1989 (3) TMI 153 - AT - Income Tax

Summary

Issues Involved:
1. Nature of Rs. 45 lakhs received by the assessee (capital or revenue receipt).
2. Applicability of capital gains tax on the Rs. 45 lakhs received.
3. Disallowance of commission payment under section 37(3A).
4. Disallowance under section 43B related to contribution to ESI and PF.

Detailed Analysis:

1. Nature of Rs. 45 Lakhs Received by the Assessee:
The primary issue was whether the Rs. 45 lakhs received by the assessee for relinquishing leasehold rights was a capital or revenue receipt. The facts were undisputed: the assessee, a tenant of factory premises, received Rs. 45 lakhs from the purchasers (M/s. Indage Engineering Company Pvt. Ltd.) for vacating the premises. The preamble of the agreement dated 10-12-1981 indicated that the payment was for the tenants to arrange alternate accommodation and as lump sum damages for losses incurred due to shifting. The Tribunal concluded that the Rs. 45 lakhs was a recompense for relinquishing all rights in the tenanted property, thus making it a capital receipt. The reliance by the Income-tax Officer on the Supreme Court decision in CIT v. Shamsher Printing Press was deemed incorrect as the circumstances differed significantly.

2. Applicability of Capital Gains Tax on the Rs. 45 Lakhs Received:
The assessee contended that the Rs. 45 lakhs, although a capital receipt, was not chargeable to capital gains tax as no cost was incurred to acquire the asset (leasehold rights). The Commissioner (Appeals) agreed, stating that the cost of acquisition was nil. The Tribunal affirmed this view, referencing multiple cases, including the Supreme Court decision in CIT v. B.C. Srinivasa Setty, which supported the argument that self-generated assets with no cost of acquisition do not attract capital gains tax. The Tribunal concluded that the Rs. 45 lakhs received for surrendering tenancy rights was not chargeable to capital gains.

3. Disallowance of Commission Payment under Section 37(3A):
The second ground raised by the revenue was the disallowance of Rs. 7,55,337 paid as commission, which the Income-tax Officer had disallowed under section 37(3A). The Commissioner (Appeals) held that this expenditure could not be disallowed under section 37(3A). The Tribunal affirmed this finding, referencing decisions in Mopeds India Ltd. v. IAC and ITO v. Meera & Co., which held that payments made to dealers as incentives to achieve targets do not fall under the purview of section 37(3A).

4. Disallowance under Section 43B Related to Contribution to ESI and PF:
The final issue was the disallowance of Rs. 6,769 related to contributions to ESI and PF. The Commissioner (Appeals) directed that disallowance could not be made if the payments were made within the statutory time permitted by the relevant provisions. The Tribunal upheld this view, citing the Andhra Pradesh High Court decision in Srikakollu Subba Rao & Co. v. Union of India, which supported the contention that timely payments within statutory limits should not be disallowed.

Conclusion:
The appeal by the assessee was allowed, and the appeal by the revenue was dismissed. The Tribunal concluded that the Rs. 45 lakhs received by the assessee was a capital receipt not chargeable to capital gains tax, the commission payment was not disallowable under section 37(3A), and the disallowance under section 43B was not applicable if payments were made within the statutory time.