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Issues Involved:
1. Jurisdiction of the CIT under Section 263 of the IT Act. 2. Nature of compensation received by the assessee (whether capital or revenue receipt). Issue-Wise Detailed Analysis: 1. Jurisdiction of the CIT under Section 263 of the IT Act: The first ground of appeal is whether the CIT has jurisdiction to revise the order of the ITO under Section 263 of the IT Act. The assessee contended that the original assessment order by the ITO was the subject matter of an appeal before the CIT(A), thus merging with the appellate order of the CIT(A). Therefore, the CIT had no jurisdiction to invoke his power under Section 263. The CIT, however, held that the doctrine of merger applies only to the part of the order of the ITO that was the subject matter of appeal before the CIT(A). Since the issue of compensation was not the subject matter of the appeal before the CIT(A), the CIT concluded that he had jurisdiction to revise the order of the ITO. The Tribunal considered the respective contentions and noted that there is a divergence of opinion on this issue, with different courts taking different views. However, the Special Bench of the Tribunal in Dwarkadas & Co.'s case held that the CIT would have no jurisdiction under Section 263 to revise an assessment order that was the subject matter of an appeal before the CIT(A), even regarding issues not examined or decided by the CIT(A). Following this precedent, the Tribunal held that the CIT had no jurisdiction to revise the order of the ITO in this case. Therefore, this ground of appeal was allowed. 2. Nature of Compensation Received by the Assessee: The second ground of appeal is whether the compensation amount of Rs. 3,80,000 received by the assessee towards the loss of empty bottles from the American Company is a capital receipt or a revenue receipt. The assessee argued that the compensation was not for the loss of bottles per se but for the loss of business and goodwill. The CIT, however, held that the compensation was for the loss of empty bottles and thus a revenue receipt. The Tribunal examined the facts and noted that due to the ban imposed by the Government of India, the American Company could not supply the soft drink concentrate, rendering the empty bottles useless. The compensation was paid on the condition that the assessee destroy all the empty bottles in the presence of a representative of the American Company. The Tribunal found that the business of the assessee in soft drinks continued under the trade name "Torino" even after the non-supply of Cocacola and Fanta concentrate. Therefore, there was no sterilisation or cancellation of the assessee's business, which would constitute a capital asset. Consequently, the compensation received was for the loss of bottles and thus a revenue receipt. Additionally, the Tribunal noted that in the assessee's own case for the assessment year 1978-79, the value of the bottles destroyed was allowed as a revenue loss. Under Section 41(1) of the IT Act, any amount obtained in respect of such loss by way of remission is deemed to be profits and gains of the business and chargeable to income-tax. Therefore, the ex gratia compensation received by the assessee towards the loss or destruction of the empty bottles would be a revenue receipt. The Tribunal upheld the CIT's order on this point. Conclusion: In conclusion, the Tribunal allowed the appeal on the first issue, holding that the CIT had no jurisdiction to revise the order of the ITO. However, on the second issue, the Tribunal upheld the CIT's order, concluding that the compensation received by the assessee was a revenue receipt.
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