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TMI Blog1987 (11) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) was doubtful as to whether the bottles and shells were at all part of plant and machinery and whether the assessee could be granted any depreciation. He, however, allowed the assessee's claim in view of the fact that the Tribunal had earlier held these bottles as plant and machinery but restricted it to 10%. Before us reference was made to a number of decisions wherein the Tribunal has allowed a similar claim of the assessee holding that the price of each bottle being less that Rs. 750, therefore, the assessee was entitled to full depreciation. Firstly, reliance was placed on the decision of the C-bench of the Tribunal in Premnath v. ITO [IT Appeal Nos. 248 and 532 to 534 (Delhi) of 1977-78 dated 12-7-79]. Another decision relied upon was a decision of the A-bench of the Tribunal at Hyderabad in ITO v. Shri Krishna Bottlers (P.) Ltd. [IT Appeal No. 208 dated 21-11-81] and the third decision relied upon was of B-Bench of the Ahemadabad Bench of the Tribunal in ITO v. Pure Beverages Ltd [IT Appeal No. 2276 (Ahd.) of 1981 dated 19-11-82]. The question whether the bottles are at all plant or machinery so as to enable the assessee to claim depreciation is a highly debatable issue an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by the CIT (Appeals). This claim was never made before the ITO and in fact, it would not be necessary if the assessee's claim for depreciation at 100% is allowed. Since we have not allowed the claim we admit this evidence and direct the ITO to consider the claim of the assessee made in this behalf on merits. 4. Another ground taken in relation to the first year relates the amount of Rs. 2,75,000 received by the assessee company M/s Coca Cola Export Corporation which the authorities below have taxed as Revenue Receipts. The facts relating to this amount are mentioned at some length in our order in ITA No. 472/JP/84 and may be briefly summarized as under : The assessee was manufacturing Coca Cola and other soft drinks from concentrate obtained from Coca Cola Export Corporation. Import of such drinks was banned by the Govt. and since the bottles that were used were of exclusive pattern, the Corpn. did not want that other concentrate drinks should be filled in these bottles. So they became useless and has to be discarded. 5. We have already upheld the allowance of terminal loss in respect of most of these bottles to the assessee in the immediately preceding year. In Feb. 1978, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very bottles, and the money recovered by the assessee was again with respect to these bottles within the meaning of sub-section (2) of section 41, the said amount is liable to be added to the assessee's income under that sub-section. We accordingly reject the assessee's ground raised in this behalf. 7. The last ground raised in the first year was an alternative ground that if the bottles and shells are treated as plant and depreciation is not allowed, then the assessee shall be allowed allowance of loss on breakage of bottles and shells. The CIT(A) has already allowed depreciation on the bottles. Therefore, this ground does not arise out of the order of CIT(A) and is hereby dismissed. 8. In the next year most of the grounds are the same except for a small difference in the figures regarding the amount received from Coca Cola Export Corporation which in this year was only Rs. 38,500 and it is not necessary to discuss them again. There are, however, two more grounds. One is the claim for investment allowance on cost of two power capacitors valued at Rs. 2,908. The details of these machineries were submitted before the ITO and also before the IAC in proceedings under section 144B o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is also a matter of common knowledge that the assessment orders do not mention the amount of tax payable by the assessee and on this an analogy, no assessment order would be at all appealable. On behalf of the assessee, reliance was placed upon a decision of the Jaipur Bench of the Tribunal in ITO v. Khoobram Omprakash [IT Appeal No. 312 (JP) of 1982] reported at page 262 of the Tax World. The Bench itself has referred to a decision of the Allahabad High Court to the contrary and has only referred to the Supreme Court decision in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 that if two views are possible, the view in favour of the assessee should be adopted. But if we were to accept this proposition at its face value all assessment orders would become bad in law. Such a view would at be reasonable. A notice of demand, in fact is contemplated by section 156 of the I. T. Act and it is in that notice that the amount demanded is normally specified. The other authorities that were railed upon by the] assessee do not deal with this controversy. For example in ITO v. Gaurishankar Sitaram 18 TTJ Delhi, interest was sought to be remitted by the assessee by putting a pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciples viz. Coca Cola Export Corporation had got manufactured the bottles in the earlier years and was using them in which the drinks were filled and sold. In the year under review the Govt. by means of Notification banned the import of the concentrate from USA for production of the two soft drinks. Consequent to such a ban order the company's manufacturing activity came to a standstill. The assessee company informed the principals of the ban order and requested for compensating them as their entire business had to be closed down. In February 1978 the principles agreed to compensate the assessee company and paid the compensation at thereat of Rs. 10 per crate for 27,500 crates in the first year and 3,850 crates in the second year. Since the bottles were not used for bottling any other soft drinks the principals mentioned that the bottles should not be used but be broken in the presence of one of their officers. 