Law: Income Tax Act, 1961

Section: 263

Section 4, read with section 263 of the Income-tax Act, 1961 - Income - Chargeable as (Damages) - Assessment year 1995-96 - Assessee had entered into an oral agreement with 'ECL' to purchase factory premises to give it on lease and earn lease rent - Subsequently, on failure of ECL to perform its part of contract, assessee filed a suit for 'specific performance' - Trial Court awarded damages to assessee - Assessing Officer held that said amount being in nature of 'capital receipt', could not be brought to tax - Whether order passed by Assessing Officer was to be confirmed - Held, yes [Paras 17 - 18][In favour of assessee] FACTS â–  The assessee had entered into an oral agreement with 'ECL' to purchase factory premises to give it on lease and earn lease rent. At the time of finalizing the sale agreement, ECL backed out of said oral agreement. The assessee filed suit before Trial Court of 'specific performance' and to grant of damages for breach of said agreement. The Court passed consent decree, under which ECL agreed to pay 5 crores to assessee by way of damages. â–  The Assessing Officer made a reference under section 144A to the Deputy Commissioner seeking his opinion regarding taxability of amount received by assessee. â–  The Deputy Commissioner gave directions to Assessing Officer to the effect that said receipt of damages was not taxable in the hands of the appellant neither as business income nor as capital gains, nor as casual or non-recurring receipt. Accordingly, the Assessing Officer completed the assessment. â–  The Commissioner exercising his powers under section 263 passed a revisional order holding that while making the assessment, the Assessing Officer failed to consider the decision of the Bombay High Court in the case of CIT v. Vijay Flexible Containers [1990] 186 ITR 693/48 Taxman 86 and, therefore, the order passed by the Assessing Officer was erroneous as well as prejudicial to the interest of the revenue. â–  The Tribunal confirmed the Commissioner's order. â–  On appeal: HELD â–  The question of law involved in Vijay Flexible Containers (supra) case was, 'whether the right conferred upon the…