Shyam Telelink Ltd Vs Income Tax Officer - Citation 74596 - Court Judgment

Judgment:
1. This appeal by the assessee is directed against the order of learned CIT-III, New Delhi dated 9-3-2005 passed under Section 263.

2. The relevant facts of the case giving rise to this appeal are as follows. The assessee in the present case is a limited company incorporated on 20-4-1995. It bid for various telecom circle licenses and was selected as the highest bidder for providing basic telephony services in the Rajasthan Telecom Circle. After some initial hiccups, the license for providing the said services was awarded to the assessee company on 4-3-1998. Meanwhile, on 26-2-1998, the assessee company entered into project agreements with M/s. Qualcomm Inc., USA and its subsidiaries (hereinafter referred to as "Qualcomm") which was then one of the largest telecom companies in the world and leader in CDMA technology. In all, sixteen different project agreements were entered into by the assessee company with Qualcomm for the purpose of setting up a broad-band network on the convergence platform in the Rajasthan telecom circle and as per the said agreements, Qualcomm was to supply equipments, provide related services and also to undertake financial commitments and guarantees on behalf of the company's project in favour of Department of Telecommunications and banks. As per the license granted by DoT to the assessee-company for providing basic telephony services in Rajasthan telecom circle, it had to set up a state of art broad-band network on convergence platform in Rajasthan telecom circle within twelve months from the date of the license agreement. In terms of the aforesaid agreements, Qualcomm sent some of the equipments to the assessee-company which failed to get necessary clearance from the Customs. In addition, there was a restructuring of Qualcomm's telecom business worldwide as a result of which it had agreed to sell its CDMA business worldwide to M/s. Ericsson. Consequently, Qualcomm could not execute the project agreements entered into with the assessee-company and finally, it was agreed between the assessee-company and Qualcomm to terminate the said agreements on the terms and conditions set out in a settlement agreement. As per the said terms and conditions, it was agreed inter alia that Qualcomm shall pay a total sum of Rs. 63.92 crores as compensation to the assessee-company on account of the following:-- (i) Waiver of loan taken by the company from ABN Amro Bank and guaranteed by M/s. Qualcomm by way of letter of credit in favour of ABN Amro Bank - Rs. 30.19 crores.

(ii) Discharge of Qualcomm's obligation under the financial/ performance bank guarantee given in favour of DoT -Rs. 33.33 crores.

(iii) Reimbursement of demurrage on equipments imported -Rs. 0.41 crores.

3. Accordingly, the assessee-company received an aggregate amount of Rs. 63.92 crores from Qualcomm during the year under consideration as compensation for the termination of project agreements. In its balance sheet filed alongwith the return of income for the year under consideration, the said amount was shown by the assessee under the head "Capital Reserves" and a following note was given in the annexed 'Notes' on Accounts:-- Amount aggregating to Rs. 6,39,256 thousands shown under the head "Capital Reserves" represents, credit accrued to the company consequent upon the settlement reached with the Qualcomm Inc., USA, its subsidiaries and affiliates, pursuant to various contracts with them.

4. During the course of assessment proceedings, a questionnaire was issued by the Assessing Officer on 5-10-2002 to the assessee requiring, inter alia, to furnish a "detailed note on capital reserve with nature thereof and documentary evidence". In reply, the following note was filed by the assessee-company under its letter dated 13-1-2003:-- The assessee-company was incorporated on 20-4-1995 in order to provide telecom services and it bid for various telecom circle licences in 1995. The company was the highest bidder for the Basic Services in Rajasthan Telecom Circle. However, due to certain differences in calculation of licence fee etc. with the Department the licence was delayed and it was ultimately awarded only in 1998.

Meanwhile the company had made preparations for installation of telecom network and tied up with M/s. Qualcomm Inc., USA as it was optimistic of getting the licence.

The assessee-company had signed the licence agreement with the Department of Telecom (DoT) on the 4-3-1998 for providing basic telephony services in the Rajasthan Telecom Circle w.e.f. 1-8-1999.

The company migrated from the fixed licence fee to revenue sharing arrangement under the Telecom Policy, 1999, under which the period of licence has also been extended from 15 to 20 years.

The company had planned to set up a state of art broad-band network on the convergence platform in the Rajasthan Telecom Circle, in order to provide voice telephony services alongwith other enhanced services like Phoneplus, Voice Mail, ISDN lines, leased lines, Virtual Private Network Centre, Internet Access and Cable TV services.

In order to meet the above requirements as mentioned above, the company had, in 1996, tied up with M/s. Qualcomm Inc., USA and its subsidiaries which is one of the largest telecom companies of the World & pioneer in CDMA technology. The company accordingly entered into contracts with Qualcomm for supply and related services for CDMA based wirelines equipments. In terms of the above said contracts, Qualcomm and its affiliates were required to supply most of the equipments, provide related services and undertake financial commitments and guarantees on behalf of the company's project in favour of DoT and banks.

However on account of restricting of Qualcomm's telephone business worldwide as also the failure of its equipments to get necessary clearance from the customs, various contracts had to be terminated and settlement was reached between the company and Qualcomm and its affiliates. In terms of the above settlement arrived at, Qualcomm agreed to the following:-- (a) Waiver of loan taken by the company from ABN Amro Bank and guarantee by way of Letter of Credit opened by Qualcomm in favour of ABN Amro Bank amounting to Rs. 30.19 crores.

(b) Qualcomm also agreed for discharge of company's obligation under the financial Performance Bank Guarantee in favour of DoT amounting to Rs. 33.33 crores.

The aforesaid settlement was reached with Qualcomm when the project was under the implementation stage.

Since all the above agreements were settled by Qualcomm on behalf of the company on capital account when the project was not implemented, hence the same was credited on the capital reserve account.

Hence the company had credited the amount of Rs. 63.92 crores on capital reserve account in the year as per the above settlement on account of termination of various contracts with Qualcomm and its subsidiaries and affiliates.

Necessary note to accounts have already been included as part of the Balance Sheet which is also in the record of Department.

5. On the basis of the aforesaid note, the Assessing Officer accepted the assessee's stand that the amount of Rs. 63.92 crores received by it on account of compensation for termination of project agreements with Qualcomm was a capital receipt not chargeable to tax, in the assessment completed under Section 143(3) on 31-3-2003, Subsequently, the assessment records were examined by the learned CIT and on such examination, he found that neither the copies of original contracts of the assessee-company with Qualcomm nor the copy of settlement agreement were available on the file and even there was no indication that the same were produced before the Assessing Officer for his examination.

He, therefore, came to a conclusion that the claim of the assessee on account of capital receipt was accepted by the Assessing Officer without examining the terms and conditions of the said agreements and thus, the question of taxability of the said amount was examined in a rather perfunctory manner. According to him, the assessment thus was framed by the Assessing Officer without proper enquiry and without application of mind and the same was erroneous as well as prejudicial to the interest of the Revenue. He, therefore, assumed jurisdiction under Section 263 and issued a notice under Section 263 to the assessee which read as follows:-- Sub : Show-Cause Notice under Section 263 of the Income-tax Act, 1961 - Assessment year 2000-01-- A perusal of the record of assessment proceedings for assessment year 2000-01 in your case shows that you credited an amount of Rs. 63,92 crores in capital reserve account following your settlement with Qualcomm and its subsidiaries and affiliates.

2. The Assessing Officer accepted this receipt as a capital receipt without proper enquiry. Neither copies of the original contracts with Qualcomm and its subsidiaries and affiliates nor of the settlement deed with them were called and examined to ascertain the true nature of the receipt of Rs. 63.92 crores ie. whether it was capital receipt or revenue receipt.

3. Thus, it appears to me that the assessment framed was erroneous insofar as it was prejudicial to the interests of the revenue.

4. Therefore, I propose to pass appropriate orders in the matter in exercise of powers vested in me under Section 263 of the Income-tax Act, 1961.

5. You are requested to show cause on 24-1-2005 at 11 AM as to why this should not be done.

6. In reply to the aforesaid notice, detailed written submissions were filed by the assessee pointing out, inter alia, that - (i) the operation of the company was not started till the last date of the previous year relevant to the year under consideration and no deduction of any expenditure in any of the years has been claimed so far; (ii) a detailed note on the capital reserve was submitted to the Assessing Officer and the documentary evidence running into more than 1000 pages was also produced before him in respect of the capital reserve which was returned back by him after examination since the same was voluminous; (iii) the complete books of account along with all vouchers etc. were also produced before the Assessing Officer for verification and the various issues arising in the assessment were discussed with the Assessing Officer from time to time including the major issue relating to capital receipt; (iv) all the issues arising in the assessment including the main issue relating to capital reserve were discussed by the Assessing Officer with the concerned Additional CIT and the assessment order was passed by the Assessing Officer only after consultation with the said Additional CIT; and (v) the assessment proceedings which began on 28-11-2001 were concluded only on the last date of limitation period ie. 31-3-2003 when the assessment order was passed by the Assessing Officer and during this period, proper enquiries were conducted by the Assessing Officer and all the issues were deliberated upon. The contention raised on behalf of the assessee-company before the learned CIT, therefore, was that the assessment was completed by the Assessing Officer after conducting all the necessary enquiries in response to which required explanation was offered with supporting documentary evidence and as such, there was no error in the assessment order passed by the Assessing Officer much less an error causing prejudice to the interest of the Revenue warranting interference under Section 263. Reliance was placed on behalf of the assessee-company, inter alia, on the decisions of Hon'ble Madras High Court in the case of CIT v. Saklhi Charities and that of Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. . On merits, it was submitted on behalf of the assessee-company that the amount of Rs. 63.92 crores was remitted by Qualcomm to it on capital account and since no business had commenced by it even in the year under consideration, the said amount was in the nature of capital receipt not liable for taxation.

