2014 (5) TMI 550 - HC - Income Tax

Court Upholds Capital Gains Treatment, Rejects Business Receipt Claim

The court upheld the treatment of consideration received by the respondent assessee as capital gains from a joint venture agreement, dismissing the ... Applicability of section 28(va)(b) of the Act - Nature of income – Business receipts or capital gains - Consideration towards transfer of motherboards sales and marketing – Held that:- Tribunal has considered all the relevant aspects and has recorded a finding of fact holding that the claim made by the assessee company as “Capital Gains” in respect of the amount received by it in terms of the Transfer of Business Agreement, is proper - the findings of fact recorded by the CIT (A) and the Tribunal are based on proper appreciation of the material on record and in consonance with the provisions of Section 28 (va) First proviso of the Income Tax Act. Deduction u/s 80IB of the Act – Apportionment of R&D expenses – Held that:- The order of CIT(A) and Tribunal are also based on proper appreciation of the material on record - the product has been manufactured in 80 IB units since 1/9/1999 and the expenditure on research and development has been incurred since 2007 - the expenditure on research and development cannot be said to be on a product which is commercialized – as such no substantial question of law arises for consideration – Decided against Revenue. Issues:1. Treatment of consideration received by the respondent assessee as capital receipt or revenue receipt.2. Allocation of expenditure relating to R&D to eligible 80 IB units.3. Challenge raised regarding 80 IB deductions.Analysis:1. The first issue revolves around the treatment of consideration received by the respondent assessee from a joint venture agreement as a capital receipt or a business receipt. The appellant argues that the consideration should be treated as a business receipt, not capital gains, and should not be deducted from the total income. The appellant relies on Section 28(va)(b) of the Income Tax Act and a specific judgment to support their claim. On the other hand, the respondent asserts that the transfer of business was correctly shown as capital gains in line with the provisions of the Act. The court, after examining the Transfer of Business Agreement and relevant material, upholds the findings of the lower authorities, concluding that the treatment as capital gains is appropriate and in accordance with the law.2. The second issue pertains to the allocation of expenditure related to research and development (R&D) to eligible 80 IB units. The appellant argues that the respondent allocated the expenditure to non-80 IB units to reduce tax liability by claiming higher profit in 80 IB units. However, the court finds that the CIT (Appeals) and ITAT's decisions were based on a proper appreciation of the material on record. The court notes that the product was manufactured in 80 IB units, and the R&D expenditure was incurred after commercialization, leading to a dismissal of the appellant's challenge.3. The final issue concerns the challenge raised regarding 80 IB deductions. The court observes that the findings of the lower authorities regarding the 80 IB deductions were based on a proper assessment of the material on record. The ITAT determined that the R&D expenditure was not on a commercialized product, and the appellant failed to demonstrate any flaws in the lower authorities' decisions. Consequently, the court finds no basis for interference and dismisses the appeal, with each party bearing their own costs.