K.Subramaniam, Bhavani V. ACIT, Erode

ITA 2515/CHNY/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2655 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 11-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2014
• Court: TRIBUNAL
• Department Lawyers: B NISCHALJCIT
• Assessee Lawyers: K C AARTHY
• Keywords: Capital asset; Principle of natural justice; Source of fund; Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , ! ' #! ' $ . %& ' () BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NOS.2514 & 2515 /MDS./2014 ( / ASSESSMENT YEARS :2007-08 & 2008-09) MR.K.SUBRAMANIAN , PROP.KAVITHA DYEINGS, ANTHIYUR ROAD, KADAYAMPATTI PO BHAVANI. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-II, ERODE. PAN ALAPS 3104 L ( *+ / APPELLANT ) ( ,-*+ / RESPONDENT ) / APPELLANT BY : MS.K.C.AARTHY,ADVOCATE / RESPONDENT BY : MR.B.NISCHAL,JCIT, D.R / DATE OF HEARING : 11.02.2016 ! /DATE OF PRONOUNCEMENT : 26.02.2016 . / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRE CTED AGAINST THE DIFFERENT ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-I, ITA NOS.2514 & 2515/MDS/2014 MR.K.SUBRAMANIAN 2 COIMBATORE DATED 30.07.2014 PERTAINING TO THE ASSES SMENT YEARS 2007-08 & 2008-09. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS FOR A DJUDICATION:- 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) IN AS MUCH AS HE HAS HELD AGAINST THE APPELLANT IS OPP OSED TO LAW AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 2. LIQUIDATED DAMAGES- CAPITAL RECEIPT 2.1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT COMPENSATION RECEIVED BY THE APPELLANT THROUGH WAIVER OF SUPPLIERS CREDIT IS REVENUE RECEIPT LIAB LE TO TAX. 2.2. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE COMPENSATION RECEIVED BY THE A PPELLANT THROUGH WAIVER OF SUPPERS CREDIT IS FOR THE IMPAIR MENT OF THE CAPITAL ASSET AND THEREFORE OUGHT TO HAVE TREATED T HE SAME AS CAPITAL RECEIPT. 2.3. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT CONSIDERING THE GROUNDS OF APPEAL AND WRITTEN SUBMI SSION IN PROPER PERSPECTIVE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE, NAMELY, SHRI K.SUBRAMANIAN, INDIVIDUAL, WHO IS THE PROPRIETOR OF M/S.KAVITHA DYEINGS, IS ENGAGED IN THE BUSINESS OF WINDMILLS AN D JOB WORK IN ITA NOS.2514 & 2515/MDS/2014 MR.K.SUBRAMANIAN 3 DYEING. WHILE FRAMING THE ASSESSEE, THE AO HAD NOT CONSIDERED THE CLAIM OF INTEREST FREE SUPPLIERS CREDIT AS CAPITAL RECEIPT. THE AO WAS OF THE OPINION THAT THE SAID AMOUNT RECEIVED IS ONL Y A COMPENSATION FOR LOSS OF PROFIT SINCE THE SAID AMOUNT WAS RECEIV ED FOR THE FAILURE TO GENERATE THE REQUIRED UNITS OF ELECTRICITY BY THE W IND MILLS AND THEREFORE IS A REVENUE RECEIPT LIABLE FOR TAX. 4. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE THE CIT(A). ON APPEAL, THE LD.CIT(A) OBSERVED THAT THE CLAIM OF R ECEIPT OF COMPENSATION AS CAPITAL RECEIPT WAS NEGATIVED BY TH E AO FOR ASSESSMENT YEAR 2010-11 IN ASSESSEES OWN CASE AND THE SAME WAS UPHELD BY THE CIT(A)-I COIMBATORE.CIT(A). FURTHER O BSERVED THAT THE TRIBUNAL IN ITA NO.1652/MDS./2012 FOR THE ASSESSME NT YEAR 2009-10 HAS HELD THAT IN ASSESSEES CASE WHAT HAS BEEN REC EIVED BY THE ASSESSEE IN THE FORM OF COMPENSATION IS FOR THE LOS S OR EARNING ONLY. THEREFORE, IT WAS OF THE VIEW THAT THE COMPENSATION RECEIVED BY THE ASSESSEE IS REVENUE RECEIPT LIABLE TO TAX AND NOT A CAPITAL RECEIPT. THE CIT(A) OBSERVED THAT THAT FOR ASSESSMENT YEAR 2 008-09, THE COMPENSATION IS RIGHTLY TREATED AS REVENUE RECEIPT BY THE AO BUT THE ITA NOS.2514 & 2515/MDS/2014 MR.K.SUBRAMANIAN 4 SAME HAS TO BE CONSIDERED FOR DEDUCTION U/S.80-IA O F THE ACT BY THE AO. THEREFORE, CIT(A) CONFIRMED THE ORDER OF THE A O ON THIS ISSUE IN TREATING THE WINDMILL COMPENSATION AS REVENUE RECEI PT. 5. AT THE OUTSET, THE LD. D.R DREW OUR ATTENTION T O THE FACT THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF CO-ORD INATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.1652/MDS./2012 VIDE ORDER DATED 21TH FEBRUARY, 2013. THE LD.A.R COULD NOT CONTROVERT THE SUBMISSIONS OF THE LD.D.R. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THIS ISSUE CAME UP FOR CONSIDERATION BEFO RE THIS TRIBUNAL IN ASSESSEES OWN CASE, IN I.T.A.NO.1652/MDS/2012, FOR THE A.Y 2009- 10 VIDE ORDER DATED 21.02.2013 DECIDED THE ISSUE BY OBSERVING THAT:- 22. WE HAVE HEARD BOTH SIDES. PERUSED THE MATERIAL S ON RECORD AND THE ORDERS OF AUTHORITIES BELOW AS WELL AS THE CASE LAW RELIED ON BY THE PARTIES. THE ASSESSEE ERE CTED WIND ELECTRIC GENERATION MILLS. THE ASSESSEE ENTERE D INTO ITA NOS.2514 & 2515/MDS/2014 MR.K.SUBRAMANIAN 5 AGREEMENTS WITH THE SUPPLIERS FOR SUPPLY, ERECTION AND COMMISSIONING OF THE WIND MILLS. IN THE AGREEMENT E NTERED INTO BY THE ASSESSEE WITH THE SUPPLIERS, THERE IS A CLAUSE CONTAINING PERFORMANCE GUARANTEE OF THE MACHINERIES SUPPLIED BY THE SUPPLIERS. AS PER THIS CLAUSE IN TH E AGREEMENT, THE WIND MILLS SHALL GENERATE GUARANTEED UNITS PER ANNUM. IN CASE THE WIND MILLS FAIL TO GENERATE THE GUARANTEED NUMBER OF UNITS PER ANNUM, THE SUPPLIER SHALL FOREGO SUPPLIERS CREDIT ADVANCED TO THE ASSESSEE. T HE CLAUSES CONTAINED IN THE AGREEMENT ENTERED INTO WIT H SOUTHERN WIND FORMATION LIMITED (SWFL) WITH REGARD TO PERFORMANCE GUARANTEE ARE AS UNDER :- SWFL WIND MILL IV : 2. NO.1 HAS GUARANTEED A MINIMUM GENERATION OF 5, 25,000 UNITS PER ANNUM. (REF. CLAUSE NO.5 OF NO.2S PO NO.SWL/KD/PO DATED 25 TH JUNE 2007). 