pronouncements. 6. Ground Nos. 1 2 of Revenue s appeal concerns taxability of compensation receipts under normal provisions of the Act. 7. Briefly stated, the assessee entered into registered agreements dated 29.10.1991 to purchase certain agricultural land parcels at Thaltej, Gujarat (disputed land) with original land owners. In consideration thereof, the assessee paid various amounts aggregating to Rs.15,01,994/- to the original land owners as agreed. A conveyance deed dated 27.01.1992 was executed with the original land owners in pursuance of the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw the civil suit. The arbitral award was adhered to by the parties. In pursuance of the arbitration award, the original purchasers sold the disputed land to Maheshwari (Thaltej) Complex Pvt. Ltd. (MCPL) out of such sale proceeds, a sum of Rs.70 Crores were apportioned to the assessee herein in consonance with arbitration award. The assessee received their shares of consideration spread over the period from F.Y. 2009 2010. The land was eventually transferred to MCPL vide sale deed dated 27.07.2011 to which assessee was also a signatory as a confirming party. In this background, the assessee received a sum of Rs.70 Crores on release of its right to sue. 8. The AO in the course of the assessment proceedings observed that the assessee has not offered the impugned amount of Rs.70 Crores so received towards apportionment on sale of disputed land by the original purchasers to MCPL for taxation. Show cause notices in this regard were issued to the assessee on chargeability of such income as capital gains. Eventually, the AO vide para 7.7 of its order took a stance that amount of Rs.70 Crores received by the assessee as compensation for relinquishment of the right to sue is in the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the sale deed was breach of section 63 of the Act. The Mamlatdar dropped the proceedings initiated u/s. 84C of the Act against original purchaser vide order dated 26/12/1991, The aforesaid order was taken up for revision by the Deputy Collector who upheld the order of Mamlatdar and name of original purchaser were entered into the revenue records. The appellant company filed objection before the Mamlatdar not to certify the mutation entries as the original owner had sold the land in question to the appellant, in 1992 and there was conveyance deed in favour of appellant. The name of Ganesh Sagar Co.op Society Limited was entered vide mutation entry No.7006 to 7010 dated 30/01/1992. Subsequent to above, the original land owners, original purchaser and appellant company went through various levels of filing of objection, review applications, dispute before Collector, Ahmedabad, Special Secretary, Revenue Department and Gujarat Revenue Tribunals and it was finally held that original purchaser has duly purchased land in 1986 and the appellant, the subsequent purchaser has no locus stand! in the land. Against the said order, the original owner filed Special Civil Application No. 3212 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id land be distributed within a fortnight in accordance with the formula i.e. the claimant shall have to pay 68% of the amount realisation of the price to the respondent for relinquishing their right to sue regarding the ownership of the said land. The respondent is directed to execute all necessary writings, deeds for relinquishing their rights and to confirm the title of the purchaser of the said land. According to law, once the disputes involved in a Civil Suit are referred to the Arbitral tribunal for settlement thereof through arbitration, the said civil suit would obviously become infructuous. So, it is directed to both the parties to withdraw the Civil Suit, in any manner. Accordingly, the land was sold for a consideration of Rs.103.5 crores to Shri Maheshwari (Thaltej) Complex Pvt. Ltd. The sales agreement has been executed on 26/07/2011 between original purchaser and Shri Maheshwari (Thaltej) Complex Pvt. Ltd. in which appellant company has been taken as a confirming party. In the sale agreement, entire chronology of dispute has been narrated and the appellant company has accepted to release its right to sue regarding the ownership of the said land for Rs.70 crores. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to sue. It has been held by the Honourable Gujarat High Court in the case of Baroda Cement and Chemicals Ltd. [158 ITR 636], CIT Vs. Hiralal Manilal Modi [131 ITR 421], Honourable Kolkata High Court's order in the case of CIT Vs. Ashoka Marketing Ltd. [164 ITR 664], Honourable Delhi High Court in the case of CIT Vs. J. Dalmia [149 ITR 215], Honourable ITAT 'D' Bench, Ahmedabad in the case of Shri Shekar G. Patel, L/H of Late Shri Govindbhai C. Patel [ITA No.l997/Ahd/2010] A. Y. 2007-08 Honourable ITAT, Ahmedabad order in the case of Popular Estate Management Ltd. [ITA No.212/Ahd/2014] A. Y. 2009-10, that in view of section 6(e) of Transfer of Property Act, the right to sue cannot be transferred. Since it cannot be transferred, the amount received to release the right to sue is not assessable as capital gain within the meaning of section 45 read with section 2(47) of the Income Tax Act, 1961. 