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2013 (10) TMI 1133
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.... Drinks Pvt. Ltd. and Parle Bottling Co. Ltd., each, towards compensation received from The Coca Cola Co., is a capital receipt or revenue receipt or capital gain or casual income and in whose hands it should be taxed 3. The facts relating to this issue is permeating through in all the appeals, on which the various authorities have taken different views and different stands with regard to the taxability of the receipt of the same compensation amount. For the sake of convenience, we first take up appeals in ITA no.5072/Mum./2001, ITA no.5284/Mum./2001 and C.O. no.136/Mum./2002, which were argued by the learned Sr. Counsel, Mr. S.E. Dastur. The grounds raised by the Revenue in ITA no.5284/Mum./2001, are as under:- 1. "On the facts and in the circumstances of the case, the learned CIT(A) erred in law in directing the Assessing Officer to treat the amount of Rs. 16,05,82,500/- being the compensation received from Coca Cola Co. as long term capital gains whereas the Assessing Officer had treated the same as income from other sources of alternately as short term capital gains for the reasons discussed by him in the asstt. orders." 2. "On the facts and in the circumstances of the....
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....ither constitute chargeable capital asset within the meaning of section 22(2)(a) of the Act nor did the transaction involve any transfer of any chargeable asset within the meaning of section 2(47) of the Act. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not admitting claim of the appellant for depreciation @ higher rate of 40% in respect of vehicles used in the business of hire." 4. The relevant facts, apropos the issue of treatment of amount of Rs. 16,05,82,500, which are culled out from the records and submissions made by either party are that, all the aforesaid assessee's (who are in appeal) are part of Parle Group owned by Mr. Prakash Chauhan and Mr. Ramesh Chauhan. The Parle Group of companies were engaged in the business of manufacturing, bottling and distribution of soft drinks and beverages under several popular brands viz., Thumbs Up, Limca, Gold Spot, Maaza, Citra, etc., and other popular brands. The Parle Group of companies entered into a "master agreement" with The Coca Cola Co. of U.S.A. (for short "TCCC") on September 1993, for transfer of intellectual property rights in the nature of trade marks, knowhow, franchis....
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....forth as Exhibit J hereto, granting LFFL a right of first refusal for the bottling rights for the products "Coca-Cola", "Fanta" and "Sprite" in certain bottling territories containing the cities of Poona and Ban galore, provided that certain standards customarily used by the Buyer for qualification are met, including quality standards and capitalization requirements." 5. The draft of ROFR agreement was elaborated in Exhibit-J of the master agreement. For bottling rights in the territory of Bangalore, LFFL was assigned to become licensed bottler of TCCC in the city of Bangalore. It was also agreed upon by the parties in the master agreement itself, that a new company i.e., a Bangalore subsidiary was to be established for carrying out bottling operations in Bangalore. The Article-1 of the master agreement contained the definition of Bangalore subsidiary which, inter-alia, means that the company to be formed for the production, distribution and sale of products of TCCC for the city or nearby territories of the city of Bangalore. For this purpose, Exhibit-L of the master agreement provided the manner and the guideline on which this Bangalore subsidiary was to be established, which w....
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.... ultimately settled with TCCC agreeing to pay US$ 4.5 million which in terms of INR was Rs. 16,05,82,500. Such a receipt of compensation which was in breach of ROFR is the subject matter of dispute before us whether it is a capital receipt or revenue receipt or casual income or to be taxed as long term capital gain or short term capital gain and also in whose hands it should be taxed. 6. In case of the present assessee i.e., Parle Soft Drinks Pvt. Ltd., in the return of income filed on30th November 1998, for the assessment year 1998-99, the amount received from TCCC at Rs. 16,05,82,500, was treated as capital receipt not chargeable to income tax. Along with the return of income, the assessee has annexed the following note:- "During the previous year relevant to A.Y. 1998-99 the company received an amount of Rs. 160582500 as compensation from Coca Col Co. USA. In the accounts for the year ended 31.3.1998, the aforesaid amount received as deducting Rs. 10 lakhs for professional fees paid. In the return of income, the aforesaid amount has been taken to capital reserve after deducting Rs. 10 lakhs for professional fees paid. In the return of income, the aforesaid amount has been ....
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....ther with setting up of bottling business in Bangalore. In the certificate of Foreign Inward Remittance (he purpose of remittance has been stated as 'flu and final settlement of certain disputes. In the account for the year ended 31-03-1998, the aforesaid amount was credited directly to capital reserves by Pane Soft Drinks (Bangalore) Ltd. wider the heading "compensation received from Coca Cola Company, USA on settlement." 8. Besides submitting the relevant terms of agreement and Exhibits given in the master agreement, the assessee also explained the reasons as to why such a receipt cannot be taxed in the hands of the assessee. Reliance was placed on the following decisions also:- i) Kettlewell Bullen & Co. Ltd., [1964] 53 ITR 261 (SC); ii) Mahindra & Mahindra Ltd., [1973] 91 ITR 130 (Bom.); iii) Gillanders Arbuthnot & Co. Ltd. [1964] 53 ITR 283 (SC); and iv) Oberoi Hotels Pvt. Ltd. v/s CIT, [1999] 236 ITR 903 (SC). 9. It was further submitted that the amount received is not taxable under section 10(3) as casual and non-recurring receipt because the said receipt cannot be characterised as income. Besides this, it was also pleaded that the receipt in question ca....