2. The question that has been raised is whether the amount of Rs. 2,75,000 i.e. 27,500 crates x Rs. 10 per crate and Rs. 38,500 i.e. 3,850 crates x Rs. 10 per crate is in the nature of capital or in the nature of income u/s 41(2). According to the assessee this is in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n substance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated), the receipt is revenue; whereby the cancellation of an agency the trading structure of the assessee is impaired or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt." In the case of Gillanders Arbuthnot & Co. Ltd. v. CIT [1964] 53 ITR 283 their Lordships of the Supreme Court were considering a case of termination of one of the agencies. Their Lordships observed that : "Compensation paid for agreeing to refrain from carrying on competitive business in the commodities in respect of the agency terminated, or for loss of goodwill, is prima facie of the nature of a capital receipt." 5. In the instant case the compensation was followed by a Govt. order refraining the assessee to carry on the manufacture which was the only business of the assessee-company. Since the very business has come to a stand-still, the amount of compensation recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Third Member for his opinion under section 255(4) of the I.T. Act, 1961. "Whether on the facts and in the circumstances of the case the amounts of Rs. 2,75,000 and Rs. 38,500 received by the assessee from M/s Coca Cola Export Corporation are liable to be included in the total income of the assessee for the two years in question ?" THIRD MEMBER ORDER Per Shri Ch. G. Krishnamurthy, President - This is a matter in which the learned Member of the Income tax Appellate Tribunal, Jaipur Bench, Jaipur had a difference of opinion on the following point : "Whether on the facts and in the circumstances of the case, the amounts of Rs. 2,75,000 and Rs. 38,500 received by the assessee from M/s Coca Cola Export Corporation are liable to be included in the total income of the assessee for the two years in question ?" The matter has been assigned to the President a as Third Member I have heard the learned counsel for the assessee Sri N. M. Ranka and A. K. Mahamwal and the learned Departmental Representative Shri Sudhir Chandra at great length and I express my opinion on the above point after stating the relevant facts. 2. The assessee is a manufacturer of soft drinks under a licensee issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our appointee, and up to the maximum quantity calculated under this pro-ratio plan (as mentioned in para 4 above) the Corporation will pay to the Bottler the sum of ten rupees less any tax or other levy which may be applicable to the transaction in law. 6. As it is in our mutual interest to complete this exercise with the minimum of delay, this offer is open for acceptance until 15-2-78 and if no responses is received be the corporation by 5-00 P.M. on that date it will be assumed that the offer is not acceptable to you. In token of our acceptance please sign the duplicate cope of this letter enclosed herewith and return the same by registered post or hand deliver so as to reach this office before 5.00 P.M. on 15-2-78." On the assessee agreeing to these terms the principals paid a sum of Rs. 2,75,000 which was received by the assessee in the assessment year 1979-80 and Rs. 38,500 in the next assessment year 1980-81. The assessee company claimed that these two sums were not taxable as income of the assessee on the ground that they represented ex gratia compensation paid by Coca-Cola Export Corporation to meet the capital loss incurred by the assessee company. It was in the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and any amount received by way of compensation on the closure of business was not to be treated as a revenue receipt but only as a capital receipt following the judgment of the Supreme Court in the case of Kettlewell Bullen & Co. Ltd. and Gillanders Arbuthnot & Co. Ltd. Following these Supreme Court decisions the learned Accountant member held that the compensation received by the assessee for closure of business was not income liable to tax. He further held that the method of arriving at the amount of compensation with reference to the bottles destroyed was only a measure to arrive at the compensation and by that it could not be held that there was intimate connection between the compensation received and the bottles destroyed to hold that section 41(2) would apply only to those moneys which are received be an assessee consequent to a sale, discarding of the machinery, demolishing of the machinery and destruction of the machinery from a person who takes such machinery after destruction and as no such thing had happened in this case the provisions of section 41(2) were wrongly invoked. 