DCIT,Circle-7, Kolkata, Kolkata V. M/s Azimganj Estates Pvt. Ltd., Kolkata

ITA 735/KOL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83119 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2012
• Court: TRIBUNAL
• Assessee Lawyers: S M SURANA SUNIL SURAN
• Keywords: Capital asset; Business income; Capital receipt
• Section: 143(3); 6; 2

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE , /AND , ! ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA, AM] ' / I.T.A NO.735/KOL/2012 #$ %&/ ASSESSMENT YEAR: 2008-09 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. AZIMG ANJ ESTATES PVT. LTD. CIRCLE-7, KOLKATA. (PAN: AACCA1084F) (() /APPELLANT ) (*+()/ RESPONDENT ) DATE OF HEARING: 28.08.2014 DATE OF PRONOUNCEMENT: 05.09.2014 FOR THE APPELLANT: SHRI VIVEK VERMA, JCIT, SR. DR FOR THE RESPONDENT:S/SHRI S. M. SURANA, ADVOCATE &SUNIL SURANA, ACA / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-VIII, KOLKATA IN APPEAL NO. 195/CIT(A)-VIII/KOL/10-11 DATED 15.02.2012. ASSESSM ENT WAS FRAMED BY DCIT,CIRCLE-7, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2008-09 VIDE HIS ORDER DATED 24.12. 2010. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN TREATING THE COMPENSATION RECEIVED BY ASSESSEE AT RS.3.5 CR. AS CAPITAL RECEIPT NOT LIABLE TO TAX WITHOUT GIVING OPPORTUNITY TO AO TO EXAMINE THE NEW EVIDENC E/CLAIM OF THE ASSESSEE. 3. BRIEFLY STATED FACTS ARE THAT THE AO CONSIDERED THE COMPENSATION RECEIVED AT RS.3.5 CR. AS UNDISCLOSED BUSINESS RECEIPT AND ASSESSED THE SA ME AT RS.3.28 CR. AFTER DEDUCTING THE BUSINESS ADVANCE OF RS.22 LACS BY OBSERVING AS UNDE R: HOWEVER, IT IS APPARENT THAT THE ASSESSEE COMPANY RECEIVED THE WHOLE SUM OF RS. 3.5 CRORE AS COMPENSATION IN RESPECT OF A WOULD BE BU SINESS ASSET FOR WHICH A BUSINESS ADVANCE OF RS. 22 LACS WERE ALREADY MADE IN THE YEA R 1997. THE SAID PROPERTY, IF ACQUIRED, WOULD BE TREATED AS PART OF CAPITAL WORK- IN-PROGRESS. HENCE, THE CONSIDERATION RECEIVED IN LIEU OF THE INTEREST N T HE SAID PROPERTY AMOUNTING TO RS.3.5 CRORES SHOULD BE TREATED AS A BUSINESS RECEPT AGAI NST WHICH EXPENDITURE TO THE TUNE OF RS.22 LACS (PAID AS ADVANCE) IS ALLOWABLE. ACCORDIN GLY, RS.3,28,00,000 (RS.3,50,00,000 - RS.22,00,000) IS BEING ADDED TO THE TOTAL INCOME OF THE ASSESSEE UNDER THE HEAD OF INCOME FROM BUSINESS AS UNDISCLOSED BUSINESS RECE IPTS. PENALTY PROCEEDINGS U/S. 2 ITA NO.735/K/2012 M/S. AZIMGANJ ESTATES PVT. LTD. AY 2008-09 