TaxTMI 
TaxTMI 
2006 (3) TMI 676
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....tor was also opened to foreign players at that point of time. In this context, M/s. Sunlife Assurance Company of Canada approached the assessee-company to join its hands as a joint venture partner to carry on business and services in financial sector in India under the brand name of both the companies, that of Sunlife as well as Birla. The assessee entered into agreement with Sunlife of Canada to make way for the latter to enter into Indian market through a programmed association with certain associate concerns of the assessee. In the scheme of these arrangements, the assessee-company continued to be a promoter of the financial services business in India. It has also agreed to reduce its controlling interest in its associate concerns making way for acquiring the shares by the Canadian company through subsidiaries. The assessee-company diluted its controlling shareholding in those concerns in favour of the subsidiaries of the Canadian company. 3. The scheme of this joint venture business has been made on the basis of agreements entered into between the group companies. All the agreements are uniform in nature. As per the agreements, Sunlife of Canada had to give payments to the a....
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....ed as a broker on behalf of Sunlife Group. The role of the assessee as per second agreement was limited to ensure that the shares are transferred by the group concern of the assessee to Sunlife Group and as per third agreement, the assessee had no obligation. In all the three deals no long-term capital asset was ever transferred by the assessee. Therefore, the so-called goodwill cannot be taxed as long-term capital gains." 7. The assessee-company filed a detailed reply in compliance of the show-cause notice issued by the Commissioner. The reply was submitted through letter dated 13-8-2003. The assessee explained before the Commissioner that the payments were made in respect of goodwill and the payments were made on the basis of the agreements entered into between the parties. The assessee-company submitted that specific clauses are incorporated in the agreements in respect of payment of goodwill whereby Sunlife Assurance Co. of Canada has undertaken to pay goodwill to assessee-company in consideration of reducing the controlling interest in the group concerns and in sharing the goodwill of the assessee-company in the financial services business in India with the Canadian company....
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....controlling interest in that company automatically results in the dilution of its controlling interest in other companies; l In view of the fact that we are in the financial services business since 1986 and in particular, in the mutual fund business (MF) since 1994, in the distribution business since 1995 and in the securities broking business since 1996, the goodwill in relation to the financial service business is undoubtedly a long-term capital asset; l There is no broker in the transaction as alleged in the earlier notice dated July 29, 2003 and hence, the question of treating the goodwill price as brokerage does not arise; l The deal is between two large and well known business houses of international repute at an arm's length basis. The FIPB approval and the FIRC letter show these amounts were received towards goodwill. There is, therefore, no reason to believe that facts stated in the agreements and in the official records of the regulatory authorities are not real and the same was revenue receipt. l There is nothing with the department to prove that the impugned payments are in respect of brokerage alleged in the earlier notice; l The order has been passed by....
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....ces of the case and in law, the CIT erred in holding that the payments received by the appellant as Goodwill price are in the nature of 'Business Payments'. 2.2 The appellant submits that the order passed by the CIT is not based on any material on record but merely on conjecture and surmise and the appellant prays that the order passed under section 263 ought to be quashed." 13. We heard Shri Arvind Sonde, the learned counsel appearing for the assessee along with Shri Sampat Kabra, the learned Chartered Accountant. The contentions and arguments of the learned counsel appearing for the assessee-company are briefly stated as below : 1.The Commissioner of Income-tax has grossly erred in making a statement that the issue of the receipt of goodwill was not properly examined by the assessing authority in the course of assessment proceedings. The finding recorded by the Commissioner as above is against the facts of the case. 2.In the pre-assessment notice dated 16-8-2002 issued by the assessing authority to the assessee-company, the assessing authority had asked for the details of goodwill of Rs. 4,045 lakhs (copy of the letter is available at page 106 of the paper book). 3....
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....sessee has made a separate note regarding the receipt of goodwill which was also looked into by the assessing authority. In addition to those details furnished and available before the assessing authority, further details were called for by him through his pre-assessment notice dated 16-8-2002 to which the assessee had replied along with the copies of the agreements. 8.In the circumstances, it is against the facts of the case to make a finding that the assessing authority has not properly examined the question of goodwill declared by the assessee as long-term capital gains in its computation of taxable income. 9.The strategic alliance made by the assessee-company with Sunlife Assurance Co. of Canada was cleared by Government of India in the Ministry of Industry through the Foreign Collaboration Board. In the approval given by the Competent Authority for such a strategic alliance, specific approval has been given to the assessee-company to receive consideration on account of goodwill from the Canadian Company. In the approval letter of the Competent Authority dated March 15, 1999, paragraph 6 reads as below : "6. The approval is also conveyed for payment of Rs. 63.25 crores....
