Commissioner of Income Tax and Another vs Eastern Book Company

Prakash Krishna, J.—The above appeals have been filed u/s 260A of the IT Act against common order dt. 9th of Aug., 1999 passed by the Tribunal ''B'' Bench, Allahabad in ITA Nos. 193 and 194/A11/1991 relating to the asst. yrs. 1985-86 and 1986-87.

The facts necessary for disposal of the appeals may be noticed in brief. The assessee, a registered firm, received Rs. 85,000 as infringement of copyright for the asst. yr. 1985-86. Similarly, for the asst. yr. 1986-87 it received Rs. 25,000. The AO and the first appellate authority as well rejected the contention of the assessee that the said amounts were received as capital receipt. But the Tribunal in second appeals referred to above filed by the assessee on the basis of the judgment of the apex Court in The Commissioner of Income Tax, Andhra Pradesh, Hyderabad Vs. Sirpur Paper Mills Ltd., Hyderabad, by a common order has held that the said amounts are not revenue receipts but are capital income and therefore, not liable to be taxed.

Challenging the orders of the Tribunal, the above appeals have been filed and following substantial question of law has been sought to be raised:

Whether on the facts and circumstances of the case the Hon''ble Tribunal was justified in law in holding that receipt of Rs. 85,000 and Rs. 25,000 on account of infringement of copyright was a capital receipt?

Heard learned Counsel for the parties and perused the record. Sri R.K. Upadhyay, the learned standing counsel for the Department, submits that in view of the decision of the apex Court in the case of Oberoi Hotel Pvt. Ltd. Vs. The Commissioner of Income Tax, the receipt in question is a revenue receipt. Sri Krishna Agrawal, learned Counsel for the assessee, on the other hand, supports the order of the Tribunal.

Considered the respective submissions of the learned Counsel for the parties and perused the record.

Anything which can properly be described as income is taxable under the Act unless expressly exempted as held in Maharajkumar Gopal Saran Narain Singh v. CIT (1935) 3 ITR 237 . It is well-settled that tax is on income and therefore capital is not subject of charge under the IT Act. Whether the particular receipt is capital receipt or income receipt, is subject matter of unending debate since long. There is nothing much on record to show as to whether amount received by the assessee firm as infringement of copyright, is towards the loss of capital or of income. It may be noted that the said amount has been credited by the assessee in its P&L a/c, but at the same time the assessee claimed it to be non-taxable being capital receipt. The assessing authority has found that there is no doubt that an amount of compensation in shape of infringement of copyright which has been received by assessee firm is related to its business and on account of damages. The said fact has not been adverted at all by the Tribunal who proceeded to decide the matter almost in a summary manner in view of the judgment of the apex Court in the case of CAT v. Sirpur Paper Mills Ltd. (supra).

However, we find that in the aforesaid case, the Supreme Court has made following observation:

It is now well-settled that if any injury is inflicted on the trading, so to say a hole in the assessee''s profits and damages recovered could not be reasonably and appropriately put to any other purpose than to fill that hole, then the damages recovered would properly enter its P&L a/c for the year.

In the case of Oberoi Hotel (P) Ltd. (supra) the apex Court had said that it may be broadly stated that what is received for loss of capital is a capital receipt, what was received as a profit in a trading transaction is taxable income. It pointed out that difficulty arises in ascertaining what is received in a given compensation, is compensation for loss of source of income or profit in a trading transaction. The emphasis has been laid on the consideration of the circumstances.

Coming to the facts of the present case, it may be noted that the assessee firm is publisher of law books and journals. It received certain amount of compensation for infringement of its copyright in the relevant books. The assessing authority has recorded that assessee''s copyright in the relevant books has not been affected and has remained fully intact as capital asset. Certain publishers unauthorisedly infringed the copyright of assessee and the injuries received on account of such publishers have been redressed by paying compensation for the damages caused to the assessee''s business of publication. On this factual scenario we are of the view that compensation amount received by the assessee is not towards the loss of capital but is towards the loss of its income. This being so, the Tribunal was not justified in holding otherwise. Our view also finds support from the judgment of the apex Court in the case of Sirpur Paper Mills Ltd. (supra).

In IT Appeal No. 55 of 2000 an additional point as to whether the Tribunal was justified in holding that the assessee''s firm was engaged in production/manufacturing activity within the purview of Section 32A of the IT Act, making it eligible for investment allowance, has been raised. The Tribunal has found that the assessee is entitled to investment allowance on photo-composing machine. The judgment of Tribunal is on the lines of the Commissioner of Income Tax Vs. Prasad Film Laboratories P. Ltd.,

The learned standing counsel could not place any material before us to take a different view of the matter. Therefore, we do not find any illegality in the order of the Tribunal in this regard.

In view of the above discussion, the IT Appeal No. 55 of 2000 is allowed in part as indicated above and the order of Tribunal is modified accordingly. The IT Appeal No. 28 of 2000 is allowed.

No order as to costs.