Commissioner of Income Tax vs Ambadi Enterprises (P.) Ltd.

N.V. Balasubramanian, J.—In the above tax case, the question referred to us for our consideration, is as follows: Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs. 21. 5 lakhs received by the assessee and covered by the termination agreement could not constitute the income of the assessee?

The matter relates to assessment year 1985-86. The assessee has been the distributors for the products of Tube Investments of India Ltd., T.I. Miller Ltd., and T.I. Diamond Chain Ltd., under agreements of distributorship with those companies. These agreements were terminated with effect from 30-6-1984 and the assessee-company received the amount of Rs. 21.50 lakhs by way of compensation in ten equal quarterly instalments commencing from the quarter ended 30-9-1984. The question that arises is whether the amount received represents revenue receipts or capital receipts. The income tax Officer held that the receipts are of income in nature and brought the same to tax.

On appeal, the Commissioner of income tax (Appeals), Madras, has held that the amount accruing of the termination agreement would be revenue in nature, but, however, held that there was no justification to assess the entire amount of compensation. The Commissioner, therefore, directed the assessment officer to tax the amount when the instalment became due as compensation. The Assessee filed an appeal before the Tribunal. The Appellate Tribunal following the earlier order in the case of T.I. & M Sales Ltd., Chennai held that the amount of Rs. 21.5 lakhs was not revenue receipt of the assessee. The Tribunal arrived at the above view following its earlier order rendered in the case of T.I. & M Sales Ltd., Chennai, where a similar question was considered. The order of the Appellate Tribunal in the case of T.I. & M Sales Ltd., was the subject-matter of tax case reference before this Court in T.C. Nos. 408 and 449 of 1997 and this Court (in which one of us is a party) by judgment dated 8-10-2002 has held that the amount received on the termination of the agreement was capital receipt.

The learned standing counsel appearing for the revenue fairly submits that the decision of this Court in T.I. & M Sales Ltd. Chennai (supra) would apply to the facts of this case. Following the said judgment, the question referred to us is answered in favour of the assessee and against the Revenue. No costs.