2002 (9) TMI 93 - HC - Income Tax

1. Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the aggregate sum of Rs. 92, 40, 329 being interest received on IDBI bonds for a period of three years was chargeable to tax in the assessment year 1989-90 instead of bringing to tax in the year to which it relates? - 2. Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the compensation for termination of the selling agreement was taxable as revenue receipts? Both questions also is therefore answered against the assessee and in favour of the Revenue.

Summary

Issues:
1. Taxability of interest received on IDBI bonds for a specific period.
2. Tax treatment of compensation for termination of a selling agreement.

Issue 1: Taxability of Interest Received on IDBI Bonds
The case involved a dispute regarding the taxability of an aggregate sum of interest received on IDBI bonds for three years in the assessment year 1989-90. The court referred to a previous decision where it was held that interest received could not be spread over multiple years if the assessee chose to receive it for the entire period in a single year. The court found this precedent applicable to the current case and ruled in favor of the Revenue, stating that the interest sum should be taxed in the year it was received.

Issue 2: Tax Treatment of Compensation for Termination of Selling Agreement
The assessee had a selling agreement with its subsidiary, which was terminated by mutual consent, leading to a payment of Rs. 20 lakhs to the assessee. The assessee claimed that a part of this amount should be treated as a capital receipt. However, the Assessing Officer, Commissioner, and Tribunal concluded that the payment was not genuine and was intended to transfer funds from the subsidiary to the assessee as consideration for terminating the agreement. It was noted that the subsidiary would retain the profits that the assessee would have earned, indicating a strategic move rather than a genuine business transaction. The court upheld this view, stating that the payment was intended to be treated as a capital receipt and not for any other reason. Consequently, the court ruled in favor of the Revenue, rejecting the assessee's claim and upholding the decision of the Tribunal.

This detailed analysis of the judgment highlights the key issues of taxability of interest received on IDBI bonds and the tax treatment of compensation for the termination of a selling agreement. The court's reasoning and application of legal principles are elucidated to provide a comprehensive understanding of the judgment.