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....s no reason to believe or to state that the assessment order passed by the assessing authority was erroneous and prejudicial to the interest of the revenue. The Assessing Officer had asked for the details regarding the goodwill payments and its taxability and assessee have furnished all the necessary details before him. The particulars are already embedded in the accounts, statements and the computation of income filed by the assessing authority. In the light of all these speaking materials and especially, in the light of the pre-assessment notices issued by the assessing authority, it is not possible to come to a finding that the Assessing Officer has not examined the issue in detail. On this ground itself, the order of the Commissioner is bad in law. At the maximum what is expressed by the Commissioner is a different opinion held by him and not a mistake or error or omission in the order passed by the Assessing Officer. 15. Without prejudice to the above factual contention, even on merit, the Commissioner has no materials before him to hold that the payments received by the assessee-company from Sunlife Assurance Co. of Canada were payments other than for goodwill. The busines....
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....s. On the basis of the said examination carried out by the Commissioner, it has come to light that the assessee-company has not divested any major share of its long time holding in favour of the Canadian company. Therefore, the basic argument of the assessee regarding the consideration for receiving the goodwill payment is against the facts of the case. 2.The Assessing Officer has made only a superfluous examination of the issue as is evident from the assessment order itself. Even though the Assessing Officer has issued a pre-assessment notice in which details were called for in respect of goodwill payments, he has not made any useful discussion in the assessment order regarding that important issue. 3.The non-deliberation by the Assessing Officer in the assessment order regarding the issue and the finding of the Commissioner regarding the shareholding pattern, when read together make out a clear case that the payments received by the assessee-company from the Canadian company could not be easily labelled as payments towards goodwill without conducting further effective enquiries. 4.If the Commissioner could make such a finding as stated above, the said finding is quite su....
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.... was in respect of the goodwill receipts accounted by the assessee-company and claimed as long-term capital gains. In reply to the query, the assessee has submitted the relevant details along with the copies of agreements on the basis of which the goodwill payments were made by the Canadian company. 22. There is substantial difference between a fact being not considered and a fact being considered. In the present case, it is almost impossible to say that the Assessing Officer has not considered the question of goodwill payments while completing the assessment. There cannot be a case at all that the Assessing Officer has not applied his mind on the issue of long-term capital gains claimed by the assessee in its return of income. As the Assessing Officer has considered this aspect, the position is entirely different from a case where the relevant fact has not at all been consi-dered by the assessing authority. Distinction must always be borne in mind while appreciating the credibility of an assessment order especially in the light of a revision order passed under section 263. 23. Once it is found that the relevant issue has been considered by the assessing authority, next attem....
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.... judgment while passing the concerned assessment order. In the present case, even though the Assessing Officer has not discussed the issue of long-term capital gains in the assessment order, he has asked for the details from the assessee and he has gone through those details and after doing so, he has accepted the contention of long-term capital gains. 24. In the above facts and circumstances of the case we are of the considered view that it is not factually correct to say that the Assessing Officer has not considered the issue in his assessment order or the Assessing Officer has not applied his mind properly before accepting the version of the assessee-company that the goodwill payments amounted to long-term capital gains. Accordingly, we find that the first limb of the finding of the Commissioner is unfounded. 25. As far as the merit of the issue is concerned, it is to be seen first that the entire scheme of joint venture association between the assessee-company and the Canadian company was made in the light of the policy declaration made by the Government of India in the wake of economic reforms brought in the financial sector in India. The assessee-company has associated ....
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....ket. That would not have been possible but for the association with the assessee-company. The subsidiary companies formed as a result of the business scheme is entitled to use the name of "Birla" along with the name of Sunlife. Therefore, there is no substance in arguing that there was no basis for the Canadian company to pay goodwill to the assessee-company. The privilege obtained by the Canadian company to enter into the financial market with the brand name "Birla" is a sufficient consideration for making payments towards goodwill. 28. In addition to sharing of this intangible asset owned by the assessee, the shareholdings in its associate concerns operating in financial sector have been diluted in favour of the subsidiaries formed by the Canadian company, which helped the Canadian company to consolidate its investment in India. The various discussions made by the Commissioner of Income-tax regarding the pattern of shareholding does not speak the whole truth as such. The Commissioner's conclusion that there was no substantial dilution in the long-term holdings of the assessee-company was premature based on randomly selected statistics. Nowhere in his order, the Commissioner ha....