271(1)(C) OF THE ACT HAS BEEN INITIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE FACTS OF THE CASE HELD THAT TH E ASSESSEE HAS NOT ACQUIRED RIGHT OVER THE LAND AS THERE WAS NO AGREEMENT FOR SALE OF LAND BUT A MO U WAS ENTERED INTO FOR DEVELOPMENT OF THE PROPERTY. THE ASSESSEE ONLY ACQUIRED A RIGHT TO SU E EASTERN PAPER MILLS LTD., WHO DID NOT ACT IN TERMS OF THE MOU. FINALLY, HE HELD THAT WHEN THERE WAS NO RIGHT IN THE LAND ITSELF BUT ONLY THE RIGHT TO SUE, WHICH IS NOT A CAPITAL ASSET. HENCE, ACCORDING TO HIM, NO CAPITAL GAINS CAN ARISE AND FINALLY HE TREATED THE ENTIRE RECEIPT OF RS.3.5 CR. AS CAPITAL RECEIPT BY OBSERVING AS UNDER: IN THE LIGHT OF THE ABOVE DISCUSSION AND FINDINGS A ND CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE AND THE EMERGING LEGAL PO SITION, I AM OF THE OPINION THAT THE ENTIRE SUM OF RS.3.50 CR. RECEIVED BY THE APPELLANT WAS A CAPITAL RECEIPT NOT LIABLE TO TAX. IT MAY HOWEVER BE ADDED THAT THE APPELLANT INITIALLY A CCEPTED THE SUM OF RS.75 LAKHS AS TAXABLE CAPITAL GAIN BUT AS APPEARS FROM THE FACTS AND VARIOUS JUDGMENTS AND AGREEMENTS, THE APPELLANT HAD NO RIGHT OVER THE LAND AT THE TIM E OF MOU AND HAD ALSO NO RIGHT IN THE LAND AT THE TIME OF SALE OF THE SAID LAND BY EASTER N PAPER MILLS TO AMBA HIGH RISE UNDER VALID ORDERS OF THE COMPETENT COURT THE ENTIRE RECE IPT WAS A CAPITAL RECEIPT. THE APPELLANT HAS SUCCESSFULLY DEMONSTRATED THAT HIS ADMISSION BE FORE THE AO WAS NOT IN ACCORDANCE WITH LAW. HENCE, AS THE ENTIRE SUM OF RS.3.5 CRORES IS HELD TO BE CAPITAL RECEIPT AND NOT LIABLE TO TAX, THUS THESE GROUNDS OF THE APPELLANT ARE ALLOWE D. AGGRIEVED AGAINST THE ORDER OF CIT(A), REVENUE CAME IN SECOND APPEAL BEFORE TRIBUNAL. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE FACTS RELATING TO THIS ISSUE ARE THAT DURING TH E YEAR ASSESSEE RECEIVED RS. 3.5 CRORES FROM AMBA HIGH RISE P LTD AS COMPENSATION AND OUT OF THI S, AN AMOUNT OF RS 75 LAKHS WAS CLAIMED AS RECEIPT FOR RELEASING RIGHTS TO PREMISES AND BAL ANCE AMOUNT OF RS 2.75 CRORES WAS CLAIMED AS LOSS OF ITS RIGHT TO DEVELOP THE SAID PREMISES AS P ER AGREEMENT WITH THE SAID AMBA HIGH RISE P LTD. THE ASSESSEE TREATED RS 75 LAKHS AS CAPITAL GA IN AND RS 2.75 CRORES AS CAPITAL RECEIPT NOT TAXABLE. THE AO TREATED THE ENTIRE RECEIPT AS BUSIN ESS RECEIPT AFTER DEDUCTING RS 22 LAKHS, GIVEN AS ADVANCE TO LAND OWNER. THE ASSESSEE ENTERED INTO A MOU WITH ONE EASTERN PAPER MILLS LTD. ON 