Case Law Details
Great Eastern Shipping Co. Ltd. Vs ACIT (ITAT Mumbai)
Cancellation of vessel construction contracts constituted a capital receipt and was outside the purview of Section 28(iv)
In a recent case between Great Eastern Shipping Co. Ltd. and the Assessing Officer (ACIT) before the Income Tax Appellate Tribunal (ITAT) Mumbai, the issue of whether the cancellation of vessel construction contracts, resulting in a foreign exchange gain, constituted a capital receipt or a revenue receipt under Section 28(iv) of the Income Tax Act (ITA) was deliberated upon.
The contention revolved around the treatment of foreign exchange gains written back upon the cancellation of vessel construction contracts, which were earlier capitalized to the vessels, for the assessment year 2011-12. The Assessing Officer (AO) asserted that such gains fell within the purview of Section 28(iv) of the ITA and were taxable as revenue receipts. This stance was based on the argument that since the vessel had not been acquired by the assessee, the gain couldn’t be related to a capital asset, thus making it taxable.
However, the appellant argued that such gains were capital receipts, exempt from taxation under Section 28(iv) of the ITA. They provided a comprehensive elucidation of the transactions involved:
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