CA Saurabh Chokra
Brief of the case:
The ITAT Delhi in the above cited case held that Compensation received for loss of business activity is a Capital Receipt as it is injury to the profit making apparatus and not the loss of profits. Therefore, in the present case , non-supply of land by supplier which was to be used by the consortium was injury to profit making apparatus and hence capital receipt.
Facts of the case:
- The assessee company engaged in the business of real estate had entered into a consortium agreement dated 02.03.2005 amounts its associates defining their rolls, rights and responsibilities along with their respective shares in the consortium. Thereafter, the consortium companies, namely, Aerens R Infra-structure Pvt Ltd, Samurai Entertainment P. Ltd., Shivgiri Suppliers (P) Ltd., the assessee and Aerens Goldsok International Ltd. through their lead company, namely, A.R. Developers Pvt. Ltd. entered into an agreement to sell dated 02.03.2005 with GMA Buildcom (P) Ltd. to purchase 10 acres of land for a consideration of Rs.15 crores in village Bhattian, Tehsil and District Ludhiana (Punjab).
- Since GMA Buildcom (P) Ltd. failed to transfer minimum land of 10 acres within the prescribed and extended time limits as per the terms of the agreement. The matter was settled through arbitration award dated 11.8.2006 wherein compensations were awarded to all the consortium members, M/s. Aerens Developers & Engg. Pvt. Ltd (assessee) received a compensation of Rs. 1 crores.
- The assessee company credited the compensation so received to Profit & Loss A/c . However, in the computation of income the assessee claimed this income as exempt and reduced this income while computing its taxable profit.
- The AO, however, added the same to taxable income considering that compensation was received in the normal course of business hence taxable as business income. CIT (A) also concurred with the view taken by AO. Aggrieved assessee is in appeal before ITAT Delhi.
Contention of the Assessee:
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