4.3.97 BY VIRTUE OF WHICH IT AGREED AND DECIDED TO DEVELOP 9 BIGHA OF LAND BELONGING TO THE SAID EASTERN PAPER MILLS LTD. ON CERTAIN TERMS AND CONDITIONS. DIFFERENT PROCEEDINGS TOOK AFTER MOU BUT APPROVAL FOR SALE COULD NOT BE OBTAINED FRO M THE COURT, WHICH COULD HAVE ENTITLED TO EASTERN PAPER MILLS TO SALE THE PROPERTY. THEREFORE , THE MOU WAS NOT LEGALLY ENFORCEABLE ON THE SAID EASTERN PAPER MILL LTD NOR ASSESSEE COULD HAVE ENFORCED SPECIFIC PERFORMANCE FOR SALE AND/OR DEVELOPMENT OF THE SAID PROPERTY. HOWEVER ON PETITION BY THE SAID EASTERN PAPER MILL LTD HONBLE CALCUTTA HIGH COURT VIDE ITS ORDER DATE D 17.1.2005 PERMITTED THE EASTERN PAPER 3 ITA NO.735/K/2012 M/S. AZIMGANJ ESTATES PVT. LTD. AY 2008-09 MILLS TO SELL THE PROPERTY AND APPOINT RECEIVERS FO R SALE OF THE SAME. THE ASSESSEE FILED APPLICATION BEFORE HONBLE CALCUTTA HIGH COURT FOR THE ORDERS, IT RECALLED SINGLE JUDGES ORDER VIDE DATED 07.02. 2005. THEREAFTER, SAID EASTERN PA PER MILLS ENTERED INTO AN AGREEMENT ON 22.03.2006, WITH ONE SKYLARK INDIA LTD AND COMPANY COURT AS PER THE SAID AGREEMENT, ISSUED DIRECTIONS FOR PAYMENT OF MONEY TO THE CREDITORS OF EASTERN PAPERS MILLS LTD. THE COMPANY COURT VIDE ITS ORDER DATED 21ST APRIL 2006 GAVE PER MISSION FOR THE SALE OF THE PROPERTY TO THE SAID SKYLARK INDIA LTD VIDE ORDER ON AN APPLICATION REGISTERED CA NO. 249 OF 2006. THE SAID SKYLARK INDIA LTD. NOMINATED AMBA HIGH RISE VIDE NO MINATION DATED 10 TH MAY 2006 TO PURCHASE THE PROPERTY. THE SAID EASTERN PAPER MILL DULY SOLD THE PROPERTY BY AN INDENTURE DATED 28.6.2006 TO THE SAID AMBA HIGH RISE VIDE CONVEYANC E DULY REGISTERED WITH ADDL DIST SUB REGISTRAR ( SALT LAKE CITY) IN BOOK NO. L VOLUME NO . 420 PAGES 58 TO 75 BEING NO 6959 FOR THE YEAR 2006. 5. THEREAFTER, ASSESSEE MOVED DIVISION BENCH OF HON BLE CALCUTTA HIGH COURT AND COURT VIDE ITS ORDER DATED 19.9.2006 SET ASIDE THE ORDER OF THE SINGLE BENCH DATED 21.4.2006. THE SAID EASTERN PAPER MILLS AND THE SKYLARK WITH WHOM THE A GREEMENT WAS ENTERED INTO FILED THE PETITION BEFORE THE HONBLE SUPREME COURT. THE HON BLE SUPREME COURT ORDERED THE LISTING OF THE PETITION BUT AT THE SAME TIME VIDE ITS ORDER DA TED 22.1 .2007 DIRECTED THAT THE PARTIES SHALL MAINTAIN STATUS QUO AS OF TODAY (I.E. ON 22.1. 