4. I have carefully considered the matter and it is my considered vie that the sums in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was only to go to a court of law, which means expenditure of money loss of time and diversion of attention which could be otherwise used of the permutation of the other activity of the business not only this action was coupled with has of litigation. This is also a factor which has to be borne in mind while considering the claim put up on behalf of the assessee that the amount received by it was purely out of compassion and not our of business consideration. While the assessee company was trying to get compensation for the loss of bottles, Coca-Cola Export Corporation was ensuring destruction of bottles for which it came out with an offer by not going to a court of law, by a simple expression of agreeing to pay would not get under this formula full cost of the bottles destroyed the Coca Cola Export Corporation would be parting only with a small amount of money of protecting its fair name of the business. Thus in this bargain both the parties stood to gain in their own way according to their own calculations in which each party saw some benefit. The co-relation of this sum with the bottles destroyed is a clear indication that the amount paid was for destruction of bottles although ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r destroyed. If in respect of the plant which was used for the purpose of the business and owned by the assessee is sold, discarded, demolished or destroyed and in that process any money became payable that money which is in excess or the written down value would be deemed as income. The fact that the money was payable on the closure of business was also taken not of be this section by adding an Explanation which says that for the purpose of this section the provisions would apply as if the business or profession is in existence in that previous year. Thus the fact of the closure of the business in the previous year or the fact that the amount became payable on the closure of business to my mind become insignificant because by this Explanation the business or profession is supposed to be in existence in the previous year notwithstanding the fact that the building, machinery or plant or furniture was no longer in existence prior to the previous year. Here in this case the bottles which were treated as plant in respect of which full allowance was given were definitely destroyed and the moneys became payable to the assessee only on the destruction of the bottles. A bottler, who has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislature regarded it as income receipt in the previous year in which the money was received. Either the provisions of section 41(2) would apply to the facts of this case or not. If the provisions of section 41(2) are applicable, then the amount received by whatever name call howsoever computed, but if it was relate to the plant destroyed which are bottles in this case, that amount would become an income receipt. I am therefore not able to see the relevance of this case. 6. Strong emphasis was also laid on another decision of the Rajasthan High Court in the case of Arvind Singh. This is a case where the Rajasthan High Court was required to find out whether there was any diversion of income by overriding title. In this case the assessee received a Privy Purse out of which some amount was paid be way of maintenance to a member of the family. The question arose whether the amount paid could be deducted on the ground of diversion by overriding title. The High Court having found that the payment of allowance of maintenance wholly rested on the discretion of the Maharaja it was in the narrate of an obligation and therefore, it was only an application of a portion of the income to disch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipts. The Supreme Court also found that the respondent company not having paid any money by way of price in respect of the assets delivered to it by the Government, there was only a barter and therefore the transaction did not attract the second proviso to section 10(2)(vii) of the Income-tax Act, 1922 and no balancing charge was payable in relation to sale proceeds referable to depreciable assets made over by the respondent to the Government. This decision of the Supreme Court on the proposition of law whether barter would amount to a sale. The Supreme Court held following its earlier judgment in Motors & General Stores (P.) Ltd.'s case that the barter is equal to exchange and therefore there was no sale of the assets. Since there should be a sale to attract the provisions of section 10(2)(vii) would not be applicable. Other than this there was no relevance of the citation of this case before me. Even here the facts are so different that they would not apply to the facts before me. Here the question was not of sale. Here the question is one of destruction of plant. That there was a destruction of plant was not in dispute; that the moneys were received as a consequence of destructi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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