2017 (8) TMI 1480 - HC - Income Tax

Capital receipt or revenue receipt - assessee is not entitled for the benefit u/s 115JB that appeal deserves to be allowed - Held that - Oberoi Hotel (P) Ltd. vs. Commissioner of Income Tax 1999 (3) TMI 2 - SUPREME COURT as principles laid down as per Article XVIII of the Principal Agreement the amount received by the assessee is for the consideration for giving up his right to purchase and or to operate the property or for getting it on lease before it is transferred or let out to other persons. It is not for settlement of rights under trading contract but the injury is inflicted on the capital asset of the assessee and giving up the contractual right on the basis of Principal Agreement has resulted in loss of source of assessee s income. As decided in Rajasthan Spinning & Weaving Mills vs. Deputy Commissioner of Income Tax 2005 (7) TMI 39 - RAJASTHAN HIGH COURT the acceptance by the shareholders and statutory authorities to be the result of company s affairs. Such accepted book profit has to be accepted by AO to find whether income computed by him in accordance with IT Act is more than or less than such admitted income. It is only if as a result of company s total taxable income in accordance with IT Act by the AO it is found to be less than 30 per cent of admitted book profits as discussed above that resort has to be had to Section 115J and not otherwise. If the computation in accordance with provisions of IT Act gives better tax results it is not at all required to go to Section 115J. The CIT has obviously exceeded its jurisdiction to find the order of AO to be erroneous not on the basis of declared book profit but on the basis of book profit computed by him and the Tribunal too fell in like error in accepting the position. - Decided in favour of the assessee

Summary

Issues Involved:
1. Whether the amount of ? 43,52,50,000/- is a capital receipt or a revenue receipt.
2. Whether the amount should be included for calculating book profit under Section 115JB.

Issue-wise Detailed Analysis:

1. Capital Receipt vs. Revenue Receipt:
The appellant challenged the Tribunal's decision, which reversed the findings of the CIT(A) and the Assessing Officer, arguing that the amount of ? 43,52,50,000/- should be classified as a revenue receipt rather than a capital receipt. The appellant contended that the amount was earned from business by assigning business rights, thus it should be considered revenue.

The respondent, however, relied on several Supreme Court decisions to argue that the amount received by the assessee is a capital receipt. Key cases cited include:
- Oberoi Hotel (P) Ltd. vs. Commissioner of Income Tax: The Supreme Court held that the amount received for giving up the right to purchase or operate property is a capital receipt, as it results in the loss of a source of income, rather than being a settlement of rights under a trading contract.
- Commissioner of Income Tax, Bangalore vs. B.C. Srinivasa Setty: The Court noted that the receipt on the transfer of goodwill generated in a business is not subject to income-tax as a capital gain, reinforcing the principle that certain receipts are inherently capital in nature.

2. Inclusion for Calculating Book Profit under Section 115JB:
The appellant argued that the amount should be included in the book profit calculation under Section 115JB, contending that it is a revenue receipt. The respondent countered this by citing:
- Apollo Tyres Ltd. vs. Commissioner of Income Tax: The Supreme Court clarified that the AO has limited power to make adjustments to the book profit as shown in the P&L account, which has been certified by statutory auditors and approved by the AGM. The AO cannot go beyond the net profit shown in such audited accounts except for adjustments provided in the Explanation to Section 115JB.
- Rajasthan Spinning & Weaving Mills vs. Deputy Commissioner of Income Tax: The Court emphasized that the AO must accept the book profit shown in the audited P&L account, which has been approved by the AGM and certified by the Registrar of Companies. The AO does not have the jurisdiction to re-examine the correctness of such audited accounts beyond the specific adjustments allowed under the law.

Conclusion:
The court concluded that both issues should be resolved in favor of the assessee and against the department. The amount of ? 43,52,50,000/- is to be treated as a capital receipt, not a revenue receipt, and should not be included in the calculation of book profit under Section 115JB. Consequently, the appeal was dismissed.