2.5. However, the AO has not accepted the appellant's contention that it did not have any right in the properly except its right to sue on the ground that capital asset as defined in section 2(14) of the Act means property of any kind and as per Explanation Io Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td- The appellant company has submitted that AOs observation to include property of any kind and specifically held that capital asset as defined u/s. 2(14) of the I. T. Act included the light of specific performance and the amount received by assessee for giving up right of specific performance constituted capital gain is incorrect appreciation of the fact Appellant submitted that, the appellant company executed the purchase deed / conveyance deed with the original land owner in good faith and not knowing the fact that the land owner has already sold the land to first purchaser and thus the appellant company could not get the possession of the said land as well as title and ownership of the said land. Therefore, the appellant company was not having right of the specific performance of contract against the original land owners and only right which was available to the appellant company was to file a suit in the court of law, and therefore, it is only a right to sue by the appellant company by initiating litigation with the original land owner as well as with the first purchaser, arises in favour of appellant. The appellant company thus distinguished from the case laws relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant has received Rs. 70 Crore for release of its right to sue which is evident from arbitration award and the sale agreement. It has been held by various courts that all receipts are not taxable under the Income Tax Act, the Honourable Mumbai Tribunal in the case of Dhruv N. Shah Vs. Dy. CIT [2004] 88 ITD 118 (Mumbai) has noted that Further, all receipt are not taxable under the Income Tax Act. Section 2(24) defines income, it is no doubt that this is an inclusive definition, however, a capital receipt is not income u/s. 2(24) unless it is chargeable to tax as capital gain u/s. 45. It is for that reason that u/s. 2(24)(vi) the legislature has expressly stated that income shall include capital gain chargeable u/s, 45. Under section 2(24)(vi), the legislature has not included all capital gains as income. It is only capital gain chargeable u/s. 45 which has been treated as income u/s. 2(24). Further u/s. 2(24)(vi) the legislature has not stopped with the words any capital gains. On contrary, it is obviously stated that only capital gain which are taxable u/s. 45 could be treated as income. In other words, capital gain not chargeable to tax u/s. 45 fall outside the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer Properly Act which uses the same expression 'Property of any kind' in the context of transferability makes an exception in the case of a mere right to sue. It is evident that the right to use for damage is not an actionable claim. It cannot be assigned. Transfer of such right is as much opposed to public policy as is gambling in litigation. Therefore, it will not be quite correct to say that such right constituted a capital asset which in turn has to be an interest in property of any kind. The right to sue for damages for breach of contract no doubt is capable of maturing into a right to receive damage for breach of contract. But that happens only where the damages claimed for breach of contract are either admitted or decreed and not before. Accordingly, the Honourable Court held that mere right to sue does not constitute a capital asset. 2.10. The Honourable Gujarat High Court in the case of Baroda Cement Chemicals Limited has held that right to sue is not a property in view of the provisions of section 6(e) of the Properly Act and as per the provision of section 2(14) of the I. T. Act. 6. When a contract is broken after one party to the contract has wholly or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred. There cannot be any dispute with the proposition that in order that a receipt or accrual of income may attract the charge of tax on capital gains, the sine qua non is that the receipt or accrual must have originated in a 'transfer within the meaning of section 45, read with section 2(47) , of the Act. Since there could not be any transfer in the instant case, it has to be held that the amount of Rs. 1,02,500 received by the assesses as damages was not assessable as capital gains. 11. It was also argued cm behalf of the assesses that the cost to the assessee of the acquisition of his aforesaid right under the contract for sale was nil and as such, the transfer would be outside the scope of section 48 of the Act and in this context, reliance was placed on a decision of the Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294. But, the view which we have taken makes it unnecessary to go into this question. The SLP tiled against the above has been dismissed by the Supreme Court in 1991 [181 ITR 122 (SC)]. 