7. The aforesaid submissions made on behalf of the assessee-company, however, did not find favour with the learned CIT. He required the assessee-company to file a copy of settlement agreement dated 9-10-1999 entered into by it with Qualcomm and after discussing the relevant terms and conditions of the said agreement in his impugned order, he observed that the cancellation of project contracts between the assessee and Qualcomm neither impaired its business nor did it result in loss of its source of income since he found that the assessee-company has entered into a fresh contract with M/s. Lucents Technology and continued to carry on the business of setting up and operating a telephone network in the Rajasthan telecom circle for which it had acquired a license from the Department of Telecommunications. He also observed that the cancellation of assessee's contract with Qualcomm was a normal incidence of business caused on account of restricting of Qualcomm's telephone business worldwide as also the failure of its equipments to get necessary clearance from the customs authorities. He, therefore, held that the compensation received by the assessee on termination of contracts from Qualcomm was not a capital receipt but was a revenue receipt. For this conclusion, he derived support from the decisions of Hon'ble Supreme Court in the case of Kettlewell Bullen & Co. Ltd. v. CIT and in the case of CIT v. Rai Bahadur Jairam Valji as well as the decision of Hon'ble Madras High Court in the case of CIT v. S.R.M.Sathappa Chettiar . Since the business of the assessee had not commenced in the year under consideration, he held that the said receipt, even though not taxable as business income, was taxable as "income from other sources", relying on the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT order passed by the Assessing Officer accepting the amount of compensation received by the assessee-company from Qualcomm as "capital receipt" not chargeable to tax as erroneous and prejudicial to the interest of the Revenue and directed the Assessing Officer to modify the same by adding the aforesaid amount of Rs. 63.92 crores as "income from other sources" vide his order passed under Section 263 which is impugned by the assessee in the present appeal.

8. Ground No. 1 raised by the assessee in this appeal is general seeking no specific decision from us.

9. In ground Nos. 2 to 7, the assessee-company has raised a common issue challenging the validity of the impugned order passed by the learned CIT under Section 263 whereas in ground Nos. 8 to 13, it has disputed the decision of the learned CIT on merits directing the Assessing Officer to tax the amount of Rs. 63.92 crores in its hands as "income from other sources" holding the same to be a revenue receipt.

10. As regards the issue raised in ground Nos. 2 to 7, the learned Counsel for the assessee Shri Salil Aggarwal submitted that for valid assumption of jurisdiction under Section 263, two conditions are required to be satisfied i.e. the assessment order must be erroneous and the same should also be prejudicial to the interest of the Revenue.

Relying on the decision of Hon'ble Madras High Court in the case of Venkatakrishna Rice Co. v. CIT and that of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 : 109 Taxman 66, he contended that both these conditions are cumulative and if either of the two does not exist or is found to be not satisfied, the learned CIT cannot initiate proceedings under Section 263 to set aside the assessment order passed by the Assessing Officer. He submitted that the documentary evidence running into more than thousand pages was produced on behalf of the assessee-company before the Assessing Officer in the present case along with the note explaining the nature of the amount in question credited to the capital reserve. He contended that this documentary evidence also included all the relevant agreements concerning the receipt of Rs. 63.92 crores by the assessee from Qualcomm and only after examining the same, the claim of the assessee that the said amount was a capital receipt had been accepted by the Assessing Officer. He submitted that since this documentary evidence was voluminous, the same was returned back by the Assessing Officer without keeping it on record. According to him, the fact, however, remains to be seen is that the said documentary evidence was produced by the assessee before the Assessing Officer and without disputing this factual position, the learned CIT proceeded to hold the order of the Assessing Officer to be erroneous on the ground that the relevant agreements were not examined by the Assessing Officer. He contended that all the necessary enquiries in fact were conducted by the Assessing Officer and only after having satisfied with the explanation of the assessee which was supported by relevant documentary evidence, the amount in question was held to be a capital receipt by him. In this regard, he took us through the submissions made by the assessee before the Assessing Officer (copies placed in the paper book) to point out that proper enquiries were conducted by the Assessing Officer in respect of all the relevant aspects concerning the assessment including the aspect of capital reserve. His contention, therefore, was that the allegation of the learned CIT about the improper and insufficient enquiry conducted by the Assessing Officer while accepting the amount in question as "capital receipt" was factually incorrect and the assessment made by the Assessing Officer on this issue was neither erroneous nor prejudicial to the interest of the Revenue. According to him, the twin conditions required to be satisfied for exercising his powers under Section 263 were not satisfied in this case and this being so, the assumption of jurisdiction by the learned CIT under Section 263 was not valid in law.

11. Shri Aggarwal also submitted that where two views are possible and the Assessing Officer has adopted one of these two possible views or has adopted one of the courses permissible in law with which the Commissioner does not agree, the order of the Assessing Officer cannot be treated as an erroneous order prejudicial to the interest of the Revenue by the CIT unless he is able to establish that the view taken by the Assessing Officer is unsustainable in law. In this regard, he invited our attention to a copy of order passed under Section 263 by another CIT placed at page Nos. 43 to 51 of his paper book and pointed out that in the said order passed in the case of M/s. Shyam Basic Infrastructure Projects (P.) Ltd., the similar amount received by the assessee from Qualcomm as compensation as per the same settlement agreement was held to be a "capital receipt" not chargeable to tax by the learned CIT, Central-III, New Delhi and the proceedings under Section 263 were dropped by him. He contended that this decision of learned CIT taken in the case of M/s. Shyam Basic Infrastructure Projects (P.) Ltd. clearly shows that the view taken by the Assessing Officer in treating the similar amount as "capital receipt" was a possible view and the learned CIT was not justified in substituting the same with his own view by assuming jurisdiction under Section 263 since the same was not permissible in law.

12. As regards ground Nos. 8 to 13 challenging the impugned addition on merits, Shri Aggarwal submitted that the sum of Rs. 63.92 crores received by the assessee as compensation for termination of contracts/agreements was a capital receipt and the learned CIT held the same to be a revenue receipt chargeable to tax under the head "income from other sources" completely misappreciating the facts of the case and wrongly applying the provisions of law. In this regard, he took us through the relevant terms of the settlement agreement entered into by the assessee-company with Qualcomm to explain the nature of compensation received by the assessee-company in terms of the said agreement. He pointed out that for the execution of its project, a loan of Rs. 30.19 crores was taken by the assessee-company from ABN Amro Bank and in terms of the project agreements, Qualcomm had guaranteed the said loan by way of letter of credit in favour of ABN Amro Bank. He submitted that as per Clause 2(B) of the settlement agreement, Qualcomm agreed to discharge the liability outstanding against the said loan and such discharge of liability, which was like a waiver, could not be treated as revenue receipt as held by Hon'ble Madras High Court in the case of CIT v. P. Ganesa Chettiar [982] 133 ITR 103 : 9 Taxman 240, by Hon'ble Delhi High Court in the case of CIT v. Phool Chand Jiwan Ram and by Hon'ble Bombay High Court in the case of Mahindra & Mahindra Ltd. v. CIT . He further submitted that similarly, the amount of Rs. 33.33 crores paid by Qualcomm to the assessee-company as per Clause 4 of the settlement agreement to get itself discharged of the obligation under the financial/performance bank guarantee in favour of DoT was a capital receipt. He contended that neither of these two payments was made by Qualcomm to the assessee-company to plug the loss of profits of any business carried on by the assessee which was evident from the fact that neither the agreement speaks to that effect nor there was any business carried on by the assessee-company during the year under consideration. Reliance was placed by him on the decision of Hon'ble Supreme Court in the case of P.H. Divecha v. CIT the payment was not received to compensate for a loss of profits of business, the receipt in the hands of the assessee could not properly be described as income, profits or gains as commonly understood. As regards the remaining sum of Rs. 0.41 crores paid by Qualcomm as per the settlement agreement, he submitted that the said amount was paid merely towards reimbursement of demurrage expenses incurred by the assessee-company and the same, therefore, did not constitute any income in its hands.

13. Shri Aggarwal further submitted that the learned CIT, however, treated the entire amount of Rs. 63.92 crores received by the assessee from Qualcomm as a revenue receipt chargeable to tax without appreciating the correct nature of the said receipts as well as without fully discharging the onus lay on the department to prove that the said receipt was falling within the taxing provisions. He submitted that the observation of the learned CIT in this regard that the cancellation of agreement is a normal incidence of business was totally misconceived firstly because the project agreements entered by the assessee-company with Qualcomm were not trading agreements but were agreements on capital account and secondly, the business of the assessee-company had not commenced during the year under consideration. He contended that even the finding recorded by the learned CIT that there was no loss of any profit earning apparatus or loss on capital account as a result of cancellation of project agreements with Qualcomm was factually incorrect. He submitted that all the project agreements entered into by the assessee-company with Qualcomm were on capital account and cancellation of the said agreements certainly resulted in a loss of profit making apparatus which in fact was a loss on capital account. He submitted that the assessee-company no doubt managed to make alternative arrangement with some other party subsequently and went ahead to complete its project, but these subsequent operations could not change the nature of the receipt for income-tax purposes which was to be fixed once and for all at the time of receipt as observed by Hon'ble Supreme Court in the case of Travancore Rubber & Tea Co. Ltd. v. CIT relying on the decision in the case of Morley (Inspector of Taxes) v. Tattersall [1939] 7 ITR 316 (CA). He submitted that it is no doubt true that in the case of CIT v. Karam Chand Thapar , Hon'ble Supreme Court has held that the proposition enunciated in Tattersall's case (supra) was not absolute and that in a given case, the amounts which were not received initially as trading receipt could eventually be regarded as business income by reason of subsequent events, but such subsequent event, as observed by the Hon'ble Apex Court, must be such that a different quality is imprinted on the receipt. He contended that there was no such subsequent event occurred in the present case that could change the nature of receipt which was to be ascertained on the basis of position as it existed at the time of receipt and in the light of the terms of settlement agreement. His contention, therefore, was that the amount in question received by the assessee from Qualcomm as per the settlement agreement was a capital receipt not chargeable to tax.

