TaxTMI 
TaxTMI 
2013 (9) TMI 188
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....f depreciation claimed on intangible assets recorded as Goodwill in the books of accounts; 3) That the Hon'ble CIT(A) erred in law and on facts by disregarding the contention of the Appellant that the Goodwill recorded in the books represents intangible assets eligible for depreciation under section 32(1 )(ii), although the same was recorded as Goodwill in the books of accounts; 4) That the Hon'ble CIT(A) erred in law and on facts by holding that depreciation on 'Goodwill' is not allowable since the same does not find a mention in the words used in section 32(1)(ii) of the Act, although the Appellant has submitted that the amount recorded as 'Goodwill' in fact represents amount paid towards intangible assets eligible for depreciation; 5) That the Hon'ble CIT(A) erred in law and on facts by granting restrictive meaning to section 32(1 )(ii) of the Act; 3. The assessee in ITA No.294/Chd/2012 has raised the following grounds of appeal: 1) That the order passed by the Hon'ble Commissioner of Income-tax (Appeals) ["CIT(A)"] under section 250 of the Act is contrary to the provisions of the law. 2) That the Ho....
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.... declaring total income of Rs. 8,81,93,276/- on 31.10.2007. The case of the assessee was picked up for scrutiny after issue of notice under section 147/148 of the Act. The reasons for reopening the assessment were that in the computation of income the assessee had claimed depreciation on goodwill, which as per the Assessing Officer was not allowable as goodwill was an intangible asset. The Assessing Officer while reopening the assessment had found support from the judgment of the Hon'ble Bombay High Court in CIT Vs. M/s Techno Shares and Stocks Ltd. decided on 11.9.2009. The extract of the relevant portion of the judgment was reproduced by the Assessing Officer under paras 3 to 5 at pages 2 and 3 of the assessment order. The Assessing Officer consequently issued notice under section 148 of the Act to the assessee. The assessee in reply submitted that the copy of return of income earlier filed by it may be treated as filed under section 148 of the Act. The assessee also raised objection to the reopening of assessment under section 148 of the Act which was disposed off by the Assessing Officer. The Assessing Officer observed that under the amended provisions of section 32 of the ....
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....Rs. 1061.76 lacs and other tangible assets were also valued by the Accountant and the balance was included under the head 'goodwill' at Rs. 1273.78 lacs. The Assessing Officer vide para 19 thus observed that A perusal of the table shows that the valuer had separately assigned a value to the intangible assets representing specific intellectual property rights in the form of 'brands' and also assigned values to the tangible assets, and the balance 'slump' price, which could not be allocated to any other specific tangible or intangible asset, was given a consolidated value as goodwill acquired by the company. The Assessing Officer vide para 25 enlisted the reasons for non-allowance of claim of depreciation of goodwill acquired at Rs. 12.74 crores. 6. Reliance was placed by the Assessing Officer on the restrictive interpretation of section 32(1)(ii) of the Act made by the Hon'ble Bombay High Court and implicitly approved by the Hon'ble Supreme Court in the case of M/s Techno Shares & Stocks [327 ITR 323 (SC)] and it was held that the assessee was not entitled to the claim of depreciation on the aforesaid goodwill. The Assessing Officer also distinguis....
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.... by the CIT (Appeals) in para 5.9 that A perusal of the above makes it amply clear that the Valuers have strictly followed the norms of apportionment of the slump price as laid down in para 35 and 36 of AS-10 issued by the ICAI. They have taken all the assets including the fixed assets and the intangible assets at their respective fair market value. "Goodwill" is calculated as the difference between the aggregate slump price and aggregate fair market value of other assets including the fixed assets and intangible assets. According to the CIT (Appeals) the assessee had failed to furnish the break-up of the value assigned by the Accountants to the given components namely employees, contracts, licenses, approvals etc. in spite of queries raised by the Assessing Officer and in view of the confession of the assessee that no such break-up was available and the assessee having failed to substantiate its claim during the appellate proceedings, the CIT (Appeals) observed that the assessee was trying to mis-interpret the term 'goodwill'. The CIT (Appeals) further held that the Income Tax Act though recognizes the concept of intangible assets and their value to the business and the al....
