ITO, CHENNAI V. M/s. Aban Hotels & Resorts P. Ltd., CHENNAI

ITA 659/CHNY/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7893 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 11-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Capital asset; Cost of acquisition; Capital receipt
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.659/MDS/2011 ( / ASSESSMENT YEAR: 2005-06) THE INCOME TAX OFFICER, COMPANY WARD-I(1) 615, NEW BLOCK, AAYAKAR BHAVAN, CHENNAI-34. VS M/S. ABAN HOTELS & RESORTS P.LTD., JANPRIYA CREST, NO.113, PANTHEON ROAD, EGMORE, CHENNAI-8. PAN: AAACA9433E ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.A.V.SREEKANTH, JCIT /RESPONDENT BY : MR.SAROJ KUMAR PARIDA, ADVOCATE /DATE OF HEARING : 4 TH OCTOBER, 2016 /DATE OF PRONOUNCEMENT : 7 TH DECEMBER, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- III, CHENNAI DATED 05.01.2011 IN ITA NO.653/09-10 /(A)-III PASSED UNDER SECTION 143(3) OF THE ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL, HOWEVER, THE CRUX OF THE ISSUE IS AS FOLLOWS:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DIRECTING THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION OF 2 ITA NO.659/MDS/2011 ` 2,33,97,557/- BEING COMPENSATION RECEIVED BY THE ASSESSEE FOR BREACH OF CONTRACT BY TREATING IT AS CAPITAL RECEIPT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF RUNNING HOTELS & RESORTS FILED ITS RETURN OF INCOME ON 16.02.2006 FOR THE AS SESSMENT YEAR 2005-06 DECLARING LOSS OF ` 2,522/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143( 2) WAS ISSUED TO THE ASSESSEE ON 03.08.2006. SUBSEQUENTLY, THE LEARNED ASSESSING OFFICER HAS COMPLETED THE ASSESSM ENT UNDER SECTION 143(3) OF THE ACT ON 31.12.2007 WHERE IN HE MADE ADDITION OF ` 2,33,97,557/- BEING COMPENSATION RECEIVED BY THE ASSESSEE FOR BREACH OF CONTRACT BY TREATING IT AS REVENUE RECEIPT. 4. THE BACKGROUND OF THE CASE AS OBSERVED BY THE LEARNED ASSESSING OFFICER IN HIS ORDER IS REPRODUCE D HEREIN BELOW FOR REFERENCE:- THE ASSESSEE COMPANY ENTERED INTO A MEMORANDUM OF UNDERSTANDING ON 5.3.2000 WITH M/S. ENP TO SETUP A JOINT VENTURE COMPANY (JVC) VIZ., B.D. GOENKA ABAN CITY CENTRE COMPANY PVT. LTD. THE JOINT VENTURE COMPANY WOULD TAKE ON LEASE / LICENSE A CONVENTION CENTRE F ROM M/S.ENP. THE MOU WAS SIGNED TO DECIDE ON THE TERMS 3 ITA NO.659/MDS/2011 AND CONDITIONS FOR DEVELOPMENT OF THE CONVENTION CE NTRE PROJECT. THE PROJECT ENVISAGED WAS A 30,000 SQ.FT. CONVENTION CENTRE WITH A CAPACITY OF 2000 TO 2500 P EOPLE. THE CENTRE WAS PROPOSED TO BE LOCATED ON LAND OF 2 ACRES BELONGING TO M/S. ENP AT EXPRESS ESTATES, CHENNAI . THE TASK OF DEVELOPMENT AND CONSTRUCTION OF THE CONVENT ION CENTRE WAS GIVEN TO THE ASSESSEE COMPANY CONSIDERIN G THE ASSESSEES PROFESSIONAL SKILL AND EXPERTISE IN DEVELOPMENT OF SUCH PROJECTS. THE MOU