{"id":62966,"date":"2026-07-30T16:11:15","date_gmt":"2026-07-30T10:41:15","guid":{"rendered":"https:\/\/itatonline.org\/digest\/cit-asst-v-u-k-paints-india-p-ltd-2025-131-itr-74-delhitrib\/"},"modified":"2026-07-30T16:11:15","modified_gmt":"2026-07-30T10:41:15","slug":"cit-asst-v-u-k-paints-india-p-ltd-2025-131-itr-74-delhitrib","status":"publish","type":"post","link":"https:\/\/itatonline.org\/digest\/cit-asst-v-u-k-paints-india-p-ltd-2025-131-itr-74-delhitrib\/","title":{"rendered":"CIT (Asst.) v. U. K. Paints (India) P. Ltd. (2025) 131 ITR 74 (Delhi)(Trib.)"},"content":{"rendered":"

In the course of assessment proceedings, the AO noticed that the Assessee has claimed receipt of Rs.4,34,31,471\/-from PNB Principal (Mauritius) as capital receipt. The AO asked the assessee as to<\/span> why the said receipt cannot be taxed under the head \u2018capital gains\u2019. In reply to the same<\/span>, it was explained that the assessee along with Punjab National Bank and Vijaya Bank had entered into a Share Subscription Agreement (SSA) with Principal Financial Group (Mauritius) Ltd. to incorporate a company to undertake life insurance business after obtaining necessary approval from various authorities. Since regulatory approval could not be obtained, the business of Joint Venture Company could not commence. PFGM exercised its call option and acquired shares of Assessee for which the Assessee was paid a sum of Rs.4.34 crore for termination of contracts which was capital receipt in nature. The AO was of the view that the sum received from PFGM as compensation on taking over\u00a0 the company\u2019s bundle of rights and obligations under the BCA was by way of guaranteed returns on the investments made and was taxable as capital gains. AO further noted that the acquisition of capital asset being the right to carry in JV Co. has to be computed as per the provisions of section 55(2)(a) of the Act. As per AO cost of acquisition should be taken as NIL. Being aggrieved, the Assessee preferred the appeal before the CIT(A). The CIT(A) held that the Hon\u2019ble Supreme Court in the case of CIT v. Motor & General Stores (1967) 66 ITR 692(SC) \u00a0has held that in construing a contract, the terms and conditions thereof are to be read as a whole. A contract must be construed keeping in view the intention of the parties. However, the AO conveniently presumed that the compensation received by Assessee has its roots in the business. Therefore, the same is exigible to capital gains tax. The AO further presumed that the compensation can be labelled as shares sale consideration, which is contrary to material on record\/agreements. The AO drawn an adverse inference by presuming that the Assessee has transferred right to carry on \u201cinvestment business in insurance sector\u201d in favor of PFGM whereas appellant had admittedly no activities of any sort in \u201cinsurance business\u201d in past or future. There is no cogent material to support inferences drawn by AO. Thus, the addition made under capital gains is unjustified..<\/span> Being aggrieved, the Department filed appeal to the ITAT. The ITAT held that the compensation received by the Assessee was not only for the transaction of one or more tangible rights but was for receipt of a bundle of rights as an investing partner, as the whole profit-making process was impaired. It is a fact that the Assessee was never engaged in the business of insurance with any other party and genuineness of transaction was not\u00a0 doubted. Thus, the ITAT held that the AO has erroneously held the compensation as an asset as per section 55(2)(a) of the Act. Thus, the appeal of the Department was dismissed by the ITAT. [AY.\u00a0 2008-09]<\/p>\n","protected":false},"excerpt":{"rendered":"

S. 45: Capital gains-Transfer of bundle of rights\/obligations as investment to a partner-The compensation received for not initiating assured insurance business is a capital receipt and not chargeable to tax as capital gains.[S.4, 55(2)(a)]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[21],"tags":[],"class_list":["post-62966","post","type-post","status-publish","format-standard","hentry","category-income-tax-act"],"acf":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9S2Rw-gnA","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/62966","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/comments?post=62966"}],"version-history":[{"count":1,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/62966\/revisions"}],"predecessor-version":[{"id":62967,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/62966\/revisions\/62967"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/media?parent=62966"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/categories?post=62966"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/tags?post=62966"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}