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....the nature of intellectual property rights, like trade-marks, patents, franchises, copyrights etc. (9) The words "any other business or commercial rights of similar nature" have to be interpreted ejusdem generis. (10) The appellant has not been able to show as to how employees, contracts, licenses etc. are individually valued and incorporated under the head 'goodwill', when all the assets for the purpose of apportionment of slump price have been distinctly identified. (11) The appellant has not been able to show as to what is the value of 'goodwill ' simpliciter. (12) It is not the appellant's case that the value of 'goodwill' simpliciter is Nil. (13) The appellant has not been able to, explain as to what prevented the Valuers and the management from separately booking the value of assets like licenses, approvals etc. despite detailed discussion about the same in the BPA. (14) The appellant has not been able to establish as to how the Valuers have included the value of other intangible assets under the head goodwill, despite clearly delineating the method of accounting of allocation of slump price. ....
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....nd D India Ltd. Vs. DCIT [345 ITR 421 (Del)]. The learned A.R. for the assessee concluded by stating that the assessee had acquired business/commercial rights which were covered under section 32 (1)(ii) of the Act on which depreciation was allowable as per ratio laid down by the Hon'ble Delhi High Court in Areva T and D India Ltd. Vs. DCIT (supra) and even if it is treated as goodwill, it will still to be intangible asset qualifying for depreciation under section 32 of the Act, as per the ratio laid down by the Hon'ble Supreme Court in CIT Vs. SMIFS Securities Ltd. (supra). The learned A.R. for the assessee has submitted written submissions in this regard and the same have been considered. 11. The learned D.R. for the Revenue had also filed written submissions in which firstly reliance was placed on the orders of the authorities below. Further the learned D.R. for the Revenue referred to the reasoning of the Assessing Officer for making aforesaid disallowance which were as under: 4. The Ld. A.O. had made the disallowance on account of the following reasons: a) The assessee claimed depreciation of Rs. 2,78,71,700/- even though the depreciation on 'go....
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.... list as submitted before the Ld. A. O. It was observed that the assessee was trying to enlarge or adjust the scope of goodwill without any concrete basis. The Ld. CIT(A) observed that there was no mention of name licence, export registrations etc. before the A.O., while during the course of appellate proceedings, the lease hold rights/tenancy rights, permits, licenses, approval and registrations for carrying on the allied business have not been considered as apart of goodwill. B) A perusal of the business Purchase Agreement (BPA) between the assessee Ranbaxy Fine Chemicals Ltd. and the Ranbaxy Laboratories Ltd. show that the assessee was a wholly owned subsidiary company of the seller i.e. Ranbaxy Laboratories Ltd. On page 2 at Sr. No. C(of BPA), it is clearly mentioned that the business of Ranbaxy Labs has been sold "as a going concern on a slump sale basis". The term "allied business" has been defined meaning "the animal Health care and Diagnostic business carried on by the seller at India and overseas market and includes the employees employed by the seller in relation thereto". Similarly, the term contract had been defined in detailed in the said BPA. It is pertinent ....
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....issued by the ICAI. They have given a fair allocation of slump price of Rs. 6200 Lakhs paid/to be paid by RFCL to RLL and specified the same in clause 3.1 of the agreement as under: Sr.No. Assets Rs. In Lakhs 1. Brands 1061.76 2. Building 126.99 3. Plant and Machinery 397.12 4. Furniture & Fixture 28.71 5. Vehicles 24.24 6. Net Current Assets 3287.40 7. Goodwill 1273.78 Total 6200.00 It is clear from the above that the valuer have taken all the assets including the fixed assets and the intangible assets at their respective fair market value. "Goodwill" is calculated as the difference between the aggregate slump price and aggregate fair market value of other assets including the fixed assets and intangible assets Under the heading "Identification of Assets", the valuers have clearly identified the various heads of assets which could be considered as the components of the Business divisions acquired by the assessee, and against which the slump price was required to be apportioned on a fair basis. It is in this process of identification of assets that brands have been specific....
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....ngible assets' in the form of trade-marks/brands acquired by the assessee in the given business deal which were identified for separate evaluation. The BPA also makes it clear that the said intangible assets are used in connection with the goodwill of the business. This clearly means there were no other assets acknowledged in connection with the goodwill. It is thus obvious that by making a claim for depreciation on 'goodwill' while treating it to be a synonym for other 'intangible assets', the assessee is trying to take double benefit of depreciation as it has already availed of the depreciation on the real 'intangible assets' shown in the balance sheet. 13. We have heard the rival contentions and perused the record. The assessee company during the financial year 2005-06 entered into Business Purchase Agreement with Ranbaxy Laboratories Ltd. for purchase of entire Animal Health Care and Diagnostics Business divisions of Ranbaxy Laboratories Ltd., both in India and overseas market in addition to the employees employed by the said company. The copy of BPA is placed at pages 29 to 126 of the Paper Book and in the preamble it is mentioned that; ....
