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2022 (4) TMI 457 - AT - Income TaxCharacterization of receipts - nature of receipts - compensation received as consideration for restrictive covenant to not to do business in the same line for a prescribed period - revenue receipts or capital receipts - HELD THAT - The amount of compensation received by the assessee company from LIPL during the year under consideration i.e. A.Y.2010-11 2018 (11) TMI 323 - ITAT RAIPUR being in nature of a capital receipt was not exigible to tax. Accordingly, finding no infirmity in the order of the CIT(Appeals) we uphold the same. - Decided in favour of assessee.
Issues Involved:
1. Whether the compensation received from Lafarge India Pvt. Ltd. (LIPL) is a capital receipt or a revenue receipt. 2. Whether the compensation was for a restrictive covenant or for specific services rendered. 3. Whether the compensation resulted in the loss of the source of income. 4. The correctness of the CIT(A)'s order in deleting the addition made by the AO. Issue-Wise Detailed Analysis: 1. Nature of Compensation Received: The primary issue is whether the compensation received by the assessee from LIPL is a capital receipt or a revenue receipt. The assessee claimed the compensation as a capital receipt due to the termination of its business activity, resulting in the "loss of source of income." The Assessing Officer (AO) re-characterized this compensation as a revenue receipt and brought it to tax. The CIT(A) concurred with the assessee's claim, stating that the compensation was for the loss of the source of income and thus a capital receipt, not chargeable to tax. The Tribunal upheld this view, referencing its earlier decision in the assessee's case for AY 2011-12, which had attained finality. 2. Compensation for Restrictive Covenant vs. Specific Services: The Revenue contended that the compensation was for specific services and acts performed by the assessee, not for a restrictive covenant. The CIT(A) found that the compensation was indeed for the termination of the MOU, which led to the loss of the source of income. The Tribunal agreed, noting that the compensation was for the impairment or sterilization of the profit-making structure, thus being a capital receipt. 3. Loss of Source of Income: The CIT(A) and the Tribunal both observed that the compensation was for the loss of the source of income. The Tribunal referenced the Supreme Court's decision in the case of Oberoi Hotel (P) Ltd. vs. CIT, which held that compensation for the loss of a source of income is a capital receipt. The Tribunal found that the compensation received by the assessee was for the sterilization of its profit-making apparatus, thus qualifying as a capital receipt. 4. Correctness of the CIT(A)'s Order: The Revenue challenged the CIT(A)'s order, arguing that it was erroneous in law and on facts. However, the Tribunal upheld the CIT(A)'s decision, finding no infirmity in the order. The Tribunal noted that the issue was already settled in the assessee's favor in the earlier assessment year, and the facts of the present case were not distinguishable. Conclusion: The Tribunal dismissed the appeals filed by the Revenue for both assessment years 2010-11 and 2012-13, upholding the CIT(A)'s order that the compensation received by the assessee from LIPL was a capital receipt and not chargeable to tax. The cross-objections filed by the assessee were also dismissed as not pressed. The Tribunal's decision was based on the precedent set in the assessee's own case for the assessment year 2011-12, which had attained finality.
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