VESTED THE ASSESSEE COMPANY WITH FUNCTIONS OF OVERALL MANAGEME NT AND FINANCING, ARRANGING FINANCE, OBTAINING PERMISS IONS, AS WELL AS ACTUAL PLANNING, CONTROL AND EXECUTION O F THE PROJECT. ACCORDINGLY, ALL FEES, PRELIMINARY EXPENS ES, CHARGES FOR CLEARANCE, ETC. WERE TO BE BORNE BY THE ASSESSEE COMPANY. A LICENSE AGREEMENT WAS DRAWN UP ON 29.9.2000 WHEREIN A LICENSE FEE / RENT OF RS.2.1 5 CRORES IS SAID TO HAVE BEEN PAID TO M/S. ENP. LATER, A SHAREHOLDERS AGREEMENT BETWEEN THE ASSESSEE COMPANY AND M/S. ENP WAS ENTERED INTO WHICH LAID DOWN THE COMPOSITION OF THE BOARD OF DIRECTORS, RESPECTIVE C APITAL CONTRIBUTION AND OTHER FINANCIAL ARRANGEMENTS FOR T HE FORMATION OF THE JOINT VENTURE COMPANY VIZ., B.D. GOENKA ABAN CITY CENTRE PVT. LTD. AS PART OF THE AGREEMENT, FORCE MAJEURE CLAUSE HAS BEEN INCORPOR ATED WHEREIN IT IS STIPULATED THAT THE PARTIES SHALL ARR IVE AT A MUTUAL UNDERSTANDING AND SETTLE COMPENSATION IN THE EVENT OF THE PROJECT FOR WHICH JVC WAS INCORPORATED IS TERMINATED OR ABANDONED. THE INTENDED PROJECT DID NOT MATERIALIZE DUE TO CE RTAIN DEVELOPMENT AND UNFORESEEN CIRCUMSTANCES AND THEREFORE, THE ASSESSEE COMPANY AND M/S. ENP MUTUAL LY AGREED TO DISSOLVE AND GIVE UP THE JOINT VENTURE PR OJECT. ACCORDINGLY, A COMPROMISE SETTLEMENT MEMO WAS SIGNE D ON 3.11.2004 THROUGH WHICH THE ASSESSEE COMPANY RECEIVED A SUM OF RS.5.3 CRORES AS FOLLOWS: I. AN AMOUNT OF RS.2.15 CRORES ON 4.11.2004 IN RESP ECT OF REPAYMENT OF DEPOSIT. II. RS.3.15 CRORES IN TWO CHEQUES OF RS.2.15 CRORES ON 4.11.2004 AND RS.1.00 CRORE ON 5.11.2004. III. RS.30 LAKHS BEING THE REFUNDABLE DEPOSIT BY M/ S. ASV CONSTRUCTIONS. FURTHER, AS PER THE TERMS OF THE COMPROMISE SETTLEM ENT MEMO IT ALSO OBTAINED TRANSFER OF LANDS OF M/S. ENP AT OGGIUM THURAIPAKKAM TO ITS NAME FOR A CONSIDERATION OF RS.80 LAKHS. 4 ITA NO.659/MDS/2011 IT IS OBSERVED THAT THE ASSESSEE COMPANY HAD CAPITALIZED IN ITS BALANCE SHEET AS AT 31.3.2004 A SUM OF RS.81,02,443/- TOWARDS PREOPERATIVE EXPENSES. THIS AMOUNT IS SAID TO HAVE BEEN INCURRED TOWARDS THE JO INT VENTURE PROJECT WITH M/S. ENP. SIMILARLY, THE DEPO SIT AMOUNT OF RS.2.15 CRORES SAID TO HAVE BEEN PAID BY THE ASSESSEE ON 4.9.1997 (1.15 CRORES) AND ON 17.2.1998 (RS.1 CRORE) HAS BEEN RECEIVED BACK. APART FROM TH E ABOVE, THE TRANSFER OF LANDS AT OGGIUM THURAIPAKKAM AT THE AGREED CONSIDERATION OF RS.80 LAKHS IS ALSO INC LUDED IN THE FIXED ASSETS ADMITTED BY THE ASSESSEE IN ITS BA LANCE SHEET AS AT 31.3.2005. WHILE A SUM OF RS.81,02,443/- OUT OF THE RS.3.15 CRORES RECEIVED HAS BEEN ADJUSTED AGAINST PREOPERAT IVE EXPENSES INCURRED IN RESPECT OF THE PROJECT BY THE ASSESSEE, THE BALANCE OF RS.2,33,97,557/- IS SEEN T O HAVE BEEN CAPITALIZED IN THE BOOKS OF THE ASSESSEE COMPA NY. AS PER THE TERMS OF THE SETTLEMENT, THE AMOUNT OF R S.3.15 CRORES HAS BEEN PAID TO