2015 (10) TMI 240 - AT - Income Tax

Taxing the compensation received - whether be taxed as Capital Receipt? - it is an admitted fact that the assessee received a sum towards the damages to the land belonging to it and the AO taxed it considering the same as revenue receipt, the ld. CIT(A) upheld the view taken by the AO. Held that - On a similar issue their lordships of the Hon ble Bombay High Court in the Case of Dr. (Ms) Avimay S. Hakim Vs ITO (2011 (8) TMI 147 - Bombay High Court) held that the fact that the land has remained with the assessee and that the assessee in future may earn profits from the said land cannot be a ground to hold that the compensation received by the assessee in lieu of damage caused to the land was revenue receipt. Accordingly, we answer the question in favour of the assessee and against the revenue. The impugned addition sustained by the ld. CIT(A) is deleted because the amount received towards the damage to the land belonging to the assessee cannot be said to be a revenue receipts. - Decided in favour of assessee.

Summary

Issues:
1. Taxability of compensation received by the assessee from Indian Oil Corporation Ltd.

Analysis:
1. The primary issue in this case was whether the compensation received by the assessee amounting to Rs. 4,75,041/- was taxable as revenue receipt or capital receipt. The Assessing Officer (AO) treated the amount as revenue receipt, while the assessee contended that it was capital in nature as it was received for damages done to the land. The AO made an addition to the income of the assessee, which was upheld by the ld. CIT(A).

2. The assessee argued that the compensation received was for granting the right to use the land for laying the pipeline and for damages done to the land. The assessee relied on decisions of the Hon'ble ITAT Ahmadabad in similar cases where it was held that such compensation was a capital receipt not chargeable to tax. Additionally, the assessee cited Section 10(1) of the Petroleum and Minerals Pipelines Act, 1962, to support the argument that compensation for damages should be treated as a capital receipt.

3. The ld. CIT(A) rejected the assessee's contentions and upheld the addition made by the AO, stating that the assessing officer had held the receipts to be revenue receipts of casual and non-recurring nature. The ld. CIT(A) differentiated this case from the cases cited by the assessee, where the department had accepted the receipts to be of capital nature. Therefore, the ld. CIT(A) concluded that the compensation received was subject to tax as a revenue receipt.

4. The ITAT, in its judgment, considered the decision of the Hon'ble Bombay High Court in a similar case and observed that compensation received for damages to the land cannot be considered a revenue receipt. Citing this precedent, the ITAT allowed the appeal of the assessee and deleted the addition made by the AO, ruling that the amount received for damage to the land was not taxable as revenue receipts.

5. In conclusion, the ITAT held that the compensation received by the assessee from Indian Oil Corporation Ltd. for damages to the land was a capital receipt and not subject to tax. The ITAT allowed the appeal of the assessee, overturning the decisions of the AO and ld. CIT(A) and ruling in favor of the assessee.

This summary provides a detailed analysis of the judgment, highlighting the arguments presented by both parties, the decisions of the lower authorities, and the final ruling of the ITAT based on relevant legal principles and precedents.