TMI Blog2022 (12) TMI 1076X X X X Extracts X X X X X X X X Extracts X X X X ..... it s intangible asset(s) by way of right to collect the toll u/s.32(i)(ii) and building, plant and machinery, as the case may be, vested with the government. Legislature has also inserted clause (e) in section 28(ii) of the Act by the Finance Act 2018 w.e.f. 01.04.2019 wherein any compensation or such payment received at or in connection with termination or the modification of the terms and conditions, if any, contract relating to his business is assessed has seem held taxable as profits and gains of business or profession. This latter amendment is applicable w.e.f. 01.04.2019 whereas we are in AY 2015-16 only. We also take note of the explanatory memo thereof that this latter amendment proposes to invoke section 28 of the Act qua any compensation; including both revenue as well as capital u/s.28 of the Act. We thus conclude that both the learned authorities have erred in law and on facts in invoking section 28(ii)(d) qua assessee s impugned compensation thereby holding it as a revenue receipt. The assessee succeeds. - ITA No.572/PUN/2019 And ITA No.692/PUN/2019 - - - Dated:- 4-11-2022 - Shri S.S. Godara, JM And Shri G.D. Padmahshali, AM For the Assessee : Shri Ni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee s appeal ITA No.572/PUN/2019 first. 4. Both the learned representative invited our attention to the CIT(A) s detailed deduction upholding assessment findings treating the foregoing compensation sum of Rs.18,51,61,000/- as a revenue receipt as follows :- 5. GROUND No.1:- in this ground the appellant has contended that the A.O. erred in holding that the amount received by the assessee firm of Rs. 18,51,61,000/- was taxable as in income u/s 28(ii)(d) without appreciating that the said amount was received by the assessee firm as compensation or pre-closure of its BOT projects and therefore, the said amount was a capital receipt not chargeable to tax. 5.1. OBSERVATION OF THE A.O.:-- On this issue, the AO has made the following observations in the assessment order: 7. Compensation Rs. 18,51,61.000/- credited to capital account of partners: During the course of assessment proceedings, abiding by the directions received u/s. 144A, the AR of the assessee vide proceeding sheet entry dated 11.12.2017 was asked as to why the amount of Rs. 18,51,61,000/- credited to partners' capital account should not be treated as revenue receipt and added back to the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at its present value and as such there isn't any loss of source of income the assessee as the entire income stream has been paid at its present value. Hence the amount of Rs. 18,51,61,000/- is added back to the total income of the assessee u/s. 28(ii)(d), 7.2.2 Further, Case laws relied upon by the assessee in support of its claim of treating the amount of Rs, 18,51,61,000/- as a capital receipt have been given due consideration and not found relevant to this case as the case laws relied upon by assessee in support of its claim are totally out of context as the facts of the said case laws are totally different and relate to license revocation where the tax payer did not have a legal right to continue with the same business or for default of a contractual obligation. 5.2. SUBMISSION OF THE A.R.:- During appellate proceedings the Ld AR of the appellant has given following written submission vide letter dated 21-02-2019: Ground No. 1 1.1] The assessed firm is engaged in development of infrastructure facilities. The assesses firm was allotted following projects on BOT basis Sr No. Name of Project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .O. has held that the compensation received of Rs. 18,51,61,000/- is a revenue receipt. 1.4] The assessee submits that the learned A.O. is not justified in treating the compensation received as a revenue receipt. The learned A.O. has referred to the provisions of section 28(ii)(d). It is submitted that the provisions of said section are not applicable to the present case. Section 28(ii)(d) reads as under- any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business.. 1.5] As per the said section, any compensation received by the assessee on account of vesting in the Govt, or any Corporation owned by the Govt, the management of any property or business. Thus, as per the said section, the management of the property or business has to be transferred to the Govt, and the compensation received thereof is taxable. In this case, the assessee has not transferred the management of any property or any business to the Govt. The toll plazas are cancelled and therefore, compensation is received. In fact, the toll plazas ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was capital receipt and hence, not taxable. [S.28(i)] Compensation was received by assessee for termination of agreement for providing back office Support services to bank Assessee had parted with personnel who were handling this activity of Assessee Company to give them on role of bank and hank handled such activity itself. Compensation so received was capital receipt and hence not taxable. (AYs. 2003- 04 to 2006-07) 3i-Infotech Ltd vs. Add. CIT (2014) 146 ITD 405 / (2013) 38 Taxmann. Com 422/(2014) 162 TTJ 84 /10 DTR 151 (Mum.)