2007 ). THE HONBLE SUPREME COURT ALSO DIRECTED THE ASSESSEE NOT TO PRESS APPLICATION FOR CANCELLAT ION OF THE SALE DEED EXECUTED BY EASTERN PAPER MILLS TILL PETITION IS HEARD BY SUPREME COURT. FROM THESE FACTS, IT WAS CLEAR THAT ON 22.1.2007 THE SAID AMBA HIGH RISE, BEING THE PURCHASER, WAS I N POSSESSION OF THE PROPERTY & WAS LEGAL OWNER SINCE THE STATUS QUO WAS ORDERED TO BE MAINTA INED TILL THE RESPECTIVE SUITS WERE TO BE DECIDED IN ONE WAY OR THE OTHER. IT A1SO SHOWS THAT NEITHER THE ORDER OF THE SINGLE BENCH ALLOWING SA1E NOR THE ORDER OF DIV. BENCH SETTING A SIDE THE ORDER OF SINGLE BENCH WAS IN EXISTENCE. THE ASSESSEE ALSO, WHO ENTERED INTO MOU FOR PURCHASE OF THE PROPERTY COULD NOT ASSERT THE RIGHT TO SPECIFIC PERFORMANCE WHICH COUL D HAVE BEEN ASSERTED HAD THE CALCUTTA HIGH COURT GRANTED APPROVAL FOR SALE OF THE PROPERTY TO ASSESSEE BY VIRTUE OF OR AS MENTIONED IN THE MOU DATED 4.3.1992 OR THE AGREEMENT DATED 8 TH AUG. 97.WHAT ASSESSEE ACQUIRED WAS A RIGHT TO SUE THE SAID EASTERN PAPER MILLS TO OBTAIN APPROVAL FROM HONBLE CAL HIGH COURT BY VIRTUE OF MOU AND AGREEMENT ENTERED INTO ON MARCH, 97 AND AUG . 97. THE ASSESSEE LOOKING TO THE NUMBER OF DISPUTES SINCE LONG 10 YEARS AND GETTING IT DIFFICULT TO ASSERT ITS RIGHT TO SUE FOR THE PREMISES ENTERED INTO THE AGREEMENT ON 3.8.2007 AND AS PER THE SAID AGREEMENT RECEIVED THE 4 ITA NO.735/K/2012 M/S. AZIMGANJ ESTATES PVT. LTD. AY 2008-09 AFORESAID COMPENSATION OF RS. 3.5 CRORES. ON THIS D AY THE COMPANY HAD NO TITLE OF THE PROPERTY NOR WAS IN POSSESSION. THESE FACTS WOULD SUGGEST TH AT ASSESSEE HAD ACQUIRED NO RIGHT ON ANY PROPERTY BY VIRTUE OF THE MOU OR BY VIRTUE OF THE A GREEMENT MENTIONED ABOVE. THE PROPERTY WAS DULY SOLD UNDER AN ORDER OF THE SINGLE BENCH OF CALCUTTA HIGH COURT AND AT THE TIME OF SALE OF THE PROPERTY THE JUDGMENT OF THE CALCUTTA HIGH C OURT WAS IN EXISTENCE AND WAS BINDING ON THE PARTIES. THE ASSESSEE WHO WANTED TO HAVE INVEST MENT OPPORTUNITY IN THE LAND FOR EARNING FUTURE INCOME WAS DEPRIVED OFF SUCH OPPORTUNITY BEC AUSE OF THE VARIOUS ORDERS HEREIN BEFORE MENTIONED. THE LITIGATIONS HAVE BEEN GOING ON AND I N THE MEANTIME, SAID PURCHASER AMBA HIGH RISE, APPROACHED ASSESSEE FOR OUT OF COURT SETTLEME NT TO WITHDRAW THE LITIGATION AND ACCORDINGLY AN AGREEMENT WAS ENTERED INTO BETWEEN ASSESSEE AND ONE HAND AND EASTERN PAPER MILL, AMBA HIGH RISE, SKYLARK WHEREBY ASSESSEE WAS GIVEN A COM PENSATION OF RS.3,50,00,000/-. AS PER THE SAID AGREEMENT ASSESSEE ACCEPTED ABOVE AMOUNT IN FU LL AND FINAL SETTLEMENT OF ALL THE CLAIMS AND DEMANDS AGAINST THOSE PERSONS. IT WAS ALSO MENT IONED IN CLAUSE (2) OF THE AGREEMENT THAT A SUM OF RS. 75 LAKHS WAS BEING PAID FOR RELEASING TH E RIGHT ON THE PREMISES AND RS. 2.75 CRORES FOR THE LOSS OF RIGHT TO DEVELOP THE SAID PREMISES. THE SAID PARTIES THEREAFTER PAID THE AFORESAID SUM OF RS. 3,50,00,000/-. 