THE ASSESSEE WITHOUT SPECIF IC ALLOCATION TOWARDS PART EXPENSES INCURRED AND AS PA RT DAMAGES FOR NON-PERFORMANCE OF THE CONTRACT IN CONNECTION WITH THE PROJECT. AS THE DEVELOPMENT OF THE PROJECT IS A PART OF THE REGULAR BUSINESS OF THE AS SESSEE, THE AMOUNT OF RS.2,33,97,557/- QUANTIFIED TOWARDS N ON- PERFORMANCE OF CONTRACT SHOULD HAVE BEEN RIGHTLY TR EATED AS A REVENUE RECEIPT AND ASSESSED TO TAX. WHEN THI S WAS POINTED OUT, THE ASSESSEE REPLIED ON 18.12.2007 AS FOLLOWS:- .. A. A SUM OF RS.2.15 CRORES TOWARDS REFUND OF DEPOSIT GIVEN BY THE COMPANY TO EXPRESS NEWSPAPE RS LIMITED. B. REIMBURSEMENT OF SUM OF RS.81 LACS INCURRED BY THE COMPANY FOR SETTING UP THE PROPOSED PROJECT WHICH IS A CONDITION IN THE COMPROMISE AGREEMENT. WE WISH TO BRING TO YOUR NOTICE THAT A SUM OF RS.81,02,443/- SHOWN AS PREOPERATIVE EXPENSE UNDER FIXED ASSETS VIDE THE COMPANYS AUDITED FINANCIAL STATEMENT FOR THE FINANCIAL YEAR 2003-04. BALANCE RS.2.34 CRORES RECEIVED BY THE COMPANY FROM EXPRESS NEWSPAPERS LIMITED TOWARDS COMPENSATION OF BREACH OF THE AGREEMENT. THE COMPENSATION RECEIVED IS NOT IN THE COURSE OF A NOR MAL BUSINESS TRANSACTION BUT FOR BREACH OF CONTRACT AND THE SAME TO BE TREATED AS CAPITAL RECEIPT. AS THERE IS NOT COST OF ACQUISITION FOR THE SAME, THE SAID COMPENSATION CANNOT 5 ITA NO.659/MDS/2011 BE ASSESSED AS CAPITAL GAIN. THE DECISION GIVEN BY SUPREME COURT IN THE CASE OF M/S. OBEROI HOTELS PVT . LTD. [236 ITR 903] WOULD SUPPORT THE VIEW. 5. AFTER ANALYZING THE ISSUE, THE LEARNED ASSESSIN G OFFICER REJECTED THE EXPLANATION TENDERED BY THE LE ARNED AUTHORIZED REPRESENTATIVE AND TREATED THE COMPENSAT ION RECEIVED BY THE ASSESSEE AS REVENUE RECEIPT BECAUSE OF THE FOLLOWING REASONS:- I) THE ASSESSEE IS IN THE BUSINESS OF DEVELOPING PR OJECTS AND THIS JOINT VENTURE AGREEMENT WITH M/S. ENP IS ONE S UCH VENTURE. II) THE DAMAGE CLAUSE OF THE CONTRACT IS OBVIOUSLY INTENDED TO MAKE GOOD THE LOSS SUFFERED BY EITHER PARTY TO THE AGREEMENT IN THE EVENT OF BREACH OR NON-FULFILLMENT. III) IN THE CASE OF THE ASSESSEE THE DAMAGES WERE I NTENDED TO COVER THE LOSS OF FUTURE REVENUE OF THE ASSESSEE CO NSEQUENT TO THE WITHDRAWAL OF M/S. ENP FROM THE PROJECT. IV) THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS.81,31,443/- TOWARDS THE COST OF THE PROJECT WHIC H WAS SET OFF FROM THE AGGREGATE COMPENSATION RECEIVED OF RS. 3.15 CRORES 6 ITA NO.659/MDS/2011 V) THE HONBLE APEX COURT IN THE CASE SHANTILAL PVT.LTD., REPORTED IN 144 ITR 157 HAD HELD THAT DAMAGES INCUR RED ON NON-FULFILLMENT OF BUSINESS CONTRACT IS INCIDENTAL TO BUSINESS AND ALLOWABLE AS DEDUCTION. BY THE SAME RATIO, THE AMOUNT RECEIVED TOWARDS DAMAGES OVER AND ABOVE THE ACTUAL DAMAGES INCURRED HAS TO BE TREATED AS REVENUE RECEI PT SINCE IT HAS ACCRUED DURING THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE. THE