|
III. Direct Taxes Case Law:
1. PCIT Vs. M/s Aeren R Infrstructure Ltd., I.T.A. No. 235&236/2017, Date of Pronouncement: 25.04.2018, High Court of Delhi
Issue
Whether the settlement compensation received by parties on default
of seller’s commitment of sale of land should be treated as capital
stream and hence, not liable to tax.
Held:-Yes
Brief Facts
The assessee engaged in the business of real estate entered into
agreement for purchase of land from one JMA Buildcom Private Ltd for
purchase of 10 acres of land for a consideration of Rs.15Cr. Upon the
seller defaulting in its commitment to sell, the parties resorted to
Dispute Settlement Arbitration and settlement compensation was awarded
to assessee. The Ld. AO and CIT(A) rejected the claims of assessee
treating the compensation as revenue stream stating that land purchased
would have been a part of stock in trade and compensation received from
the failed agreement to sell should be treated as revenue receipt.
However, the Hon’ble ITAT reversed the order of first appellate citing
that compensation received is for lost profit and not loss of profit as
if agreement to sell had been completed then the land purchased as stock
in trade would have yielded profit to the assessee. Being aggrieved the
revenue has filed an appeal before the Hon’ble High Court.
Held
The Hon’ble High Court while upholding the order of Hon’ble ITAT held
that the compensation received for immobilization, sterilization,
destruction or loss of a capital asset would be treated as a capital
receipt. In the present case the amount expanded by asseseee was
rendered immobile due to default by seller in its commitment to sell
(the would-be stock-in-trade land for the assessee). Therefore, eventual
receipt of compensation/damages clearly fell into capital stream and
therefore not liable to tax as revenue receipt.
The appeal was held in favour of assessee and against the revenue.
(Please click here for judgment)
|
New User? 
Subscribe Now