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TMI Blog2024 (6) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... as a natural corollary, the interest accrued on the said amount cannot tantamount to revenue receipts and hence, the same cannot be subjected to tax as per Section 56 (2) (viii) of the Act. We are of the considered opinion that the ITAT was correct in holding that the amount of interest was in the nature of capital receipt and thereby, not chargeable to tax. Thus, we do not find any reason to interfere with the judgment rendered by the ITAT. X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant AYs was contrary to the provisions of Section 145A (b) of the Act as it then stood in the relevant AY. However, on 23.03.2016, the CIT(A) allowed the application of the assessee and modified its earlier order dated 17.11.2015 and held that the said amount was in the nature of capital receipt and therefore, not liable to tax. 8. Thereafter, the Revenue and the assessee preferred an appeal before the ITAT against the CIT(A) orders dated 17.11.2015 and 23.03.2016, respectively. The ITAT vide common order dated 13.04.2018 allowed the appeal of the assessee against the order dated 17.11.2015 and held that the amount in question was in the nature of capital receipt and thus, not chargeable to tax. 9. It is this order which is impugned before us at the instance of the Revenue. 10. Mr. Siddhartha Sinha, learned standing counsel, appearing on behalf of the Revenue assailed the impugned order on the principal ground that the amount received by the assessee was in the nature of the compensation and thus, the interest on the said amount would be liable to tax. He further submitted that the amount in question ought to be considered as income from other sources in terms of provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt Recovery Tribunal was challenged before Debt Recovery Appellant Tribunal (DRAT) and orders dated 25.06.2009 was passed wherein it was ordered that the possession taken by the assessee of the auctioned property be returned back to the original borrower. The assessee challenged the above order before the Hon'ble Punjab and Haryana High Court in CWP number 1470 of 2010. The Hon'ble High Court directed Punjab National Bank to return the whole sum deposited along with interest accrued thereon. Consequently, the DRT recovered the money from Punjab National Bank and refunded the same to the appellant. So assessee was repaid originally auction amount as well as a further sum of Rs 31907676/-. The Punjab National Bank by making the repayment deducted the tax at source in respective years and issued certificates in favour of DRT. Furthermore, the assessee filed a civil suit in the court of Civil Judge Sr. Division, Chandigarh for recovery of damages. It is stated that the above sum was accepted from Punjab National Bank subject to legal right of the petitioner to challenge the compromise arrived between the borrower and the bank. Therefore, it was stated that the dispute had not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on compensation or enhanced compensation shall be chargeable to tax in the year in which it is received. Therefore, provision of section 145A speaks about the timing of taxability and section 56 (2) (viii) the head under which it is chargeable. However, the character of income should be interest on compensation or enhanced compensation. In the present case, we have already held that it is not interest but compensation. Section 56 (2) (viii) also does not provide for taxation of compensation but only interest on such compensation. In the present case, the assessee has received compensation. Ld DR also could not show that if the amount received is interest on compensation what the amount of compensation itself is. In view of this, we reject the contention of the revenue that provision of section 56 (2) (viii) applies to the impugned amount." 15. It is ex-facie evident from a reading of the impugned order that the ITAT had considered the aspect that the amount received by the assessee was not in the nature of debt rather, the same was received on account of cancellation of the auction. Therefore, the ITAT has appropriately characterized the interest on the amount received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emature determination of the contract of agency is a capital or a revenue receipt, echoing the views expressed in Rai Bahadur Jairam Valji [AIR 1959 SC 291 : (1959) 35 ITR 148] and analysing numerous judgments on the point, this Court laid down the following broad principle, which may be taken into account in reaching a decision on the issue: (Kettlewell Bullen and Co. Ltd. case [AIR 1965 SC 65], AIR p. 79, para 36) "36. … Where on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what in 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: where by 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." 17. We have considered the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of capital receipt. The payment of interest in the facts of the present case is compensatory in nature and, therefore, does not bear the character of revenue receipt. Thus, we hold that the Assessing Officer's order dated February 15, 2016, was correct and it did not suffer from any error, justifying the invocation of the Principal Commissioner of Income-tax's powers under section 263 of the Act." 18. It is elementary to point out the decision of this Court in the case of Girish Bansal v. Union of India and Ors. 2016 SCC OnLine Del 2543., wherein, the sale certificate of the successful bidder was cancelled by virtue of the court order and the amount received by the bidder on account of cancellation of the auction was termed as a capital receipt. The relevant paragraphs of the said decision are reproduced herein for reference:- "22. Nevertheless, even if one were to test the above plea of the Revenue, it appears to be untenable for a simple reason that the receipt of Rs. 20,00,000 by the assessees was consequent upon the order recorded by the Supreme Court on February 28, 1992, in Civil Appeal No. 1003 of 1992. There is no indication in the said order that the said amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t;Whether a receipt is liable to be treated as income depends very largely upon the facts and circumstances of each case : it is open to the Income-tax authorities to raise an inference that a receipt by an assessee is assessable income where he fails to disclose satisfactorily the source and the nature of the receipt. But in this case the source of income was disclosed by the appellant, and there was no dispute about the truth of that disclosure." 23.4 After analysing the evidence it was concluded that what the assessee had received was not assessable to tax. *** 31. Examined in light of the legal position explained in the above decisions, the court is of the view that as far as the present case is concerned, the sum of Rs. 20 lakhs received by the assessees was in the context of the cancellation of the sale certificate and the sale deed executed in their favour in relation to an immovable property and neither assessee was dealing in immovable property as part of his business. While it could if at all be said to be in the nature of a capital receipt, what is relevant for the present case is that the Revenue has been unable to make out a case for treating the said receip ..... X X X X Extracts X X X X X X X X Extracts X X X X
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