2013 (5) TMI 103 - AT - Income Tax

Compensation received Non-compete fee - for phasing out the production - whether capital receipt or revenue receipt Held that - Since the ld. CIT(A) has considered the various details furnished by the assessee before him and satisfied himself that the compensation received by the assessee was for phasing out the use of CTC as required under the multilateral fund of the Montreal Protocol, therefore, the provisions of the second proviso to section 28(va) have been fulfilled and therefore the assessee is entitled to the benefit. - Decided in favor of assessee. Decision in ACIT Versus Tarak Chemicals (P) Ltd. 2012 (6) TMI 659 - ITAT, Mumbai followed.

Summary

Issues:
- Whether the compensation received by the assessee company is a revenue receipt or capital receipt for the assessment year 2008-09.

Analysis:
The appeal by the revenue was directed against the order of the CIT(A) for the assessment year 2008-09. The main ground raised by the revenue was the deletion of an addition of Rs. 76,35,463 made by the Assessing Officer. The compensation in question was received by the assessee company from the Multilateral Fund under the Montreal Protocol. The Assessing Officer treated this receipt as a revenue receipt, while the assessee considered it a capital receipt and credited it to the capital reserve. The CIT(A) deleted the addition, considering it as capital in nature. The Tribunal had previously decided a similar issue for the assessment year 2006-07 and upheld the decision of the CIT(A) based on the provisions of section 28(va) of the Income Tax Act. The Tribunal noted that the compensation received was for phasing out the use of certain substances as required by the Montreal Protocol. The Tribunal found no infirmity in the order of the CIT(A) and upheld the decision in favor of the assessee.

The Tribunal considered the details furnished by the assessee and concluded that the compensation received was in line with the provisions of the second proviso to section 28(va) of the Income Tax Act. The Tribunal emphasized that the powers of the CIT(A) are co-terminus with those of the Assessing Officer and found no fault in the decision of the CIT(A) to admit additional evidence. The Tribunal, based on its earlier order for the assessment year 2006-07, decided the issue against the revenue and in favor of the assessee. Consequently, the appeal filed by the revenue was dismissed.