2002 (7) TMI 217 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 37,25,432 by CIT(A) based on the Madras High Court's decision.
2. Nature of the amount received by the successor company (capital or revenue receipt).
3. Application of Section 170 of the Income-tax Act, 1961.

Detailed Analysis:

1. Deletion of Addition of Rs. 37,25,432 by CIT(A) Based on Madras High Court's Decision:
The Revenue appealed against the CIT(A)'s decision to delete the addition of Rs. 37,25,432, arguing that the CIT(A) erred by following the Madras High Court's decision in CIT v. Indian Overseas Bank [1990] 182 ITR 439, which was not applicable to the facts of the case. The CIT(A) had held that the amount received by the successor company was not taxable as it related to the pre-succession period. The Tribunal found that the facts in Indian Overseas Bank were different, as the income in that case was already declared by the erstwhile banks before nationalization, whereas in the present case, the income was not declared by the predecessor firm since it followed the cash system of accounting. The Tribunal concluded that the CIT(A) did not properly appreciate the facts and held that the decision of the Madras High Court was not applicable.

2. Nature of the Amount Received by the Successor Company (Capital or Revenue Receipt):
The Tribunal examined whether the amount of Rs. 37,35,432 received by the successor company during the financial year 1989-90 was a capital receipt or a revenue receipt. The amount was received on account of sale of newspapers and advertisements in earlier years. The Tribunal held that the receipt was a revenue receipt as it was related to the trading activity of the business. Since both the predecessor firm and the successor company followed the cash system of accounting, the amount received by the successor company was includible in its total income under Section 5 of the Income-tax Act, 1961, as it was received during the relevant assessment year.

3. Application of Section 170 of the Income-tax Act, 1961:
The Tribunal also considered the applicability of Section 170, which deals with the assessment in case of succession of business. Under Section 170(1)(b), the successor is assessed in respect of the income of the previous year after the date of succession. The Tribunal noted that the successor company was liable to be assessed for the income received after the date of succession (1-4-1989 to 31-3-1990). The Tribunal emphasized that the income received by the successor company from trade debtors on account of sale of newspapers and advertisements was a revenue receipt and not a capital receipt. The Tribunal also referred to the Explanation to Section 170, which includes any gain accruing from the transfer of the business as a result of succession, further supporting the inclusion of the amount in the successor company's total income.

Conclusion:
The Tribunal reversed the CIT(A)'s order and allowed the Revenue's appeal, holding that the amount of Rs. 37,35,432 was a revenue receipt and includible in the total income of the successor company. The Tribunal also allowed the Revenue's appeal in ITA No. 132(Alld.)/1993 for the assessment year 1991-92, following the same reasoning and holding that the amount of Rs. 82,154 was not a part of fixed capital and was includible in the total income of the successor company.