Whether compensation received in lieu of commission from oil company is taxable u/s 28 or u/s 56 or exempt ?

Question

The assessee invested money for construction of a retail outlet & also installed plant & machinery for purchase & sale of petrol & diesel as an agent of ESSAR Oil Ltd and to earn commission. But the said company did not supply either petrol or diesel for sale to the ultimate consumers. The assessee therefore could not earn any commission from the company. The investment remained idle. Taking in to account the investment made, the company paid compensation to the assessee. It also said that the compensation will be backed out from the commission. It also deducted tax at source from the said compensation on the ground that the payment is in the nature of commission/brokerage. Now the question is whether the compensation is taxable u/s 28 under the head business or u/s 56 under the head income from other source or exempt as capital receipt. Further, if it is taxable u/s 28, can there be a claim for depreciation.

Answer 1

It should be under Section 28, Profits and gains from business. TDS is deducted as per section 194H at 10.03%. You can take business deductions.