HONBLE APEX COURT IN THE CASE OBERO I HOTELS PVT. LTD. VS. CIT REPORTED IN 236 ITR 903 HAD ALSO RECOGNIZED THE FOLLOWING RATIO:- W HERE ON A CONSIDERATION OF THE CIRCUMSTANCES, PAYMENT IS MADE TO COMPENSATE A PERSON FOR CANCELLATION OF A CONTRACT WHICH DOES NOT AFFECT THE TRADING STRUCTURE OF HIS BUSINESS, NOR DEPRIVE HIM OF WHAT IN SUBSTANCE IS HIS SOURCE OF INCOME, TERMINATION OF THE CONTRACT BEING A NORMAL INCIDENT OF THE BUSINESS AND SUCH CANCELLATION LEAVES HIM FREE TO CARRY ON HIS TRADE (FREED FROM THE CONTRACT TERMINATED) THE RECEIPT IS REVENUE: WHEREBY THE CANCELLATION OF AN AGENCY THE TRADING STRUCTURE OF THE ASSESSEE IS IMPAIRED, OR SUCH CANCELLATION RESULTS IN LOSS OF WHAT MAY BE REGARDED AS THE SOURCE OF THE ASSESSEES INCOME, THE PAYMENT MADE TO COMPENSATE FOR CANCELLATION OF THE AGENCY AGREEMENT IS NORMALLY A CAPITAL RECEIPT 7 ITA NO.659/MDS/2011 6. THE ASSESSEE THEREAFTER WENT ON APPEAL BEFORE TH E LEARNED COMMISSIONER OF INCOME TAX (APPEALS). THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER ANALYZIN G THE ISSUE HELD IN FAVOUR OF THE ASSESSEE BY OBSERVING A S UNDER:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION OF THE ID. AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE AO AND THE AR. A REVENUE RECEIPT IS TAXABLE AS INCOME, UNLESS IT IS EXPRESSL Y EXEMPT UNDER THE ACT. ON THE OTHER HAND, A CAPITAL RECEIPT IS GENERALLY EXEMPT, UNLESS IT IS EXPRESSLY MADE TAXABLE. THE PROBLEM OF DISTINGUISHING BETWEEN CAPI TAL AND REVENUE RECEIPTS HAS FREQUENTLY ENGAGED THE ATTENTION OF THE COURTS. WHILE EACH CASE IS FOUND T O TURN UPON ITS OWN FACTS, NO INFALLIBLE CRITERION OR TEST CAN BE, OR HAS BEEN, LAID DOWN AND THE DECIDED CASE ARE ONLY HELPFUL IN THAT THEY INDICATE THE KIND OF CONSIDERA TION WHICH MAY BE BORNE IN MIND IN APPROACHING THE PROBL EM. IN THE PRESENT CASE, THE APPELLANT ENTERED INTO A JOINT VENTURE AGREEMENT WITH ENP FOR A JOINT VENTURE PROJ ECT. THE J.V. COMPANY WOULD HAVE TAKEN ON LEASE/LICENCE THE CONVENTION CENTRE FROM ENP. THE MOU WAS SIGNED TO DECIDE ON THE TERMS AND CONDITIONS FOR DEVELOPMENT OF THE CONVENTION CENTRE PROJECT. THE PROPOSED PROJECT DID NOT MATERIALIZE AND THE PARTNERS PARTED WAY BY SIGN ING A COMPROMISE SETTLEMENT THROUGH WHICH THE APPELLANT RECEIVED RS.5.3 CRORES INCLUDING RS.2.34 CRORES TOW ARDS COMPENSATION FOR BREACH OF THE AGREEMENT. THERE IS NO DISPUTE REGARDING THE ENTIRE RECEIPT ; IT IS RESTRI CTED TO RS.2.34 CRORES RECEIVED AS COMPENSATION. THE AO HAS RELIED ON THE DECISION IN THE CASE OF SHANTHILAL PV T. LTD. (SUPRA) WHERE IT WAS HELD THAT DAMAGES INCURRED ON NON- FULFILMENT OF BUSINESS CONTACT WAS HELD AS AN ALLOW ABLE DEDUCTION. HE OBSERVED THAT THE REVERSE MUST ALSO B E HELD TO BE APPLICABLE. IN THIS CONNECTION, IT MAY B E STATED THAT THE NATURE OF RECEIPT IN RECIPIENTS