6. FROM THE ABOVE FACTS, IT EMERGES THAT ASSESSEE H AS NO RIGHT OR TITLE OR INTEREST IN THE PROPERTY AS ON THE DATE OF AGREEMENT, BY VIRTUE OF WHICH, THE COMPENSATION WAS RECEIVED. THE ASSESSEE COULD NOT HAVE ACQUIRED THE PROPERTY BECAU SE THERE WAS NO ORDER OF COURT FOR TRANSFER OF PROPERTY IN THE NAME OF THE ASSESSEE. EVEN THE MOU/AGREEMENT CANNOT BE USED FOR SPECIFIC PERFORMANCE OF CONTRACT TO PURCHASE THE PROPERTY. THE ONLY ALTERNATIVE LEFT WITH THE ASSESSEE TO SUE THESE ABOVE STATED PARTIES BY VIRTUE OF MOU AND DO ASSERT ITS CLAIM. NOW, THE ISSUE IS, WHETHER A RIGHT TO SUE IS AN ASSET OR NOT, IS TO BE DECIDED IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. WHEN A COMPANY COURT APPROVED THE SALE I N FAVOUR OF SKYLARK INDIA LTD. AND SUCH SALE DEED WAS EXECUTED, THE ASSESSEE WAS HAVING NO RIGHT OVER THE PROPERTY. SECTION 6 OF THE TRANSFER OF PROPERTY ACT, 1882, MAKES AN EXCEPTION IN CLEAR TERMS THAT A RIGHT TO SUE IS NOT AN ASSET. THIS PROPOSITION IS SUPPORTED BY THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF OBEROI HOTELS PVT. LTD. VS. CIT (1999) 236 ITR 903 (SC), WHEREIN IT IS HELD AS UNDER: THE QUESTION WHETHER THE RECEIPT IS CAPITAL OR REV ENUE IS TO BE DETER- MINED BY DRAWING A CONCLUSION OF LAW ULTIMATELY FRO M THE FACTS OF THE PAR- TICULAR CASE AND IT IS NOT POSSIBLE TO LAY DOWN ANY SINGLE TEST AS INFALLIBLE OR ANY SINGLE CRITERION AS DECISIVE. THIS COURT IN THE CASE OF KARAM CHAND THAPAR AND BROS. P. LTD. V. CIT [1971] 80 ITR 167, DISCUSSED AND HELD THAT IN CIT V. CHARI AND CHARI LTD. [1965] 57 ITR 400 ( SC), IT WAS HELD THAT ORDINARILY COMPENSATION FOR LOSS OF AN OFFICE OR AGENCY IS REG ARDED AS A CAPITAL 5 ITA NO.735/K/2012 M/S. AZIMGANJ ESTATES PVT. LTD. AY 2008-09 RECEIPT, BUT THIS RULE IS SUBJECT TO AN EXCEPTION T HAT PAYMENT RECEIVED EVEN FOR TERMINATION OF AN AGENCY AGREEMENT WOULD BE REV ENUE AND NOT CAPITAL IN A CASE WHERE THE AGENCY WAS ONE OF MANY WHICH TH E ASSESSEE HELD AND ITS TERMINATION DID NOT IMPAIR THE PROFIT-MAKING ST RUCTURE OF THE ASSESSEE, BUT WAS WITHIN THE FRAMEWORK OF THE BUSINESS, IT BE ING A NECESSARY INCIDENT OF THE BUSINESS THAT EXISTING AGENCIES MAY BE TERMINATED AND FRESH