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Issues:
- Whether the compensation received by the assessee as termination of lease agreement was a capital receipt or a revenue receipt chargeable to tax. Analysis: 1. The only issue in this appeal was to determine the nature of the compensation received by the assessee upon termination of a lease agreement. The assessee derived income from house property and business, with a bungalow in Pune let out to a company. The agreement was terminated, and the lessee agreed to pay compensation of Rs. 1,00,000 to the assessee. The Assessing Officer treated this compensation as business income without providing reasons. The CIT(A) considered it a revenue receipt assessable as business income or under "income from other sources." The assessee appealed to the Tribunal challenging this decision. 2. The counsel for the assessee argued that since the assessee's primary business was not letting out properties, the compensation should be considered a capital receipt. He cited a Bombay High Court case to support this argument. Alternatively, he contended that if not a capital receipt, the compensation should be treated as income from house property. The Departmental Representative argued that the compensation was for loss of future income and not an injury to the capital asset, hence a revenue receipt. Various legal precedents were cited by both sides. 3. The Tribunal analyzed whether the compensation was a capital or revenue receipt. It was noted that compensation is typically paid for injury to the capital asset or source of income. In this case, the compensation was viewed as the discounted value of future rent loss due to termination, without affecting the asset or income source. Hence, it was deemed a revenue receipt. The Bombay High Court case cited by the assessee was distinguished based on different facts. 4. Additionally, the Tribunal considered the alternate argument that if the compensation did not fall under a specific head, it should be assessed under "income from other sources." However, since the compensation arose from the agreement of letting out property, it was categorized as income from house property. As the compensation was not part of the annual value, it could not be taxed under this head. Relying on legal principles and precedents, the Tribunal concluded that the compensation received by the assessee should not be taxed. 5. Consequently, the Tribunal set aside the CIT(A)'s order and deleted the addition made, allowing the assessee's appeal.
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