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TMI Blog2024 (10) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... e arises before us so as to find out whether the amount represents the compensation for the termination of the contract. As important to note that the main settlement agreement has to be read as a whole and in substance. Tribunal after considering the settlement agreement arrived at by the respondent- assessee with the Coco Cola India has upheld the order passed by the CIT(Appeals) on finding of fact that the source of income of the assessee as a result of the main agreement had come to an end. Tribunal also verified the said facts from the financial statements filed by the assessee in the year ending on 31st March, 2009 and 2010 for the subsequent years. In view of the above concurrent findings of facts, we are of the opinion that the Tribunal has rightly followed the decision of the Hon ble Apex Court in case of Oberoi Hotel (P) Ltd [ 1999 (3) TMI 2 - SUPREME COURT ] Disallowance made 20% of total purchases of raw material - ITAT restricted addition to 10% - Undeniably, the onus lies upon the assessee justify its claim based on the documents. In the event the assessee fails to justify, the AO has to see the claim of the assessee based on the circumstantial evidence, history of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 143(3) of the Act vide order dated 24th December, 2009 wherein the Assessing Officer assessed the income of the assessee at Rs.9,48,78,035/- . 2.3. The following additions/disallowances were made by the Assessing Officer :- Loss as per statement of income 1,26,23,824/- Add: Additions/Disallowance 1. Unsecured Loans 56,77,422/- 2. Liabilities 8,55,59,306/- 3. Prior period expenses 32,600/- 4. Disallowance u/s. 43B 42,47,320/- 5. Legal professional charges 1,39,434/- 6. Income Tax 2,03,098/- 7. Expenses 4,69,838/- 8. Interest Expenses 16,19,578/- 9. Purchases 25,31,640/- 10. P.F. 27,398/- 11. Depreciation 69,94,225/- Assessed Income 9 ,48,78,035/- 3. Being aggrieved by the assessment order, the assessee preferred Appeal No. CIT (A) XIV//DCIT.Cir 8/280/09-10 before CIT (Appeals) and submitted that its business was closed and the employee who was looking after the accounting and other related works also left. Therefore, the details were not timely arranged at the time of assessment. The assessee prayed the learned CIT(Appeals) to accept the additional evidences as per Rule 46A of the Income Tax Rules 1962 (for short the Rules ) . 4. CIT (Appeals) vide order dated 30.3.2012 allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of capital in nature and enhanced the income of the assessee. 6. The Appellate-Revenue being aggrieved by the order passed by the CIT(Appeals) preferred an appeal before the Tribunal. Tribunal after considering the submissions and the documentary evidence placed on record as well as order passed by the CIT (Appeals) so far as the question No.1 is concerned held as under:- 25. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has received compensation from the parties as detailed below :- Sr.No Name of the Company Amount of compensation. 1. Hindustan Coca-Cola Beverage Pvt. Ltd. Rs.5 Crore 2. Coca-Cola India Pvt. Ltd. Rs.1.5 Crore 25.1 The assessee out of the compensation received of ₹ 5 crores has 5 crores has offered a sum of Rs.69,15,912.00 to tax in the income tax return and the balance amount of Rs.4.30,84,088.00 was treated as capital receipt not chargeable to tax. Likewise, the amount of compensation of ₹ 5 crores has 1.50 crores received from Coca- Cola India Pvt Ltd was treated as capital receipt not chargeable to tax. 25.2 However, the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have referred the main settlement agreement dated 23rd December 2006, placed on pages 15 to 22 of the paper book and find the relevant clause is reproduced as under: On closing Date, CCIL shall pay on of before 28th December 2006 a sum of Rs. 1,50,00,000 to Surbhi as compensation for termination of the Schweppes Agreement. This sum is in addition to the Settlement Amount. Upon payment of the above mentioned compensator, the Schweppes Agreement shall stand terminated and any and all accrued rights of Surbhi, whether in law or in equity, to seek remedy, either contractual or otherwise, in any manner whatsoever, against Cadbury Schweppes Beverages India Private Limited, or against Atlantic Industries Inc., for any demands, differences, losses, liabilities, damages and claims arising under the Schweppes Agreement shall stand abandoned and waived. Further, Surbhi shall not raise any claims, demands, differences, disputes or liabilities against Cadbury Schweppes Beverages India Private Limited or against Atlantic Industries Inc under any other communication, letter or understanding. 25.5 On perusal of the above clause, it is evident that such compensation of ₹ 5 crores has 1.50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). The Company acted as a sponsored corporate of Surbhi and in relation thereof opened an escrow account with the Bank (A/C No.010205000174) in which conversion fees were to be deposited. In relation to this arrangement, certain disputes arose between the Company and Surbhi, on the one hand, and the Bank, on the other hand. These disputes have been settled under the Bank Settlement Agreement of even date entered into by and amongst the Bank, the Company/ and Surbhi, attached hereto as Annex 1. 25.7 Based on the above clause, what is transpired is this that there were certain trade disputes arose between the assessee and the company namely Hindustan Coca-Cola Beverage Pvt Ltd and in order to settle those disputes the amount of compensation was received for Rs. 4,30,88,084/- only. Thus, it was alleged by the Revenue that the impugned amount does not represent the compensation as a result of termination of the contract and thus the principles laid down by the Hon'ble Bupreme Court in the case of Oberoi Hotels Pvt Ltd (supra) cited above are not applicable. Therefore, the same should be made subject to tax either under the provisions of section 45 or 28(va) of the Act. Thus the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting the compensation will not change merely on the reasoning that party deducted the TDS on the payment made to the assossee. What is the substance in the present is this that there was loss of source of income to the assessee on account of the main agreement as discussed above. 25.11 At this juncture, it is important to note that the word cease to subsist has been used in the main settlement agreement. Perhaps, these words have been used in the main settlement agreement for the reason that the original contract entered between the assessee and the company was ended by efflux of time but still the same was continued. Thus, it appears that though the agreement has come to an end but it was subsisting as on the date of main settlement agreement on account of the conduct of the assessee and the company. In other words, once the agreement has already been terminated but subsisting because of the conduct of the parties, may be for this reason the word cease to subsist was used in the agreement. But we have to see the substance of the main settlement agreement instead of making reference to the relevant clause. It is beyond doubt that the source of income of the assessee as a result of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, but not where payment is received in settlement of loss in a trading transaction. 10. After analysing number of cases, the Court observed that following satisfactory measure of consistency in the principle is disclosed : 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. 11. The aforesaid principle is relied upon in the case of Karam Chand Thapar and Bros's case (supra). Considering the aforesaid principles laid down as per Article XVIII of the Principal Agreement, the amount received by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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