TaxTMI 
TaxTMI 
2006 (6) TMI 174
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....m capital gain of Rs. 1,88,47,376 by the Assessing Officer by adding notional breakage and deducted from WDV on an estimated basis without considering the provisions of section 50 of the Act. (2) The CIT(A) ought to have appreciated and held that the lease compensation charges of Rs. 1,84,63,029 is in the nature of allowable loss or expenditure based on the principles laid down by the Courts. (3) The CIT(A) is not correct in holding that the goodwill of Rs. 3,00,00,000 Was assessable in the assessment year 1999-2000 on the mere fact that the money was received and the agreement signed in this year. The CIT(A) failed to appreciate that goodwill, being an intangible asset ordinarily passes along with transference of the whole business as decided by the Supreme Court in the case of Alapath Venkataramiah v. CIT (Hyd.) (57 ITR 185) and the principles of right to receive the amount accrued to the appellant in the subsequent periods. The CIT(A) failed to note that the goodwill of Rs. 3 crore was assessed by the Assessing Officer in the assessment year 2002-03." 3. In addition to above, permission of the Bench has been sought to raise the following additional ground which is as un....
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....lation. The Assessing Officer observed that the assessee-company has been accounting in breakage of bottles in the financial accounts at the rate of 33.33 per cent in the earlier years which was changed to 15 per cent in the present year. He further observed that the assessee-company was realising some monies on account of sale of broken bottles and crates and the same were declared as income also. In the light of this breakage, the assessee-company was required to show why such breakage should not be deducted from Written Down Value (WDV) of bottles and crates. In response to this query, it was submitted that the assessee-company has itself disallowed the breakage shown in the financial accounts in the computation sheet. After considering this submission, the Assessing Officer observed that the assessee-company must have sold bottles and crates on 28-2-1999 which were physically present on that date. According to the Assessing Officer, this also means that bottles and crates which got broken in the meantime did not form part of the assets sold on 28-2-1999, this is particularly so because a separate sum of Rs. 9,12,078 on the sale of said broken pieces was accounted for separately....
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.... 90,65,930 ---------------- Rs. 12,93,22,742 Short-term capital gain Rs. 8,28,97,258 ---------------- 8. He further submitted that the assessee in the earlier years was providing for 1/3 of the value of bottles as breakage in its financial accounts. However, while calculating the depreciation for income-tax purpose, such breakage was always added back in the....
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....ook Vol. II) and the same should have been considered by the lower authorities. 9. On the other hand, the ld. Departmental Representative (D.R.), while supporting the orders of the lower authorities submitted that the Assessing Officer has correctly relied on the decision of the Supreme Court in the case of Vania Silk Mills (P.) Ltd. wherein it was held that the assessee could sell only those assets which were already in its possession. Since the broken bottles would not be in the possession of the assessee and therefore, could not have been sold and the same were required to be reduced from the WDV for the purpose of calculating the short-term capital gain. 10. We have considered the rival submissions carefully and have gone through the relevant material on record as well as the decisions cited by the parties. We are unable to find any justification for making the addition by the lower authorities. It is well-known that the rates of depreciation are different under the Companies Act, 1956 and the Income-tax Act, 1961. In fact companies were claiming more depreciation under the Income-tax Act which was permitted and that is why the concept of MAT was introduced through sectio....
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....ome-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications:- (1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers; (ii) the written down value of the block of assets at the beginning of the previous year; and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets; (2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by t....
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....the claim was considered under section 37 (1). The Assessing Officer further observed that this expenditure was in the nature of capital expenditure because same was relating to plant and machinery and therefore the same was not allowable. The addition was confirmed by the ld. CIT (Appeals). 14. Before us, the ld. AR submitted that this amount pertains to lease compensation charges. He argued that the assessee company wanted to put up a new plant and an arrangement was entered into SFL to give the plant on lease basis to the assessee company. However, the plant and machinery had to be imported and therefore advances etc. were required to be paid and therefore the assessee-company entered into a separate agreement for providing separate finance for the purpose of making advances to the suppliers. In this regard, he referred to pages 63 to 66, which is copy of the agreement to enter into lease and pages 74 to 89, which is copy of the lease agreement. "The agreement to enter into lease" was executed on 23-2-1995 whereas the lease agreement was executed on 25-3-1997. This clearly shows that these are two separate agreements and actual lease agreement was executed when plant and mach....
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....ged when the assessee-company sold bottles and crates along with the vehicles, which virtually ended the manufacturing activity of the assessee and therefore the assessee entered into contract packing arrangement with HCC. The assessee-company was negotiating with this company for sale of undertaking and process of valuation and other formalities had commenced in April, 1998 and were completed in October, 1998. He submitted that upon sale of such assets, the lease agreement with SFL was terminated and in fact such machineries were taken over by the new company. In such circumstances, the assessee had no option but to claim the balance of deferred revenue expenditure as revenue expenditure. Since the assessee-company was not owner of such machineries, the same could not be allocated to such capital asset. He submitted that the Supreme Court in the case of CIT v. Madras Auto Services (P.) Ltd. [1998] 233 ITR 468 has held that when even a new building was constructed by the assessee on leased land which belonged to the lessor and the assessee had only a right to use the building, then it cannot be said that the assessee had acquired a capital asset and therefore the amount spent on co....
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....ign suppliers and other suppliers for bringing the assets into existence, the lessor agreed to give such money on interest @ 21 per cent and such interest was designated as compensation charges. In fact, it seems to be a case where machinery was not readily available off the shelf and same had to be imported and then installed and therefore some interest was required to be paid during such period. It is not disputed that such plant and machinery was installed for manufacturing of soft drinks and which was only expansion of the existing business of the assessee. This also becomes clear from the fact that 1/7th of such compensation charges were actually claimed in the previous year and were allowed also. 19. Though deferred revenue expenditure as such is neither defined nor recognized under the Income-tax Act, but the concept is very much prevalent in the commercial world and has also been recognized by various courts of law. The Hon'ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. observed as under:- "The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was en....
