2019 (4) TMI 356 - AT - Income Tax

Taxability u/s 44BB - compensation received on account of loss of equipment in hole - revenue receipt or capital receipt - The CIT(A) held that the compensation received on account of loss of equipment in hole is not includable in the taxable receipts of the assessee under section 44BB - HELD THAT - Compensation for destruction and loss of capital asset which were utilized on a rig owned by ONGC was capital receipt and not taxable as revenue receipt under section 44BB Issue stand concluded in favour of the assessee. Departmental Appeal has no merit and the same is accordingly dismissed.

Summary

Issues:
1. Taxability of compensation received on account of loss of equipment under section 44BB of the Income Tax Act, 1961.

Analysis:

Issue 1: Taxability of compensation under section 44BB

The appeal by the Revenue was directed against the Order of the Ld. CIT(A)-2 for the A.Y. 2011-2012, questioning the inclusion of compensation received on account of loss of equipment in the taxable receipts of the assessee under section 44BB of the Income Tax Act, 1961. The Ld. CIT(A) relied on the judgment of the Hon'ble Delhi High Court and the decision in the case of ONGC vs. Schlumberger Asia Services Ltd., where it was held that such compensation is a capital receipt and not taxable as a revenue receipt under section 44BB.

The Assessee contended that the decision of the Hon'ble Uttarakhand High Court in the case of CIT vs. Schlumberger Asia Services Ltd. had been confirmed by the Hon'ble Supreme Court, dismissing the SLP of the Revenue. The Assessee argued that since the SLP of the Department had been dismissed by the Supreme Court, the issue stood concluded in their favor. The Assessee provided copies of the judgments of the Hon'ble Uttarakhand High Court and the Hon'ble Supreme Court to support their position.

The Revenue's sole contention was that the decision in the case of Schlumberger Asia Services Ltd. had not attained finality. However, since the SLP filed by the Department had been dismissed by the Hon'ble Supreme Court, the issue was deemed settled in favor of the Assessee. Consequently, the Departmental Appeal was found to lack merit and was dismissed. The Tribunal pronounced the order in favor of the Assessee, upholding the decision of the Ld. CIT(A) and confirming that the compensation received on account of loss of equipment was not includible in the taxable receipts of the Assessee under section 44BB of the Income Tax Act, 1961.

In conclusion, the Tribunal's judgment clarified the taxability of compensation received on account of loss of equipment under section 44BB, emphasizing the significance of finality in judicial decisions and the impact of Supreme Court dismissals on the resolution of legal disputes.