TaxTMI 
TaxTMI 
2012 (4) TMI 126
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....ssee company at Rs.33,15,68,500/-. While completing the assessment, the assessing officer held that Rs.10 crores received as compensation for foregoing right to acquire the shares of Krishnapatnam Port Co. Ltd., [KPCL] as short term capital gain instead of assessee's claim that it is not taxable since the cost of acquisition of such right is to be taken notionally as 'NIL'. The assessee company also claimed that right to acquire equity shares is not a capital asset as per section 2(47) of the Act and compensation received for waiver of such right is a capital receipt and the same is not taxable. The other issue being restricting the deduction under section 80IC of the Act to Rs.6,01,46,943/- as against the assessee company claim of Rs. 20,66,45,736 by referring to the provisions of section 80IA [8] of the Act. The assessing officer also made an addition of Rs. 1,32,78,739/- interest receivable on loan given to Natco Organics Limited. 4. Aggrieved by the order of the assessing officer, the assessee preferred an appeal before the first appellate authority. After elaborate discussion by the CIT [A], he held that the receipt of Rs.10 crores, has to be assessed as income from other s....
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....ares and reap capital appreciation and gain in the long run. By renouncing the right to convert its advances into share capital, the assessee company has forgone the capital appreciation and also source of recurring revenue by way of dividends. The learned counsel for the assessee relied on the decision of Apex Court in the case of Oberoi Hotels Private Limited reported in 236 ITR 903 wherein it was held that compensation received by an assessee for foregoing pre-emptive right to purchase or lease a property would be in the nature of capital receipt. He also relied on the decision of Apex Court in the case of Kettle well Ellen and Co. Ltd. Vs CIT. The amount of compensation of Rs. 10 crore has been received through cheque pursuant to the agreement dated 18.04.2006. The right to acquire equity shares in KPCL was waived for a consideration of Rs. 10 crore as per clause 5 of the agreement referred to above. Therefore, the lower authorities are not correct in treating the same as either short term capital gain or income from other sources. 7. On the other hand, the learned Departmental representative relied on the orders of the lower authorities. 8. We have considered the rival s....
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....on 2(14) of the Income Tax Act 1961, a capital asset means property of any kind held by an assessee, whether or not connected with his business or profession. The word 'property' used in s 2(14) is a word of the widest amplitude and the definition has reemphasized this by the use of the words ' of any kind' . Any right which can be called property will be included in the definition of 'capital asset' . An agreement for allotment of sale is capable of specific performance. It is also enforceable. Therefore, a right acquired by the assessee to convert the advance given to KPCL into allotment of shares is clearly property as contemplated by section 2(14) of the Act. The main contention of ld. Counsel of assessee is that even if the right acquired by the assessee for allotment shares can not be considered as a property within the meaning of section 2(14) still there was no transfer of that property by the assessee to attract the liability of capital gains tax. Under section 45, the liability is on any profits or gains arising from the transfer of capital assets effected in the previous year. According to the ld.Counsel for the assessee, there was no transfer of property effected in the....
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....e assessee distinguishable on facts of the present case. After considering the totality of facts and circumstances of the case, in our considered view, the entire amount of Rs.10 crores received by the assessee company towards compensation for waiver of rights to receive the shares of KPCL is to be brought to tax as capital gain. This capital gain is to be computed as long term or short term as the case be on prorate basis depending upon the investments/advances as made by assessee. As we have held that the assesee is liable to capital gain tax on the relinquishment of right to allotment of shares, the other arguments of the ld. AR contesting the order of CIT(A) that the CIT(A) erred in sustaining the addition of Rs. 10 crores as income from other sources has became infractuous and dismissed accordingly. Similar is the position in respect of ground no. 3 of Revenue wherein the Revenue has the grievance with regard to treating the income as income fromother sources instead of treating the same as short term capital gain. 12. The grounds raised by the assessee as well as Revenue on this issue are partly allowed. 13. Next issue relates to the restriction of deduction under secti....
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....rted to arrive at a proportions at which profits of eligible business could be derived. The reasons given otherwise for such a method is that the assessee has inflated the income of the eligible business and deflating the income of non eligible unit. To come to this conclusion he relied on statements recorded from two of the technicians of the company who were produced before him on his direction. It is settled principle of law that whenever a statement is used against somebody it is required to provide copy of such statement and allow cross examination. Even when the witness is that of the assessee also, cross examination needs to be allowed when adverse inference is drawn from such statement. The statement could not have been used without providing an opportunity to the assessee. Therefore, it is submitted that this is purely a surmise and has no basis. The eligible unit earns higher income since the products marketed are cancer drugs and there are very few such drugs. If the assessing officer has to arrive at such conclusion he should have compared the income of non eligible unit with another comparable unit to hold that the income is deflated by claiming excess expenditure. He ....
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....the value of API is reduced substantially. The manufacturing process involved at Dehradun is relatively very simple in that, it consists of only sifting, mixing, drying, lubrication, compression and coating of the products. The value of plant and machinery is another indicator of the extent of manufacturing that takes place at Dehradun. The total value of machinery used is of Rs.57,03,202/-. It is apparent from the descriptions of the machinery, that the activity relating to value addition of the product is negligible at Dehradun as they are mostly useful for blending and mixing and compression into tablets and for packing. There is no much manufacturing activity involved in this process. The total of expenses other than raw material shown at Dehradun are Rs.44,09,934/- which is not commensurate with the scale of operations required. The assessee himself has produced two expert staff who in their depositions stated that they were given annual salaries to the tune of Rs.10 lakhs in total whereas the salaries debited in the Profit and Loss account are only Rs.1,09,036/-. It is also stated by them that at least 20 to 30 employees were engaged in Dehradun. The salaries given to the abo....
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....the file of assessing office to bring the comparable cases on record and redo the assessment on this issue. 19. The main ground raised by the Revenue is relates to the deletion of addition of Rs.1,32,78,739/- by the CIT [A]. The assessee company had advanced certain loans to M/s Natco Organics Limited in the earlier years. Such advances up to assessment year 2007-08 amounted to Rs.36,38,82,205/-. The assessee has not admitted any interest for the above advance. It was stated that the advance was given for business purpose of the assessee and that the issue has been decided in favour of the assessee by this Tribuanl. However, the total interest of Rs.5,96,29,676/- is stated to have been admitted in the assessment year 2008-09. The assessee ought to have admitted interest of Rs.1,32,78,739/- pertaining to the current assessment year which was not done. Therefore, the same is brought to tax and added back to the income of the assessee - Rs.1,32,78,739/- by the assessing officer. On appeal, the CIT [A] deleted addition holding that the assessing officer does not have any reasons or basis to show that interest had been charged by the assessee company for the current year and had not ....