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Issues Involved:
1. Whether the receipt of Rs. 29,47,500 by the assessee from the receiver of the hotel is a capital receipt or a revenue receipt. Detailed Analysis: Background and Facts: The assessee-company, engaged in managing hotels worldwide, entered into an agreement on November 2, 1970, to operate Hotel Oberoi Imperial, Singapore. The agreement included a management fee based on gross operating profits and an option for the assessee to purchase the hotel if the owners decided to sell. In 1975, the Singapore hotel went into liquidation, and a receiver was appointed. A supplemental agreement was executed on September 14, 1975, wherein the assessee relinquished its rights under the original agreement in exchange for a lump sum payment. The hotel was eventually sold to Hind Hotels International (P) Ltd., and the assessee received Rs. 29,47,500 as compensation. Issue 1: Nature of the Receipt - Assessee's Argument: The assessee contended that the compensation was a capital receipt as it was received in consideration of giving up a capital asset. - Income-tax Officer's Findings: The officer argued that the termination of the agreement was part of the assessee's normal business operations, which included entering into and terminating hotel management agreements. The termination did not alter the structure of the assessee's business, and the compensation was therefore a revenue receipt. - Commissioner of Income-tax (Appeals): The Commissioner held that the agreements to manage hotels were long-term and constituted a source of income. The termination of the agreement led to the destruction of a capital asset, making the compensation a capital receipt. - Tribunal's Decision: The Tribunal upheld the Commissioner's view, stating that each hotel management agreement was a separate source of income, and the compensation received was for the destruction of a capital asset. Legal Precedents and Analysis: - CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 (SC): The Supreme Court held that compensation received for termination of a contract entered into in the ordinary course of business is a revenue receipt. - CIT v. Vazir Sultan and Sons [1959] 36 ITR 175 (SC): The court distinguished between capital and revenue receipts, stating that compensation for termination of an agency agreement that forms a capital asset is a capital receipt. - P. H. Divecha v. CIT [1963] 48 ITR 222 (SC): The court held that compensation for termination of a monopoly right of purchase and sale, which secured an enduring advantage, was a capital receipt. - Kettlewell Bullen and Co. Ltd. v. CIT [1964] 53 ITR 261 (SC): The court ruled that compensation for loss of a managing agency, which was a capital asset, was a capital receipt. - CIT v. Chari and Chari Ltd. [1965] 57 ITR 400 (SC): The court held that compensation for termination of one of many agencies, which did not impair the profit-making structure, was a revenue receipt. Court's Conclusion: The court found that the assessee-company was engaged in the business of operating, managing, or administering hotels, and the agreement with the Singapore hotel was part of its ordinary business activities. The termination of the agreement and receipt of compensation did not affect the overall business structure. The compensation was deemed to be within the framework of the business, a necessary incident of the business, and thus, a revenue receipt. Judgment: The court answered the question in the negative, holding that the compensation of Rs. 29,47,500 received by the assessee was a revenue receipt assessable to income-tax as business income for the assessment year 1979-80. There was no order as to costs.
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