Capital or revenue
ncvijaykumar
(Querist) 17 May 2010
This query is : Resolved
Whether any amount received for relinquishment of rights in the shares (destruction of an income earning apparatus)under an arbitration award passed under Arbitration and Conciliation Act 1996 is a capital Receipt in the hands of the recepient or revenue in nature?
A V Vishal
(Expert) 17 May 2010
Paragon Constructions (I) (P) Ltd. v. CIT & Anr., 274 ITR 413, in a matter pertaining to arbitration where the amount of arbitration award received by the assessee was not held to be taxable till the proceedings attained a finality.
Kumar Thadhani
(Expert) 17 May 2010
It is a capital receipt in nature and is taxable in the hands of recepient only in the financial year when it is received.
G. ARAVINTHAN
(Expert) 18 May 2010
No contrary view against Vishal Sir
Vineet
(Expert) 18 May 2010
Depends upon facts of the case. A part of award can be revenue and the balance capital. No standard testcan be applied.
N.K.Assumi
(Expert) 18 May 2010
Yes, while agreeing with Vineet, how do we make out that a particular receipt is Capital receipt or Revenue receipt for the purpose of income tax assessment.
Vineet
(Expert) 18 May 2010
Asumi Sir, each receipt is to be tested in light of various settled propositions laid out by courts during last 60-70 years. For example the interest granted by arbitrators has to be trated as revenue receipt. Similarly receipts of disputed contractual performance are also revenue in nature as they augment the business receipts of the receipient. However any compensation for permanent disability or forgoing of permanent source of income shall be treated as capital receipt.
The case law quoted by Mr Vishal is with regards to year in which the awarded sums become due to the assessee and thus become taxable and does not deal with the issue whether the awarded sum is capital or revenue. In fact, in that case there was no dispute that the awarded sum was includible in taxable income as revenue receipt.
ncvijaykumar
(Querist) 18 May 2010
I had forgotten to mention that the compensation under the award was for relinquishment of right in the shares of the company whereby there is a destruction of an income earning apparatus.
Vineet
(Expert) 19 May 2010
Mr Vijay, it appears you have now clarified the query.
Any compensation received for relinquishment of rights in shares of a company irrespective of the fact that it is in persuance to an arbitration award or any other scheme is capiatl receipt in the hands of receipient if he had held such shares as investment and not stock in trade.
The person will be liable to pay long term capital gains tax as no STT has been paid on this transaction.