3. THE PARTIES HAVE AGREED THAT FOR ANY SHORTFALL I N ACTUAL GENERATION AGAINST THE MINIMUM GUARANTEED GENERATIO N, NO.1 SHALL BE LIABLE TO ADJUST THE SHORTFALL IN UNI T GENERATION AT THE RATE, WHICH SHALLBE THRICE OF THE PREVAILING TNEB RATES. IN THE SAME MANNER, IF THE ACTUAL GENERATION IS ONLY 4,00,000 UNITS, THEN NO.1 SHALL ADJUST FOR THE SHOR TFALL OF ITA NOS.2514 & 2515/MDS/2014 MR.K.SUBRAMANIAN 6 1,25,000 UNITS AT RATE, WHICH SHALL BE THRICE OF TH E PREVAILING TNEB RATES, AGAINST THE ABOVE SUPPLIER CREDIT. 4. NOTWITHSTANDING ANYTHING MENTIONED HEREINABOVE N O.2 SHALL NOT UNDER ANY CIRCUMSTANCES BE ENTITLED TO CL AIM ANY AMOUNT MORE THAN J.25,00,000/- FROM NO.1 TOWARDS GENERATION LOSS. SWFL WINDMILL V : 2.NO. 1 HAS GUARANTEED A MINIMUM GENERATION OF 5,0 0,000 UNITS PER ANNUM. (REF. CLAUSE NO.6 OF NO.2S PO NO.2008/01/KD DATED 23 RD JULY 2008). 3. THE PARTIES HAVE AGREED THAT FOR ANY SHORTFALL I N ACTUAL GENERATION AGAINST THE MINIMUM GUARANTEED GENERATIO N, NO.1 SHALL BE LIABLE TO ADJUST THE SHORTFALL IN UNI T GENERATION AT THE RATE, WHICH SHALL BE THRICE OF THE PREVAILIN G TNEB RATES. IN THE SAME MANNER, IF THE ACTUAL GENERATION IS ONLY 4,00,000 UNITS, THEN NO.1 SHALL ADJUST FOR THE SHOR TFALL OF 1,00,000 UNITS AT RATE, WHICH SHALL BE THRICE OF TH E PREVAILING TNEB RATES, AGAINST THE ABOVE SUPPLIER CREDIT. 4. NOTWITHSTANDING ANYTHING MENTIONED HEREINABOVENO .2 SHALL NOT UNDER ANY CIRCUMSTANCES BE ENTITLED TO CL AIM ANY AMOUNT MORE THAN J.30,00,000/- FROM NO.1 TOWARDS GENERATION LOSS. ITA NOS.2514 & 2515/MDS/2014 MR.K.SUBRAMANIAN 7 23. AS CAN BE SEEN FROM THE ABOVE CLAUSES OF AGREEMENT WITH SWFL FOR WIND MILL IV & V, THE SUPPL IER HAS GUARANTEED A MINIMUM GENERATION OF 5.25 LAKH UNITS AND 5.00 LAKH UNITS PER ANNUM RESPECTIVELY. OF THIS 5.2 5 LAKHS UNITS, IN CASE THE ACTUAL GENERATION IS ONLY 4 LAKH S UNITS, THEN THE SUPPLIER SHALL COMPENSATE FOR THE SHORT FA LL OF 1.25 LAKHS UNITS AT THE RATE WHICH SHALL BE THRICE OF TH E PREVAILING TNEB RATES WHICH IS ADJUSTABLE AGAINST THE SUPPLIER S CREDIT AND THE COMPENSATION SHALL NOT, UNDER ANY CIRCUMSTA NCES, BE MORE THAN 25 LAKHS FROM THE SUPPLIER TOWARDS GENERATION LOSS. THE PERFORMANCE GUARANTEE CLAUSE O F AGREEMENT CLEARLY SUGGESTS THAT COMPENSATION WOULD BE PAID FOR GENERATION LOSS WHICH IS LINKED TO TNEB RA TES AND IT IS NOT A LUMP SUM COMPENSATION PAID FOR NON PERFORMANCE OF THE ASSET OR BREAK DOWN OF THE ASSET . THE COMPENSATION PAID TO THE ASSESSEE IS ONLY FOR THE L OSS OF GENERATION OF ELECTRICITY AND THE COMPENSATION IS F OR LOSS OF EARNINGS. HAD THE WIND MILL GENERATED THE GUARANTEE D UNITS OF ELECTRICITY, THE ASSESSEE WOULD HAVE EARNED REVE NUE OUT OF SUCH UNITS, WHICH IS REVENUE RECEIPT. 