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.... asset. The amount which was received was actually receivable by LFFL but has been received by the assessee company. He also distinguished all the judgments relied upon by the assessee. Lastly, he referred to the decision of Kerala High Court in Malabar Industrial Co. Ltd. v/s CIT, [1992] 198 ITR 611 (Ker.) to hold that the receipt should be assessed under the head "Income From Other Sources". He also made reference that earlier this company was in the name and style of "General Knightware Exports Pvt. Ltd." which was neither engaged in the business of bottling nor had any machinery or plant for the purpose of business. Its main objects were also different. Later on, the name of the company was changed to Parle Soft Drinks (Bangalore) Pvt. Ltd. Thus, he held that the amount received by the assessee company is nothing but a revenue receipt chargeable to tax. Alternate plea of the assessee regarding taxability as capital gain, he concluded that it is a short term capital gain and for arriving to this conclusion, he has given a very detail finding from page-22 to 25 of the assessment order. The sum and substance was that the right, as per the agreement which was available with the ....
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....ause (a). He also accepted the assessee's alternate plea that receipt in question has to be treated as capital gain but he disagreed with the assessee's contention that there is no cost of acquisition, because section 55(2) was modified by the Finance Act, 1997, w.e.f. 1st April 1998, to include such kind of right and cost of acquisition has to be taken as "nil". Lastly, whether it is a long term capital gain or short term capital gain, he analysed the sequence of event of these transaction in the following manner and held it to be long term capital gain, after observing and holding as under:- 1. The agreement by TCCC with LFFL on 11.11.93 granting ROFR to the subsidiary to be treated by LFFL with an inbuilt stake of 30% in the newly created subsidiary. 2. The assurance of Ramesh Chauhan and Prakash Chauhan to create the subsidiary before 31st March 1994. 3. The taking over of M/s. General Knitwear Exports Pvt. Ltd. changing the name of Parle Soft Drinks and submitting the depreciation of the land to M/s. TCCC for approval in June 1993." 5.2 These factors indicate that the ROFR has been assigned on the date of creating of the subsidiary since the object of such creation....
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....herefore, he set aside the entire action of the Assessing Officer in taxing the entire amount of Rs. 32,11,20,000 in the hands of the assessee. Thus, the entire capital gain added on substantive basis, stands deleted from the stage of learned Commissioner (Appeals) against which the Department has come into appeal before us. 14. In the third case of Parle Bottling Co. Ltd., the Assessing Officer has treated the receipt of Rs. 16,05,60,000, as long term capital gain, however, assessed the same on protective basis, in view of the fact that, already substantive addition on account of capital gain has been taxed in the hands of Aqua Bisleri Ltd. The learned Commissioner (Appeals) in this case has taken all together different stand and after discussing the issue in detail held that it is not a capital gain but it is a non-recurring casual income which is to be taxed under section 10(3) of the Act and, therefore, the action of the Assessing Officer in treating the receipt as long term capital gain and taxing it on protective basis, has no basis. Thus, he held that it is to be taxed as casual and non-recurring receipt. 15. Thus, various authorities in the aforesaid cases of the asse....
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....LFFL or other entities of Parle Group and later on The Coca Cola Co. was to subscribe 30% of the shares. It was this subsidiary company, which was to be assigned the bottling rights for the territory of Bangalore. In support, he also pointed out the relevant terms as given in Exhibit-L. This Bangalore subsidiary company was Parle Soft Drinks (Bangalore) Pvt. Ltd. Only and he further explained as to how this company had come into existence solely for this purpose. He submitted before us a sequence of events to show as to how this company have come into existence and has received the compensation from TCCC, which, for the sake of ready reference, is reproduced below:- Date Particulars 18 October 1991 Incorporated as General Knitwear Exports Pvt. Ltd. 24th June 1993 Limca Flavours and Fragrances Ltd. entered into MOU to acquire General Knitwear Exports Pvt. Ltd. (date wrongly mentioned as 1st July 1993 by AO) through Parle International ltd. and Golden Agro Products Ltd. (Now Bisleri Sales Ltd.) 3 July 1993 100% shares of General Knitwear transferred to Pane International Ltd and Golden Agro Products Ltd (Now Bisleri Sales Ltd.) Shri R.N.Mungale and Shri S.K. M....