(Trib.) V. Aquapharm Chemical Co Ltd, Pune v/s CIT JM ITA No. 372/PN/2002 The assessee has questioned first appellate order on the following grounds : (1). That the learned CIT(A) erred in law and on facts in rejecting the claim of the Appellant that the Compensation of Rs. 4,53,86,124/- received under settlement of dispute with AIK Germany was a capital receipt not liable to income tax. The learned CIT(A) erred in not appreciating that, since in substance the claim awarded by the International Council of Arbitration to the Appellant represented damages for non fulfillment of the contractual obligations by AIK Germany due to which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant. 5.7 The observation of the AO and the submission of the appellant have been considered. 5.8 In this regard, it is relevant to refer to the provisions of the sec 28(ii)(d) of the Act which are reproduced below: 28. The following income shall be chargeable to income-tax under the head Profits and gains of business or profession ,- (i) (ii) any compensation or other payment due to or received by,- (a) . (b) .... (c) .... (d) any person, for or in, connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business; On perusal of the provisions of Sec 28(ii)(d) of the Act, it is clear that any amount received by way of compensation or other payment due to or received by any person for or in connection with the management of any property or business of the government or any corporation owned or controlled by the government is taxable as a revenue receipt. In my humble opinion, the compensation received by the appellant is covered by the provisions of the Sec 28(ii)(d) of the Act. 5.9 Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government. These laws provided for the payment of compensation in respect of the vesting in the Government of the management of the business of industrial undertakings etc. taken over by the government . This statutory provision later on underwent interpretation by hon ble Calcutta high court in Ram Saran Das Brothers V/s. CIT (1995) 78 TAXMAN 569 (Cal.) wherein their lordships have made it clear that the same does not get attracted when a government takes over both the management as well as assets followed by payment of compensation as follows :- 3. The facts found by the Tribunal are as under : The assessee is a firm which maintains accounts under the mercantile system of accounting. In respect of the previous year ending on 30-9-1973 relevant to the assessment year 1974-75 the assessee submitted initially a return showing a loss of Rs. 1,08,139 which was subsequently revised showing enhanced loss of Rs. 2,09,091. Along with the revised return the assessee submitted copies of revised profit and loss account and balance sheet. The ITO on scrutiny of the balance sheet found that the assessee debited an amount of Rs. 4,57,844 in the profit and loss account being los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would operate only if merely the management had been taken over by the Government and not the property or business (sic) only the management but all the assets and business were taken over and hence the provisions of section 28(ii)( d) are not applicable. The Authorised Representative argued that the order of the Commissioner of Income-tax (Appeals) was correct and he referred to the Memorandum pertaining to the said amendment of section 28 vide Finance Bill 1973. We have gone through the said memorandum and we do not find that there is anything therein which would support the case of the assessee. We have given our due consideration. The Authorised Representative has also referred to page 1093 of Sampath Iyenger (7th Edition). We have gone through even the said book and we do not find that there is anything anywhere to support the view that even where assets and business were taken over by the Government, section 28(ii)( d) would come into play. We hold that the order of the Commissioner of Income-tax (Appeals) was not a correct order at all and that section 28(ii)( d) was not applicable. The appeal of the Department is allowed and the loss of Rs. 4,57,844 is held to be a capital ..... X X X X Extracts X X X X X X X X Extracts X X X X
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