Inter Gold (India) Pvt. Ltd. v. Jt. CIT
A.Y. : 1998-99. Dated : 5-1-2010
S. 4 of the Income-tax Act, 1961 — If goodwill of business is damaged and later on some compensation is awarded in lieu of that, it would fall in category of loss to source of income and such receipt would be a capital receipt.
The assessee was importing gold bars from Union Bank of Switzerland (UBS). In one consignment shipped by UBS there was excess supply of some gold bars. The customs authorities seized the excess quantity and also took legal action against the assessee-company. UBS accepted its mistake and admitted the human error at their end. The appellate customs authority absolved and acquitted the company. The company filed a suit against UBS in the High Court of London. Finally, an out-of-court settlement was reached between UBS and the company and UBS paid Rs.41.58 lacs as compensation against loss of reputation and goodwill and Rs.14.46 lacs towards legal expenses, etc. The assessee offered the sum of Rs.14.46 lacs for taxation voluntarily by including it in the miscellaneous income and claimed the amount of Rs.41.58 lacs as capital receipt not chargeable to tax in the computation of income. The Assessing Officer held that the amount of Rs.41.58 lacs representing compensation received by the assessee was a revenue receipt chargeable to tax. On appeal, the CIT(A) upheld the action of the Assessing Officer.
The Tribunal, relying on the decisions in the following cases, ruled in favour of the assessee :
(1) CIT v. A.R.J. Security Printers, (2003) 264 ITR 206/131 Taxman 297 (Delhi)
(2) Oberoi Hotel (P.) Ltd. v. CIT, (1999) 236 ITR 903/103 Taxman 236 (SC)
(3) CIT v. Bombay Burmah Trading Corpn. Ltd., (1986) 161 ITR 386/27 Taxman 314 (SC)
(4) Rohitasava Chand v. CIT, (2008) 306 ITR 242/ 171 Taxman 147 (Delhi)
(5) Serum Institute of India v. Dy. CIT, (2008) 111 ITD 259 (Pune)
While treating the amount of Rs.41.58 lacs as a capital receipt, the Tribunal noted as under :
(1) The word ‘income’ has to be understood in the generic sense. If a receipt bears the traits of income as per the plain and natural meaning, the same will still be included within the scope of S. 2(24) even if there is no specific mention of such item in the definition clause.
(2) It is trite law that any receipt in the nature of compensation, costs, damage, etc., by whatever name called, towards loss of income is a revenue receipt. However, any receipt to compensate for the loss of source of income is a capital receipt.
(3) Loss of source of income does not necessarily mean that the source must be absolutely extinguished. If the source of income has been severely beaten, thereby causing serious damage to the income-earning apparatus itself, it will also be construed as the loss of source of income.
(4) As in this case, if goodwill of the business is damaged and later on some compensation is awarded in lieu of that, it will also fall in the same category of loss to the source of income and, consequently, such a receipt will also qualify to be characterised as a capital receipt.