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....eto: 2.2.2 The relevant client portfolio consisting of the detailed list of wholesale stockists and all marketing and promotions information and documents in relation to the products; 2.2.3 All licenses, covenants, permissions, health registrations, approvals and concessions required from any Governmental Authority for carrying on the Allied Business asset out in Schedule 8 hereto 2.2.4 All other relevant information and technology in relation to the Allied Business including without limitation - a) The manufacturing know-how, in particular the specifications and test methods, manufacturing and packaging instructions, master formulae, validation reports, stability data, analytical methods and any other documents necessary to manufacture, control and release the Products; b) Any drug safety reports in relation to the products 16. As per clause 3 the total lump-sum consideration for transfer of the allied business to the assessee was agreed upon at Rs. 62 crores. As per clause 4 the allied business shall be conducted by the seller and operated for the benefit of the purchaser during the period commencing from the effective date i.e. the....
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....chase consideration of Rs. 12.74 crores was shown under the head 'goodwill'. The case of the assessee was that that the said balance consideration represents the value attributable to the intangible assets detailed in clause 2.2 and also as per the Schedule to the BPA and was recorded as goodwill in the books of account for the year under consideration. The Assessing Officer had allowed the depreciation both on the brands and also on the other tangible assets totaling Rs. 49.26 crores. However, the depreciation on goodwill claimed by the assessee was disallowed following the ratio laid down by the Hon'ble Bombay High Court in M/s Techno Shares & Stocks [323 ITR 69 Bom)]. 18. Before the CIT (Appeals) the decision of the Hon'ble Supreme Court in the case of M/s Techno Shares & Stocks (supra) was also referred to but the CIT (Appeals) rejected the same observing that section 32(1 )(ii) of the Act had restrictive application and depreciation was not allowable on the goodwill simpliciter. The second objection of the authorities below in not allowing the depreciation on goodwill was the said non-allowance made by the tax auditors in the accounts prepared by them. 19....
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.... the present case, applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression "business or commercial rights of similar nature" specified in Section 32(1)(ii) of the Act, it is seen that such rights need not answer the description of "knowhow, patents, trademarks, licenses or franchises" but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred in Section 32(1)(ii) of the Act preceding the term "business or commercial rights of similar nature", it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words "business or commercial rights of similar nature" have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor....
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....ai Bench of the Tribunal in M/s India Capital Markets P. Ltd. Vs. DCIT, Mumbai in ITA No.2948/Mum/2010 vide order dated 12.12.2012 held as under: "19. The I.T.A.T. Mumbai "G" Bench in the case of DCIT vs. Weizman Forex Ltd. in ITA.No.3571/Mum/2011 observed that the definition of the asset which is a subject matter of the transfer consists of all contract, licenses, franchaise, distribution net work, customer lists, marketing strategies and software and when the intangible asset being commercial/business rights diminished in value or physical wear and tear is not an essential condition for admissibility for depreciation, if the asset is used as a business tool for earning income." 24. The above said ratio was referred to by Mumbai Bench of the Tribunal in M/s India Capital Markets P. Ltd. Vs. DCIT (supra) wherein the purchase of clientele business by the assessee from M/s AFC was held to be right which could be used as a tool to carry on the business and the consideration paid for which was held eligible for depreciation. 25. As pointed out in paras hereinabove the assessee in addition to building, plant & machinery, furniture, fixtures, vehicles and net current asset....
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.... claim of depreciation under section 32(1)(ii) of the Act. 27. The second aspect of the issue is that the assessee had booked the said consideration of Rs. 12.62 crores as goodwill in its books of account. In this regard also the assessee is entitled to the claim of depreciation on the goodwill as the Hon'ble Supreme Court in CIT Vs. SNIFS Securities Ltd. (supra) held that the goodwill by itself was an intangible asset under Explanation 3(b) to section 32(1) of the Act and is eligible for deduction. The relevant portion of the ratio laid down by the Hon'ble Supreme Court is as under: "The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 ['Act', for short] We quote hereinbelow Explanation 3 to Section 32(1) of the Act: "Explanation 3 - For the purposes of this sub-section, the expressions 'assets' and 'block of assets' shall mean-la] tangible assets, being buildings, machinery, plant or Furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nat....