24. IN THE CASE OF CIT V. BOMBAY BURMAH TRADING CORPORATION (SUPRA), THE ASSESSEE WAS GIVEN FOREST FOR LEASE FOR CUTTING AND REMOVING TIMBER. LATER, FORES TS WERE NATIONALIZED AND THE LEASE AGREEMENTS WERE TERMINAT ED BY ITA NOS.2514 & 2515/MDS/2014 MR.K.SUBRAMANIAN 8 THE GOVERNMENT OF BURMA, BUT THE COMPENSATION WAS P AID TO THE ASSESSEE FOR RESIDUARY RIGHTS UNDER LEASE IN THE SHAPE OF LOGS. THE ASSESSEE SOLD THE LOGS AND REALI ZED THE COMPENSATION. THE HON'BLE SUPREME COURT HELD THAT T HE TIMBER RECEIVED BY THE ASSESSEE IS CAPITAL IN THE H ANDS OF THE ASSESSEE AND PROFIT ON SALE OF LOGS IS NOT ASSE SSABLE AS INCOME. THE HON'BLE SUPREME COURT HELD THAT THE FOR EST LEASE AFFECTED THE VERY STRUCTURE OF THE OPERATION OF THE ASSESSEE COMPANY AND THEREFORE CONSTITUTED CAPITAL ASSETS OF THE ASSESSEE COMPANY AND THE PAYMENTS MADE FOR CANCELLATION OR STERILIZATION OF THE RIGHTS UNDER T HE LEASES WOULD BE CAPITAL RECEIPTS. IN THE PRESENT CASE, THI S IS NOT THE SITUATION. THE ASSESSEE HAS NOT RECEIVED THE COMPENSATION FOR TERMINATION OF ANY AGREEMENT. THE ASSESSEE RECEIVED COMPENSATION ONLY FOR THE LOSS OF GENERATION OF ELECTRICITY. IN ASSESSEES CASE, THE VERY STRUCTURE OF THE OPERATIONS ARE NOT AFFECTED SO AS TO SAY THAT THE COMPENSATION RECEIVED IS A CAPITAL RECEIPT . THE CASE RELIED ON BY THE ASSESSEE HAS NO APPLICATION T O THE FACTS OF THE CASE. 25. IN THE CASE OF CIT V. SAURASHTRA CEMENT LTD (SU PRA), THE ASSESSEE ENGAGED IN THE MANUFACTURE OF CEMENT, ENTE RED INTO AN AGREEMENT WITH THE SUPPLIER FOR THE PURCHAS E OF AN ADDITIONAL CEMENT PLANT. THE AGREEMENT CONTAINED A ITA NOS.2514 & 2515/MDS/2014 MR.K.SUBRAMANIAN 9 CONDITION THAT IN THE EVENT OF DELAY CAUSED IN THE DELIVERY OF MACHINERY, THE ASSESSEE WAS TO BE COMPENSATED AT 5% OF THE PRICE OF THE MACHINERY WITHOUT PROOF OF ACTUAL LOSS AND THE TOTAL AMOUNT OF DAMAGES SHALL NOT EXCEED 5% OF THE TOTAL PRICE OF THE MACHINERY. THE SUPPLIER COULD NO T SUPPLY THE MACHINERY WITHIN THE STIPULATED TIME AND THE AS SESSEE RECEIVED LIQUIDATED DAMAGES FROM THE SUPPLIER. THE HON'BLE SUPREME COURT HELD THAT THE DAMAGES TO THE ASSESSEE WERE DIRECTLY AND INTIMATELY LINKED WITH T HE PROCUREMENT OF CAPITAL ASSET IE., CEMENT PLANT AND THEREFORE IS A CAPITAL RECEIPT. IN THE PRESENT CASE , THE ASSESSEE HAS NOT RECEIVED COMPENSATION FOR DELAY IN COMMISSIONING OF WIND MILL. THE ASSESSEE HAS NOT RE CEIVED ANY LIQUIDATED DAMAGES FOR DELAY IN SUPPLY OF MACHI NERY. HERE, THE COMPENSATION RECEIVED BY THE ASSESSEE IS FOR LOSS OF EARNINGS. 