14. Shri Aggarwal also submitted that the reliance of the learned CIT on the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) for treating the amount in question as "income from other sources" was also clearly misplaced. In this regard, he relied on the subsequent decision of Hon'ble Supreme Court in the case of CIT v. Bokaro Steel Ltd. wherein it was held that in case the asscssee receives any amount during the pre-construction period which is inextricably linked with the process of setting up of its plant and machinery, such receipt would go to reduce the cost of the project and the same would not constitute income of the assessee liable to tax. Reliance was also placed by him on the decision of Hon'ble Punjab & Haryana High Court in the case of Karnal Co-operative Sugar Mills Ltd. v. CIT wherein it was held that interest income being directly relatable to the terms of the contract for acquiring a business asset should go to reduce the cost of the asset. He also cited the decision of Hon'ble Supreme Court in the case of CIT v. Karnataka Power Corporation [2001] 247 ITR 268 : [2000] 112 Taxman 629 wherein interest receipts and hire charges earned from the contractors during the construction period were held to be capital receipts which would go to reduce the capital cost of the project. He contended that the decision of learned CIT holding the amount in question as liable to tax under the head "income from other sources" thus was not sustainable.

15. Shri Aggarwal further submitted that the loan amount from ABN Amro Bank was taken by the assessee for the payment of license fees to the Department of Telecommunications which was payment on capital account.

He also submitted that even all the project contracts and license agreements entered into by the assessee either with Qualcomm or with DoT were on capital account being related to the capital structure of the assessee and none of the said transaction was revenue in nature. He contended that having regard to the nature of these contracts as well as the fact that no business had commenced by the assessee during the year under consideration, there was no justification in the action of the learned CIT in holding the cancellation of its agreement by the assessee-company with Qualcomm as a normal incidence of business. He also contended that there was a clear contradiction in the impugned order of the learned CIT in holding the said cancellation as normal incidence of business on one hand and directing the Assessing Officer to charge the amount of compensation received on such termination to tax under the head "income from other sources" on the other.

16. The learned CIT DR Shri Rajnish Kumar, on the other hand, submitted that there was nothing on record of the Assessing Officer to show that he had examined the relevant documentary evidence such as the relevant agreements between the assessee-company and Qualcomm before accepting the claim of the assessee that the amount in question of Rs. 63,92 crores received by the assessee-company from Qualcomm as compensation on termination of project agreements was a "capital receipt" not liable to tax. He submitted that the examination of the assessment record by the learned CIT clearly revealed that the only document examined by the Assessing Officer before accepting the claim of the assessee about the amount in question being capital receipt was the note filed by the assessee explaining the nature of amount credited to the capital reserve and since the other documentary evidence referred to in the said note viz., the settlement agreement and project agreements entered into by the assessee-cornpany with Qualcomm was relevant and material to ascertain the exact nature of the amount in question received by the assessee-company, the failure of the Assessing Officer to examine the same did make his order erroneous as well as prejudicial to the interest of the Revenue. He submitted that there is nothing either in the assessment record including the order sheet entries or even in the assessment order regarding the documentary evidence running into more than one thousand pages having been produced by the assessee during the course of assessment proceedings and in the absence of any evidence brought on record by the learned Counsel for the assessee showing that the same was in fact produced during the course of assessment proceedings before the Assessing Officer, the claim of the assessee on this count was not acceptable. He submitted that merely the fact that the submissions made on behalf of the assessee-company in this regard before him was not specifically disputed by the learned CIT in his impugned order does not go to establish that the documentary evidence running into more than one thousand pages was actually produced by the assessee before the Assessing Officer and the same stated to be inclusive of the relevant agreements was actually examined by the Assessing Officer. He contended that the proper enquiry thus was not made by the Assessing Officer in the present case before accepting the amount in question as "capital receipt" as claimed by the assessee and, therefore, the assessment order completed by him accepting the said claim was erroneous as well as prejudicial to the interest of the Revenue as specifically pointed out by the learned CIT in the notice issued under Section 263.

17. Shri Rajnish Kumar, the learned CIT DR invited our attention to a copy of the notice issued by the learned CIT under Section 263 placed at page No. 26 of the assessee's paper book and pointed out that the proper enquiries which ought to have made by the Assessing Officer before accepting the amount in question as capital receipt were specifically pointed out by the learned CIT. He contended that the assessment thus was made by the Assessing Officer in the assessee's case without proper enquiry and the same was erroneous as well as prejudicial to the interest of the Revenue as held by Hon'ble Karnataka High Court in the case of Thalibai F. Jain v. ITO and Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl CIT . Reliance was also placed by him on the decision of Hon'ble Madras High Court in the case of CIT v. South India Shipping Corporation Ltd. wherein it was held that the CIT can exercise his revisionary powers even if the ITO had considered the issue but not carried out proper enquiries. Further, reliance was also placed by him on the decision of Hon'ble Delhi High Court in the case of Duggal & Co. v. CIT wherein it was held that the Assessing Officer is not only an adjudicator but also an investigator and he, therefore, cannot remain passive in the face of return but is duty bound to conduct further enquiries. He also cited the decision of Hon'ble M.P. High Court in the case of CIT v. Kohinoor Tobacco Products (P.) Ltd. the Assessing Officer to make necessary enquiry renders the assessment erroneous and prejudicial to the interest of the Revenue. He also relied on the decision of Hon'ble Rajasthan High Court in the case of CIT v. Emery Stone Mfg. Co. [1995] 213 ITR 843 : 83 Taxman 643 wherein it was held that allowing certain claims without proper verification or ignoring relevant provisions of law are the instances on the basis of which the order could be considered prejudicial to the interest of the Revenue and could be set right in the revision jurisdiction.

18. Shri Rajnish Kumar also submitted that it is not that the assessment order of the Assessing Officer has been held to be erroneous by the learned CIT holding any view taken by the Assessing Officer as erroneous and therefore, the contention of the learned Counsel for the assessee about the learned CIT having no power to substitute his own view in place of one of the possible or permissible view taken by the Assessing Officer in the revision jurisdiction is neither relevant nor material. He also pointed out that the order passed by the another CIT i.e. CIT, Central-Ill in the case of other group company accepting the similar amount as "capital receipt" and dropping the proceedings under Section 263 was passed subsequent to the date of passing of the impugned order and the same, therefore, cannot be said to have any bearing to decide the issue relating to validity of assumption of jurisdiction by the learned CIT under Section 263 in the present case.

19. On merits, the learned CIT DR Shri Rajnish Kumar submitted that the amount in question was received by the assessee-company from Qualcomm as a result of cancellation of agreements and settlement of dispute through the process of arbitration. He contended that the project agreements originally entered into by the assessee-company with Qualcomm, therefore, need to be brought on record and perused to ascertain the exact nature of amount received by the assessee-company as compensation. He pointed out that since the said agreements were not produced by the assessee-company before the learned CIT during the course of proceedings under Section 263 despite specific opportunity, the matter may be sent back to the learned CIT for deciding the same afresh by passing a fresh order under Section 263 after taking into consideration the contents of the said agreements. Reliance was placed by him on the decision of Hon'ble Calcutta High Court in the case of Martin Burn Ltd v. CIT to contend that the Tribunal is empowered to remand the matter to the learned CIT for passing a fresh order under Section 263 after making proper and adequate enquiries. He submitted that the principles to ascertain the nature of receipt, whether capital or revenue, have been laid down by the Hon'ble Andhra Pradesh High Court in the case of CIT v. Barium Chemicals Ltd. and if the project agreements are brought on record showing the exact factual position, the issue under consideration can be decided by the learned CIT afresh in the light of the said agreements and keeping in view of the decision of Hon'ble Andhra Pradesh High Court in the case of Barium Chemicals Ltd. (supra).

20. Without prejudice to his aforesaid submissions, the learned CIT DR strongly supported the impugned order of the learned CIT passed under Section 263 holding the amount in question as revenue receipt chargeable to tax. In this regard, he submitted that if the amount is received as compensation without affecting capital structure of the assessee, the same constitutes a revenue receipt as rightly held by the learned CIT in his impugned order relying on the decision of Hon'ble Supreme Court in the case of Kettlewell Bullen & Co. Ltd. (supra).

