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2016 Supreme(Cal) 587
IN THE HIGH COURT AT CALCUTTA
Girish Chandra Gupta, Arindam Sinha, JJ.
COMMISSIONER OF INCOME TAX – Appellant
Versus
SDB INFRASTRUCTURE PRIVATE LTD. – Respondents
ITA No.233 of 2009
Decided on : 29-11-2016
Advocate Appeared:
For the Appellant : Md. Nizamuddin, Adv. Ms. Smita Das De, Adv.
For the Respondent: Mr. N. K. Poddar, Sr. Adv., Mr. Ashoke Gupta, Adv.
The character of a receipt as revenue or capital depends on the source from which it arises and not on the use to which it is put.
Headnote:
Whether the excess sum of Rs. 37,91,32,586/- received by the assessee is a revenue receipt or a capital receipt? Whether the long term capital loss of Rs. 75,85,592/- was computed in accordance with law? Whether in the facts and circumstances of the case there was any cost of acquisition? If so what was that? Whether in the facts and circumstances of the case the Tribunal was justified in law in upholding deletion of the addition on account of Bad Debt amounting to Rs. 14,22,98,000/- despite the fact that the assesse, according to the revenue, had failed to establish that it was engaged in the business of money lending during the year and also, according to revenue, failed to fulfil the condition specified under Section 36(2) of the said Act? Whether the learned Tribunal misdirected itself in law and adopted a wholly erroneous approach in holding that the deduction under section 80HHB of the said Act, was not available to the Respondent/Assessee Company in respect of Rs. 63,25,667/- realised by it in the form of Government of India Compensation Bonds, 2008 during the year under appeal? Whether the findings of the learned Tribunal to the effect that the Assessee Company did not comply with all the conditions laid down in section 80HHB(3)(i) & (iii) of the said Act, are against the facts and evidences on record, based on irrelevant considerations, unreasonable and/or otherwise perverse?
Fact of the Case:
The assessee had entered into a contract dated 21st August, 1985 with the republic of Iraq, Ministry of Local Government, Organisation for Water and Sewerage (Employer) Bagdad, Iraq for carrying out the civil construction works in respect of Hilla Water Supply Scheme and Left Bank Mosul Water Supply Scheme on deferred payment basis. While execution of the aforesaid projects was in progress, remittances from Iraq on account of project receivables were suddenly stopped since June, 1990 due to Gulf Crisis and sanctions, imposed by the United Nations against Iraq as on 31st March, 1991. US Dollars $86,69,772.20 in respect of Hilla Water Supply Scheme and US Dollars $1,43,74,818.40 in respect of Left Bank Mosul Water Supply Scheme aggregating to US Dollars $230,44,590.60 correspondingly a sum of Rs.45,05,21,747/- in Indian Currency were receivable by the assesse but nothing was recovered. The assesse wrote off the said sum of Rs.45,05,21,747/- during the assessment year 1995-96.
Finding of the Court:
The sum of Rs.37,91,32,586/- received in excess on account of exchange gain is a revenue receipt or a capital receipt? The long term capital loss of Rs.75,85,592/- was computed in accordance with law? In the facts and circumstances of the case there was any cost of acquisition? If so what was that? In the facts and circumstances of the case the Tribunal was justified in law in upholding deletion of the addition on account of Bad Debt amounting to Rs. 14,22,98,000/- despite the fact that the assesse, according to the revenue, had failed to establish that it was engaged in the business of money lending during the year and also, according to revenue, failed to fulfil the condition specified under Section 36(2) of the said Act? The learned Tribunal misdirected itself in law and adopted a wholly erroneous approach in holding that the deduction under section 80HHB of the said Act, was not available to the Respondent/Assessee Company in respect of Rs. 63,25,667/- realised by it in the form of Government of India Compensation Bonds, 2008 during the year under appeal? The findings of the learned Tribunal to the effect that the Assessee Company did not comply with all the conditions laid down in section 80HHB(3)(i) & (iii) of the said Act, are against the facts and evidences on record, based on irrelevant considerations, unreasonable and/or otherwise perverse?
Issues: Whether the excess sum of Rs. 37,91,32,586/- received by the assessee is a revenue receipt or a capital receipt? Whether the long term capital loss of Rs. 75,85,592/- was computed in accordance with law? Whether in the facts and circumstances of the case there was any cost of acquisition? If so what was that? Whether in the facts and circumstances of the case the Tribunal was justified in law in upholding deletion of the addition on account of Bad Debt amounting to Rs. 14,22,98,000/- despite the fact that the assesse, according to the revenue, had failed to establish that it was engaged in the business of money lending during the year and also, according to revenue, failed to fulfil the condition specified under Section 36(2) of the said Act? Whether the learned Tribunal misdirected itself in law and adopted a wholly erroneous approach in holding that the deduction under section 80HHB of the said Act, was not available to the Respondent/Assessee Company in respect of Rs. 63,25,667/- realised by it in the form of Government of India Compensation Bonds, 2008 during the year under appeal? Whether the findings of the learned Tribunal to the effect that the Assessee Company did not comply with all the conditions laid down in section 80HHB(3)(i) & (iii) of the said Act, are against the facts and evidences on record, based on irrelevant considerations, unreasonable and/or otherwise perverse?
