Case Laws on section 2(24) of Income Tax Act

Case Laws on section 2(24) of Income Tax Act

Section 2 (24) : Income – Capital or revenue-Receipt representing compensation for loss of source of income would be treated as capital receipt.
Assessee was a journalist by profession and was appointed as the foreign correspondent in India of a German news magazine. German publisher paid a lump sum amount upon termination as sign off compensation for association of past 23 years and loss of work space. Assessing Officer treated the compensation received to be revenue in nature and chargeable to tax under Income Tax Act, 1961.

High Court noted that the receipt in the hands of the Assessee was compensation for loss of an income generating asset. Termination of contract had fatally injured the appellant’s only source of income for the last 23 years. The mere fact that the Assesse was free to earn through other sources would not make a difference. High Court relied on Supreme Court ruling in Kettlewell Bullen and Co. Ltd (53 ITR 261) and Oberoi Hotel Pvt. Ltd. v. CIT(236 ITR 903) wherein the court held that if receipt represents compensation for the loss of a source of income, it would be capital and it matters little that the Assessee continues to be in receipt of income from its other similar operations. Accordingly the Court ruled in favour of the Assessee and treated the receipt as capital receipt. (AY. 1994-95)

CIT v. Sharda Sinha (2016) 237 Taxman 111 (Delhi)(HC)

S. 2(24) : Income – Insertion of sub-clause (xviii) is not retrospective – Assessee received subsidy from Tea Board and Ministry of Commerce & Industry, Government of India – Prior to aforesaid amendment, if a subsidy was regarded as revenue subsidy, it would be taxable besides value of subsidy getting reduced form actual cost of depreciable assets for purpose of allowing depreciation [S. 43(1)]

Held that the aforesaid amendment to Section 2(24) (xviii) of the Act has two parts. The first part says that any subsidy whether it is capital or revenue will be regarded as “income”. The second part is that, if the value of the subsidy is reduced from the value of actual cost u/s.43(1) of the Act for allowing depreciation, than the subsidy will not be taxed as “income”. If, we were to hold that the amendment is retrospective than the 1st part of the amendment by which any subsidy, whether capital or revenue, is to be regarded as “Income” will create a charge to tax and unless the legislature specifically imposes a charge to tax, retrospectively cannot be given. Therefore the 1st part cannot be regarded as having retrospective operation.

The second part of the amended provision of Sec.2(24)(xviii) of the Act gives a relief in the form of relieving double taxation, one in the form of the subsidy being taxed as income and again the value of subsidy being reduced from the actual cost of fixed assets on which depreciation is to be allowed. It is not possible to regard one part of an amended provision as having retrospective operation and the other part having only prospective operation.

If the legislature wanted the amendment to be applicable in the manner as contended by Assessee, it would have so provided in the Finance Act, 2015. By a process of interpretation it would not be proper to regard retrospectively to only one part of an amendment. Therefore prior to the amendment referred to above, if a subsidy is regarded as revenue subsidy, it would be taxable besides the value of the subsidy getting reduced form the actual cost of depreciable assets for the purpose of allowing depreciation, if the conditions laid down in Explanation 10 to Sec.43(1) of the Act are satisfied. (AY. 2006-07)

Limtex Tea & Industries Ltd. v. ACIT (2016) 156 ITD 900/ 176 TTJ 265 (Kol.)(Trib.)

S. 2(24) : Income –Interest from recurring deposits is taxable on maturity when it gets entitled and due.

The Assessee deposited funds in recurring deposits with banks for varying periods from 3-10 years. Since, the interest on the recurring deposits was payable at the time of maturity, the same was not offered for tax. The AO held that since in case of recurring deposit the interest is received and reinvested, it has to be taxed every year. The ITAT held that the interest in respect of securities were entitled, due and receivable only on maturity and accordingly, it would taxed in that year. Further, the entire income had accrued and was offered to tax in subsequent AY by the Assessee. (AY. 2001-02, 2003-04 to 2008-09)

West Bengal Infrastructure Development Finance Corporation v. ACIT(2016) 45 ITR 285(Kol.)(Trib.)

DCIT v. West Bengal Infrastructure Development Finance Corporation (2016) 45 ITR 285 (Kol.) (Trib.)

S. 2(24) : Income – Interest is crystallized and accrues in the year in which it gets finalized and quantified and would be taxable in that year.

The Assessee had deposited sums with Pay and Accounts Office of the Government of West Bengal, which did not initially carry interest. In 2001 it was pointed out that the funds were kept in interest bearing account, and interest was due to be paid to public sector undertakings. Subsequently, after much negotiations, in 2004, the State Government decided that it would pay interest. According to the Assessee, the interest had crystallized in 2005 when it was ultimately quantified and accrued to it. According to the AO, the interest had accrued in the impugned AY. It was held by the ITAT that considering the fact that the interest was finalized and quantified in 2005, it would have crystallized then and would be taxable in that year. (AY. 2001-02, 2003-04 to 2008-09)

West Bengal Infrastructure Development Finance Corporation v. ACIT(2016) 45 ITR 285 (Kol.) (Trib.)

DCIT v. West Bengal Infrastructure Development Finance Corporation (2016) 45 ITR 285 (Kol.) (Trib)

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