2.12. The Honourable ITAT, Ahmedabad 'A' bench in the case of Popular Estate Management Ltd. ITA No. 212/Ahd/2014 dated 29/08/2017 has held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t (whether entered into India or outside India) or otherwise notwithstanding that such transfer of right has been characterized as being affected or dependent upon or flowing from the transfer of share or shares of a company registered or incorporated outside India. Here again, the word transfer of right has been used, an 3 as right to sue is not transferable, the explanation no way affects the judgment of Honourable High Courts. The courts have clarified that an explanation to a statutory provision is attempted to explain its content and cannot be constituted to over ride it. 2.14. The Authority of Advance Ruling in the case of Lead Counsel of Qualified Settlement Fund, 2016 [381 ITR 1] decided on January 12, 2016 has also considered taxability of amount received on release of right to sue. The Honourable Authority has noted that the charging section and the computation provisions u/s. 48 must go together and even if right to sue is considered as a capital asset covered under definition of transfer within the meaning of section 2(47) of the 1. T. Act, its cost of acquisition cannot be determined. In the absence of such cost of acquisition, the computation provisions fail and ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s defined in widest possible terms and seeks to an encompass property of any kind and includes any right whatsoever arising from such transactions. The learned CITDR thus submitted that any amount received in lieu of giving up the said right constitutes capital gains liable to tax under s.45 r.w.s. 48 of the Act. It was further submitted that amount received on account of extinguishment of right in the capital asset need not necessarily arise because of transfer of the capital asset in view of the deeming fiction contained in Section 2(47)(e) of the Act defining the transfer in relation to a capital asset in an inclusive manner. The learned CITDR further submitted that there is no justification whatsoever for excluding the applicability of Section 115JB of the Act on such compensation received which is the alternative measure for collection of tax based on book profit irrespective of its exclusion under normal provisions. The learned CITDR accordingly urged for reversal of the action of the CIT(A) and restoration of the action of the AO. 15. The learned counsel for the assessee, on the other hand, strongly defended the first appellate order and submitted that the CIT(A) has ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case are capital receipt excludible from the definition of Section 2(14) of the Act or not and consequently, such receipts arising from release of right to sue is taxable under the scheme of the Act or not. It is the case of the respondent-assessee that the compensation / damages received by the assessee on transfer of the land parcels against release of its right to sue is capital in nature outside the scope and ambit of Section 2(14) of the Act and consequently, do not fall outside the sweep of chargeability under s.45 of the Act. It is the case of the assessee that the only right that accrues to the assessee who complains of the breach is right to file a suit for recovery of damages from the defaulting party. The breach of contract does not give rise to any debt of pre-existing nature and therefore right to recover damage is not assignable. 16.3 In the instant case, the rights of the assessee arising under the sale agreement with the original land owners were frustrated in view of another sale agreement of the same land parcels in favour of other party. The assessee received certain consideration by way of damages as a culmination of ongoing vexatious dispute tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrues to the assessee who complains of the breach is right to file a suit for recovery of damages from the defaulting party. The breach of contract does not give rise to any debt and therefore a right to recover damages is not assignable because it is not a chose-in-action. For actionable claim to be assigned, there must be a debt in the sense of an existing obligation to consider it to be an actionable claim. It is the case of assessee that the assessee had a mere right to sue which is neither a capital asset within the meaning of Section 2(14) of the Act nor is capable to being transferred and therefore not chargeable under s.45 of the Act. 10.1 The essence of long list of judicial pronouncements cited on behalf of assessee is that Section 6 of the Transfer of Property Act which uses the same expression property of any kind in the context of transferability makes an exception in the case of a mere right to sue. The decisions thereunder make it abundantly clear that the right to sue for damages is not an actionable claim. It cannot be assigned. Transfer of such a right is opposed to public policy as it tantamounts to gambling in litigation. Hence, such a right to sue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereof consideration has passed to the assessee or has accrued to him, extinguishment of the right must relate to that 'capital asset', corporeal or incorporeal. It is, therefore obvious that a transfer of a capital asset in order to attract liability to tax under the head 'Capital gains' must be a 'transfer' as a result whereof some consideration is received by or accrues to the assessee. If the transfer does not yield any consideration, the computation of profits or gains as provided by s. 48 of the Act would not be possible. If the transfer takes effect on extinguishment of a right in the capital asset, there must be receipt of consideration for such extinguishment to attract liability to tax. Now, in legal parlance, the terms 'consideration' and 'compensation' or 'damages' have distinct connotations. The former in the context of ss. 45 and 48 would connote payment of a sum of money to secure transfer of a capital asset; the latter would suggest payment to make amends for loss or injury occasioned on the breach of contract or tort. Both ss. 45 and 48 postulate the existence of a capital asset and the consideration received on tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e right to go to a Court of law and