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....ance to goodwill, establish the case of the assessee that it had paid the consideration for acquisition of the enlisted assets i.e. the list of stockists, distribution and marketing agreements, lease agreements, list of employees, various licences and manufacturing know-how of the allied business and the assessee was entitled to claim of depreciation on value of such assets under section 32(1 )(ii) of the Act. The next stand of the learned D.R. for the Revenue that goodwill was covered in the agreement and is described as part of the agreement establishes the case of the assessee that it had contributed part of the consideration for acquisition of the goodwill of the business being run by the seller and once such contribution has been so made, the assessee is entitled to the claim of depreciation on such goodwill as held by the Hon'ble Supreme Court in CIT Vs. SNIFS Securities Ltd. (supra). Similarly other arguments raised by the learned D.R. for the Revenue that residual concession, various rights, licences, approvals, etc. was not correct, does not stand in view of our decision in paras hereinabove in turn following the ratio laid down by the Hon'ble Delhi in Areva T and ....
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.... Godrej Acquisition 2007-078 2.486 33. The first item of claim of depreciation was in respect of BPA entered into with M/s Ranbaxy Laboratories Ltd. for purchase of entire Animal Health Care and Diagnostics Business divisions of Ranbaxy. We have dealt with the issue of allowability of depreciation on goodwill booked by the assessee in the preceding year in the paras hereinabove and following our decision in the paras hereinabove, we direct the Assessing Officer to allow the claim in entirety in relation to depreciation on goodwill of acquisition of allied business of Ranbaxy Laboratories Ltd. 34. During the year under consideration the assessee entered into Business Acquisition Agreement (hereinafter referred as 'BAA') with M/s Wipro Ltd. and purchased the entire biomed division of Wipro Ltd. comprising of Diagnoostices, Medical systems and life sciences business (hereinafter referred to as "the Allied Business"). Clause 2.2 of the BAA details the assets, rights, titles, etc of M/s Wipro Ltd. that were conveyed to the assessee in consideration for the purchase price as a going concern on a slump sale basis. The relevant extract of claus....
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....e term 'Specified Business' has been defined in the BAA to mean and include the Current Assets, Transferred Liabilities, Specified Employees, said Contracts, goodwill, consumables and all other rights and privileges in relation to the Medical Diagnostic Business of the Seller 37. The Allied Business was purchased by the assessee for total consideration of Rs. 6 crores. The list of contracts and import licenses, employees etc. that were acquired as part of the BAA have been detailed in the schedules to the BAA, placed at pages 131 to 133 of the paper book. The valuer allocated Rs. 3.450 crores to Debtors, Inventory, Liabilities. The remaining purchase consideration of Rs. 2.486 crores, represented the value attributable to the intangible assets detailed in clause 2.2 and tabulated below was recorded as goodwill in the books of account of the assessee: S.No. Details of Intangible Assets acquired Paper Book Reference Page Numbers 1 Details of trade marks 54 2. List of Contracts 55 3. Details of Licenses 56 4. List of employees 58 5. Details of Insurance Policies 65 38. The assessee claimed depreciation on th....
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..... With the EMD, the sellers repaid the loan taken from Cadila and also executed the blank transfer form for transfer of shares held in Zydus in favour of the Appellant and kept the same with the escrow agent. Under the terms of SPA, Sellers had to get the consent of Cadila to give up their ROFR to enable the Sellers to sell the shares of Zydus to the Appellant within 5 months from the date of execution of the SPA. If Sellers failed to do so, as per clause 7.6. (Hi) of the SPA (please refer page 194 of the paper book), the SPA stood terminated and the Sellers had to return the EMD along with interest at the rate of 14 percent per annum on EMD on pro-rata basis and also a penalty at the rate either 5 percent of EMD or 25 percent annualized return on EMD on pro rata basis, whichever is higher, as per clause 7.7(i) of the SPA (please refer page no 195 of the paperbook). Further, the Appellant and the Sellers entered into a Supplemental Agreement to the SPA on the same day March 10, 2007 (please refer page nos. 204 to 209 of the paper book), wherein the Sellers agreed to convince Cadila to sell the balance 50 percent of shares of Zydus held by Cadila to the Appellant. ....
