2016 (4) TMI 705 - AT - Income Tax

Nature of receipt - compensation for loss of profit - capital or revenue - Held that - As compensation received by the assessee is for the loss of earnings only it is revenue receipt exigible to tax and not a capital receipt

Summary

Issues:
1. Treatment of compensation received through waiver of Supplier's credit as capital or revenue receipt.

Analysis:
1. The appeals filed by the Assessee were directed against the order of the Commissioner of Income Tax(A)-I, Coimbatore for the assessment years 2007-08 & 2008-09. The Assessee raised grounds challenging the order of the Commissioner, specifically regarding the treatment of compensation received through waiver of Supplier's credit.

2. The Assessee argued that the compensation received should be treated as a capital receipt due to the impairment of the capital asset. However, the Commissioner of Income Tax (Appeals) and the AO considered it as a revenue receipt for the loss of profit. The Tribunal referred to previous decisions where it was held that the compensation was for the loss of earnings and not for the impairment of the capital asset, thus making it a revenue receipt.

3. The Tribunal analyzed the clauses of the agreement between the Assessee and the suppliers regarding the performance guarantee of wind mills. It was observed that the compensation received was linked to the loss of generation of electricity and was for the loss of earnings. The Tribunal distinguished relevant case laws where compensation for delay in commissioning of a capital asset was considered a capital receipt, which was not the situation in the present case.

4. The Tribunal noted that the issue had already been decided in a previous case involving the Assessee, and the decision was upheld by the CIT(A). Since the compensation received was for the loss of earnings and not for the impairment of the capital asset, it was considered a revenue receipt. Therefore, the appeals of the Assessee for the assessment years 2007-08 & 2008-09 were dismissed, confirming the order of the CIT(A).

5. The Tribunal's decision was based on the interpretation of the nature of the compensation received by the Assessee through the waiver of Supplier's credit, emphasizing that it was a revenue receipt linked to the loss of earnings rather than a capital receipt related to the impairment of the capital asset.