AGENCIES MAY BE TAKEN.THEREAFTER THE COURT HELD THA T IT WAS DIFFICULT TO LAY DOWN A PRECISE PRINCIPLE OF UNIVERSAL APPLICATION B UT VARIOUS WORKABLE RULES HAVE BEEN EVOLVED FOR GUIDANCE. APPLYING THE AFORESAID TEST LAID DOWN BY THIS COURT IN THE PRESENT CASE, IN OUR VIEW, THE TRIBUNAL WAS RIGHT IN ARRIVING AT A C ONCLUSION THAT IT WAS A CAPITAL RECEIPT. THE REASON IS THAT AS PROVIDED IN ARTICLE XVIII OF THE FIRST AGREEMENT THE ASSESSEE WAS HAVING AN OPTION OR RIGH T OR LIEN, IF THE OWNER DESIRED TO TRANSFER THE HOTEL OR LEASE ALL OR PART OF THE HOTEL TO ANY OTHER PER- SON, THE SAME WAS REQUIRED TO BE OFFERED FIRST TO T HE ASSESSEE (OPERATOR) OR ITS NOMINEE. THIS RIGHT TO EXERCISE ITS OPTION WAS GIVE N UP BY A SUPPLEMENTARY AGREEMENT WHICH WAS EXECUTED IN SEPTEMBER, 1975, BE TWEEN THE RECEIVER AND THE ASSESSEE. IT WAS AGREED THAT THE RECEIVER W OULD BE AT LIBERTY TO SELL OR OTHERWISE DISPOSE OF THE SAID PROPERTY AT SUCH PRIC E AND ON SUCH TERMS AS HE MAY DEEM FIT AND WAS NOT UNDER ANY OBLIGATION REQUI RING THE PURCHASER THEREOF TO ENTER INTO ANY AGREEMENT WITH THE OPERAT OR (ASSESSEE) FOR THE PURPOSE OF OPERATING AND MANAGING THE HOTEL OR OTHERWISE, AND IN ITS RETURN, AGREED CONSIDERATION WAS AS STATED ABOVE IN CLAUSE X. ON THE BASIS OF THE SAID AGREEMENT, THE ASSESSEE HAS RECEIVED THE AMOUN T IN QUESTION. THE AMOUNT WAS RECEIVED BECAUSE THE ASSESSEE HAD GIVEN UP ITS RIGHT TO PURCHASE AND/OR TO OPERATE THE PROPERTY. FURTHER IT IS LOSS OF SOURCE OF INCOME TO THE ASSESSEE AND THAT RIGHT IS DETERMINED FOR CONSIDERA TION. OBVIOUSLY, THERE- FORE, IT IS A CAPITAL RECEIPT AND NOT A REVENUE REC EIPT. LEARNED COUNSEL FOR THE REVENUE RELIED UPON THE DEC ISION IN THE CASE OF CIT V. RAI BAHADUR JAIRAM VALJI [1959] 35 ITR 148 ( SC), AND SUBMITTED THAT THE ASSESSEE HAD THE BUSINESS OF RUNNING HOTELS IN VARIOUS COUNTRIES AND THE AMOUNT WHICH IS RECEIVED BY HIM IS FOR THE TERM INATION OF THE FIRST CONTRACT WHICH WAS EXECUTED IN 1970 AND, THEREFORE, IT SHOULD BE CONSIDERED HIS REVENUE RECEIPT. IN THAT CASE, THE COURT WAS DEALING WITH A TRADING CONTRACT AND HELD THAT COMPENSATION PAID IN RESPECT OF THE RIGHTS ARISING UNDER THE TRADING CONTRACT WOULD BE A REVENUE RECEIPT AND MUST BE REFERRED TO THE PROFITS WHICH WOULD BE MADE IN CARR YING OUT THAT CONTRACT. THE COURT HAS ALSO OBSERVED (PAGE 164): . . . WHETHER A PAYMENT OF COMPENSATION FOR TERMIN ATION OF AN AGENCY IS A CAPITAL OR REVENUE RECEIPT, IT