According to him, as a result of the termination of project agreements between the assessee company and Qualcomm, there was no effect whatsoever on the basic capital structure of the assessee-company nor any source of income was lost by it and this being the position, the compensation amount received by it as per the said settlement agreement was revenue receipt chargeable to tax. He submitted that once the said amount is held to be a revenue receipt, the same has to be treated as income as per the inclusive definition given in Section 2(24) and the same has to be taxed unless it is specifically exempt under one or the other provisions of the Act as held by Hon'ble Supreme Court in the case of Emil Webber v. CIT . Reliance was also placed by him on the decision of Hon'ble Supreme Court in the case of CIT v.G.R. Karthikeyan wherein it was held that since the definition of "income" in Section 2(24) is an inclusive one, its ambit should be same as that of a word "income" occurring in Entry 28 of list-I of the 7th Schedule to the Constitution. Further reliance was placed by him on the decision of Hon'ble Supreme Court in the case of CIT v. Karam Chand Thapar wherein it was held that it cannot be laid down as a matter of law that any amount which was not initially received as a trading receipt can never become a trading receipt. He also contended that once the amount in question received by the assessee is held to be a revenue receipt chargeable to tax, the same has to be included in the total income of the assessee under one of the heads of income which is to be decided from the nature of income by applying the practical notions. In this regard, his contention was that income of every kind, which is not to be excluded from total income under the Act, shall be chargeable to tax under the head "income from other sources" and the learned CIT, therefore, was fully justified in directing the Assessing Officer to charge the amount in question to tax in the hands of the assessee under that head.

21. In the rejoinder, the learned Counsel for the assessee Shri Aggarwal submitted that the learned CIT after having considered the detailed submissions made before him on behalf of the assessee during the course of proceedings under Section 263, has decided the issue under consideration mainly on the basis of settlement agreement between the assessee-company and Qualcomm and therefore, it is not permissible now for the learned DR to contend at this stage that fresh enquiries need to be conducted by bringing the project agreements on record.

Relying on the decision of Chennai Bench of ITAT in the case of S.S.I.Ltd. v. Dy. CIT [2004] 85 TTJ 1049 : [1981] 7 Taxman 56, he contended that the scope of the proceedings under Section 263 cannot be expanded and the same have to be confined to the show-cause notice issued by the learned CIT under Section 263. Reliance was also placed by him on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT v.Jagadhri Electric Supply & Industrial Co. to contend that fresh innings cannot be given to the learned CIT under Section 263 to make further enquiries which he had not done originally while passing an order under Section 263. He submitted that a close reading of the impugned order passed by the learned CIT under Section 263 would also make it evident that addition was directed to be made by him not on the basis of examination of the project agreements but on the basis of settlement agreement entered into between the assessee company and Qualcomm. He also submitted that in the case of M/s. Shyam Basic Infrastructure Pvt. Ltd., the learned CIT, Central-Ill, New Delhi has held, on interpretation of the same settlement agreement, that the similar amount of compensation received was a "capital receipt" not liable to tax and accordingly, proceedings under Section 263 were also dropped by him. He further submitted that the nature of compensation amount received by the assessee-company is required to be decided on the basis of terms of the settlement agreement and not on the basis of any dispute which was settled through arbitration. In this regard, he pointed out that all the project agreements entered by the assessee-company with Qualcomm were admittedly on capital account and none of them being a trading agreement, cancellation of such agreement could not, in any manner, result in income to the assessee-company. He submitted that the entire amount in question received as compensation by the assessee-company was in connection with the capital structure of the company and such receipt going by the learned DR's own submissions is a capital receipt. He also submitted that all receipts are not income and the burden in this regard is on the Revenue to establish that a particular receipt constitutes income of the assessee within the meaning of Section 2(24). According to him, all the case laws relied upon by the learned DR in support of the Revenue's case are distinguishable on facts and none of them is directly applicable to the facts of the present case.

22. We have considered the rival submissions in the light of material available on record and the various judicial pronouncements cited at the bar. As regards the issue relating to validity of assumption of jurisdiction by the learned CIT under Section 263 raised in ground Nos.

2 to 7 by the assessee, we may at the outset observe that the order passed by the Assessing Officer under Section 143(3) in this case was held to be erroneous and prejudicial to the interest of the Revenue by the learned CIT on the ground that proper enquiries as required to be made in the facts and circumstances of the case were not made by the Assessing Officer while accepting the claim of the assessee that the amount in question was a capital receipt not liable to tax as is evident from the notice issued by him under Section 263. It was, thus, not a case where the view taken by the Assessing Officer on the said issue was held to be erroneous by the learned CIT for assuming jurisdiction under Section 263 in order to substitute the same with his own view by exercising the powers conferred on him under Section 263.

This being so, all the contentions raised by the learned Counsel for the assessee on this point while challenging the validity of the order passed by the learned CIT under Section 263 relying upon the various judicial pronouncements are of no avail and the same, in our opinion, are of no help to support the case of the assessee on this issue. A perusal of the notice issued by the learned CIT under Section 263, which is already reproduced hereinabove, clearly shows that the assessment made by the Assessing Officer was held to be erroneous as well as prejudicial to the interest of the Revenue by him for the reason that no proper enquiries were made by the Assessing Officer while passing the same and even such proper enquiries which the Assessing Officer ought to have made were also identified by him in the said notice.

23. Before us, the learned Counsel for the assessee has contended that the main issue involved in the assessment of the assessee relating to the receipt of amount in question credited to the capital reserve was examined by the Assessing Officer. In this regard, he has invited our attention to the following note furnished by the assessee-company on capital reserve account in reply to a questionnaire issued by the Assessing Officer on 5-10-2002:-- The assessee-company was incorporated on 20-4-1995 in order to provide telecom services and it bid for various telecom circle licences in 1995. The company was the highest bidder for the Basic Services in Rajasthan Telecom Circle. However, due to certain differences in calculation of licence fee etc. with the Department, the licence was delayed and it was ultimately awarded only in 1998.

Meanwhile the company had made preparations for installation of telecom network and tied up with M/s. Qualcomm Inc., USA as it was optimistic of getting the licence.

The assessee-company had signed the licence agreement with the Department of Telecom (DoT) on the 4-3-1998 for providing basic telephony services in the Rajasthan Telecom Circle w.e.f. 1-8-1999.

The company migrated from the fixed license fee to revenue sharing arrangement under the Telecom Policy, 1999, under which the period of license has also been extended from 15 to 20 years.

In order to meet the above requirements as mentioned above, the company had, in 1996, tied up with M/s. Qualcomm Inc., USA and its subsidiaries which is one of the largest telecom companies of the World and pioneer in CDMA technology. The company accordingly entered into contracts with Qualcomm for supply and related services for CDMA based wirelines equipments. In terms of the above said contracts, Qualcomm and its affiliates were required to supply most of the equipments, provide related services and undertake financial commitments and guarantees on behalf of the company's project in favour of DoT and banks.

However on account of restricting of Qualcomm's telephone business worldwide as also the failure of its equipments to get necessary clearance from the customs, various contracts had to be terminated and settlement was reached between the company and Qualcomm and its affiliates. In terms of the above settlement arrived at, Qualcomm agreed to the following: (a) Waiver of loan taken by the company from ABN Amro Bank and guarantee by way of Letter of Credit opened by Qualcomm in favour of ABN Amro Bank amounting to Rs. 30.19 crores.

(b) Qualcomm also agreed for discharge of company's obligation under the financial Performance Bank Guarantee in favour of DoT amounting to Rs. 33.33 crores.

The aforesaid settlement was reached with Qualcomm when the project was under the implementation stage.

Since all the above agreements were settled by Qualcomm on behalf of the company on capital account when the project was not implemented, hence the same was credited on the capital reserve account.

Necessary note to accounts have already been included as part of the Balance Sheet which is also in the record of Department.

24. As is evident from the aforesaid note furnished by the assessee-company before the Assessing Officer (emphasis supplied in bold letters), the terms of settlement agreed between the assessee-company and Qualcomm for termination of their contracts were relevant and material to ascertain the exact nature of the amount of Rs. 63.92 crores received by the assessee-company from Qualcomm as compensation and it was therefore incumbent upon the Assessing Officer to call for and examine at least the relevant agreement setting forth such terms. However, the record of the Assessing Officer revealed that no such agreement was actually examined by him before accepting the claim of the assessee which entailed the learned CIT to assume jurisdiction under Section 263.

25. Before the learned CIT as well as before the Tribunal, the claim of the assessee is that the documentary evidence running into more than thousand pages was produced on behalf of the assessee-company before the Assessing Officer during the course of assessment proceedings which was returned back by him after verification. However, there is no iota of evidence on record to show that such documentary evidence was indeed produced before the Assessing Officer and if at all the same was produced, the agreement settling the terms of termination of contracts between the assessee-company and Qualcomm was forming part of the said evidence. On the other hand, the entry recorded by the Assessing Officer on 20-3-2003 in his order sheet clearly shows that only books of account were produced on behalf of the assessee-company as against the specific requirement of the Assessing Officer to produce books of account alongwith complete set of documentary evidence as mentioned in his order sheet entries made on 26-12-2002 and 13-1-2003. Having regard to these order sheet entries as well as the absence of any discussion whatsoever in the Assessing Officer's order on this issue, the onus was on the assessee to establish on evidence that the documentary evidence including especially the settlement agreement was produced by it before the Assessing Officer and having failed to discharge this onus, it leads to an inevitable conclusion that no such documentary evidence in the form of copy of settlement agreement was produced by the assessee before the Assessing Officer and the same was not examined by him.

26. Before us, the learned Counsel for the assessee has submitted that the submissions made on behalf of the assessee-company before the learned CIT during the course of proceedings under Section 263 pointing out that the documentary evidence running into more than one thousand pages was produced by the assessee before the Assessing Officer during the course of assessment proceedings in support of its claim on this issue which was returned back by him after verification, has not been disputed by the learned CIT in his impugned order. It is no doubt true that no such specific finding has been recorded by the learned CIT in his impugned order negating the claim of the assessee of having produced such documentary evidence. However, the absence of such a finding specifically in the order of the learned CIT under Section 263 would not go to prove that such evidence in fact was produced by the assessee before the Assessing Officer and the same was examined by him especially when there is nothing either in the assessment record or even in the assessment order to establish this fact and even the assessee has failed to produce any evidence to establish the same. On the other hand, the fact that the learned CIT has finally decided the issue about the taxability of the amount in question on merits in his impugned order passed under Section 263 clearly shows, by implication, that the submissions made on behalf of the assessee-company on this count were not accepted by him.

