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TMI Blog1988 (8) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... a and Fanta by the assessee-Company. The bottles for these soft drinks were to be manufactured by the assessee according to the specification given by the American Company. After sometime, the Government of India refused permission for the American Company to sell soft drinks, concentrates in India. Due to this, the assessee could no longer manufacture and sell these soft drinks in consequence of which a large number of empty bottles which could no longer be used remained with the assessee. Though the American Company was not under a legal obligation to purchase these empty bottles from the assessee, yet, as accountable measure of goodwill it had agreed to make an ex gratia compensation towards the empty bottles on the condition that the assessee should destroy all the empty bottles in the presence of a representative of the American company. The assessee, accordingly, destroyed these bottles and received an amount of Rs. 3,80,000 towards the loss of these empty bottles. Though credit entry with regard to this amount was existing in the statements accompanying the return of income of the assessee, the ITO did not consider the taxability or otherwise of this amount. In view of this, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT. Two grounds of appeal are raised by the assessee and the same are considered as under: 7. The first ground of appeal is that the CIT has erred in holding that he has jurisdiction to revise the order of the ITO under s. 263. The learned counsel for the assessee submitted that the original order of assessment passed by the ITO was the subject matter of appeal before the CIT(A). This being so, it is further submitted that the order of the ITO merged with the appellate order of the CIT(A) and consequently the CIT will have no jurisdiction to revise the assessment order under s. 263. In support of this, reliance was placed on the Special Bench decision of this Tribunal in the case of Dwarka Das Co. (P) Ltd. vs. ITO reported in (1982) 1 ITD 303 (Mad) (SB) and another decision of the Tribunal in the case of Carborandum Universal Ltd. vs. ITO reported in (1986) 17 ITD 305 (Mad) and the decision of the Bombay High Court in the case of CIT vs. P. Muncherji (1987) 63 CTR (Bom) 338 : (1987) 167 ITR 671 (Bom). Against this, the learned Departmental Representative submitted that the doctrine of merger when considered in the context of the provisions of the taxing statute can have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. The learned counsel for the assessee submitted that after the imposition of ban by the Government of India the American Company could not supply the soft drink concentrate to the assessee and consequently the assessee was not able to manufacture either the Cococola or the Fanta. Due to cessation of this business, it is submitted that all the empty bottles that remained with the assessee became unusable and in view of this the assessee requested the American Company to compensate for the large number of empty bottles rendered useless suddenly and for no fault of the assessee. Though the American Company maintained that there is no legal obligation on it under the agreement to compensate the assessee for this loss, et as a gesture of goodwill it agreed to compensate the assessee at the rate of Rs. 10 per case upto 38,000 cases on the condition that all the empty bottles should be destroyed by the assessee under the supervision of a representative of the American Company. Accordingly, all these bottles were destroyed. The learned counsel submitted that the ex gratia compensation received was not towards the loss of bottles as such, but was due to loss of business of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this claim and treated the entire amount of loss as a business loss. Thus, the learned Departmental Representative submitted that the amount of compensation received by the assessee is to be treated as a revenue receipt only and not otherwise. 11. We have considered the contention of the parties. It is not in dispute that due to non-supply of soft drink concentrate by the American Company due to the ban imposed by the Government of India, the empty bottles of the assessee have been rendered useless. It is also not in dispute that the payment of ex gratia compensation was on the specific condition that the assessee-Company destroy all the empty bottles in the presence of a representative of the American Company and in fact the assessee destroyed these empty bottles accordingly. It is also not in dispute that even after the non-supply of the soft drink concentrate by the American Company, the assessee continued its business in soft drink under the name "Torino". At this juncture, the question that arises for consideration is whether the amount of compensation received by the assessee-Company would be a revenue receipt or a capital receipt. In the Bombay Burmah Trading Corporation' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom which this matter could be considered. In the assessee's own case relating to the asst. yr. 1978-79 the Tribunal in its decision reported in (1985) 47 CTR (Trib) 10 has allowed the value of these bottles destroyed as a revenue loss. Sec. 41(1) of the Act inter alia provides that where a deduction has been made in the assessment for any year in respect of loss or expenditure and subsequently during the previous year the assessee has obtained any amount in respect of such loss of expenditure by way of remission, the amounts obtained by him shall be deemed to be profits and gains of business and, accordingly, chargeable to income-tax as the income of the previous year. In the asst. yr. 1978-79 the assessee had already availed the value of these bottles destroyed as a revenue loss. Towards the same loss the assessee has obtained ex gratia compensation of Rs. 3,80,000 by way of remission from the American Company. Therefore, in terms of s. 41(1) the amount of remission obtained would be deemed to be profits and gains of the previous year and shall be chargeable to tax. In this view of the matter, the amount of ex-gratia compensation received by the assessee towards the loss or destr ..... 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