Compensation received due to non-performance of obligation is capital receipt

ACIT Vs Kenneth Builders & Developers Limited (ITAT Mumbai)

ITAT Mumbai held that compensation received on account of non-performance of obligation by the Delhi Development Authority (DDA) is capital receipt not taxable in the hands of the assessee.

Facts- During the course of assessment the A.O noticed that assesse has treated compensation of Rs.2,78,82,74,243/- received from Delhi Development Authority as a capital receipt not chargeable to tax. The A.O further noticed that in the original return of income the assesse had included this amount in the book profit, however, in the revised return of income this was not included in the total income or in the book profit u/s 11 5JB of the Act.

The A.O was of the view that the amount of Rs.2,78,82,74,243/- was a revenue receipt and not of the capital receipt. Therefore, the same was added to the income under the head profit and gain of business or profession and also u/s 11 5JB of the Act to the book profit.

Conclusion- In CIT Vs. Saurashtra Cement (2010) 192 taxman 300, and in the case of CIT Vs. Rajbahadur Jayram Valaji AIR (1959) (SC) 291, Kettlewell Bullin & company Ltd. Vs. CIT AIR (1965) (SC) 65, it is held that where cancellation of contract result 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.

Please become a Premium member. If you are already a Premium member, login here to access the full content.