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....research and veterinary care and was not undertaking the business of trading in shares. Therefore, the acquisition of the business of Zydus would have resulted in a new profit earning apparatus (i.e. new source of income) for the Appellant and cannot be regarded as a normal activity carried on in the normal course of the business of the Appellant. Further, the agreement between the Appellant and the Sellers were not trading contracts for generation of revenue profits, but they were only designed to bring into an apparatus for an income yielding source. * Your goodselves may note the fact that the compensation paid by the Sellers under mutual settlement for termination of SPA is an undisputed fact and both are unrelated parties. Therefore, the fact that the compensation was not mentioned in the original SPA would not be a relevant factor for determining the nature of the receipt under the Act. It was not the case of the revenue that the parties have camouflaged the interest as compensation for termination of the SPA. In fact, the compensation has been paid in addition to interest and penalty, which were offered to tax. * In addition, it may be noted that both the l....
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....der the SPA agreement. During the course of assessment proceedings the AO observed from the Escrow and the original SPA and the supplemental agreement that if the transaction entered into between the parties did not materialize than the vendors will repay not only the earnest deposit amount but also the interest there on along with some penalty and compensation for termination of such agreement. Since the vendors realized that they will not be in position to implement the terms and conditions of the agreement as agreed to, they informed the assessee i.e. RFCL about the same and went on to pay the sums of money consisting of Compensation amount, Interest and Penalty totaling Rs. 3.96 crores. Out of this Rs. 3.96 crores the assessee claimed Rs. 2.25 crores as capital receipt being the compensation amount received for the breach or cancellation of the share purchase agreement. This raised the question as to whether it was a revenue receipt that ought to be taxed or is a capital receipt as claimed by the assessee. The assessee claimed it to be a capital receipt on the basis that it was received for a branch of a contract or cancellation of the agreement. From the perusal of bo....
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.... this regard. It is, thus, quite clear that this claim of compensation treating it as a capital receipt is nothing but on after thought to avoid payment of taxes on such income as the effect was given only at the time of filing of the return of income and that too in the computation. e) The AO reached a firm conclusion that it was a pure business deal arising out of the business necessity of the assessee and hence whatever additional monetary benefits accrued to the assessee were revenue in nature and has no connection whatsoever with capital receipts, since the buying of 50% stake was a business venture only. f) In fact the AO went to the extent of stating that (Para 51 assessment order) without prejudice to the departmental stand contained in the assessment order even if the receipt so received by the assessee is termed as compensation, still in real sense its true nature shall continue to be of revenue. This was on account of the reason that the receipt was received by the assessee by investing some money with the vendors form whom he was going to acquire the shares. It was against such investment, when the agreement did not mature, that it received interest, p....
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....V. Sarabhai (referred to as Sellers") and Cadila Healthcare Limited ("Cadila") jointly incorporated a company under the name called Sarabhai Zydus Animal Health Limited ("Zydus") under a shareholder's agreement dated January 29, 2000. Both the parties had 50:50 equity participation in Zydus. As per agreement between the two parties, it refrained either of them from selling their shares to a third party without first making the offer to the other shareholder. The sellers had pledged its shareholdings in Zydus to Cadila and had availed loan of Rs. 21.71 crores under the agreement dated 11.8.2006. As per the agreement, interest payable for the period up to 10.3.2007 was Rs. 3.10 crores. As per the terms of the agreement if the sellers failed to pay loan alongwith interest to Cadila by 10.3.2007, the shares of the sellers in Zydus were to be taken over by Cadila. The sellers approached the assessee to sell the shares of Zydus for total consideration of Rs. 72.5 crores and Share Purchase Agreement dated 10.3.2007 was entered between the parties. The assessee deposited sum of Rs. 24.81 crores with the sellers as earnest money from which the sellers repaid the loan taken from Cadila a....
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....f the Revenue in this regard was that the original agreement and supplemental agreement itself provide that in case the transaction did not materialize than the vendors will repay not only the earnest deposit amount but also the interest there on along with some penalty and compensation for termination of such agreement. Consequently, the compensation amount received for breach or cancellation of the agreement was held to be a revenue receipt as there was no breach of contract or cancellation of any contract as the parties compromised and calculated the amount to be paid as full and final payment. The next objection of the Assessing Officer was that the target company was in the same line of business as the assessee and by acquiring the said shares it would have expanded its business. Even the auditors in their Audit Report had given an opinion that there were no capital receipts which was credited to the Profit & Loss Account. The deal between the parties being pure business deal, the additional monetary benefits accruing to the assessee were revenue in nature as the assessee had entered into a business venture for acquisition of 50% stake n the business. 46. The Hon'ble Su....
