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TMI Blog1981 (10) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... ply in all 30 units of lorries and tippers costing about 15 lakhs. He repeatedly reminded the authorities. In view of the delay in supply initially, it was pointed out that 20 more tippers (over and above 10 already supplied) were required so as to enable the assessee to complete the work within the scheduled time. The requirement increases still further later. At one stage the Government offered to place orders for 6 tippers of particular brand but the offer was not accepted as these tippers were not considered suitable by the assessee. Non-acceptance of this offer was considered by the Department as absolving them of any further responsibility in the matter of supply of tippers. The assessee, however, stated that even the six tippers were never made available to him. He wanted alternatively some other earth moving machinery and trucks or four leyland tippers to be supplied. This was more than a year after the work had started. Some earth-moving machinery and not tippers were then made available. This according to the assessee was only partial performance while according to Government it was in full discharge of this obligation to supply 20 more tippers. The assessee wanted a revi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the breach of the superseded obligation". The substituted agreement did not extinguish the pre-existing right and that there was no recession of the contract thereby. The assessee has a right to compensation which has accrued "by the breach of the obligation to supply tippers". In working out the extent of compensation, the Arbitrator held that the contractor will have too be recompensed for the extra expenditure and the proportionate profit he would have made out of that work should furnish the measure of damages and that the rate worked out by the Chief Engineer offers a fair index of the additional expenses", to which the assessee was put to. On this basis, the assessee was awarded Rs. 7,66,242 as against the amount of Rs. 23,18,560 claimed by the assessee. The assessee got further amounts of Rs. 7,65,650 for additional work in Rock drill point for unauthorised deductions towards shrinkage point emergency work done and for fair rate for lead charges of sand. The total compensation was Rs. 15,31,892 and alongwith interest of Rs. 2,67,170, it comes to Rs. 17,99,062 as under: Rs. 1. Compensation for non-supply of tippers, point 1 (c) 7,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, it is a case where the payment was in consequence of termination of contract and is clearly a case of Award of Damages in the nature of capital receipt. He relied upon the decision of an English case in Commr. Of Inland Revenue vs. Ballantine 8 TC 595 where similar damages, according to him, were held to be capital receipt by the Commr. on their finding that he award was mainly of the nature of damages and not "contract extras or "adjustment of a contract debt". He further relied upon the decision of the Supreme Court in Senairam Docogammal vs. CIT (1961) 42 ITR 392 (SC), where compensation for building requisitioned for defence purposes was held to be capital receipt notwithstanding the fact that it was measured with reference to the tea that would have been manufactured if the building had not been requisitioned. He also relied upon the decision of Madras High Court in P.L.M. Firm vs. CIT (1968) 68 ITR 856 (Mad) where damages for breach of contract by lessee was treated as a capital receipt though it was worked out on the basis of the tribute which the assessee would have got had the mine worked according to the lease deed. On the basis of these decisions, he claimed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axable under certain circumstances. 6. We have carefully considered the facts and the arguments presented before us. The assessee is a contractor and Pochampad contract is one of the many contracts undertaken by him in his business as contractor. Pochamepad contract is, no doubt, one of assessee s major contracts. But assessee had undertaken equally major contracts in the past as a registered A. Class contractor and had executed other major projects like Break-Waters Project in Tuticorin Harbour, Eastern Dam at Cochin, Dam work at Sharawathy Project in Karnataka, overbridges and Railway Project, etc. and has been in this line of business for nearly tow decades. It is, therefore, not possible that this contract which is only one of his many contracts is a capital asset in the facts of assessee s case. In the case of Short Bros. vs. IR 12 TC 955 Court of Appeals held that the compensation received for cancellation of a contract for building two steamers to be a revenue receipt in the ordinary course of company s trade and taxable in the accounting period when it was payable and was, in fact, paid. Similarly, in House-hold vs. Grimshaw 24 TC 366, the receipt by a professional author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding of the dam as against 85,000 units undertaken by him. It was not an indivisible contract. The assessee had asked for higher rate for the work already done after 15th April, 1973 and the work remaining to be done. A part of the claim, now accepted, by Arbitrator, was also recommended by the Chief Engineer, but turned down by the Government. There was termination of the contract only in the sense that no further work was to be done by the assessee. The assessee, in other worse, was discharged from the obligation to do further remaining work of 14,200 units with a stipulations of penalty which was also dropped subsequently. It is the categorical finding of the Arbitrator that there was "no recision of contract". Reference to the word "breach" in the Award does not mean that there was a breach of the entire contract or even a fundamental breach or a breach of any fundamental or basic terms but only a breach of a condition to make available all the tippers necessary for the work at assessee s cost. Only ten were supplied. As found by the Arbitrator, even this none supply was "compounded", if we any use the word, by a "substituted obligation" of supplies of earth-moving machinery a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract itself by substitution of a new obligation obviously in the nature of notation. It is also clearly not an ex gratia payment but a payment to which the assessee was entitled under law, under Arbitrator s Award ultimately decided under Indian Arbitration Act. Hence, in any view, the inclusion of this amount of Rs. 7,66,292 had to be upheld. As pointed out earlier, the assessee s counsel had given up his objection against balance amount and Rs. 15,31,892 was therefore rightly added. 8. What remains to be considered is the interest of Rs. 2,67,170. We have held that the interest relates to assessee s claim for recovery of dues form the Government for work done. Interest was stipulated by the Arbitrator. The assessee s reliance on English case I.R.V. Ballarine on interest point also does not help him in that case, as it relates to interest paid as part of damages held to be capital receipt. In fact this decision was distinguished by the Supreme Court in T.N.K. Govindarajulu Chetty vs. CIT (1976) 66 ITR 465 (SC) even where the principal related to a capital receipt. In assessee s case, the principal sum itself its of revenue nature and was found to be not by way of damages. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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