TaxTMI 
TaxTMI 
2011 (1) TMI 905
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....arbitrary, unreasonable and perverse? (ii) In the event of it being held that there was any liability to tax in respect of transfer of the marketing undertaking, whether the consideration of Rs. 3 crores received for transfer of the said undertaking had to be apportioned between the physical depreciable assets and other assets and only the amount referable to physical depreciable assets less the written down value could be subjected to tax as short term capital gains, the rest being capital receipt was not chargeable to tax and the purported findings of the Tribunal rejecting the said contentions of the appellant have been arrived at by ignoring the relevant materials and/or by taking into consideration irrelevant and/or extraneous materials and/or are otherwise arbitrary, unreasonable and perverse? (iii) Whether the entirety of Rs. 3 crore is exempt in law from the incidence of capital gains tax by reason of the consideration thereof being of a compendious and joint nature, as a whole not attracting capital gains tax? (iv) If the answer to the question (iii) is given against the assessee and in favour of the Revenue, then whether the whole of Rs.3 crores and if not, which....
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....ement of all claims of the franchisees. (v) Sourcing agreement under which Brooke Bond undertook to source its ice cream requirements from the appellant. The said agreement provided for interest free deposit of Rs. 3.5 crores by Brooke Bond. 4. Pursuant to the agreements as above Brooke Bond paid to the appellant an aggregate sum of Rs.13.75 crores. The amount for acquisition of franchisees' marketing assets was agreed to be settled directly between the franchisees and the Brooke Bond. The appellant therefore paid its contribution of Rs. 50 lakhs towards the fund for termination of franchisees' operation. 5. Thereafter, the differences and disputes arose between he appellant and the Brooke Bond during the previous year ended on March 31, 1996 itself leading to initiation of legal proceedings. The case of the appellant in the legal proceedings was that the agreements were void as having been obtained by fraud/misrepresentation and fraudulent concealment of facts and agreements be so adjudged. 6. In the circumstances, the amounts received by the appellant under the said agreements were shown in appellant's accounts for the year ended March 31, 1996 as advances. The appell....
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....pt to which the provisions of Section 50(1) had no application. He upheld the action of the Assessing Officer in subjecting the entire sum of Rs. 3 crores less the written down value of the depreciable assets to tax as short term capital gains and did not give any direction for apportionment of the lump sum consideration of Rs. 3 crores between the physical depreciable assets and other assets and for treatment of the consideration referable to other assets as a capital receipt not liable for tax. The Commissioner (Appeals) did not decide some of the grounds urged before him including the ground that in any event the payment of Rs.50,00,000/- made by the appellant to Brooke Bond for termination of franchisees' operation was required to be deducted in computing the alleged income attributable to the transfer of marketing undertaking. 10. Being aggrieved by the said order of the Commissioner of Income Tax (Appeals) the appellant preferred further appeal before the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal"). The Revenue also preferred an appeal before the Tribunal in so far as the relief having been granted to the appellant by the Commissioner (Appeals....
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....said legal principles, in the case of CIT vs. Carew Phipson Ltd. reported in (2003) 260 ITR 668 and that of the Hon'ble Gujarat High Court in the case of CIT vs. Garden Silk Weaving Factory reported in (2005) 279 ITR 136. 16. He submits further drawing our attention to the balance sheet for the purpose of Section 50 of the Act, that the cost of depreciable assets is ascertainable and while written down value could be from the assessment records. Apart from the depreciable assets only manpower was transferred. 17. He submits that entire composite sale consideration could not be taken into consideration and it should be apportioned. He further submits that Section 50 of the Act has no manner of application as far as intangible assets is concerned. It has application for determination of capital gains in case of depreciable assets and for such purpose it allows deduction of the written down value of such depreciable assets as their costs from the sale consideration received therefor. 18. He further contends that in the instant case it is not possible to determine sale consideration in respect of the depreciable assets since the sale consideration is a composite one for the en....
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....n case of depreciable assets:- "Section 50 - Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-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....
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....oodwill, manpower, tenancy rights and value of banking licence. However the cost of such items is not determinable. 26. In the case of Commissioner of Income Tax, Bangalore vs. B.C. Srinivasa Setty reported in (1981) 128 ITR 294 the Supreme Court held that the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. In this case Supreme Court while dealing with the question as to whether goodwill, capital assets and transfer thereof and/or sale thereof constitute any capital gain for the purpose of Income tax. The Supreme Court held in that case that the goodwill is an intangible asset and it cannot be said to be a capital in the sense. It is held specifically that when goodwill generated in a new business is sold and the consideration brought to tax, what is charged is the capital value of the asset and not any profit or gain. Further, the date of acquisition of the asset is material factor in applying the computation provisions pertaining to capital gain, but in the case of goodwill gen....
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....has considered the receipt of Rs. 3 crores for consideration of assignment of marketing undertaking together with strategic alliance agreement. We have also examined the two documents and we feel that all the authorities below have rightly taken into consideration of both the documents to understand the nature of the receipt. Learned Tribunal as well as the Commissioner of Income Tax (Appeals) have found while reading both the documents, that transfer of marketing undertaking, consist of both tangible and intangible assets. It is true the officers and staff of the undertaking is not an asset for taxation sense but network of working system undoubtedly has significant utility and it has some value. The learned Tribunal as well as the Commissioner of Income Tax (Appeals) have rightly held Section 50 of the said Act has full application in this transfer. It is not specifically discussed and decided by both the authorities how the intangible assets could be brought within the purview of Section 50(1) of the said Act. 30. We are of the view that the Section 50 has application as far as the tangible assets are concerned and it does not have any application in case of intangible assets....