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.... that case, the assessee-company had issued debentures at discount and amount of discount was Rs. 3 lakhs and debentures were to mature over a period of 12 years. Therefore, the discount of Rs. 25,000 per year was determined and a sum of Rs. 12,500 was claimed which was not allowed by the Assessing Officer. When the matter travelled to the Tribunal, the assessee made additional claim of Rs. 2,87,500 which means for the sale of the discount which was ultimately allowed by the Tribunal. The Hon'ble Supreme Court did not approve the whole deduction and held that discount can be claimed only over a period of time. 21. We are unable to agree with the lower authorities that the lease compensation charges are not in the nature of revenue expenditure and they are in the nature of capital expenditure. As observed by us above, the lease compensation charges are in the nature of interest only and were incurred to bring the leased assets into existence and therefore the same cannot be treated as capital expenditure. It is by now trite law that interest incurred even for bringing the capital assets into existence has to be allowed as revenue expenditure only up to assessment year 2003-04, be....
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....annot be said to have been accrued. The Assessing Officer after considering this contention observed that along with sale of movables like bottles, crates and vehicles, the assessee-company entered into a contract packing agreement dated 1-3-1999 with HCC. This agreement authorized the assessee-company to prepare and package various soft drinks according to the instructions to be issued by Coco Cola India on the charges specified in the agreement. The Assessing Officer observed that this clearly shows that the assessee has stopped its own manufacturing and it entered into an agreement with HCC for bottling on behalf of HCC for the defined fees, which means, that business of the assessee came to an end on 28-2-1999. He further observed that the goodwill was an intangible asset and the assessee was entitled to value its goodwill and sell the same at any time even during the existence or continuation of the business. He then referred to various clauses of the agreement and held that these clauses very clearly show that the goodwill had already been transferred and therefore the assessee was required to pay long-term capital gain tax on the goodwill in the year under consideration. The....
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....roval of the appropriate authority under section 269 was granted on 7-7-1999, copy of the order filed on pages 144-153 and income-tax clearance certificate under section 281(1) was granted on 5-7-2000. All these things clearly show that the goodwill was transferred in later years and not in the year under consideration. He then referred to the decision of the Supreme Court in the case of Alapati Venkataramiah v. CIT [1965] 57 ITR 185, where it was held that the goodwill was an intangible asset and ordinarily passed along with transference of the whole business and since the transference of the business took place on later years, goodwill also passed on in those years. 24. The ld. counsel of the assessee strongly contended that the assessee-company itself filed its return disclosing long-term capital gain from goodwill in the assessment year 2002-03 and it has been already accepted by the department, therefore, there was no question of taxing the same income in another year. 25. On the other hand, the ld. DR referred to page 16 of the CIT (Appeals) order and brought to our attention the following clause of the goodwill sale agreement: "The seller hereby sells and the buyer ....
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....nary general meeting of the company for granting approval under section 293 of the Companies Act for sale of that undertaking of the company. It is also seen that the approval for transfer under section 269 from the appropriate authority was granted only on 7-7-1999, which means, if such approval is not granted, then sale cannot take effect in terms of section 269UL, which reads as under:- "269UL. (1) Notwithstanding anything contained in any other law for the time being in force, no registering officer appointed under the Registration Act, 1908 (16 of 1908), shall register any document which purports to transfer immovable property exceeding the value prescribed under section 269UC unless a certificate from the appropriate authority that it has no objection to the transfer of such property for an amount equal to the apparent consideration therefore as stated in the agreement for transfer of the immovable property in respect of which it has received a statement under sub-section (3) of section 269UC, is furnished along with such document. (2) Notwithstanding anything contained in any other law for the time being in force, no person shall do anything or omit to do anything whic....
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....cumstances, the Hon'ble Supreme Court in the case of Alapati Venkataramiah has held that goodwill was an intangible asset and ordinarily passed along with transference of the whole business. In the case before us, the whole business was transferred in the later years, then goodwill shall also be reckoned to be transferred in those later years. In any case, the assessee has itself filed return declaring long-term capital gain from the goodwill in the assessment year 2002-03 and therefore there was no question of taxing the same in the present assessment year, because according to us, the transfer did not take place in the year under consideration. In these circumstances, we set aside the order of the ld. CIT (Appeals) and delete the addition on account of goodwill. 29. Additional ground- After hearing both the parties, the additional ground was admitted by us for adjudication because it was not disputed that the relevant facts are not on records, particularly in view of the decision of the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383. 30. Before us, the ld. AR referred to page 2 of the CIT (Appeals) order where the CIT (Appeals) h....
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....ads. 33. In the rejoinder, the ld. AR submitted that the Hon'ble Finance Minister has given an assurance in the Parliament that new provision regarding set off of unabsorbed depreciation with this amendment would be of prospective nature and depreciation which has already been allowed up to 31-3-1997 could be set off against any head of the income and in this regard he relied on the decision of Indore Bench of the Tribunal in the case of Perfect Pharmacists (P.) Ltd. v. Jt. CIT [2004] 140 Taxman 49 (Mag.). 34. We have considered the rival submissions carefully and have gone through the relevant material on record as well as the decisions cited by the parties. We would like to reproduce the whole of the judgment of the Hon'ble Madras High Court in the case of Cherian Leasing Ltd. which is a very small order and make the situation very clear. "This appeal under section 260A of the Income-tax Act has sought to raise various questions purporting to be questions of law, however paragraph 3 of the impugned order of the Tribunal reads thus: 'Both the parties fairly conceded that in view of the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT (259 I....