26. THE DECISION IN THE CASE OF CIT V. SOUTH INDIA FLOUR MILLS PVT. LTD. (SUPRA) IS DISTINGUISHABLE ON FACTS AND H AS NO APPLICATION TO THE FACTS OF THE ASSESSEE. 27. IN THE CASE OF CIT V. MANNA RAMJI & CO.,(SUPRA) , THE ASSESSEE CARRIED ON BUSINESS IN TIMBER. ITS OFFICE AND SIX SHEDS FOR ITA 1652,2028,1679&2029/MDS/12 STORING TIMBER WHICH IT HAD CONSTRUCTED ON SITE TAKEN ON A LONG ITA NOS.2514 & 2515/MDS/2014 MR.K.SUBRAMANIAN 10 LEASE. THE PREMISES WAS REQUISITIONED UNDER THE DEF ENCE OF INDIA ACT. THOUGH THE REQUISITION ORDER COVERED OFFICE AND SIX SHEDS, AT THE REQUEST OF THE ASSESSEE, THE COLLECTOR ALLOWED THE ASSESSEE TO RETAIN THE OFFICE PREMISES. CIVIL JUDGE AWARDED COMPENSATION IN ADDITION TO THE RENT FOR THE PREMISES, THE LUMP SUM AMOUNT FOR LOSS OF EARNINGS. THE ASSESSING OFFICER ASSESSED THE COMPENSATION AS REVE NUE RECEIPT. THE TRIBUNAL FOUND THAT THE BUSINESS HAD N OT COME TO STAND STILL ALTOGETHER AND THE ASSESSEE CONTINUE D TO CARRY ON THE BUSINESS THOUGH AT A REDUCED SCALE AFTER THE REQUISITION AND IF ANY INJURY WAS CAUSED TO THE ASS ESSEES BUSINESS IT WAS TO THE VOLUME OF BUSINESS AND NOT T O THE PROFIT MAKING APPARATUS. ON THESE FACTS THE HON'BLE SUPREME COURT HELD THAT THE SUM RECEIVED BY THE ASS ESSEE COMPANY AS COMPENSATION FOR LOSS OF EARNINGS WAS A REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE. THE H ON'BLE SUPREME COURT HELD THAT THIS WAS NOT A CASE WHERE T HE ASSESSEE WAS PERMANENTLY DEPRIVED OF THE SOURCES OF INCOME. 28. IN THE ASSESSEES CASE WHAT HAS BEEN RECEIVED BY THE ASSESSEE IN THE FORM OF COMPENSATION IS FOR THE LOS S OF EARNINGS ONLY. THEREFORE, WE ARE OF THE VIEW THAT T HE COMPENSATION RECEIVED BY THE ASSESSEE IS REVENUE RE CEIPT ITA NOS.2514 & 2515/MDS/2014 MR.K.SUBRAMANIAN 11 EXIGIBLE TO TAX AND NOT A CAPITAL RECEIPT. NO OTHER ISSUE HAS BEEN ARGUED BY THE ASSESSEE. BEING SO, THIS ISSUE IS ALREADY DECIDED BY THE TRIB UNAL AND CIT(A) FOLLOWING THE SAME TRIBUNAL DECISION CITED SUPRA IN ITS ORDER, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER O F THE LD. CIT(A) AND THE SAME IS CONFIRMED. 7. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE FOR ASSESSMENT YEARS 2007-08 & 2008-09 ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 26 TH OF FEBRUARY,2016 AT CHENNAI. SD/- SD/- ' # $ . % & ' ( DUVVURU RL REDDY ) ) ( ( ( ) * + ) ) ' CHANDRA POOJARI ', JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 26 TH FEBRUARY,2016 . K S SUNDARAM. -.,, /0,10 /COPY TO: , 1. /APPELLANT 2. /RESPONDENT 3. , 2,'' /CIT(A) 4. , 2 /CIT 5. 034, 5 /DR 6. 4,6 /GF