HAND IN MO RE RELEVANT THAN MOTIVE OF THE PAYER [(P.H. DIVECHA VS CIT 48 ITR 222 (SC)]. FURTHER, THE HON'BLE SUPREME COUR T IN THE CASE OF CIT VS ASHOK LEYLAND LTD., 86 ITR 549 ( SC) HELD THAT WHETHER A SUM IS RECEIVED ON CAPITAL OR R EVENUE ACCOUNT DEPENDS OR MAY DEPEND UPON THE CHARACTER OF THE BUSINESS OF THE RECIPIENT AND UPON OTHER FACTOR S 8 ITA NO.659/MDS/2011 RELATED THERETO. IN VIEW OF THE ABOVE, AND SINCE TH E DECISION RELIED ON BY THE AO IS NOT DIRECTLY ON THE ISSUE, I AM OF THE CONSIDERED VIEW THAT RATIO OF THE AFORESA ID DECISION CANNOT BE APPLIED TO THE FACTS OF THE CASE . ON THE OTHER HAND, I FIND THAT THE RATIO OF THE DECISI ONS IN THE CASE OF CIT VS OBEROI HOTELS PVT. LTD. 236 ITR 903 (SC) AND THE CIT VS SOUTH INDIA FLOUR MILLS PVT. LTD. 75 ITR 147 (MAD) ARE APPLICABLE TO THE FACTS OF THE APPELL ANT. THE HON'BLE SUPREME COURT IN OBEROI HOTELS PVT. LTD ., CONCLUDED AS UNDER: LT IS NOT FOR SETTLEMENT OF RIGHTS UNDER A TRADING CONTRACT, BUT THE INJURY IS INFLICTED ON THE CAPITA L ASSETS OF THE ASSESSEE AND GIVING UP THE CONTRACTUAL RIGHT ON THE BASIS OF THE PRINCIPLE AGREEMENT HAS RESULTED IN LOSS OF SOURCE OF THE ASSESSEE'S INCOME. IN THIS VIEW OF THE MATTER, THE ORDER PASSED BY THE HIGH COURT IS SET ASIDE AND THE APPEAL IS AILOWED. THE QUESTION IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY HOLDING THE RECEIPT IN THE HANDS OF THE ASSESSEE WAS CAPITAL RECEIPT. THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH CO URT IN THE CASE OF SOUTH INDIA FLOUR MILLS (SUPRA) ALSO SU PPORTS THE CASE OF THE APPELLANT. THE HON'BLE COURT HELD T HAT THE MAGNITUDE OF RECEIPT IS AN IRRELEVANT CONSIDERATION . THE SUM AND SUBSTANCE OF THE TRANSACTION WAS THAT THE P ROFIT MAKING APPARATUS HAD BEEN COMPULSORILY DISSOLVED. I T, THEREFORE, HELD THAT CONCLUSION COMPENSATION RECEIV ED ON THE CANCELLATION OF THE AGREEMENT THEREBY RESULTING IN THE DISSOLUTION OF THE PROFIT MAKING APPARATUS IS A CAP ITAL RECEIPT. THE ID AR HAS FURTHER STATED THAT NO BUSIN ESS WAS CARRIED OUT DURING THE SUBJECT AY AND EVEN IN T HE NEXT AY. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE APPELLANT RECEIVED A COMPENSATION FOR TERMINATION OF THE AGREEMENT AND NOT FOR ANY SERVICES RENDERED OR GOOD S SUPPLIED. IT WAS RECEIVED FOR THE INJURY TO THE APP ELLANT'S CAPITAL ASSET. IN VIEW OF THE ABOVE FACTUAL POSITIO N AND LEGAL AUTHORITIES, I AM OF THE CONSIDERED OPINION T HAT THE COMPENSATION RECEIVED FOR BREACH OF AGREEMENT WAS A CAPITAL RECEIPT. THE AO IS, THEREFORE, DIRECTED TO DELETE THE ADDITION. THIS GROUND IS ACCORDINGLY ALLOWED. 9 ITA NO.659/MDS/2011 7. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATI VE RELIED IN THE DECISION OF ANSAL PROPERTIES LTD. VS. DCIT REPORTED IN 301 ITR 285 WHEREIN IT WAS HELD THAT TH E COMPENSATION AMOUNT RECEIVED FOR TERMINATION OF CON TRACT IN THE ORDINARY COURSE OF BUSINESS, THERE WAS NO LOSS TO PROFIT MAKING APPARATUS AND IT WAS ONLY COMPENSATION FOR L OSS OF PROFIT AND HENCE IT IS A REVENUE RECEIPT. THE LEARN ED DEPARTMENTAL REPRESENTATIVE ALSO RELIED IN THE DECI SION OF THE CASE A.T.BRIDGEPAL SINGH VS. STATE OF GUJARAT REPOR TED IN AIR (1984) SC 1703 WHEREIN IT WAS HELD THAT RIGHT T O SUE FOR LOSS OF PROFIT IN CASE OF BREACH OF CONTRACT AND T HE SETTLEMENT RESULTING FROM THE SAME HAS TO BE TREATED AS REVENU E IN NATURE. THE LEARNED DEPARTMENTAL REPRESENTATIVE FU RTHER ARGUED STATING THAT THE BUSINESS OF THE ASSESSEE IT SELF IS DEVELOPING OF PROPERTIES SUCH AS HOLIDAY RESORTS, C OTTAGES, ROOMS, SUITES ETC., AND DERIVING INCOME OUT OF THE SAME, THEREFORE, THE COMPENSATION RECEIVED BY THE ASSESSE E FOR TERMINATION OF THE COMMERCIAL VENTURE WAS DURING TH E COURSE OF BUSINESS OF THE ASSESSEE, HENCE IT SHOULD BE TRE ATED AS 10 ITA NO.659/MDS/2011 REVENUE RECEIPT. IT WAS THEREFORE ARGUED THAT THE ORDER OF THE LD.A.O MAY BE REINSTATED. 8. THE LEARNED AUTHORIZED REPRESENTATIVE ON THE OTH ER HAND RELIED ON THE ORDER OF THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) AND ARGUED IN SUPPORT OF THE S AME. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD. WE FIND MERIT IN T HE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATI VE. FROM THE FACTS OF THE CASE, IT IS APPARENT THAT THE CONT RACT OF DEVELOPMENT AND CONSTRUCTION OF THE COMMUNITY CENTR E WAS BESTOWED ON THE ASSESSEE COMPANY CONSIDERING THE ASSESSEES PROFESSIONAL SKILL AND EXPERTISE ON SUCH PROJECTS. THE MOU SPECIFIED THAT THE ASSESSEE COMPANY WILL OV ERALL MANAGE AND ARRANGE THE FINANCE FOR THE PROJECT, OBT AIN THE NECESSARY PERMISSION, PLAN AND CONTROL & EXECUTE TH E PROJECT. ALL FEES PRELIMINARY EXPENSES, CHARGES FOR CLEARANC E ETC., WERE TO BE BORNE BY ASSESSEE COMPANY. THE ASSESSEE COMPANY WAS ALSO LIABLE TO PAY LICENSE FEE / RENT O F RS.2.15 CRORES TO M/S. ENP. THUS, IT IS EVIDENT THAT THE EN TIRE ACTIVITY 11 ITA NO.659/MDS/2011 OF THE ASSESSEE IS TO DERIVE REVENUE RECEIPT FROM T HE PROJECT AFTER INCURRING CERTAIN EXPENDITURE ON THE PROJECT. THEREFORE, THE COMPENSATION RECEIVED BY THE ASSESSEE IS ATTRIB UTABLE TOWARDS THE LOSS OF ITS REVENUE. AS OBSERVED BY TH E LEARNED ASSESSING OFFICER, THE COMPENSATION RECEIVED BY THE ASSESSEE IS FOR TERMINATION OF THE AGREEMENT AND NO T FOR ANY SERVICE RENDERED OR GOODS SUPPLIED OR ALIENATING PR OFIT MAKING APPARATUS OWNED OR HELD BY THE ASSESSEE. FUR THER IT IS APPARENT THAT THE COMPENSATION RECEIVED BY THE A SSESSEE IS A GAIN OBTAINED DURING THE COURSE OF THE BUSINES S OF THE ASSESSEE WHICH IS DEVELOPING PROPERTIES SUCH AS HOL IDAY RESORTS, COTTAGES ETC.. FURTHER IT IS PERTINENT TO MENTION THAT EVEN IF IT IS PRESUMED THAT THE ASSESSEE HAS RECEIV ED COMPENSATION