2009 (10) TMI 75 - AT - Income Tax

Summary

Issues Involved:
1. Nature of Receipt: Whether the receipt of Rs. 2.85 crores by the assessee from DCM for the termination of the agreement is a revenue receipt or a capital receipt.
2. Year of Taxability: Whether the sum of Rs. 2.85 crores accrued to the assessee as income in the year under consideration or it should be taxed in the year it is received.

Summary:

1. Nature of Receipt:
The primary issue was whether the receipt of Rs. 2.85 crores by the assessee from DCM for the termination of the agreement to build on DCM's land is a revenue receipt or a capital receipt. The assessee claimed that the sum was a capital receipt and not taxable, arguing that it represented compensation for abandoning its rights under the collaboration agreement and for not competing with DCM in similar business for three years. The AO and CIT(A) disagreed, treating the receipt as a revenue receipt. The CIT(A) noted that the assessee firm did not lose the right to remain in business or carry on business in other parts of the country, and thus, the receipt was considered revenue in nature.

2. Year of Taxability:
The second issue was whether the sum of Rs. 2.85 crores should be taxed in the year it accrued or in the year it was received. The AO assessed the income on an accrual basis, citing that the right to receive the amount was created by the settlement agreement dated 30th Oct., 2000. The CIT(A) directed that the income should be taxed in the year it was received, considering the ongoing disputes and counter-claims between the assessee and DCM. The Tribunal, however, noted that the assessee conceded the taxability of the amount and its assessability in the year in question, thus confirming the AO's order.

Conclusion:
The Tribunal confirmed the AO's order, treating the receipt of Rs. 2.85 crores as a revenue receipt and taxable in the year of accrual. The appeal of the assessee was dismissed, and the Revenue's appeal was allowed.