Ratio Decidendi: The excess sum of Rs. 37,91,32,586/- received by the assessee is a capital receipt. The long term capital loss of Rs. 75,85,592/- was computed in accordance with law. In the facts and circumstances of the case there was no cost of acquisition. In the facts and circumstances of the case the Tribunal was justified in law in upholding deletion of the addition on account of Bad Debt amounting to Rs. 14,22,98,000/- despite the fact that the assesse, according to the revenue, had failed to establish that it was engaged in the business of money lending during the year and also, according to revenue, failed to fulfil the condition specified under Section 36(2) of the said Act. The learned Tribunal misdirected itself in law and adopted a wholly erroneous approach in holding that the deduction under section 80HHB of the said Act, was not available to the Respondent/Assessee Company in respect of Rs. 63,25,667/- realised by it in the form of Government of India Compensation Bonds, 2008 during the year under appeal. The findings of the learned Tribunal to the effect that the Assessee Company did not comply with all the conditions laid down in section 80HHB(3)(i) & (iii) of the said Act, are against the facts and evidences on record, based on irrelevant considerations, unreasonable and/or otherwise perverse.
Final Decision: Appeal partly succeeds. Cross objection succeeds fully.
1. The appeal and the cross objection are directed against a judgment and order dated 27th March, 2009 by which the learned Income Tax Appellate Tribunal partly allowed an appeal preferred by the assesse registered as ITA No.235/Kol/2007 and dismissed a cross objection registered as ITA No.440/Kol/2007 preferred by revenue both pertaining to the assessment year 2003-04. The facts and circumstances of the case briefly stated are as follows:-
2. The assesse had entered into a contract dated 21st August, 1985 with the republic of Iraq, Ministry of Local Government, Organisation for Water and Sewerage (Employer) Bagdad, Iraq for carrying out the civil construction works in respect of Hilla Water Supply Scheme and Left Bank Mosul Water Supply Scheme on deferred payment basis. While execution of the aforesaid projects was in progress, remittances from Iraq on account of project receivables were suddenly stopped since June, 1990 due to Gulf Crisis and sanctions, imposed by the United Nations against Iraq as on 31st March, 1991. US Dollars $86,69,772.20 in respect of Hilla Water Supply Scheme and US Dollars $1,43,74,818.40 in respect of Left Bank Mosul Water Supply Scheme aggregating to US Dollars $230,44,590.60 correspondingly a sum of Rs.45,05,21,747/- in Indian Currency were receivable by the assesse but nothing was recovered. The assesse wrote off the said sum of Rs.45,05,21,747/- during the assessment year 1995-96.
3. The stoppage of remittance from Iraq had not only affected the Indian Project Exporters but Exim Bank and other commercial banks, who had advanced credit facilities to the Indian Project Exporters against policies/counter-guarantees furnished by ECGC, were also affected. In order to resolve the deadlock, a group was constituted by the Government of India on 12th September, 2001 consisting of the representatives of Reserve Bank, Exim bank and ECGC to work out the modalities for the implementation of the decision of the Cabinet Committee on economic affairs relating to six projects executed by the Indian Project Exporters in Iraq including the assesse on deferred payment basis. Pursuant to the recommendations made by the group in its report dated 9th October, 2001, the project receivables were assigned by the assesse in favour of the President of India by and under two several Deeds of Assignment both dated 6th May, 2002. Consequent to such assignment, the Government of India issued and/or agreed to issue bonds for US Dollars $87,53,051.62 as certified by the Rafidain Bank, Iraq with respect to Hilla Water Supply Scheme and bonds for US Dollars $146,15,102.50 as certified by the Rafidain Bank, Iraq in respect of Left Bank Mosul Water Supply System. Rafidain Bank had certified in both the cases that the aforesaid sum in US dollars were payable to the assesse as on 30th September, 2001. The total sum of US Dollars $2,33,68,154.12 (87,53,051.62+146,15,102.50) included a sum of US Dollars $27,78,033.79 on account of interest according to the settlement of dues evidenced by the document appearing at page no. 49 of Volume 2 of the paper book which appears to have been issued by the Exim Bank, Mumbai.
4. From the Deeds of Assignment it appears that the assesse had originally agreed to accept the payment on deferred payment basis from the Iraq Govt. The agreements between the assesse and the foreign employer are not, however on the record. It has already been noticed that as on 31st March, 1991 US Dollars $2,30,44,590.60 were receivable by the assesse. Pursuant to the Deeds of Assignment dated 6th May, 2002, bonds for US Dollars $2,33,68,154.12 were received by the assesse. The assesse received an excess payment of US Dollars $3,23,563.52. The Assessing Officer was of the opinion that the US Dollars $27,78,033.79 were received by the assesse on account of interest.
5. Even assuming that the assesse w