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....am Chand Thapar and Bros. P. Ltd. v. CIT [1971] 80 ITR 167, discussed and held that in CIT v. Chari and Chari Ltd. [1965] 57 ITR 400 (SC), it was held that ordinarily compensation for loss of an office or agency is regarded as a capital receipt, but this rule is subject to an exception that payment received even for termination of an agency agreement would be revenue and not capital in a case where the agency was one of many which the assessee held and its termination did not impair the profit-making structure of the assessee, but was within the framework of the business, it being a necessary incident of the business that existing agencies may be terminated and fresh agencies may be taken. Thereafter the court held that it was difficult to lay down a precise principle of universal application but various workable rules have been evolved for guidance. Applying the aforesaid test laid down by this court in the present case, in our view, the Tribunal was right in arriving at a conclusion that it was a capital receipt. The reason is that as provided in article XVIII of the first agreement the assessee was having an option or right or lien, if the owner desired to transfer the ....
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....assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt." The Hon'ble Supreme Court thus held as under: "The aforesaid principle is relied upon in the case of Karam Chand Thapar and Bros. [1971] 80 ITR 167 (SC). Considering the aforesaid principles laid down as per article XVIII of the principal agreement, the amount received by the assessee is for the consideration for giving up his right to purchase and/or to operate the property or for getting it on lease before it is transferred or let out to other persons. It is not for settlement of rights under a trading contract, but the injury is inflicted on the capital asset of the assessee and giving up the contractual right on the basis of the principal agreement has resulted in loss of source of the assessee's income." 49. In the facts of the present case before us, the assessee had entered into first agreement on 10.3.2007 for acquisition of 50% shares belonging to the sellers, who in turn had hypothecated their shares to Cadila. As pe....
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....n escrow with the Escrow Agent in the manner specified in Article 2 above will be released to the Vendors by the Escrow Agent upon successful completion of the transfer of such shares owned by the Other Shareholders to the Purchaser. (ii) In the event the Vendors are not successful in procuring the Other Shareholder to sell their 2,70,00,000 (Two Crores Seventy Lakhs only) equity shares of face value of Rs. 10/- each, constituting 50% of the issued, subscribed and paid up equity share capital of the Company, to the Purchaser, within 5 months from date of execution of this Supplemental Agreement, then the Rs. 7,50,00,000/- (Rs. Seven Crores and Fifty Lakhs Only) kept in escrow with the Escrow Agent in the manner specified in Article 2 above will be released to the Purchaser by the Escrow Agent immediately at the expiry of the said 30-day period from the Closing Date. 4. It is hereby further agreed that for successful completion of the transaction contemplated under the SPA, the Escrow Agent within 1 day of Closing release to the Purchaser the Rs. 7,50,00.000/- (Rs. Seven Crores and Fifty Lakhs Only) kept in escrow with the Escrow Agent in the manner specified in Ar....
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.... former paragraphs, we find that the dispute between the parties was settled by turn of events without there being any authoritative adjudication and judicial pronouncement over the respective claims of the parties. In such circumstances, we are of the view that both the learned Assessing Officer as well as the learned CIT(A) erred in their assumptions one way or the other. The Assessing Officer has proceeded on the footing that there was a breach of trust agreement and the assessee received damages while the learned CIT(A) has proceeded on the basis that there was no obligation on Fried Krupp Essen and therefore what the assessee received was neither a compensation nor a damage but a fortuitous receipt which was purely discretionary in nature and not chargeable to tax as income. As we have already pointed out there has not been any authoritative adjudication and therefore the respective position taken by the learned Assessing Officer and the learned CIT(A) have to be treated as mere guesswork. After all, neither the learned Assessing Officer nor the learned CIT(A) had the access to evidence/material the assessee-company on the one hand and Fried Krupp Essen on the other would have....