27. Since the aforesaid agreement setting forth the terms of settlement between the assessee-company and Qualcomm was very much relevant and material to examine the veracity of the assessee's claim that the amount of Rs. 63.92 crores received by it as compensation was a capital receipt not chargeable to tax, we are of the view that the failure of the Assessing Officer to examine the said evidence certainly made his order passed under Section 143(3) erroneous as well as prejudicial to the interest of the Revenue as rightly held by the learned CIT. For this conclusion, we derive support from the two decisions of Hon'ble Supreme Court in the case of Smt. Tara Devi Aggarwal v. CIT and in the case of Ram Pyari Devi Saraogi v. CIT wherein it was held that the CIT can regard the order of the Assessing Officer as erroneous on the ground that in the circumstances of the case, the ITO should have made further enquiries before accepting the statements made by the assessee in his return.

Following these decisions of Hon'ble Supreme Court, Hon'ble Allahabad High Court has held in the case of Smt. Lajjawati Singhal v. CIT that an assessment made on income surrendered by the assessee without making any enquiry whether the same was in fact taxable in the hands of the assessee was erroneous and prejudicial to the interests of the Revenue. Further, as held by Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl CIT and Duggal & Co. v. CIT , it is incumbent on the Assessing Officer to further investigate the facts stated in the return when circumstances would make such an enquiry prudent and his order becomes erroneous if such an enquiry has not been made. Moreover, as held by Hon'ble Gujarat High Court in the case of Addl CIT v. Muktir Corporation , an order of assessment passed by the ITO without making necessary enquiries on certain important points connected with the assessment would be erroneous and prejudicial to the interests of the Revenue. To the similar effect is the decision of Hon'ble Calcutta High Court in the case of CWT v. Ramnarayan Bhojnagarwala wherein it was held that whenever a question arises as to whether a correct and proper assessment has been made upon due enquiry and it is found that no such enquiry was made, the CIT has jurisdiction in such a case to set aside the assessment by invoking the powers conferred on him under Section 263. A resume of these judicial pronouncements clearly shows that the very fact that the assessment was made by the Assessing Officer without proper and sufficient enquiries, as warranted in the facts and circumstances of the case, makes it erroneous and also causes prejudice to the interest of the Revenue giving jurisdiction to the learned CIT under Section 263 at that stage and even if it is ultimately found on merits after conducting such enquiries that there was in fact no loss to the Revenue, the same would not have any bearing on the jurisdiction of the learned CIT which was otherwise validly assumed at the time of initiating the proceedings under Section 263.

28. Having held that the assessment order passed by the Assessing Officer under Section 143(3) without making necessary enquiries on certain important points connected with the assessment is erroneous and prejudicial to the interest of the Revenue, the learned CIT acting under Section 263 can either make such enquiry on his own and revise the assessment order based on such enquiry or set aside the order of the Assessing Officer with a direction to him to make a fresh assessment after conducting such enquiry. In the present case, it was indicated by the learned CIT in the notice itself issued under Section 263 that appropriate order will be passed by him in case the order of the Assessing Officer is found to be erroneous and as such, he was within his powers to make the necessary enquiries, which the Assessing Officer had failed to do, on his own and decide the issue on merits as has been done by him in the impugned order passed under Section 263. As such, keeping in view all the facts of the case as well as the legal position emanating from the various judicial pronouncements discussed above, we are of the considered view that the assumption of jurisdiction by the learned CIT under Section 263 was in accordance with law and there was no legal infirmity in the impugned order passed by him under Section 263 as alleged on behalf of the assessee-company.

We, therefore, find no merits in the contentions raised by the learned Counsel for the assessee on this issue and rejecting the same, we dismiss ground Nos. 2 to 7 of this appeal.

29. As regards ground Nos. 8 to 13 relating to the issue of taxability of the amount in question on merits, we may, at the outset, deal with the contention raised by the learned CIT-DR before us seeking remand of the matter to the learned CIT for deciding the same afresh on merits after making proper and adequate enquiries. His contention in this regard is that the project agreements initially entered by the assessee-company with Qualcomm were not produced by the assessee-cornpany before the learned CIT during the course of proceedings under Section 263 despite specific opportunity and in the absence of the same, the learned CIT had no occasion to bring on record and appreciate all the facts which were relevant and material for deciding the exact nature of the amount in question received by the assessee company from Qualcomm as compensation. In this regard, it is observed that although it was mentioned by the learned CIT in the notice issued under Section 263 that neither the copies of the original contracts with Qualcomm nor that of the settlement deed with them were called and examined by the Assessing Officer to ascertain the true nature of the amount in question, he himself in paragraph No. 14 of his impugned order recorded an observation to the effect that the original project agreements/contracts were required merely to ascertain the exact relationship between Qualcomm and the assessee and that the nature of the amount in question received by the assessee-company from Qualcomm as compensation for the cancellation of the said contracts was not dependent on such relationship. He, therefore, proceeded to decide this issue on merits after examining the settlement agreement only without insisting for the examination of the project agreements/contracts since the same, according to him, were relevant just to ascertain the relationship between Qualcomm and the assessee-company which, in any case, was not relevant or material for the purpose of deciding the nature of compensation received by the assessee-company on termination thereof. In these circumstances, the contention raised by the learned DR seeking remand of the matter to the learned CIT for examination of the said project agreements/contracts appears to be far-fetched and untenable.

30. Before us, reliance has been placed by the learned CIT-DR on the decision of (Hon'ble Calcutta High Court in the case of Martin Burn Ltd. v. CIT in support of his contention that the Tribunal could remand the case to CIT directing him to pass a fresh order under Section 263 after further investigation as Section 254(1) confers powers on the Tribunal in widest possible terms. On a careful perusal of the said decision of the Hon'ble Calcutta High Court, it is observed that the facts involved in the said case were entirely different from the facts of the present case inasmuch as one of the ingredients for considering the order passed by the ITO in that case to be erroneous or not was the question whether the assessee-company was a company in which the public were not substantially interested. The point, was how this question was to be resolved, by taking into consideration only the equity shareholdings or by taking into consideration both the equity and preference shareholding This again was dependent upon the question whether Article 100 of the Articles of Association of the assessee-company would be applicable or not which was to be considered in the light of applicability of Section 90 of the Companies Act, 1956 to the facts of the said case. The Additional CIT in coming to the conclusion that the order of ITO was erroneous, however, had ignored this aspect of the matter and the Tribunal, therefore, thought it fit to direct him to consider this matter in the light of the view of the Tribunal that Section 90 of the Companies Act would be applicable in order to decide whether the order of the ITO was erroneous in that sense. These facts of that case clearly show that a very relevant and material issue going to the very root of the matter was not considered by the Additional CIT while passing an order under Section 263 holding the assessment completed by the Assessing Officer to be erroneous and since the same had a direct bearing on the assumption of jurisdiction by the Additional CIT under Section 263, the order of remand by the Tribunal was upheld by the Hon'ble Calcutta High Court.

31. The facts involved in the present case, however, are different inasmuch as the assessment made by the Assessing Officer under Section 143(3) was held to be erroneous and prejudicial to the interest of the Revenue by the learned CIT on the ground that the same was completed by the Assessing Officer without conducting proper enquiry whereas the further enquiry/investigation which is contemplated by seeking the remand by the learned CIT-DR is in connection with the conclusion already drawn by the learned CIT on merits which does not have a direct bearing on the assumption of his jurisdiction under Section 263. It is interesting to note here that in the case of Martin Burn Ltd. (supra), reliance was placed on behalf of the assessee on the decision of Hon'ble Patna High Court in the case of Maharani Kanak Kumari Sahiba v.CIT [1955] 28 ITR 462. Hon'ble Calcutta High Court, however, found the same to be distinguishable on facts observing that the AAC in that case had come to a definite finding after a full investigation and examination of records and the Tribunal by remanding the matter with a direction to reconsider the same point again after bringing on record further evidence and after making further investigation, had opened the scope of adducing further evidence which was beyond jurisdiction. In the present case also, the learned CIT has recorded a definite finding on merits of the issue after making all the necessary enquiries and examination which he thought to be proper and sufficient and the remand is being sought by the learned DR for allowing the learned CIT to examine further evidence which he himself has considered to be not relevant for deciding the issue on merits. The facts involved in the present case are thus almost similar to the facts involved in the case of Maharani Kanak Kumari Sahiba (supra). As mentioned above, the Hon'ble Calcutta High Court while deciding the case of Martin Burn Ltd. (supra) has distinguished the case of Maharani Kanak Kumari Sahiba (supra) on facts which again goes to show that the facts involved in the case of Martin Burn Ltd. (supra) were entirely different from the facts of the present case.

32. On the other hand, the decision of Hon'ble Punjab & Haryana High Court in the case of Jagadhri Electric Supply & Industrial Co. (supra) cited by the learned Counsel for the assessee appears to be directly applicable to the facts of the present case. In the said case, it was held by the Hon'ble Punjab & Haryana High Court that the jurisdiction vested in CIT under Section 263(1) is of a special and exclusive nature and if the Tribunal is allowed to find out the grounds available to the CIT to pass an order under Section 263, then it will amount to sharing of such exclusive jurisdiction vested in the CIT which is not warranted under the Act. It was also held that at the time of hearing of the appeal against CIT's order under Section 263, if the assessee can satisfy the Tribunal that the grounds for decision given in the order by the CIT are wrong on facts or are not tenable in law, the Tribunal has no option but to accept the appeal and to set aside the order of the CIT. The Tribunal cannot uphold the order of the CIT on any other ground which, in its opinion, was available to the CIT as well but was not relied upon by him in his order under Section 263.

33. In the present case, the learned CIT was well aware of the project agreements between the assessee-company and Qualcomm and even a reference was made to the said agreements in his notice issued under Section 263. However, he finally did not insist for the examination of the said evidence observing that the same was not relevant for deciding the issue relating to the nature of amount received by the assessee-company as compensation for the termination of the said agreements. In this situation, remanding the matter to the learned CIT for examining the said evidence will clearly amount to allowing him to substitute a ground that he himself did not choose to rely upon while passing an order under Section 263 which is not warranted in law as held by Hon'ble Punjab & Haryana High Court in the case of Jagadhri Electric Supply & Industrial Co. (supra). In the case of CIT v.Chandrika Educational Trust , Hon'ble Kerala High Court has held that the Tribunal cannot seek to justify an order passed under Section 263 on the grounds other than those mentioned by the CIT in the revision order itself. In the case of CIT v. Howrah Flour Mills Ltd. , Hon'ble Calcutta High Court has held that an assessee by filing an appeal from an adverse order under Section 263, does not call a reopening of his assessment order wholesale and in all respects. All that the assessee does is that it challenges the order of revision passed under Section 263 which means the assessee challenges the ground on which the CIT has opined the ITO's order to be erroneous.

The legal position emanating from the aforesaid judicial pronouncements thus makes it abundantly clear that the order passed by the learned CIT under Section 263 rendering decision on merits of the issue has to stand or fall on the grounds given by him in support and the Tribunal can neither substitute the same nor allow the learned CIT to substitute the same especially when the substituted ground was available before the learned CIT but was not considered by him. We, therefore, hold that the contention raised by the learned CIT-DR on this issue seeking remand of the matter to the learned CIT is not sustain-able either in law or on facts and rejecting the same, we now proceed to decide the issue relating to the nature of amount in question as well as taxability of the same on merits on the grounds/basis given/adopted by the learned CIT in his impugned order under Section 263.

34. It is observed that out of the total amount of Rs. 63.92 crores, a sum of Rs. 0.41 crores was paid by Qualcomm to the assessee-company for payment of demurrage on the equipments imported from them. In this regard, the learned Counsel for the assessee has submitted before us that this amount was received on account of reimbursement of actual expenses incurred by the assessee-company on demurrage and there being nothing on record to dispute or controvert this factual position, we have no hesitation to hold that the said amount could not be treated as income of the assessee by any stretch of imagination.

35. As regards the remaining amounts of Rs. 30.19 crores and Rs. 33.33 crores received by the assessee-company from Qualcomm, it would be pertinent to refer to the Settlement agreement entered into between the assessee-company and Qualcomm to ascertain the exact nature and character of the said receipts. The preamble of the said agreement, being relevant in this context, is reproduced below:-- This Settlement Agreement is dated as of 9-10-1999, and is between the following parties : Qualcomm incorporated a Delaware Corporation with its Registered Offices at 5775 Morehouse Drive, San Dieogo, CA 92121, including its subsidiaries and affiliates Qualcomm International Wireless Technology, Inc., a California Corporation with its Registered Office at the same location and Qualcomm India Private Limited ("QIPL"), a company registered under the laws of India with offices at 1st floor, Universal Chambers, 48, Community Centre, New Friends Colony, New Delhi -110 065, India (hereinafter jointly and severally referred to as "QUALCOMM"); and Shyam Telelink Ltd. (Formerly known as Telelink Network (India) Limited), a company incorporated under the Companies Act, having its registered offices at A-60, Naraina Industrial Area, Phase-I, New Delhi - 110 028 India ("Telelink"), including its subsidiaries and affiliated companies organized under the Companies Act, 1956 and also having their registered offices at the same location : (i) Shyam Basic Infrastructure Projects Private Limited ("SBIPL"), and (if) Shyam Telecom Limited ("STL") (Telelink, SBIPL and STL are hereinafter jointly and severally referred to as "Shyam").

Whereas, Qualcomm and Shyam entered into a set of related agreements as of 26-2-1998, and subsequent amendments thereto and supplemental agreements (the "Project Agreements") under which Qualcomm was to supply Shyam with a wireless local loop telephone system, related services and software, and financing and/or financing commitments and guarantees; and Whereas, the Project Agreements consisted of the following (and subsequent supplements and amendments thereto) : (i) Infrastructure Purchase and Supply Agreement, (ii) Services Agreement, (iii) Software License Agreement, (iv) Software Maintenance Agreement, (v) Hardware Maintenance Agreement, (vi) Amended and Restated Deed of Contribution, (vii) Amended and Restated Equipment Finance Agreement (Short Term Deferred Credit Facility), (viii) Amended and Restated Equipment Finance Agreement, (ix) Amended and Restated Agreement to Provide Letter of Credit, (x) Amended and Restated Joint and Several Corporate Guarantee, (xi) Amended and Restated Long Term Loan Agreement, (xii) Amended and Restated Pledge Agreement, (xiii) Amended and Restated Support Agreement, (xiv) Amended and Restated Charge Agreement, (xv) Consulting Agreement, and (xvi) Agreement to Provide Loan Guarantee in Form of Letter of Credit; and Whereas, disputes have arisen between the parties concerning whether Qualcomm and Shyam have performed or breached various of their respective obligations under the Project Agreements and otherwise; and Whereas, the parties wish to enter into this Settlement Agreement in order to make a legally binding resolution of all their disputes and all their obligations to one another.

Now, therefore, each of the parties jointly and severally agrees as follows.

36. As is evident from the aforesaid portion of the settlement agreement, Qualcomm was to supply the assessee-company with a wireless local loop telephone system, related services and software and financing and/or financing commitment and guarantees as per the various project agreements entered into with the assessee-company. This supply of equipments and related services was required for the purpose of setting up a broad-band network on the Convergence platform in the Rajasthan Telecom Circle in order to facilitate the assessee-company to provide basic telephony services in the said circle during the course of its business. The said agreements entered into between the assessee company and Qualcomm were thus related to the capital structure of the assessee-company representing its profit making apparatus inasmuch as the broad-band network was being set up in order to facilitate the assessee-company to carry out its business of providing the basic telecom services in terms of license obtained by it from DoT for Rajasthan Telecom Circle. M/s Qualcomm, however, breached the terms of the said agreement and could not perform its obligations for one reason or the other which, as stated on behalf of the assessee-company before the learned CIT as well as before us, were the failure of their equipment to get clearance from the Indian custom authorities and also restructuring of their telecom business worldwide as a result of which it had agreed to sell its CDMA business worldwide to Ericsson.

Consequently, disputes arose between the parties and a settlement was finally reached whereby Qualcomm was discharged from its obligation under the various project agreements entered into with the assessee-company.

37. As per the terms of the said settlement as set out in the settlement agreement dated 9-10-1999, Qualcomm agreed to pay, inter alia, a sum of Rs. 30.19 crores to the assessee-company in terms of Clause (2) of the said agreement which reads as follows:-- A. Shyam shall return all equipment (including without limitation all hardware and software) provided by Qualcomm under the Project Agreements in the same condition as such equipment was in when provided, serviced or installed by Qualcomm, (ordinary wear and tear and typical attrition excepted), provided, however, that Shyam shall not be required to return the items identified in Appendix 1 hereto.

Shyam shall also return all tools, manuals, documentation, diagrams and all other items provided with the equipment. Qualcomm representatives will accept delivery of all items at Shyam's facilities and will dismantle, pack and ship them at Qualcomm's sole expense during the period November 1 through 31-12-1999. Shyam will provide free storage through 31-12-1999, and provide all reasonable cooperation to facilitate Qualcomm's operations. Until Qualcomm representatives receive delivery of such items, Shyam shall be responsible for all risk of loss and shall take all reasonable precautions for their care and protection. The parties agree that Qualcomm shall be entitled to receive the full amount of any refund or return, if any, of the customs duties that were paid upon the importation of the equipment and other items into India, Shyam will fully cooperate with Qualcomm in taking all steps reasonably necessary to apply for the receive such refund or return of customs duties, including any assignments of rights thereto in favour of QIPL.

B. Qualcomm paid ABN-AMRO US Dollars 6,982.871 (INR 301,901,075) through a draw on the latter of credit securing the ABN-AMRO "Loan Facility" referenced in the Agreement to Provide Loan Guarantee in Form of Letter of Credit. The amount paid under the letter of credit represents the amount drawn by Telelink and requested by ABN-AMRO in the demand notice, per instructions in the stand by Letter of Credit, issued by Bank of America. Per the Agreement to Provide Loan Guarantee in Form of Letter of Credit, upon the drawn down on the letter of credit Telelink is obligated to repay such sums drawn to Qualcomm, together with interest accrued. Qualcomm hereby releases Shyam from its obligations to repay Qualcomm the amount drawn under the letter of credit and also hereby releases Shyam from its obligations to repay Qualcomm any outstanding letter of credit fees under this facility. Qualcomm also hereby indemnifies Shyam against all claims for additional interest or fees under the ABN AMRO Loan Facility that have been asserted against Shyam by ABN AMRO and, within 45 days of the signing of this Settlement Agreement, shall secure by agreement or appropriate judicial or other proceedings a release or discharge of Shyam's liability for such additional interest or fees. Shyam agrees to cooperate with Qualcomm in all matters relating to the Loan Facility and will take all steps (including assignments of rights and other interests in favour of QIPL or another nominee of Qualcomm) reasonably requested by Qualcomm. Shyam accordingly represents and warrants to Qualcomm that Shyam has no further obligations under the ABN AMRO Loan Facility.

38. Further, an amount of Rs. 33.33 crores was agreed to be paid by Qualcomm to the asscssee-company in terms of Clause (4) of the settlement agreement which reads as under:- Pursuant to the Amended and Restated Joint and Several Corporate Guarantee, two letters of credit were issued by Bank of America (US) on behalf of QUALCOMM to support guarantees issued by Bank of America (India) to secure the financial and technical obligations of Shyam to the Department of Telecommunications of the Government of India ("DoT"). One letter of credit in the amount of INR 250,000,000 secures Shyam's financial guarantees to DoT and expires on February 28, 2000 (the "2/2000 Guarantee"). The other letter of credit in the amount of INR 250,000,000 secures Shyam's performance guarantees to DoT and expires on February 28, 2001 (the "2/ 2001 Guarantee). The parties agree that the 2/2000 and 2/ 2001 Guarantees shall remain in place with the terms of this Settlement Agreement superseding the obligations of the parties to one another under the Amended and Restated Joint and Several Corporate Guarantee and the Amended and Restated Deed of Contribution.

A. QUALCOMM hereby releases Shyam from any obligation to pay approximately $ 1.2 million in letter of credit fees owed to QUALCOMM in connection with the Guarantees.

B. Shyam undertakes to ensure using its best efforts that the 2/2000 and 2/2001 Guarantees are returned or expire by their terms without having been called, with the consequence that QUALCOMM would have no liability to make any payments thereunder.

C. Upon the cancellation or expiration of the 2/2000 Guarantee without having been called, or on other terms with the consequence that QUALCOMM would have no liability to make any payment thereunder, QUALCOMM will pay Shyam INR 166,666,667. If despite Shyam's different diligent best efforts the 2/2000 Guarantee is called, Shyam shall immediately deliver to QUALCOMM a promissory note in the form of Appendix 2 hereto payable in US dollars equivalent to INR 83,333,333 at the exchange rate listed by the Reserve Bank of India on the day the Guarantee is called.

D. Upon the cancellation or expiration of the 2/2001 Guarantee without having been called, or on other terms with the consequence that QUALCOMM would have no liability to make any payment thereunder, QUALCOMM will pay Shyam INR 83,333,333. If despite Shyam's diligent best efforts the 2/2001 Guarantee is called, Shyam shall immediately deliver to QUALCOMM a promissory note in the form of Appendix 3 hereto payable in US dollars equivalent to INR 166,666,667 at the exchange rate listed by the Reserve Bank of India on the day the Guarantee is called.

E. As an alternative to paragraphs 4(C) and 4(D), Shyam may elect, upon giving 10 days' prior written notice to QUALCOMM, to provide for the replacement or cancellation of both the 2/2000 and 2/2001 Guarantees effective on or before January 31, 2000, in either of the following ways: (i) II Shyam secures the replacement or cancellation of both Guarantees on or before January 31, 2000, or on other terms protects QUALCOMM from liability to make any payments thereunder, QUALCOMM shall immediately communicate with Bank of America (USA) to secure at the earliest possible time the cancellation of the letters of credit issued by it and upon their cancellation shall immediately pay Telelink INR 333,333,333; or (ii) If Shyam enters into an escrow agreement, on terms and conditions acceptable to each of Shyam and QUALCOMM, on or before January 31, 2000, then pursuant thereto (A) Shyam will place into escrow either INR 166,666,667 or a letter of credit acceptable to accomplish the transactions contemplated by this Clause (ii) (the "Shyam Escrow Deposit"), (B) QUALCOMM will deposit INR 333,333,333 (the "Qualcomm Escrow Deposit"), (C) both letters of credit will be returned to Bank of America (USA) simultaneously therewith, (D) the escrow agent certifies that the terms of the escrow agreement have been satisfied, immediately thereafter the Shyam Escrow Deposit and the QUALCOMM Escrow Deposit will be disbursed in accordance with instructions provided by Shyam.

39. Although the basis of quantification of compensation as stipulated in the aforesaid clauses was not much relevant for the purpose of determining the nature of amount in question received by the assessee, the fact remains to be seen is that it was agreed by Qualcomm to discharge the liability on account of project loan availed by the assessee-company from ABN Amro Bank amounting to Rs. 30.19 crores in order to get itself released from the guarantee given by it to ABN Amro Bank. In short, the loan taken by the assessee-company from ABN Amro Bank for which guarantee was given by Qualcomm stood waived and Qualcomm discharged the said liability in terms of the settlement agreement. In the case of CIT v. Ganesa Chettiar [1952] 133 ITR 103 : 9 Taxman 240, Hon'ble Madras High Court has held that a debt forgiven or waived cannot he treated as "income". In the case of CIT v. Phool Chand Jiwan Ram [198l] 131 ITR 37 : [1980] 4 Taxman 204 (Delhi) the amount payable by the assessee to J.D. had arisen because the said party had paid a sum of Rs. 1,80,000 to the Bombay firm on the assessee's account and considering that vis-a-vis the assessee and the J.D. the said amount was not a payment made for the purchase of stock-in-trade but it was a credit in respect of an amount borrowed by the assessee from J.D.in order to discharge its liability to the Bombay firm, Hon'ble Delhi High Court held that the same could not be described as a liability on trading account. In the case of Mahindra & Mahindra Ltd. v. CIT the assessee had purchased plant and machinery from one KJ.C. of America for which purpose, K.J.C. had advanced a loan to the assessee for ten years. Later on, KJ.C, was taken over by A.M.C.and the latter agreed to waive the principal amount of loan. In these facts and circumstances, it was held by the Hon'ble Bombay High Court that the waiver of loan would not constitute "business income" of the assessee. In the present case also, loan from ABN Amro Bank was taken by the assessee on capital account and the discharge of the liability towards the said loan by Qualcomm resulted in waiver of the said loan, which, in our considered opinion, did not constitute "income" in the hands of the assessee-company.

40. As is evident from the relevant clause, of the settlement agreement reproduced above, different performance and financial guarantees were given by Qualcomm on behalf of the assessee-company. In order to get itself discharged of the obligations under the said guarantees, it was agreed by Qualcomm that it would pay Rs. 33.33 crores to the assessee-company and in turn, the assessee-company shall indemnify Qualcomm from any liability that may arise under the said guarantees during the period in which they were in force. It is pertinent to note here that all these guarantees were given in connection with the setting up of a state of art broad-band network on convergence platform in Rajasthan Telecom Circle for providing basic telephony services in terms of license granted to the assessee-company by DoT. The said guarantees were, therefore, clearly related to the capital structure of the assessee-company or for that matter to its profit making apparatus and the amount received by the assessee company from Qualcomm as compensation for discharging the latter from the liabilities under the said guarantees was a receipt on capital account.

41. It is observed that the learned CIT, however, treated the entire amount of Rs. 63.92 crores received by the assessee-company as compensation from Qualcomm holding that the cancellation of project agreements was a normal incidence of business. In support of this conclusion, he relied on the decision of Hon'ble Supreme Court in the case of CIT v. Rat Bahadur Jairam Valji (supra). It is, however, observed that the facts involved in the said case were entirely different inasmuch as the assessee in that case was carrying on the business of production and supply of limestone and during the course of his business, he had entered into an agreement for supply of limestone and dolomite to the Bengal Iron Co. Ltd. Due to the rates of the said supply having become uneconomical, the said agreement was terminated and the amount received as compensation for such termination was held to be a revenue receipt assessable to tax as "business income" by the Hon'ble Supreme Court. While rendering this decision, Hon'ble Supreme Court held that when a question arises whether payment of compensation for termination of an agency is a capital or a revenue asset, it would have to be considered whether the agency was in the nature of capital asset in the hands of the assessee or whether it was only part of his stock-in-trade. In the said case before the Hon'ble Supreme Court, the agency was only for stock-in-trade and, therefore, the compensation for termination thereof was held to be a revenue receipt assessable to tax.

In the present case, the project agreements entered into between the assessee-company and Qualcomm being on capital account, the agency was in the nature of capital asset in the hands of the assessee and as such, the compensation for termination thereof was a capital receipt even going by the observations recorded by the Hon'ble Supreme Court in the case of Rai Bahadur Jairam Valji (supra) relied by the learned CIT.The said decision of Hon'ble Supreme Court thus does not support the Revenue's case. On the other hand, the same helps the assessee's case.

