1988 (4) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 2 lakhs received by the assessee could be considered as a revenue receipt.
2. Applicability of section 28(ii) of the Income-tax Act, 1961, to the facts of the case.
3. Taxability of Rs. 2 lakhs for the assessment year 1971-72.
4. Taxability of Rs. 55,000 received by way of interest for the assessment year 1971-72.
5. Justification of the Appellate Tribunal's decision regarding the taxability of the interest amount of Rs. 55,000 received on February 23, 1970.

Detailed Analysis:

1. Revenue Receipt of Rs. 2 Lakhs:
The Tribunal held that the amount of Rs. 2 lakhs paid by the Nizam was on account of termination of an earlier agreement dated July 23, 1964, which constituted a profit-making apparatus and a capital asset in the hands of the assessee. Thus, the receipt was capital in nature and could not be treated as a revenue receipt. Even if considered as liquidated damages, it could not be treated as a revenue receipt.

2. Applicability of Section 28(ii):
The Tribunal concluded that the sum of Rs. 2 lakhs could not be treated as income under section 28(ii)(a) of the Income-tax Act, as it was not a payment on account of termination of the managing directorship of the assessee. The assessee had resigned from the managing directorship two years prior, and there was no reasonable connection between the resignation/termination and the payment. The court agreed with this finding, noting that the amount was part of a compromise to avoid litigation and was not specifically for the termination of the managing directorship.

3. Taxability of Rs. 2 Lakhs for Assessment Year 1971-72:
The Tribunal determined that the amount of Rs. 2 lakhs could not be brought to tax in the accounting year relevant to the assessment year 1971-72. The amount was deemed to have accrued on the date of the agreement (November 3, 1969), which was outside the financial year relevant to the assessment year 1971-72. Additionally, since the assessee did not maintain any accounts, the financial year constituted the accounting year, and the receipt of the amount on February 23, 1970, also fell outside this period.

4. Taxability of Rs. 55,000 Interest for Assessment Year 1971-72:
The Tribunal held that the interest amount of Rs. 55,000 was not includible in the income for the assessment year 1971-72, as it could not be said to have been received in the accounting year relevant to that assessment year. The financial year relevant to the assessment year 1971-72 was April 1, 1970, to March 31, 1971, and both the agreement date and the actual receipt date fell outside this period.

5. Justification of Tribunal's Decision on Interest Amount:
Given the Tribunal's findings on the accrual and receipt dates of the amounts in question, the court found it unnecessary to delve into the justification of the Tribunal's decision regarding the taxability of the interest amount of Rs. 55,000 received on February 23, 1970.

Conclusion:
Questions Nos. (2), (3), and (4) were answered in favor of the assessee and against the Revenue. Questions Nos. (1) and (5) were deemed academic and were not answered. The court upheld the Tribunal's findings that the amounts in question could not be taxed in the assessment year 1971-72.