The Court: The Facts Of This Case Are More Or Less Identical To Thosein Ita/8/2008 [Oberoi Hotels Pvt. Ltd v. Commissioner Of Income Tax,Kolkata-Iii & Anr.] Decided By This Court By Its Judgment And Order Dated1[St] September, 2023. In That Judgment And Order We Observe

ITA/707/2008IN THE HIGH COURT AT CALCUTTAIn appeal from itsSPECIAL JURISDICTION (INCOME TAX)CIVIL APPELLATE JURISDICTION Oberoi Hotels [P] LimitedVersusCommissioner of Income Tax, Kolkata – III Before:The Hon’ble Justice I. P. MUKERJIAndThe Hon’ble Justice BISWAROOP CHOWDHURYDate: 6[th] October, 2023 Appearance:Mr. J. P. Khaitan, Sr. AdvocateMr. Akhilesh Kr. Gupta, AdvocateMs. Akshara Shukla, Advocatefor the appellantMr. Swarajit Roychoudhury, Advocatefor the respondent The Court: The facts of this case are more or less identical to thosein ITA/8/2008 [Oberoi Hotels Pvt. Ltd. vs. Commissioner of Income Tax,Kolkata-III & Anr.] decided by this court by its judgment and order dated1[st] September, 2023. In that judgment and order we observed and held asfollows : “The Court :A very interesting question of law is involved in thisappeal. It arises out of the two agreements between the appellant and theGovernment of Iraq in the 1980s, each for running a hotel in that countryby the appellant. The first one was entered into on 8[th] July 1981 to operatea hotel for eight years from 15[th] October 1984 to 14[th] October 1992. Thesecond one executed on 25[th] June 1984 was to operate another hotel forten years from 1[st] April 1986 to 31[st] March 1996. According to the termsand conditions of the agreements, the appellant was to get 8% of theprofits. In 1990-91 the Gulf War was broke out. By mutual consent theagreements were terminated. The appellant received aroundRs.1,45,00,000/- as compensation from the Iraqi authorities for prematuretermination of the agreements, further to the United Nations’recommendation in the matter. The Indian tax authorities treated this as a revenue receipt andwanted to tax it. According to the appellant, it was capital a receipt notliable to be taxed. Mr. J. P. Khaitan, learned senior advocate, appearing for theappellant submits that the agreement to operate each of the hotels on along term basis, although on profit sharing terms and conditions, was to betaken as resulting in capital creation and not an ordinary tradingtransaction. On termination of the agreements by mutual consent, thecompensation received tantamounted to receiving compensation for loss ofcapital. This was to be treated as a capital receipt. Mr. Roy Choudhury, learned advocate for the respondent, submitsthat the transaction between the parties was a pure and simple businessadventure, out of which the appellant was earning 8% profit. Hence thecompensation received was to be taxed as revenue receipt. The leading judgment of the Supreme Court in this field is OberoiHotel Private Limited vs. Commissioner of Income Tax reported in 236 ITR903. The following principles of law can be enunciated from thiswonderfully written judgment. What is received from loss of capital is capital receipt whereasprofit in a trading transaction is taxable. Where compensation is receivedby a person for cancellation of a contract but does not affect the tradingstructure of the business or deprive him of source of income, the receipt isrevenue. The termination of the contract is taken as a normal incident ofbusiness. Where the trading structure is affected or source of income isdepleted which is sought to be compensated by paying an amount thatamount is to be taken as a capital receipt. We have considered the submissions of learned counsel for the parties. On scrutiny of the impugned order of the tribunal we do not findthat any inquiry or finding has been made by the tribunal in relation to theabove essential facts. The above judgment of the Supreme Court wassought to be distinguished on facts. It has been stated by the tribunal thatin the facts of the Supreme Court case there was an option to the appellantto buy the hotel, a capital asset which the appellant was deprived of. Herethere was no such option. The said premises on which the tribunal has proceeded isunfortunately flawed. We have considered the submissions of learned counsel for the parties. On scrutiny of the impugned order of the tribunal we do not findthat any inquiry or finding has been made by the tribunal in relation to theabove essential facts. The above judgment of the Supreme Court wassought to be distinguished on facts. It has been stated by the tribunal thatin the facts of the Supreme Court case there was an option to the appellantto buy the hotel, a capital asset which the appellant was deprived of. Herethere was no such option. The said premises on which the tribunal has proceeded isunfortunately flawed. The main question to be answered was whether on a constructionof the agreements, their execution, the conduct of the parties and so on theoperation of the two hotels in Iraq by the appellant on a long term basiscould be taken as creation of capital or a source of income? Whether ontermination of these agreements, the compensation received by theappellant for not being able to carry out the agreements could be taken asone for loss of capital? In those circumstances, we set aside that part of the impugnedorder of the tribunal dealing with above issue. We remand the matter to thetribunal with a direction upon it to decide the same upon hearing theparties preferably within a period of six months from date. All points are kept open. The appeal is accordingly disposed of. “ The difference between the impugned order of the tribunal in theother case and this case is that in this case the tribunal has substantiallyaccepted the submission of the appellant that receipt of compensation wascapital in nature. However, it proceeded to treat the cost of acquisition asnil and to direct computation of capital gains tax under section 45 of theIncome Tax Act, 1961 accordingly. Mr. Khaitan, learned senior advocate appearing for the appellant isaggrieved by this finding. He is also aggrieved by the recording of an allegedconcession made by him or his client before the tribunal. For those reasons, we set aside that part of the impugned judgmentand order treating the cost of acquisition as nil for the purposes ofcalculation of capital gains and remit the matter to the tribunal to considerthe issue afresh, without relying on any alleged concession within sixmonths of communication of this order. The appeal is disposed of. (I. P. MUKERJI, J.) (BISWAROOP CHOWDHURY, J.) pkd.