FOR LOSS OF THE PROFIT MAKING APPARAT US THEN EXTINGUISHMENT OF THE COMMERCIAL RIGHT VIZ., PRO FIT MAKING APPARATUS BEING A NON TANGIBLE ASSET WOULD FALL UN DER THE AMBIT OF TRANSFER OF SUCH NON TANGIBLE ASSET IN L IEU OF SECTION2 (47)(II) OF THE ACT AND THEREFORE THE PRO VISIONS OF SECTION 45 OF THE ACT WILL BE ATTRACTED AND THE CAP ITAL GAIN ARISING OUT OF THE SAME HAS TO BE TAXED EITHER UNDE R THE HEAD SHORT TERM OR LONG TERM CAPITAL GAIN AS THE CASE MA Y BE. 12 ITA NO.659/MDS/2011 HOWEVER IN THE CASE OF THE ASSESSEE THE PROFIT MAK ING APPARATUS VIZ., M/S. ABAN CITY CENTER COMPANY (P) LTD., THOUGH HAS COME INTO EXISTENCE ON PAPER NO ASSET IS IN EXISTENCE VIZ., CONVENTION CENTER. HENCE THE COMP ENSATION RECEIVED BY THE ASSESSEE IS NOTHING BUT GAIN THAT H AD SPOUTED FROM THE COURSE OF THE BUSINESS OF THE ASSE SSEE AND HENCE IT A TAXABLE INCOME UNDER THE HEAD BUSINESS AND PROFESSION OF THE ASSESSEE AS HELD BY THE LD.A.O. FURTHER WE FAIL TO UNDERSTAND AS TO HOW THE ASSESSEE CAN SH Y AWAY FROM PAYING TAX WHICH IS LEGITIMATELY DUE TO THE SO CIETY WHEN IT HAD AMASSED A WINDFALL GAIN BY WAY OF RECEIPT OF CASH AS A RESULT OF A COMMERCIAL TRANSACTION. IT IS RELEVANT TO MENTION THAT, CAPITAL RECEIPT THAT CANNOT BE TAXED IS NOTHI NG BUT:- (I) THE TAX PAID INCOME OF A PERSON WHICH IS INTROD UCED IN THE BUSINESS IN THE FORM OF- A) IN THE CASE OF SOLE PROPRIETARY CONCERN PROPRIETORS CONTRIBUTION AS CAPITAL OR LOAN B) IN THE CASE OF PARTNERSHIP FIRM PARTNERS CONTRIBUTION AS CAPITAL OR LOAN 13 ITA NO.659/MDS/2011 C) IN THE CASE OF COMPANY EQUITY SHARE CAPITAL / PREFERENTIAL SHARE CAPITAL / DEBENTURES AND LOAN (II) WHEN THE TAX COLLECTOR, I.E., THE GOVERNMENT E XTENDS ANY BENEFIT TO THE BUSINESS UNDERTAKING KEEPING IN VIEW OF THE WELFARE OF THE STATE AND PUBLIC AT LARG E, SUCH GRANTS ETC, WILL ALSO NOT BE TAXABLE, IF SPECIFICALLY PROVIDED UNDER THE ACT. ANY OTHER BENEFIT RECEIVED BY ANY PERSON DURING THE COURSE OF THE BUSINESS, BE IT TERMED AS CAPITAL REC EIPT OR REVENUE RECEIPT, WILL FALL WITHIN THE PURVIEW OF TH E ACT AND ACCORDINGLY BROUGHT TO TAX AS PER THE PROVISIONS OF THE ACT. FOR THE ABOVE STATED REASONS, WE HEREBY REINSTATE T HE ORDER OF THE LEARNED ASSESSING OFFICER WHICH IS IN PARITY WITH THE RATIO OF THE DECISIONS HONBLE APEX COURT CITED BY HIM IN HIS ORDER AND THE DECISION OF THE HONBLE APEX COURT CI TED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE MENTIONED SUPRA AND CONSEQUENTLY, WE ALSO SET ASIDE THE ORDER OF THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS). 14 ITA NO.659/MDS/2011 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED IN ITS FAVOUR. ORDER PRONOUNCED IN THE OPEN COURT ON THE 7 TH DECEMBER, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 7 TH DECEMBER, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF .