ORDER
1. Pursuant to the directions issued by this Court under Section 256(2) of the Income-tax Act, 1961 ('the Act') for drawing up statement of the case, the following question has been referred, to be answered by us:
Whether in the facts and circumstances of the case or in law, the Tribunal was justified in holding that the sum of Rs. 20,000 received by the assessee was in the nature of revenue receipt or otherwise liable to tax ?
2. Facts, which lie in narrow compass, are mentioned hereinbelow:
The assessee-firm owned a Cinema building popularly known as Prem Prakash Talkies. It entered into an agreement of sale with M/s. Jaipur Mineral and Development Syndicate Private Limited ('JMDSPL') vide agreement dated 30-12-1968. As per the agreement entered into between the parties, the assessee-firm was to sell the property along with the shops, building and the land for a total consideration of Rs. 17 lakhs. Out of which, Rs. 15 lakhs were to be paid to the assessee-firm as an advance on the execution of the agreement, which amount was to be adjusted against the amount to be recovered from the assessee-firm. It appears that this amount was due and outstanding against the assessee-firm on account of some earlier dealings between the assessee-firm and JMDSPL. Clause (7) of the said agreement, which is material to be considered by us in this reference, reads as under:Clause (7) - if the transaction is not completed through any default of the purchaser, a sum of Rs. 20,000 will be payable as compensation to the vendors by the purchaser.
3. The agreement failed and the terms and conditions thereof could not be performed, therefore, assessee-firm became entitled to realize a sum of Rs. 20,000 as compensation in terms of the condition contained in Clause (7) of the agreement.
4. The claim of the assessee-firm before the Income-tax Officer was that the amount so received was in the nature of non-taxable capital receipt as no capital asset was transferred. The matter pertains to the assessment year 1974-75. The Income-tax Officer observed in his order that it is true that it was not a receipt in the normal course of assessee's business, but it would definitely be an income of the assessee and has to be assessed to tax under the head, 'Income from other sources'. The matter was referred to the Inspecting Assistant Commissioner of Income-tax under Section 144B of the Act. The assessee once again submitted that the receipt did not fall under any of the heads of the income under the Act and further, since the compensation was for termination of agreement of transfer of capital asset, the receipt does not bear the nature of capital gain either. The claim as advanced by the assessee was not accepted by the Inspecting Assistant Commissioner of Income-tax. The matter was again carried in further appeal before the Commissioner of Income-tax (Appeals). He also concluded that the receipt of compensation for non-performance of the contract would constitute receipt of income nature. He further held that there was no injury or destruction of the capital asset in any manner, only in which case, it would be a capital loss. According to him, it would be wrong to say that the amount does not come within the definition of 'income'. Thus, the orders passed by the Income-tax Officer and Inspecting Assistant Commissioner of Income-tax were confirmed by the Commissioner of Income-tax (Appeals). The assessee preferred further appeal before the Tribunal. The Tribunal also concluded that the receipt is clearly in the nature of revenue receipt and in such circumstances, the order of Commissioner of Income-tax (Appeals) was sustained.
5. Learned Counsel for the assessee has taken us through various sections of the Income-tax Act and contended that in any case, it cannot be a revenue receipt and at best it will only be a capital receipt.
6. Learned Counsel for the revenue has opposed the contention as advanced by learned Counsel for the assessee.
7. Learned Counsel for the assessee has placed reliance on two decisions of the Supreme Court in Travancore Rubber & Tea Co. Ltd v. CIT : [2000] 243 ITR 158 : 109 Taxman 250 and CIT v. D.P. Sandu Bros. Chembur (P.) Ltd. : [2005] 273 ITR 1 : 142 Taxman 713.
8. We find from the judgment of Travancore Rubber & Tea Co. Ltd. 'scase (supra) that the question stands fully answered in favour of the assessee and against the revenue. After considering the matter, the Supreme Court has held as under:
The logic of the principle is that the assessee's right to recover the compensation was to place the assessee in the same position as if the breach had not taken place. Applying the rule to this case, if the agreed sums of money under the agreements had been received by the assessee, they would have been credited in its account as a capital receipt. That being so, the forfeited amounts must also be treated as capital receipt.
Finally, the High Court erred in proceeding on the basis that the agreements in question were agreements for sale but did not effect a sale. The terms of the agreements clearly show that they were agreements of sale where both payment of the price and delivery were deferred. Had the purchasers paid the purchase price in the agreed instalments their right to take delivery of the trees under the agreement was complete.
For the reasons aforesaid, we allow the appeals and set aside the order of the High Court and answer the question referred to it by the assessee in the negative.
9. The other judgment of D.P. Sandu Bros. Chembur (P). Ltd. (supra) is not directly applicable, but deals with somewhat similar circumstances. The Supreme Court held as under:
There is no dispute that a tenancy right is a capital asset the surrender of which would attract Section 45 so that the value received would be a capital receipt and assessable if at all only under item E of Section 14. That being so, it cannot be treated as a casual or non-recurring receipt under Section 10(3) and be subjected to tax under Section 56. The argument of the appellant that even if the income cannot be chargeable under Section 45, because of the inapplicability of the computation provided under Section 48, it could still impose tax under the residuary head is thus unacceptable. If the income cannot be taxed under Section 45, it cannot be taxed at all. (See S. G. Mercantile Corporation (P.) Ltd. v. CIT : [1972] 83 ITR 700 (SC). Furthermore, it would be illogical and against the language of Section 56 to hold that everything that is exempted from capital gains by the statute could be taxed as a casual or nonrecurring receipt under Section 10(3) read with Section 56. We are fortified in our view by a similar argument being rejected in Nalinikant Ambalal Mody v. S.A.L Narayan Row, CIT : [1966] 61 ITR 428 (SC), 432, 435. The appeal is accordingly dismissed....
10. Even though learned Counsel for the revenue submitted that the aforesaid judgments may not be applicable to the facts of this case, but we are neither convinced nor impressed by the line of argument that was advanced by learned Counsel for the revenue.
11. In the light of the decisions of the Supreme Court, we are of the opinion that the aforesaid amount of Rs. 20,000 can only be treated as capital receipt and not as revenue receipt. We hold so and the question, as referred to above, is answered in favour of the assessee and against the revenue.