recover damages. Now, damages are the compensation which a Court of law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court, Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already exists. The Court in the first place must decide that the defendant is liable is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant.' It would appear from the above observations that on breach of contract the defaulter does not incur any pecuniary liability nor does the injured party becomes entitled to any specific amount, but he only has a right to sue and claim damages which may or may not be decreed in his favour. He w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits. This right/advantage accrued to the assessee was sought to be taken away from the assessee by way of sale of land. The prospective purchaser as well as the defaulting party (owner) perceived threat of filing suit by developer and consequently paid damages/compensation to shun the possible legal battle. The intrinsic point with respect to accrual of right to sue has to be seen in the light of overriding circumstances as to how the parties have perceived the presence of looming legal battle from their point of view. It is an admitted position that the defaulting party has made the assessee a confirming party in the sale by virtue of such development agreement and a compensation was paid to avoid litigation. This amply shows the existence of right to sue in the perception of the defaulting party. Thus, the existence of right to sue could not be brushed aside. 12. We shall now advert to the claim of the Revenue that amount received towards relinquishment of such right is purely a revenue receipt. In this regard, we notice that the compensation was not received as a result of termination of advantages associated with development rights but was claimed to be received to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .7 of the assessment order itself. The compensation received was offshoot of right to sue, an untransferrable right in personam of capital nature. The plea on behalf of Revenue that the assessee had nearly exhausted its right to sue has to be seen from the point of view of litigant. Such issues are vexatious and cannot be straight jacketed till the conclusion of Court proceedings. The parties have among themselves agreed to compensate the assessee for release of right to sue which act cannot be substituted by the opinion of Revenue. The short point thus remains is whether such capital receipt on account of release of right to sue can be bracketed under the expression property of any kind used in S. 2(14) defining capital asset. The issue has been answered in favour of the assessee in the earlier paragraphs. As discussed in preceeding paras in length, such capital receipts towards compensation do not fall within the sweep of expression property of any kind notwithstanding its very wide connotations and consequently such capital receipts (not being capital asset) are not susceptible to capital gain tax having regard to provisions of charging section 45 of the Act. Merely because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the exclusion of capital receipt bestowed upon assessee (by way of compensation) for the purposes of determination of book profit under section 115JB. It appears to be essentially the case of the revenue that regardless of taxability or otherwise of such compensation under the normal provisions, the taxability under the self contained code provided in S. 115JB cannot be ousted as wrongfully done by the CIT(A). 19.3 The assessee, in its return of income, has excluded the compensation receipts on capital account from the ambit of taxation both under normal provisions as well as MAT provisions. The AO, on the other hand, while increasing the assessable income under the normal provisions towards such receipts, has simultaneously increased the book profits under s.115JB of the Act to the extent of compensation amount. The minimum alternate tax was thus sought to be charged on compensation receipts notwithstanding exclusion from its taxability under normal provisions. 19.4 In the first appeal against the increase in book profits for the purposes of levy of alternate tax, the CIT(A) reversed the aforesaid action of the AO after taking note of several judicial precedents governi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Act, the compensation / damage received for relinquishing right to sue is not required to be accounted for in the P L Account. The appellant has further submitted that as it is not a profit from transfer of a capital asset, and therefore, the same has not been shown in the P L Account maintained but the same has been shown as income from extra ordinary item below the line of P L Account for the year under consideration and taken directly to the capital reserve account in the balance sheet. The appellant has relied upon the judgment of Apollo Tyres Limited Vs. C1T [255 ITR 273], Honourable Madras High Court's order in the case of CIT - III, Chennai Vs. Metal Chromium Platter Pvt. Ltd. [2016] 76 taxmann. com 22 and Honourable 1TAT, Mumbai Bench in the case of Frig Sales (India) Ltd, [4 SOT 376] (Mumbai). 3.5. It is seen from the P L Account that appellant has shown net profit after taxation and before extra ordinary item at Rs.1.15 lacs and added income from extra ordinary item as compensation received far relinquishment of right to sue of Rs.6968.38 lacs. The appellant in the computation of book profit u/s. 115JB has reduced the above amount as non taxable. