DT Case Laws May 17 Series - Basic Concepts

Chapter: Basic Concepts

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CIT v. Saurashtra Cement Ltd. (2010) - SC

Issue: Whether liquidated damages received by a Co. from supplier on failure to supply machinery within time - Capital Receipt or Revenue Receipt ?

Decision: Capital Receipt, reason being damages were directly linked with procurement of capital asset

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CIT v. M. Venkateswara Rao (2015 – T & AP HC)

Issue: Can capital contributions of partners be taxed as cash credit in hands of firm, where partners failed to explain the satisfactory source of receipt in their individual hands.

Facts: 6 out of 10 partners of firm failed to explain the source of income in their hands for contribution to capital of firm

Decision: View taken by AO was not tenable. Where the firm explains that the partners have contributed capital, section 68 cannot be invoked. At the most, AO can make an enquiry against individual partners, but not the firm.

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