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....ay was not only that the original agreement of sale between the assessee and Anandji Haridas was to be treated as subsisting but also that the tripartite agreement between the assessee, Anandji Haridas and M/s. Advani and Batra that the money paid by the assessee to Anandji Haridas was to be returned by M/s. Advani and Batra and an additional sum of Rs. 5,00,000 was also to be paid to the assessee by M/s. Advani and Batra was given effect to." 36. Even otherwise it is well-settled legal position that in order to find out whether a receipt is a capital or revenue receipt, one has to see it in the hands of the receiver and in order to find out whether an expenditure is a capital or revenue expenditure, one has to see what it is in the hand of the payer. In the case of CIT v. Kamal Behari Lal Singh [1971] 82 ITR 460, the Hon'ble Supreme Court have stated the legal position in the following words : "It is now well-settled that, in order to find out whether a receipt is a capital or revenue receipt, one has to see what it is in the hands of the receiver and not its nature in the hands of the payer. In other words, the nature of receipt is determined entirely by its....
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....63, full and final settlement of all claims, demands, causes of action, arising under or in connection with the Promotion Agreement or in breach thereof. In other words, the assessee-company received DM 10.5 million in satisfaction of its claims against Fried Krupp Essen, Krupp widia GmbH and Meturit AG. We, therefore, hold that whatever may have been the legal position prior to 20th December, 1994, as on 20th December, 1994, the assessee-company received the sum of DM 10.5 million in lieu of surrender of its rights and claims against the parties above-mentioned in terms of Promotion agreement. In substance, the assessee-company gave up its right of first purchase of shares held by Meturit AG in Widia (India) Ltd. on account of perceived/alleged violation or Promotion Agreement in view of the transfer of ownership of Krupp Widia GmbH. In our considered opinion, the taxability or otherwise of DM 10.5 million in the hands of the assessee-company is to be viewed and determined on this basis. We, therefore, hold that the learned CIT(A) erred in arriving at the finding that the money received by the assessee-company was a fortuitous receipt." 52. The Tribunal further held as under: ....
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....Oil Mills Ltd. v. CIT [1960] 40 ITR 118 (Mad.), P.L.M. Firm v. CIT [1968] 68 ITR 856 (Mad.); Bombay Burmah Trading Corpn. Ltd. v. CIT [1971] 81 ITR 777 (Bom.); J.R. Kimtee & Sons v. CIT [1978] 115 ITR 190 (AP); CIT v. Bombay Burmah Trading Corpn. Ltd. [1986] 161 ITR 3861 (SC); CIT v. Barium Chemicals Ltd. [1987] 168 ITR 1642 (AP); and CIT v. Seshasayee Bros. (P.) Ltd. [1999] 239 ITR 4713 (Mad.). For applying this test to the facts of the case before us, we find that the right, the assessee contested all along, was the right to purchase shares held by Meturit AG of Widia (India) Ltd., in the event of the proposed sale of Krupp Widia GmbH from Fried Krupp Essen to an outsider going through. This right was given up by the assessee on receipt of DM 10.5 million. In the case of the assessee before us if the assessee had succeeded to exercise its supposed right to purchase shareholding of Meturit AG in Widia (India) Ltd. that in itself would not have given rise to any income in the hands of the assessee but only created an income earning source in the hands of the assessee. It is important to bear in mind that the assessee was supposed to purchase these shares at the price mutually agree....
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....wise dispose of the said property at such price and on such terms as he may deem fit and was not under any obligation, requiring the purchaser thereof to enter into any agreement with Oberoi Hotel Pvt. Ltd., for the purpose of operating and managing the hotel. On the basis of such agreement, the assessee received the amount of Rs. 29,47,500 and claimed that it was a capital receipt. The Assessing Officer rejected the claim but the CIT(A) and the Tribunal upheld it. The High Court arrived at the conclusion that it was a revenue receipt, assessable to income-tax as business income for the assessment year 1979-80. On appeal to the Supreme Court, the decision of the High Court was reversed. After considering the earlier judgments of Supreme Court viz., CIT v. Chari & Chari Ltd. [1965] 57 ITR 400; CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148; the Hon'ble Supreme Court applied the earlier judgment of the Court in the case of Kettlewell Bullen & Co. Ltd. v. CIT [1964] 53 ITR 261. The Hon'ble Court also found support from the judgment in the case of Karam Chand Thapar & Bros. (P.) Ltd. v. CIT [1971] 80 ITR 167 (SC). Considering the principle elicited from the judgments, the Ho....