S. Muralidhar, J.

1. This is an appeal by the Revenue under Section 260A of the Income Tax Act, 1961 (‘Act’) against the impugned order dated 3rd October 2002 passed by the Income Tax Appellate Tribunal (‘ITAT’) in ITA No. 1280/Del/2002 for the Assessment Year (‘AY’) 1998-99.

Question of law

2. While admitting this appeal on 1st February 2006 the Court framed the following question of law for determination:

“Whether the ITAT was correct in holding that receipt of Rs. 6080.95 lakhs by the Assessee as compensation on termination of joint-venture agreement was not taxable as income under the Head ‘Capital Gains’?

Background Facts

3. The facts leading to the filing of the present appeal are that the Assessee, HCL Infosystems Limited (‘HIL’), which was initially incorporated as HCL Limited under the Companies Act, 1956 on 17th April 1986, was engaged in the manufacture, distribution and sale of computers and services in India. At that stage most of the computer products being manufactured by it were designed in-house.

4. Hewlett Packard Inc (HP), a company incorporated in the United States of America (USA), is engaged in the design, engineering, manufacture, assembly and sale of cert