Case Law Details

Case Name : ACIT Vs Tirupati Udyog Ltd. (ITAT Delhi)
Appeal Number : ITA No. 2610/Del/2012
Date of Judgement/Order : 20/06/2013
Related Assessment Year : 2008-09
Courts : All ITAT (4443) ITAT Delhi (983)

The assessee is a Company and is engaged in the business of manufacturing and trading of facilities of sponge iron from iron ore, steel melting section for manufacturing of MS ingots from sponge iron and MS scrap, a rerolling mill for manufacturing of constructional and structural steels from MS ingots/billets.

The assessee company entered into the Memorandum of Understanding (MOU) with Shri R.Charuchandra Prop. Of M/s Shree Nidhi Mines on 03.01.2004 for developing of mines, production/extraction of ore etc. for a period of 5 years from the date of renewal of mining lease that was extendable for further period. The area of the mines in question was of 45 hectares of land situated at survey no.1 of Kallahalli Village Hospet Taluk. The mines was closed due to orders from Forest Department since 1997. The permission for mining operation was granted on 30.11.2004 to Shri Charu Chandra in respect of Shrree Nidhi Mines, Kallahalli, Hospet. Shri Charu Chandra had been making contravention of the agreement time and again. The assessee company came to know that Shri R.Charuchandra entered into a fresh contract with M/s Raj Shree Mineral, Bangalore in the year 2007 for extraction and screening of iron ore in without taking the permission of the assessee and without resolving the issue of assessee company’s right. The assessee company filed suit against Shri R. Charuchandra and his concerns which ultimately resulted into out of court settlement and as a result of which the assessee company received compensation of Rs.12,80,00,000/-. A sum of Rs.1,12,12,446/- was outstanding receivable in the assessee’s books from the party from whom the compensation was received. Since the amount of Rs. 1,12,12,446/- was not recovered, the appellant adjusting this amount of Rs. 1,12,12,446/- from the compensation of Rs. 12,80,00,000/-, showed/credited the net amount of Rs.11,67,87,854/- in the P&L a/c.

The assessee, on the ground that the compensation received was for loss of “source of income” disclosed the same in its return of income as a capital receipt. The Assessing Officer, after considering the submissions of the assessee, treated this compensation received as a revenue receipt.

Held- The assessee was not in this line of business and was in the business of manufacturing and trading. The assessee chose to enter into a new line of business by way of this MOU. The essence of the MOU is to enable the assessee to carry on the business of mining and cancellation of the agreement in question deprives the assessee of what is a substantive source of income from mining. Since, it is a loss of source of income from mining, thus the amount received as compensation by the assessee is a capital receipt.

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