Essel Mining & Industries Limited Vs ACIT (ITAT Kolkata)
ITAT Kolkata held that compensation received for failure of performance guarantee parameter of capital assets [Wind Turbine Generators] is in nature of capital receipt and hence outside the purview of taxation. Accordingly, appeal of assessee allowed.
Facts- The assessee is engaged in the manufacture of iron ores, nitrogen gas and ferro-alloys and also generation of electricity and manufacture of railway sidings for captive use. The assessee had entered into two contracts with M/s Suzion Energy Limited (SEL) for purchase of 48 Nos. and 12 Nos. of Wind Turbine Generators (WTG). As per terms of the purchase contracts, there was a generation guarantee clause in terms of which the supplier guaranteed the performance of the WTGs and in case the WTGs failed to perform, then a mechanism was provided and set out to compute the damages/compensation to be paid. Since the WTGs installed by supplier SEL failed to perform at the desired level for the initial two years, the assessee had invoked the performance guarantee and SEL compensated the assessee to the extent of Rs. 19.28 crores during the year.
In the course of assessment, the assessee vide its letter dated 13.12.2010, raised a claim that the compensation received from M/s Suzlon Energy Limited (SEL) amounting to Rs. 19.28 crores was in the nature of capital receipt, not liable to tax, and therefore requested the AO to exclude the same while assessing the total income. The AO observed that, this contention of the assessee was not tenable because the compensation had arisen out of loss of revenue on account of non-performance of the capital asset at the guaranteed level and that it was not a compensation for any loss or permanent impairment to a capital asset but compensation for the revenue loss.