42. Similar is the position as regards the decision of Hon'ble Calcutta High Court in the case of CIT v. Siewart & Dholakia (P.) Ltd. wherein J was one amongst very many foreign customers in the normal course of the assessee's business and the amount received by the assessee-company for losing the said customer was held to be a trading receipt liable to tax by the Hon'ble Calcutta High Court observing that the true character of the said receipt represents compensation for loss to the assessee in its trade and not for any loss of any capital asset. In the said decision, Hon'ble Calcutta High Court further clarified that if any amount is received as compensation for an injury which affects the capital asset of the assessee or the capital structure of the assessee's business, such amount may normally be considered to be a capital receipt. In the present case, the project agreements between the assessee-company and Qualcomm were on capital account and termination thereof certainly caused an injury affecting capital structure of the assessee-company and as such, the compensation received for such injury was a "capital receipt" as held by Hon'ble Calcutta High Court in the case of Siewart & Dholakia (P.) Ltd (supra).P.H. Divecha v. CIT cited by the learned Counsel for the assessee, it was observed by the Hon'ble Supreme Court that in determining whether the payment amounts to a return for loss of a capital asset or his income, profits or gains liable to income tax, one must have regard to the nature and quality of the payment. If the payment was not received to compensate for a loss of profits of business, the receipt in the hands of the appellant cannot properly be described as income, profits or gains as commonly understood. To constitute income, profits or gains, there must be a source from which a particular receipt has arisen and a connection must exist between the quality of the receipt and its source. In the present case, the amount was received by the assessee for loss of capital asset and not certainly to compensate itself for the loss of any profits of business. As a matter of fact, the business of the assessee-company was not commenced in the year under consideration and as such, there was no source of income to which the receipt on account of compensation could have been connected. The loss of the project agreements must, therefore, be regarded as falling on the capital asset of the affected person i.e. the assessee-company in the present case and not in the course of his ordinary trading as held by Hon'ble Supreme Court in the case of P.H. Divecha (supra).

44. As rightly submitted by the learned DR before us, the case of Barium Chemicals Ltd. (supra) decided by the Hon'ble Andhra Pradesh High Court is a leading case on the issue under consideration. In the said case, the assessee had entered into an agreement with an English company whereunder the said company was required to erect a barium chemical plant for the assessee. The English company, however, could not complete its work fully and even whatever plant and machinery was erected by them had been found to be defective during the trial run.

Consequently, there was a dispute between the assessee-company and the English company which was finally settled after protracted negotiations and a settlement was reached whereby a lump sum payment was agreed to be paid by the English company to the assessee as compensation. The issue thereafter arose as to whether the said compensation was a capital receipt or a revenue receipt liable to tax and when the matter reached to the Hon'ble Andhra Pradesh High Court, their Lordships observed that there is no infallible test to draw a clear cut demarcation between a capital receipt and a revenue receipt. The Hon'ble A.P. High Court then proceeded to discuss the various case laws relied upon by both the sides in support of their stands on this issue before finally deciding the same in the light of legal position emanating therefrom in paragraph Nos. 57 and 58 as under:- 57. From the foregoing decisional law, it is reasonably clear that in order to decide whether or not a payment is a revenue receipt, its true nature and substance must be looked into. The form in which it is expressed is not decisive. How the assessee treated the payment is not conclusive of its nature. If the assessee himself has treated the payment in his account books as compensation or consideration received for loss of earnings or profits, it is a revenue receipt. If the payment is received in the ordinary course of the business of the assessee for loss of stock-in-trade, it is a revenue receipt. If, on the other hand, the payment received is towards compensation for extinction or sterilization partly or fully of a profit-earning source (capital asset), such receipt not being in the ordinary course of the assessee's business, it must be construed as a capital receipt. Neither on the findings of the Tribunal, nor on an examination of the terms of the settlement, dated 22-2-1967, can it be said that the amount in question represented loss of profits. The business of the assessee carried on was in barium chemicals. The settlement dated 22-2-1967, concluded between the assessee and the English company cannot be treated as one in the ordinary course of the business carried on by the assessee. Installation of machinery and parts was not the business of the assessee. It was the business of the English company. There has been a sterilization of capital assets of the assessee in that the English company failed to erect the machinery and plant according to the original stipulations. It had abandoned the work in the middle. The optimum capacity of the machinery installed was not even 30 per cent of the installed capacity. The amount paid was towards damages in order to compensate the assessee for not fulfilling the terms of the contract. The sterilization of assets need not be in toto in order to make a payment a capital receipt (vide Vazir Sultan & Sons (supra); Godrej & Company (supra) and Karam Chand Thapar (supra). The plant and machinery could not by any stretch of reasoning be construed as stock-in-trade of the assessee.

They are only capital assets. The agreements between the assessee and the English company were not trading contracts for generation of revenue profits, but they were only designed to bring into being an apparatus for an income-yielding source.

58. Having regard to all these circumstances, the only conclusion we reach on this aspect is that the sum of Rs. 47,20,939 received by the assessee during the assessment year 1968-69 from M/s. Mitchell Limited constitutes in its entirety a capital receipt and so not liable to tax. Agreeing with the view of the Tribunal, we answer question No. 1 raised by the Revenue in favour of the assessee and against the Department.

45. If the aforesaid propositions propounded by the Hon'ble AP High Court are applied to the facts of the present case, it would not be difficult to hold that the amount in question received by the assessee-company was a capital receipt and not a revenue receipt as alleged by the learned CIT. As already observed, the said amount was not received as compensation for loss of earnings or profits because the project agreements between the assessee-company and Qualcomm were on capital account and termination thereof resulted in injury to the capital structure of the assessee-company. Such compensation, therefore, was not for a loss of any earnings or profits suffered by the assessee-company and the receipt thereof could not be said to be received in the ordinary course of business of the assessee for loss of stock-in-trade because the business of the assessee-company had not even commenced in the year under consideration. The amount in question thus was received by the assessee-company towards compensation for extinction of capital asset and such receipt not being in the ordinary course of the assessee's business, the same was a capital receipt. It is pertinent to note here that setting up a broad-band network on convergence platform was not the ordinary course of the business carried on by the assessee but the same was the business of Qualcomm and, therefore, the termination of agreements with the said company could not be construed as loss of stock-in-trade in its case by any stretch of imagination. The equipment and services to be supplied by Qualcomm in terms of the project agreement to the assessee-company were capital assets and not stock-in-trade of the assessee.Oberoi Hotels (P) Ltd. v. CIT facts of the present case. In the said case, the amount was received because the assessee had given up its right to purchase and/or to operate the property and the said amount was held to be a capital receipt and not a revenue receipt by the Hon'ble Apex Court observing that by giving up his right to purchase and/or to operate the property, injury was inflicted on the capital asset of the company thereby resulting in loss of source of assessee's income. In the present case also, the assessee had released/discharged Qualcomm from the project agreements thereby giving up its right to purchase/acquire the equipment/services from the said party and this act had certainly inflicted an injury to the capital structure of the assessee-company resulting in a loss of source of income. The amount in question received as compensation for such injury thus was a capital receipt as held by Hon'ble Supreme Court in the case of Oberoi Hotel (P.) Ltd. (supra).

47. Before us, one of the contentions raised by the learned DR is that there was no loss to its capital structure suffered permanently by the assessee-company since it entered into a fresh agreement with M/s.

Lucents Technology and continued to set up the broad-band network for the purpose of carrying out its business of providing basic telecom services. Reliance in this regard is placed by him on the decision of Hon'ble Supreme Court in the case of Karam Chand Thapar (supra) wherein it was held that amounts which were not received initially as trading receipts could eventually be regarded as business income by reason of subsequent events. It is, however, observed that the said decision was rendered by the Hon'ble Supreme Court in the different context inasmuch as the issue for consideration before the Hon'ble Supreme Court in that case was whether the amount received initially as trading receipt could eventually be regarded as business income as a result of subsequent event. Moreover, as held by the Hon'ble Supreme Court in that case, the subsequent event should be such that a different quality is imprinted on the receipt. In the present case, the fresh agreement entered into by the assessee-cornpany with M/s. Lucents Technology in order to continue the setting up of the broad-band network was not such an event to imprint a different quality on the amount received by the assessee-company from Qualcomm so as to make this capital receipt a revenue receipt. This decision of the Hon'ble Supreme Court in the case of Karam Chand Thapar (supra) is therefore, not applicable to the facts of the present case and the reliance of the learned CIT-DR on the same is clearly misplaced. On the other hand, the decision of Hon'ble Supreme Court in the case of Kettlewell Sullen & Co. Ltd. (supra) involving almost similar facts, is directly applicable to the present case wherein it was held that the compensation paid to the assessee for termination of managing agency was a loss of capital asset and it matters little whether the assessee did continue after the termination of the said managing agency. To the similar effect is the decision of Hon'ble Supreme Court in the case of Travancore Rubber & Tea Co. Ltd. (supra) cited by the learned Counsel for the assessee wherein it was held that the, quality and nature of a receipt for income tax purposes are fixed once and for all when the subject of the receipt is received and no subsequent operation can charge the nature of the receipt. We, therefore, find no merits in the contention raised by the learned CIT-DR in this regard and reject the same.

48. As such, considering all the facts of the case and keeping in view the legal position emanating from the various judicial pronouncements as discussed above, we are of the considered opinion that the amount in question received as compensation by the assessee-company from Qualcomm on account of cancellation/termination of project agreements was a "capital receipt" not liable to tax. In that view of the matter, we hold that the learned CIT was not justified in holding the same to be a revenue receipt chargeable to tax. The addition made on this issue to the total income of the assessee is, therefore, directed to be deleted.

Ground Nos. 8 to 13 of the assessee's appeal are, accordingly, allowed.

49. Ground No. 14 has not been pressed by the learned Counsel for the assessee before us. The same is, accordingly, dismissed as not pressed.

Court	Income Tax Appellate Tribunal ITAT Delhi
Decided On	Dec-30-2005
Judge	P Jagtap, N Vasudevan
Reported in	(2006)99ITD576(Delhi)
Appellant	Shyam Telelink Ltd.
Respondent	income-tax Officer

Shyam Telelink Ltd. Vs. Income-tax Officer - Court Judgment