The Income Tax Appellate Tribunal (ITAT), Pune Bench held that amount received as compensation for pre-closure of Build Operate Transfer (BOT) projects is capital receipt.
The issue concerned is in relation that the CIT(A) failed to appreciate that the amount received by the assessee, Rohan and Rajdeep Infrastructure was on account of pre-closure of its BOT projects and therefore, the same was a capital receipt and the provisions of section 28(ii)(d) of the Income Tax Act, 1961 were not applicable to the facts of the present case.
The assessee had received the impugned compensation amount i.e Rs.18 crores from the Government of Maharashtra in lieu of closure of its “BOT” projects at three location. Both the lower authorities have invoked section 28(ii)(d) of the Act that such a compensation received partakes character of a revenue receipt as taxable income only.
Section 28(ii)(d) stood inserted in the Act by the Finance Act 1973 with retrospective effect. Relevant memo of explanation thereto clarified that “Several laws have been enacted in recent years for taking over the management of industrial undertakings, mines, insurance companies etc. pending their final takeover by the Government. These laws provided for the payment of compensation in respect of the vesting in the Government of the management of the business of industrial undertakings etc. taken over by the government.
The legislature has also inserted clause (e) in section 28(ii) of the Act by the Finance Act 2018 wherein any compensation or such payment received “at or in connection with termination or the modification of the terms and conditions, if any, contract relating to his business” is assessed has seem held taxable as profits and gains of business or profession. This latter amendment proposes to invoke section 28 of the Act qua any compensation; including both revenue as well as capital u/s.28 of the Act
A Bench consisting of SS Godara, Judicial Member and GD Padmahshali, Accountant Member observed that “We thus conclude that both the learned authorities have erred in law and on facts in invoking section 28(ii)(d) qua assessee’s impugned compensation of Rs.18 crores thereby holding it as a revenue receipt.”
Subscribe Taxscan Premium to view the Judgment
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