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that section 54E has no application in the computation of book profit u/s. 115J. 3.8. On perusal of the above decisions, it is seen that both the decisions deal with the cases where capital gain was otherwise income u/s. 45 of the Act and exclusion was claimed by the assessee while computing book profit u/s. 115J / 115JB on the ground that income was excluded because of deduction u/s. 54EC / 54E of the I. T. Act, 1961. In the present case, appellant has excluded the receipt of compensation for release of its right to sue, which is not taxable at all as per the Income Tax Act, 1961. The Honourable ITAT, Jaipur in the case of Shree Cements Limited [2015] 152 ITD 561, Honourable Kolkata Tribunal in the case of Binani Industries Limited [2016] 178 TTJ 658 dated 02/03/2016 and Mumbai Tribunal in the case of JSW Steel Limited [2017] 82 Taxmann.com 210, after considering the decision of M/s. Rain Commodities Limited has held that a capital receipt which is not taxable to tax at all cannot be held as taxable u/s. 1 I5JB of the Act. The Honourable Madras High Court in the case of Metal Chromium Pv. Ltd. [2016] 76 Taxmann.com 229, Mumbai, after considering the decision of Kerala High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e either in section 115J or 115JA. 115JB(4) : (4) Every company to which this section applies, shall furnish a report in the prescribed form36 from an accountant as defined in the Explanation below sub-section (2) of section 288, certifying that the book profit has been computed in accordance with the provisions of this section along with the return of income filed under sub-section (1) of section 139 or along with the return of income furnished in response to a notice under clause (i) of sub-section (1) of section 142. A combined reading of Honourable Supreme Court decision in Apollo Tyre Limited and newly introduced section 115JB(4) would mean that AO does not have jurisdiction to go beyond the net profit shown in the P L Account including report of auditor u/s. 115JB(4) except to the extent provided in the explanation. The Honourable Kolkata Tribunal in the case of Binani Industries Ltd. (supra) has held that adjustment needs to be made to the disclosure made in the notes of account forming part of the P L Account for the purpose of computation of book profit u/s. 115JB. 3.10. On perusal of P S. L Account, it is seen from the P L Account for the year ending 31/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt and are not in the nature of income, if any such amount i- credited to the profit loss account, then on same logic it would be inconceivable that this provision intends that 'book profit' should include something which is in the nature of a capital surplus on account of waiver of a loan. Even if a company has credited the amount of remission to its profit loss account, then such a profit loss account needs to be adjusted with the amount of remission so as to arrive at the net profit as per the profit loss account prepared in accordance with provisions of Part II III of Vim Schedule of the Companies Act and this is what has been envisaged in the operating lines of Explanation-1 to section 115JB, that, book profit means the net profit as shown in the profit and loss account for the relevant previous year. Net profit as per profit and loss account can never meant to include capital reserve or capital receipts. The object of enacting of section 115J, 115JA 115JB was never to fasten any tax liability in respect of something which is not an income at all or even if it was income bat is not taxable under the normal provisions of the Act. The provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icted under that section. This shows that exemption of capital gains was not intended to be restricted. Subsequently also when that section was replaced by section 115J, the object was to introduce the provision whereby every company will have to pay a minimum corporate tax on the profits declared by it in its own accounts. These profits can only be those which are assessable as income under the Act. It is now well-settled that, in the interpretation of statutes, one has to adopt such a construction as will promote the general legislative purpose underlying the provision. In the present case, as can be seen from the finance Minister's speech and the Memorandum explaining the provisions, the intention was to make the company pay tax on income which would otherwise be reduced by reason of certain deductions available under the Act, Even the adjustments specified in section 115J refer only lo appropriation from the profits of the business. The mandate given by section accordance with the provisions of Part-II and Part -III of the Sixth Schedule to the Companies Act and the net profit as shown in the profit and loss account . These two expressions convey an idea of an implied man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cost for some years and the value is written up or written down on revaluation at market rate on a particular dale, there is no change in the method of accounting so as to require the company to again revalue the investments at market rate on subsequent annual valuation dates. What will be shown in the subsequent years will be only the revised book value. The method of accounting is an essential and integral process to ascertain the income or loss alter the end of the previous year within the meaning of section 145 and it does not apply to revaluation