COMMISSIONER OF INCOME TAX Vs. AMBADI ENTERPRISES LTD

JUDGEMENT

(1.) THE substantial questions of law involved in this case are as follows:

(2.) THE assessee is a company and the assessment year involved is 1986-87. The assessing authority found from the balance sheet that the assessee has included a sum of Rs. 8.6 lakhs under the head 'reserves and surplus'. The said sum was received by the assessee on termination of distributorship. The assessee treated the said receipt as a capital receipt. The AO levied tax thereon treating it as a revenue receipt. On appeal, treating the sum of Rs. 8.6 lakhs as revenue receipt, the CIT(A) confirmed the same. The Tribunal, on further appeal, treated it as a capital receipt and not liable for taxation.

(3.) ADMITTEDLY , the said amount of Rs. 8.6 lakhs was part of the receipt of Rs. 42 lakhs; towards compensation for cost of trained manpower (Rs. 11 lakhs); towards compensation for cost of dealers/customers network (Rs. 22 lakhs); and towards compensation for loss of profits (Rs. 9 lakhs). The assessee-company, which was engaged in the business of trading in bundy tubing, various items of imported goods, floor covering and other products, had been distributing on principal to principal basis the products of Tube Investment of India, T.I. Miller Ltd. and T.I. Diamond Chain Ltd. The distributorship was terminated and as a result thereof, the assessee received a compensation of the above-mentioned Rs. 42 lakhs.