Principal Commissioner of Income Tax-(C)-2 v. M/S Aerens Developers and Engineers Ltd

S. RAVINDRA BHAT, J

VINOD GOEL, J APRIL 25, 2018 ndn

* IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision: 25th April, 2018 + ITA 235/2017 + ITA 236/2017 PRINCIPAL COMMISSIONER OF INCOME TAX-(C)-2 ..... Appellant Through Mr.Sanjay Kumar and Mr.Rahul Chaudhary, Standing Counsels. versus M/S AEREN R INFRSTRUCTURE LTD. ..... Respondent Through Mr.Inder Paul Bansal and Mr.Vivek Bansal, Advocates. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE VINOD GOEL MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) Revenue's appeals in these two cases question an order of the ITAT. The issue concerns the treatment of damages and compensation awarded to the assessee. The Assessment Officer (AO) rejected the assessee's claim that these were towards capital receipts and ruled that they have fallen in the revenue stream. The CIT(A) rejected the assessee's appeal. The facts are that the assessee engages itself in the business of real estate and had entered into a consortium agreement with its associates which defines the role, rights and responsibilities. This consortium entered into an agreement to sell with one JMA Buildcom Private Limited for purchase of 10 acres of land for a consideration of Rs.15 crores. The seller JMA Buildcom defaulted in its commitment within the prescribed and extended time limit. Ultimately, upon parties resorting to the Dispute Settlement Arbitration; a settlement was arrived at and an award was made based upon the parties' eventual settlement. The amount received by the assessee as a part of its entitlement (as consortium) was credited in its books of accounts as a capital stream. The AO and the CIT(A) held that the amounts were revenue in nature as the land would have been part of the stock-in- trade. The ITAT in its judgment after noticing the Supreme Court's judgment in Universal Radiators Vs. Commissioner of Income Tax [1993] 201 ITR 800(SC) held that in the facts of this case, the amount which was intended to be ultimately used as stock-in-trade purposes were immobile and sterilised, hence rendered non-offerable and therefore when received, as part of the arbitration award, fell into the capital stream. The relevant discussion in the impugned order of the ITAT is as follows:- "It was damaged for non-performance of the contractual obligation by the AIK. It was contended that the authorities below while deciding the issue against the assessee have not appreciated the injury caused to the profit making apparatus and that the knowhow was foundation of the business of the assessee. Appreciating the same, huge compensation was awarded by the arbitrator. The basis of award remained the lost profit due to non-supply of the knowhow and not on loss of profit and that newly installed machinery in absence of supply of knowhow have gone completely wasted. Reliance was placed on several decisions. After dealing with the issue in detail, the ITAT has decided the issue in favour of the assessee. When we examine the facts of the present case in view of the above cited decisions of Pune Bench of the ITAT, we find that in the present case before us also the injury was caused to the profit making apparatus as the land which was profit making apparatus for the assessee was not supplied by JMA Buildcom (P) Ltd. as per the agreement entered into between the assessee and associates, and JMA Buildcom (P) Ltd. Appreciating the same, compensation was awarded in the arbitration proceedings initiated against JMA Buildcom (P) Ltd. In other words, the basis of award remained the lost profit due to non-supply of the land i.e. profit making apparatus and not on loss of profit. We thus find that the only inference can be drawn is that the compensation received by way of reward due to non-supply of land by JMA Buildcom (P) Ltd. under the agreement was capital receipt. We hold as such. The ground No.2 is accordingly allowed. In view of this finding, the remaining grounds 5,6 7 and 9 have become academic only and these grounds are accordingly disposed off." The judgment in Universal Radi