WOULD HA VE TO BE CONSIDERED WHETHER THE AGENCY WAS IN THE NATURE OF CAPITAL ASS ET IN THE HANDS OF THE ASSESSEE, OR WHETHER IT WAS ONLY PART OF HIS STOCK- IN-TRADE. THE AFORESAID JUDGMENT WAS CONSIDERED IN THE CASE O F KETTLEWELL BULLEN AND CO. LTD. V. CIT [1964] 53 ITR 261 (SC), WHEREIN THE COURT HAS HELD AS UNDER (PAGE 270) : WHETHER, A PARTICULAR RECEIPT IS CAPITAL OR INCOME FROM BUSINESS, HAS FREQUENTLY ENGAGED THE ATTENTION OF THE COURTS. IT MAY BE BROADLY STATED THAT WHAT IS RECEIVED FOR LOSS OF CAPITAL IS A CAPI TAL RECEIPT : WHAT IS RECEIVED AS PROFIT IN A TRADING TRANSACTION IS TAXABLE INCOM E. BUT THE DIFFICULTY 6 ITA NO.735/K/2012 M/S. AZIMGANJ ESTATES PVT. LTD. AY 2008-09 ARISES IN ASCERTAINING WHETHER WHAT IS RECEIVED IN A GIVEN CASE IS COM- PENSATION FOR LOSS OF A SOURCE OF INCOME, OR PROFIT IN A TRADING TRANSACTION. AFTER CONSIDERING VARIOUS DECISIONS IT WAS FURTHER HELD AS UNDER (PAGE 272) : THESE CASES ILLUSTRATE THE PRINCIPLE THAT COMPENSA TION FOR INJURY TO TRADING OPERATIONS, ARISING FROM BREACH OF CONTRACT OR IN CONSEQUENCE OF EXERCISE OF SOVEREIGN RIGHTS, IS REVENUE. THESE CAS ES MUST, HOWEVER, BE DIS- TINGUISHED FROM ANOTHER CLASS OF CASES WHERE COMPEN SATION IS PAID AS A SOLATIUM FOR LOSS OF OFFICE. SUCH COMPENSATION MAY BE REGARDED AS CAPITAL OR REVENUE : IT WOULD BE REGARDED AS CAPITAL, IF IT IS FOR LOSS OF AN ASSET OF ENDURING VALUE TO THE ASSESSEE, BUT NOT WHERE PAYME NT IS RECEIVED IN SETTLEMENT OF LOSS IN A TRADING TRANSACTION. AFTER ANALYSING A NUMBER OF CASES, THE COURT OBSERV ED THAT THE FOLLOWING SATISFACTORY MEASURE OF CONSISTENCY IN THE PRINCIPL E IS DISCLOSED (PAGE 282): WHERE ON A CONSIDERATION OF THE CIRCUMSTANCES, PAY MENT 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 CONTRAC T BEING A NORMAL INCI- DENT OF THE BUSINESS, AND SUCH CANCELLATION LEAVES HIM FREE TO CARRY ON HIS TRADE (FREED FROM THE CONTRACT TERMINATED) THE RECE IPT IS REVENUE : WHERE BY THE CANCELLATION OF AN AGENCY THE TRADING STRUCT URE OF THE ASSESSEE IS IMPAIRED, OR SUCH CANCELLATION RESULTS IN LOSS OF W HAT MAY BE REGARDED AS THE SOURCE OF THE ASSESSEES INCOME, THE PAYMENT MA DE TO COMPENSATE FOR CANCELLATION OF THE AGENCY AGREEMENT IS NORMALLY A CAPITAL RECEIPT. THE AFORESAID PRINCIPLE IS RELIED UPON IN THE CASE OF KARAM CHAND THAPAR AND BROS. [1971] 80 ITR 167 (SC). CONSIDERIN G THE AFORESAID PRIN- CIPLES LAID DOWN AS PER ARTICLE XVIII OF THE PRINCI PAL