THE ISSUE AT HAND IS - Whether receipt of a singular payment which is not recurring in nature & which is received for exercise of any rights arising from substantial control over another company, is to be treated as capital receipt. YES IS THE ANSWER.
Facts of the case
The assessee company received a certain amount on account of it exercising its voting right in another company. On assessment, the issue arose as to whether such payment received would be capital receipt or revenue receipt. On appeal, the CIT(A) treated such receipt as being revenue in nature, while rejecting the assessee's submissions that such receipt was one-time and was not a recurring source of income. On further appeal, the Tribunal set aside the findings of the CIT(A) and held such receipts to be capital in nature.
On appeal, the High Court held that,
++ Though the CIT(A) did not accept the assessee's contention that this was a one-off payment, it could not be said that the assessee was in the business of voting in a particular manner at shareholders' meetings for this to be treated as income from other sources. The Tribunal noticed the Bombay High Court judgment in the Old Spice case and found it to be applicable in the facts and circumstances of the assessee's matter;
++ Further, the income obtained by the assessee from exercising its voting rights in a particular manner was a consequence of the investment of the assessee in RPG Raychem Limited. Even by such logic, the income could have been regarded as a capital receipt;
++ Hence Tribunal's treatment of the matter, particularly, in the light of the judgment of the Bombay High Court, does not call for any reconsideration. It appropriately held that since the income was one-off in nature and arose in the context of the assessee, through a company in which the assessee had substantial control, relinquishing a right, it ought to be treated as a capital receipt and not a revenue receipt.
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