By TIOL News Service:

ALLAHABAD, DEC 19, 2016: THE ISSUE IS - Whether when an assessee is having other sources of income, and termination of a contract is a normal incident of business, the compensation received on such cancellation could be construed as a capital receipt. NO IS THE VERDICT.

Facts of the case:

The assessee is an individual. Tribunal had examined the matter, recorded findings of fact that amount of compensation received by assessee was on account of cancellation of contract because the BCCL could not provide site to each of the assessee for raising construction. Tribunal's also observed that AO had noted in his order that the assessee had received an amount as business receipt for the period ending 30.6.1986 the year to which the contract in question related. This fact had not been disputed by assessee before AO. It was also recorded in the concurrent orders that assessee had other business also and contract which was cancelled was not the sole contract of assessee and therefore the cancellation of contract had not been effected the trading structure of business of assessee.

On appeal, the HC held that,

++ The assessee was having other sources of income and therefore the termination of the contract with BCCL was nothing but was normal incident of business. Other than that the assessee was free to carry on his trade because there was no restriction on the assessee that he would not be able to execute any other contract and therefore ITAT held that the money received by the assessee from the cancellation of the contract was a revenue receipt and not a capital receipt. There can be no other conclusion except that the income received from the cancellation of the contract and the interest thereon received would all constitute revenue receipt in the hands of the assessee.

(See 2016-TIOL-3040-HC-ALL-IT)