1991 (10) TMI 26 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was justified in holding that there was evidence before the Commissioner of Income-tax that the assessment order was erroneous and prejudicial to the interests of the Revenue.
2. Whether the Tribunal was justified in holding that Rs. 3,66,649 was a taxable receipt for the assessment year 1983-84.

Summary:

Issue 1: Justification of the Tribunal's Holding on Erroneous and Prejudicial Assessment Order
The Tribunal upheld the Commissioner of Income-tax's (CIT) decision that the assessment order was erroneous and prejudicial to the interests of the Revenue. The CIT initiated suo motu revision proceedings u/s 263 of the Income-tax Act, concluding that the Income-tax Officer (ITO) failed to apply his mind and make proper inquiries regarding the Rs. 3,66,649 credited as "Damages and compensation realised for the loss of agricultural income." The Tribunal found that the ITO did not consider all aspects of the case, including the agreement and the nature of the receipt. The High Court agreed with the Tribunal, stating that the ITO's order was indeed erroneous and prejudicial to the interests of the Revenue, thus validating the CIT's jurisdiction u/s 263.

Issue 2: Taxability of Rs. 3,66,649 for the Assessment Year 1983-84
The Tribunal held that the amount of Rs. 3,66,649 received by the assessee was taxable. The amount was paid as compensation for the delay in receiving instalments of the sale consideration from the purchaser, as per clause 17 of the agreement dated July 18, 1982. The Tribunal found that the receipt did not relate to any agricultural operations carried on by the assessee after November 1982, when the agricultural operations by way of tapping stopped. The High Court concurred, stating that the amount was compensation for breach of contract and should be assessed as income from other sources. The High Court affirmed the Tribunal's decision, holding that the sum was a taxable receipt for the year 1983-84.

Conclusion:
Both questions were answered in the affirmative, against the assessee and in favor of the Revenue. The High Court upheld the Tribunal's findings that the assessment order was erroneous and prejudicial to the interests of the Revenue and that the amount of Rs. 3,66,649 was a taxable receipt for the assessment year 1983-84.