of fixed assets or investments. The proceeds by way of sale of an investment not being income, they are not liable to tax under section 115J unless there is a clear intendment. It is well recognized that there cannot be a charge by implication. The non obstante clause with which this section begins could only mean that the other sections which impose tax on book profit alone are to be ignored and not that the section which deems a capital receipt as income should be taken as part of the book profit for the purpose of the section, more so when section 45 declares that it cannot be taken as income if section 54E is attracted. Hence a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en as Net profit as shown in the profit and loss account for the purpose of computation of book profit under Explanation 1 to sec. 115JB of the Act. Alternatively, since the said profit does not fall under the definition of income at all and since it does not enter into the computation provisions at all, there is no question of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to exclude the above said profit from the computation of Book Profit for the reasons discussed above. [b] ACIT v. Shree Cement Ltd. [2015] 152 ITD 561 (Jaipur - Trib.) wherein it was held that: 13.4. From perusal of the decisions of Rain Commodities (supra) and Growth Avenues (supra), we notice that both the decision dealt with the issue of taxability of capital gains in computing Book Profit u/s 115JB of the Act. These capital gains were otherwise income u/s 2(24) of the Act arid exclusion was claimed in computing Book Profit u/s 115JB on the ground that the said capital gains was exempt either u/s 47(iv) or u/s 54EC of the Act, which the Tribunal did not agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is issue in favour of the assessee and it was held that capital receipt in the form of sales tax subsidy needs to be excluded from profit as per P L account for the purpose of computing book profit u/s 115JB of the Act. By respectfully following these Tribunal's orders, we hold that in the present case also, The receipt on account of transfer of carbon credit which is held to be a capital receipt needs to be excluded from profit as per P L account for the present year while computing the book profit u/s 115JB of the Act. This issue is decided in favour of the assessee and accordingly Ground Nos.1 to 5 are allowed. The assessee gets relief of Rs.27,70,880/- and consequent interest being 10% of amount received by the assessee on sale of carbon credit of Rs.27,70,8,800/-. (d) Kolkata Tribunal in the case Binani Industries Ltd [2016] 178 TTJ 658 dated 02/03/2016 has held that: ... respectfully following the aforesaid decision of the Mumbai Tribunal, the profit and loss account prepared in accordance with Part II and III of Schedule VI of Companies Act 1956, - includes notes on accounts thereon and accordingly in order to determine the real pro fit of the assessee as laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.2(14) of the Act read with provisions of Section 6(e) of Transfer of Property Act. The receipt was found to be of capital in nature outside the ambit of taxability under normal provisions in the Act as discussed in the earlier paragraphs. Contextually, it is observed that the aforesaid compensation has been reflected in the statement of profit and loss of the assessee co. below the line after determination of taxation liability i.e. in the profit Loss appropriation account as an extraordinary item while drawing accounts as per Part II and Part III of Schedule VI to the Companies Act, 1956. 21.1 It is trite that a capital receipt can be taxed only when the same has been expressly included and deemed as income under s.2(24) of the Act. As a general rule for Income Tax, all revenue receipts unless specifically exempted are taxable under the provisions of Income Tax Act and all capital receipts unless made specifically taxable by the Act do not constitute income chargeable to tax. The compensation received for release of right to sue being a capital receipt is not deemed to be income and hence not chargeable to tax. Significantly, the Constitution itself uses the term t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the ambit of book profit. In ACIT vs. Shree Cement Ltd. [ ITA No. 614,615 635/JP/2010 order dated 9.9.2011] , the issue of taxability of capital receipts has been analysed threadbare and in length. The decision of special bench in Rain Commodities was taken note of. The Jaipur bench was dealing with the issue as to whether subsidy received which was admittedly capital in nature can be subject to MAT. The co-ordinate bench held that there was never any intention behind introduction of section 115JB to tax something which is not taxable at all. The decision has also considered the fact that in respect of earlier year, the Hon ble Rajasthan High Court did not even admit the substantial question of law framed in this regard. Further, it was observed that a capital receipt which is neither profit nor income cannot be part of profit as per Profit Loss Account prepared in terms of Part II of Schedule VI to Companies Act. Following Shree Cement case, the Lucknow Bench in L H Sugar Factory held that the amount received by way of capital receipt on sale of carbon credits should be excluded while computing book profits. The Kolkata Tribunal in Binani Industries Ltd. held that cap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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