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TMI Blog2010 (1) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... al, V. Durga Rao, JJ. P.J. Pardiwala, Adv. for the Appellant Daya Shankar, Adv. for the Respondent ORDER R.S. Syal, Accountant Member. 1. These two cross appeals - one by the assessee and the other by the Revenue - are directed against the order passed by the Commissioner of Income-tax (Appeals) on 15-12-2003 in relation to the assessment year 1998-99. 2. The first issue raised by the assessee in its appeal is against not allowing exemption under section 10A on the income of Rs. 9,20,54,556 derived from Unit-I. At the very outset the learned counsel for the assessee fairly conceded that similar issue was there in appeal of the assessee for assessment year 1997-98 and the Tribunal in Dy. CIT v. Inter gold (India) Ltd. [2009] 124 TTJ (Mum.) 337' has decided this issue against the assessee. It was candidly accepted that the facts and circumstances of this year are similar to those of the immediately preceding year. Under these circumstances, we uphold the impugned order on this issue as the same is in conformity with the view taken by the Tribunal in assessee's own case in the immediately preceding year. This ground, therefore, fails. 3. The only gri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities that there was excess supply of 50 Ten-tola gold bars. Not only the excess quantity of gold was seized by the Custom authorities but legal action was also taken against the assessee and its responsible officers. UBS accepted its mistake and filed the necessary letter of confirmation with the Custom authorities admitting the commission of human error at their end in shipping excess quantity of gold bars to the assessee-company. Undeterred, the Custom, authorities continued with legal proceedings against the assessee and its responsible officers. In May 1995, the Appellate Custom authorities passed an order in favour of the assessee-company, as a result of which the assessee and its responsible officers were absolved and acquitted. The assessee-company along with its other responsible officers filed suit against UBS in the High Court of London. Finally an out of Court settlement was reached between the assessee and UBS consequent to which the latter agreed to pay the assessee-company US$ 1,15,000 against the loss of reputation and goodwill in addition to US$ 40,000 against legal fees and other incidental expenses on the condition of the assessee-company withdrawing all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The relevant part of this letter reads as under:- 'UBS shall pay to Inter Gold and Messrs. Sheth, Amar Nath and Pansara 15 working days in Zurich following the day on which a copy of the present document is countersigned the compensation of net sum of US$ 3,80,000 -(US$ three hundred and eighty thousand) by means of telegraphic transfer for the sum to be remitted to Inter Gold for credit to its current A/c No. 1/173 held with State Bank of India, SEEPZ Branch, Mumbai representing aggregate of compensation payable to Inter Gold, Mr. Sheth, Mr. Amar Nath and Mr. Pansara, as detailed hereunder:- (a) Compensation to Inter Gold (i) against legal fees and incidental expenses US$ 40,000 (ii) against loss of reputation and goodwill US$ 1,15,000 (b) Compensation to Messrs. Sheth, Amar Nath and Pansara (the "Executives") against loss of reputation and goodwill, mental peace, agony, harassment, arrest. (i) Mr. Sheth Rajeev US$ 75,000 (ii) Mr. Amar Nath US$ 75,000 (iii) Mr. Pansara Nayan US$ 75,000 Grand Total U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her High Courts in several cases including the following:- 1. Arihant Builders Developers and Investors (P.) Ltd. v. ITAT[2005] 277 ITR 239 (MP). 2. Asstt. CIT v. Gendalal Hazarilal and Co. [2003] 263 ITR 679 (MP). 3. CIT v. Neo Poly Pack (P.) Ltd. [2000] 245 ITR 492 (Delhi). 4. Dhansiram Agarwalla v. CIT [1996] 217 ITR 4 (Gau.). Even the insertion of section 268 A by the Finance Act, 2008 has not diluted the above principle insofar as the present factual position is concerned. 10. Be that as it may we will delve upon to examine independently, as to whether the compensation awarded to the assessee against the loss of reputation and goodwill amounting to Rs. 41.58 lakhs can be considered as revenue or capital receipt. It is a common law that every receipt by the assessee is not chargeable to tax. Therefore, it follows that unless the receipt represents income chargeable to tax, the question of attracting taxability on such receipt does not arise. Sub-section (24) of section 2 defines 'income' in an inclusive manner and not exhaustively. According to this provision "'income' includes (z) profits and gains...". Thus, this definition includes various items as me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tical meaning." Similar view has been reiterated recently by the Hon'ble Madras High Court in the case of CIT v. K. Thangamani [2009] 309 ITR 15' by holding that "section 2(24) gives an inclusive definition to the word "income". The expression "income" is very wide and the object of the Income-tax Act being one to tax income it has to be given an extended meaning". From these judicial pronouncements, it is evident that even if a particular item of income is not specified in section 2(24), the same can also be included in the definition of 'income'. What the assessee received in the case of G.R. Karthikeyan (supra) was the return for his skill and endurance which has been held to be includible in the definition of, income, under section 2(24). At the same time it is sine qua non that the receipt must be in the nature of income. If it is not so, then it will not be held as income. For example, the receipt of a gift by a person from another cannot be subjected to tax because even though it is a receipt, but it is devoid of the traits of income and, hence, such an amount cannot be held to be liable to tax. 12. No strait-jacket set of principles have been enshrined in the Act for dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Burmah Trading Corpn. Ltd[1986] 161 ITR 386 byholding that the compensation received for immobilization, sterilization, destruction or loss, total or partial, of a capital asset would be a capital receipt. If a sum represented profit in a new form, then that would be income but where the agreement relates to the structure of the assessee's profit-making apparatus and affects the conduct of the business, the sums received for cancellation or variation of such agreement would be capital receipt. The same view has been recently reiterated by the Hon'ble Delhi High Court in Rohitasava Chand v. CIT[2008] 306 ITR 242 while dealing with the receipt of non-compete fee. It has been held that the non-compete agreement entered into by the assessee with a foreign company whereby he undertook not to take up any business activity relating to software development impaired his profit-making activity and, thus, the non-compete receipt was a capital receipt. 14. From the foregoing discussion it can be easily noticed that if the receipt is to make good actual or prospective loss in a particular trading transaction or set of transactions, it is a revenue receipt liable to tax. However, any receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t out above. It can be seen that in that case the prize was received by the assessee as return for his skill and endurance. There is no resemblance of the facts of that case with those under consideration. The amount herein was not awarded to the assessee for rendering some services or to make good any loss in the business. On the contrary it was towards loss of reputation. The next case relied by the authorities below is Travancore Rubber and Tea Co. Ltd. 'scase (supra). In that case, the assessee was a plantation company engaged in the business of growing rubber and tea. In 1975, it entered into three agreements with three purchasers for sale of old rubber trees. Each of the purchasers paid a certain amount by way of earnest money and another amount by way of advance. The earnest money received by the assessee was to the tune of Rs. 75,000 and the amount by way of advance was Rs. 3,56,300. These purchasers defaulted in payment of the balance amount. The assessee forfeited the earnest money and advance. Subsequently the trees for which the assessee had earlier entered into agreement with three parties, who became defaulter, sold. When the matter finally came up before the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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