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Business Income

Mohammed Dalal (Chartered Accountant) (163 Points)

03 February 2010

Since M/s.T will be put through severe inconvenience and loss of business during the intervening period, M/s.T has asked the landlord for adequate compensation. The landlord has instead of the compensation agreed to give additional tenanted area in the new premises. M/s. T is advised that the tax authority will treat the additional area received by M/s. T as income from business and hence taxable at 30% plus applicable surcharge. M/s. T seeks advise on whether additional tenancy area will be taxed? And if so, at what rate?

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1 Replies

Amir (Learner) (4016 Points)
Replied 03 February 2010

Dear Mohammed,

The compensation in kind in the form of additional tenanted area is taxable as PGBP, since the damage was caused to business any not to any asset, now the rate will depend upon the status of the assessee

Compensation is a trading receipt only if it is received for injury to trade - If any amount is received as compensation for an injury which affects a capital asset of the assessee or the capital structure of the assessee’s business, such amount may normally be considered to be a capital receipt. If, however, any amount is received by an assessee as compensation or damages for any wrong done which does not affect any capital asset or the capital structure of the assessee’s business but but causes injury to the assessee in its trade, such amount will normally constitute a trading receipt of the assessee - CIT v. Siewart & Dholakia (P.) Ltd. [1974] 95 ITR 573 (Cal.).