Case Law Details
DCIT Vs Rishabh Infrastructure Pvt. Ltd. (ITAT Raipur)
Conclusion: Compensation received by assessee on closure of business activity was for sterilization of the profit making apparatus of assessee-company; therefore, the same was capital receipt.
Held: In the case of Karam Chand Thapar & Brokers (P) Ltd. Vs. CIT reported in 80 167 it was held that where, 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 : where by 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 assessee’s income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt.
In the present case, assessee had entered into MOU with LIPL for undertaking the infrastructure development activity of construction of Railway Track & Siding on behalf of LIPL and acquired a part of the lands (including some development works) required for the said railway track and siding which were subsequently transferred to LIPL. Due to some constraints, the balance works assigned to assessee as per the scope of work as stipulated in the aforesaid MOU were not got executed by LIPL and another MOU was executed in pursuance of the earlier MOU in which compensation had been determined by LIPL for the same. AO treating the aforesaid compensation as revenue receipt was not justified as during the course of appeal proceedings, assessee had filed a certificate issued by LIPL where in they had certified that the compensation had been determined and paid by them for stalling the execution of the agreed work as above in terms of the earlier MOU. The above clarification issued by LIPL clearly showed that the compensation received by assessee was for sterilization of the profit making apparatus of assessee-company; therefore, the same was capital receipt.
FULL TEXT OF THE ITAT JUDGMENT
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