AGREEMENT, THE AMOUNT RECEIVED BY THE ASSESSEE IS FOR THE CONSIDER ATION FOR GIVING UP HIS RIGHT TO PURCHASE AND/OR TO OPERATE THE PROPERTY OR FOR GETTING IT ON LEASE BEFORE IT IS TRANSFERRED OR LET OUT TO OTHER PERSON S. IT IS NOT FOR SETTLEMENT OF RIGHTS UNDER A TRADING CONTRACT, BUT THE INJURY IS INFLICTED ON THE CAPITAL ASSET OF THE ASSESSEE AND GIVING UP THE CONTRACTUAL RIGHT ON THE BASIS OF THE PRINCIPAL AGREEMENT HAS RESULTED IN LOSS OF SOURCE OF THE ASSESSEES INCOME. IN THIS VIEW OF THE MATTER, THE ORDER PASSED BY THE HIGH COURT IS SET ASIDE AND THE APPEAL IS ALLOWED. THE QUESTION IS AN SWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY HOLDING THAT RECEIPT IN THE HANDS OF THE ASSESSEE WAS CAPITAL RECEIPT. 7. FROM THE ABOVE CASE LAW OF HONBLE SUPREME COURT IT IS CLEAR THAT THE FACTS OF THE PRESENT CASE ARE DIRECTLY COMPARABLE WITH THE SAID CASE. THE AMOUNT WAS RECEIVED BECAUSE THE ASSESSEE HAD GIVEN UP ITS RIGHT TO PURCHASE AND/OR TO OPERATE THE PROPERTY AND THE SAID AMOUNT WAS HELD TO BE CAPITAL RECEIPT AND NOT REVENUE RECE IPT AS HELD BY HONBLE SUPREME COURT OBSERVING THAT BY GIVING UP ITS RIGHT TO PURCHASE A ND/OR TO OPERATE THE PROPERTY, INJURY WAS 7 ITA NO.735/K/2012 M/S. AZIMGANJ ESTATES PVT. LTD. AY 2008-09 INFLICTED ON THE CAPITAL ASSET OF THE COMPANY THERE BY RESULTING IN LOSS OF SOURCE OF INCOME. IN THE PRESENT CASE ALSO THE ASSESSEE HAS RELEASED/DIS CHARGED QUALCOMM FROM THE PROJECT AGREEMENT THEREBY GIVING UP ITS RIGHT TO PURCHASE/A CQUIRE THE EQUIPMENT FROM THE SAID PARTY AND THIS ACT HAS CERTAINLY INFLICTED AN INJURY TO THE C APITAL STRUCTURE OF THE ASSESSEE COMPANY RESULTING IN LOSS OF SOURCE OF INCOME. ACCORDING T O US, THE ENTIRE SUM OF RS.3.5 CRORE WAS, THEREFORE, CAPITAL RECEIPT NOT LIABLE TO TAX. IN V IEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE CONFIRM THE ORDER OF CIT(A) DELETING THE ADDITION. APPEAL OF REVENUE IS DISMISSED. 8. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. 9. ORDER IS PRONOUNCED IN THE OPEN COURT ON 05.09.2 014 SD/- SD/- , ! , (SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 5 TH SEPTEMBER, 2014 ,- #./ 0 JD.(SR.P.S.) 1 *2 3 2%4- COPY OF THE ORDER FORWARDED TO: 1 . () / APPELLANT DCIT, CIRCLE-7, KOLKATA 2 *+() / RESPONDENT M/S. AZIMGANJ ESTATES PVT. LTD., 7, CAMAC STREET, 5 TH FLOOR, KOLKATA-700 017. 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 2:; *# / DR, KOLKATA BENCHES, KOLKATA +2 */ TRUE COPY, #