2010 (4) TMI 393 - HC - Income Tax

Revision u/s 264 - Income or Capital - The petitioner purchased compensation bond the interest received from the compensation. The Assessee treated the amount of compensation received in excess of the cost of the bonds as a capital receipt. The Assessing Officer did not accept the amount received as compensation from the bonds as a capital receipts. On a revision petition by the petitioner under section 264 of the Act the Commissioner dismissed the revision petition. Held that- the compensation in the form of annual installments received by the petitioner under the bonds was in the nature of capital receipts and was not taxable.

Summary

Issues:
Interpretation of taxability of excess compensation received under U.P. Zamindari Abolition Bonds.

Detailed Analysis:

1. The judgment dealt with a case where the petitioner purchased U.P. Zamindari Abolition Compensation Bonds and Rehabilitation Bonds. The petitioner received excess compensation, which was disputed as either a capital receipt or a revenue receipt liable to tax.

2. The petitioner contended that the compensation received was a capital receipt and challenged the orders directing taxation of the excess amount. The authority relied on a Bombay High Court decision treating excess amount as income for assessment purposes.

3. The main issue in the writ petition was the taxability of the excess compensation received by the petitioner under the bonds.

4. The petitioner argued that the excess compensation should be treated as a capital receipt, citing Division Bench decisions of the Karnataka High Court and distinguishing the Bombay High Court decision relied upon by the authorities.

5. The High Court analyzed the nature of the petitioner's transaction, emphasizing that the petitioner was not involved in regular trading of such bonds, unlike the assessee in the Bombay High Court case.

6. The High Court highlighted that the compensation received by the petitioner was in the form of annual instalments and was akin to capital receipt, following the principles established by the Karnataka High Court in similar cases.

7. The Court concluded that the compensation received by the petitioner, even if exceeding the purchase value of the bonds, was a capital receipt and not taxable. The judgment quashed the impugned orders directing taxation of the excess compensation.

8. Ultimately, the High Court allowed the writ petition, issuing a writ of certiorari to set aside the orders passed by the tax authorities, thereby ruling in favor of the petitioner and directing each party to bear their own costs.