INCOME-TAX TRIBUNAL DECISIONS

Vol. 111, Part 4, for the week of March 26 – April 1, 2008

table of orders reported

Narang Overseas (P.) Ltd. v. Asstt. CIT (Mum.) (SB)

Serum Institute of India Ltd. v. Dy. CIT (Pune)

subject index

Income

Chargeable as

- Assessment year 2002-03 - Whether since in P. Mariappa Gounder v. CIT [1998] 232 ITR 2, Supreme Court was not concerned with issue whether mesne profit received against wrongful possession of property was in nature of revenue receipt or capital receipt, and only issue before Court related to year of taxability of mesne profits, said judgment could not be said to be an authority for proposition that nature of mesne profits was revenue receipt chargeable to tax - Held, yes - Whether mesne profits received by assessee for wrongful deprivation of use and occupation of property constitutes capital receipt not chargeable to tax - Held, yes - Narang Overseas (P.) Ltd. v. Asstt. CIT (Mum.) (SB)

- Assessment year 1992-93 - Assessee was engaged in manufacture of various blood products for which it was securing blood from donors and subjected same to various tests before these were used for manufacture of serum and one of tests was for detecting presence of HIV - For this purpose, assessee was using a type of kit called ELISA test kit manufactured by a foreign company, namely, BWAG and marketed and sold in India by Hoechst - On inspection, by Food and Drug Administration authorities, assessee’s blood products were found to be HIV positive - As a result, assessee was ordered to withdraw and destroy all products manufactured by it - Accordingly, assessee did so and as a result it incurred loss of more than Rs. 2 crore and same was allowed as business loss in assessment years 1989-90 and 1990-91 - Assessee alleged that ELISA test kits supplied to it by BWAG and Hoechst were defective which fact was deliberately concealed by them - Therefore, assessee filed a criminal complaint against suppliers for cheating, etc. - Subsequently, a settlement was arrived at between assessee and suppliers, as a result of which assessee withdrew complaint and an amount of Rs. 1.50 crore was paid to assessee in full and final settlement of all its claim on account of damages suffered or to be suffered by it - Assessee’s case before Assessing Officer was that said compensation amount was not in nature of income but was a capital receipt not liable to tax, inasmuch as same was for discontinuance of assessee’s business in certain blood product consequent upon appearance of HIV anti-bodies in some blood products; and that compensation was against loss of reputation, name and goodwill of assessee - Assessee also stated that receipt in question could not be looked at from point of view of compensation for loss of stock that was destroyed because of appearance of antibodies in blood products manufactured by it - Assessing Officer held that compensation amount received by assessee was not a capital receipt but business receipt liable to be taxed - However, on facts, it was found that it was a case where compensation was paid in respect of two distinct matters, one taking character of revenue receipt being damages for loss of stock, profit or business and other of a capital receipt being compensation for loss of assessee’s name, fame, reputation and goodwill - Whether, in instant case, compensation received by assessee was partly to be treated as capital receipt and partly as revenue receipt - Held, yes - Serum Institute of India Ltd. v. Dy. CIT (Pune)

Income-tax Act, 1961

- Section 4