TaxTMI 
TaxTMI 
2011 (8) TMI 846
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....rein entered into an agreement of business transfer with M/s. Alacrity Foundations (P) Ltd. (hereinafter referred to as "AFPL") on July 1, 1992, who were carrying on the business of promoting residential complexes. Under the terms of the agreement, apart from its assets and liabilities, AFPL transferred its all ongoing pending projects/contracts/ work-in-progress remaining to be completed by AFPL along with future projects/proposals, wherefor negotiations had been finalised and agree- ment were to be entered into by AFPL. The parties agreed on the total con- sideration of Rs. 3,20,00,000, to be satisfied by the assessee by 1. Allotment to AFPL of 16,00,000 fully paid up equity shares of Rs. 10 each at par from the authorised unissued share capital of AHL, of the face value Rs. 1,60,00,000 (rupees one crore sixty lakhs only) ; and 2. Cheque/cash Rs. 1,60,00,000 (rupees one crore sixty lakhs only) ; and AHL had accepted the said proposal by a resolution of its board of directors on 30th June, 1992, duly authorising its director, Sri R. Rama- krishna, to execute necessary agreement therefor. The agreement also transferred the transferor company's liabilities as wel....
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....as mentioned in schedules I and II and that the assessee had undertaken to clear all the liabilities. Hence, being purchase of the business from the transferor company, the question of treating the expenditure incurred thereon by the assessee-company as business expenditure did not arise. Referring to the liabilities of the transferor company which the assessee had undertaken to discharge, the Assessing Officer held that it was clear that what was acquired by the assessee was the business of the transferor company and, hence, the claim of the assessee could not be allowed. Aggrieved by the same, the assessee went on appeal before the Commissioner of Income-tax (Appeals), who agreed with the assessee. 4. On going through the various clauses of the agreement, the first appel- late authority pointed out that the expenditure incurred towards purchase of the unfinished projects really amounted to transfer of stock-in-trade in the business or the transferor company. Hence, the expenditure was in the revenue field. He further pointed out that the consideration paid under the agreement was to the tune of Rs. 3.20 crores and nothing more. Thus, the assessee was entitled to claim t....
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....rred its entire business in the building division. Referring to various clauses, particularly clause 8 of the agreement read with schedules 1 and 2, learned counsel pointed out that when the agreement specifically states that the consideration was with reference to the ongoing projects and that the transferee, viz., the assessee- company had undertaken to discharge the liability of the transferor com- pany, which was adjusted in the form of rent payable by the assessee with interest at 21 per cent. and that the liability of the transferor company to the tune of Rs. 1,57,55,932.80 settled by the assessee was later on repaid by the transferor company, the consideration could not be anything more than Rs. 3,20,00,000. In such circumstances, the Tribunal committed a serious error in reading more into the agreement. There were no materials, which would support the view of the Tribunal that the expenditure was capital in nature. He pointed out that the Tribunal presumed that the agreement contemplated closure of the building division of AFPL. He sub- mitted that there is hardly any clause in the agreement, which pointed out to the closure of the building division of AFPL on the transfer ....
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....urrent liabilities over current assets and preliminary and miscellaneous expenditure taken over, shall be set off/adjusted against, said cash dues ; and, provided further that after setting off the cash consideration of Rs. 1,60,00,000 against the Net Liability (namely, the difference between the totals of schedules 1 and 2) Rs.4,17,55, 932.80 a sum of Rs. 2,57,55,932.80 payable to AHL by AFPL is agreed to be discharged to the extent of Rs. 1,57,55,932.80 on or before 31st December, 1992, settling the balance Rs. 1 crore in terms of clause 9. The parties agree that, a separate agreement for share allotment, shall be entered into relative to clause 2A." Clause 3 speaks about the assessee undertaking to satisfy and discharge all the debts and liabilities listed in schedule 2 connected with the transferred assets. 10. Clauses 8 and 9 of the agreement touches on the assessee-company being permitted by the transferor company to carry on its business from the space taken on lease by the transferor company and to make use of all the infrastructure facilities available therein. As against the rent to be paid by the assessee, it was agreed that the assessee sha....