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....urce of income and as such profit making apparatus for the Parle Soft Drinks Pvt. Ltd. The very basic right for starting the bottling business was taken away, once The Coca Cola Co. violated the terms of agreement of ROFR. The very foundation on which the company was found was taken away and, therefore, the amount which was received, is nothing but compensation for losses of potential source of income viz. bottling operations in Bangalore territory. In support of his contention, he, first of all, relied upon the judgments of Hon'ble Supreme Court in CIT v/s Vazir Sultan, [1995] 36 ITR 175 (SC) and Oberoi Hotels Pvt. Ltd. v/s CIT, [1999] 236 ITR 903 (SC). 19. Regarding the learned Commissioner (Appeals)'s finding that there was a transfer of a capital asset within the meaning of section 45 and it is a long term capital gain, he submitted that for attracting the provisions of section 45, the very premise of the transfer of capital asset, is lacking completely in the present case. This is a case, where there has been a breach of contract and the amount was received as damages for not carrying out the obligation. It was not for any transfer of capital asset. Thus, here is the case, ....
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.... in ACIT v/s Dr. B.V. Raju (Deceased), [2012] 714 (Trib.) 387 (Hyd.). Thus, even the capital gain cannot be charged on such receipts. Alternatively and without prejudice, he submitted that already the Assessing Officer has taxed the said amount as "capital gain" on substantive basis in case of Aqua Bisleri Ltd. (LFFL), therefore, the same should be deleted from here as there cannot be double transaction. 21. For the sake of continuity, we are also referring to the arguments placed by learned Senior Counsel, Mr. Firoze Andhyarujina, who has argued the case of Parle Bottling Pvt. Ltd., wherein the Assessing Officer has treated the receipt to be taxed as long term capital gain on protective basis and the learned Commissioner (Appeals) has treated the same receipt to be taxed as casual and non-recurring taxable income under section 10(3) on substitutive basis. The learned Senior Counsel submitted that in this case also, the assessee has received an amount of Rs. 16,05,60,000, as compensation from The Coca Cola Co. for breach of ROFR agreement with regard to bottling rights of Pune territory. The Assessing Officer solely relied upon the observations and the findings given in the asse....
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....ere is no cost of acquisition and, hence, cannot be taxed as capital gain. 24. Coming to the finding of the learned Commissioner (Appeals) that the amount received is in the nature of casual and non recurring receipt, he submitted that such an amount of compensation cannot be equated with the casual receipt within the meaning of section 10(3). To fall within the ambit of section 10(3), first it has to be characterised as income, which here in this case is not. He also referred to CBDT circular no.158 dated 27th December 1974, and relied upon the judgment of Hon'ble Supreme Court in Ramanathan Chettiar v/s CIT, [1967] 063 ITR 458 (SC). He further submitted that a casual and non recurring receipt can only be taxed, once there is no claim or right in the recipient to expect its recurrence. Merely because the payment has been made one time that would not lead to inference that the amount received by the assessee was casual or non-recurring. In the present case, there was a violation of ROFR agreement. It was on such a breach that the assessee had a right to be compensated by the violating party. Thus, definitely, it cannot be held as casual or non- recurring receipt. In support of h....
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....ept for transfer of money to the respective assessees viz. Parle soft Drinks Pvt. Ltd. and Parle Bottling Ltd., there is no document that ROFR was given to the other parties; and (iv) The right given to one limited company cannot be given to other limited company, without any document or transfer and in the present case there is no such document for transfer of assigning of rights by LFFL to these companies; 26. He further submitted that the learned Commissioner (Appeals), in case of Parle Soft Drinks Pvt. Ltd. has gone by the fact that the Assessing Officer has not proved the negative and, therefore, the Assessing Officer's finding is not correct is a wrong conclusion; 27. Lastly, he concluded that the amount received has to be taxed as revenue receipt in the hands of the LFFL or alternatively in the hands of other assessee if it is held that there was no right to LFFL by the ROFR agreement. 28. In the rejoinder, the learned Senior Counsel, Mr. Dastur, submitted that first off all, the Revenue has to take a clear stand as to in which hands, these receipts are to be taxed and under which head. If the argument of the learned Special Counsel is accepted, then the addition....
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....asual and non recurring receipt". 30. We have carefully considered the rival contentions, perused the relevant findings given by the Assessing Officer and the learned Commissioner (Appeals) on this issue as well as the material placed on record. The main dispute for our adjudication is, whether the sum of Rs. 16,05,82,500, which has been received by the assessee from The Coca Cola Co., on the breach of ROFR agreement, is a capital receipt not chargeable to tax or to be treated as revenue receipt or casual income or long term capital gain or short term capital gain and further in whose hands it should be taxed. As already discussed above, various authorities have discussed and decided this issue in different manner and on different interpretation of the same facts placed before them. Insofar as the facts which have been narrated above, there is no dispute. The dispute is only with regard to the interpretation and the taxability of the receipt and under which head. In the main agreement which has been referred as master agreement entered by the various sellers who are Parle Group of companies with The Coca Cola Co., there was a stipulation for assignment of bottling rights for the....
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....arious assignments of the bottling rights, only to such a newly formed company which was to be initially held and formed by Parle Group and later on the Coca Cola Co. will join in after subscribing 30% of the shares. It was to this subsidiary company that the bottling rights were to be given in the territory of the Bangalore. This subsidiary company was formed as "Parle Soft Drinks Pvt. Ltd." i.e., the assessee and the manner and sequence in which this company was formed has already been discussed by us in the forgoing paragraphs. Thus, the assessee company was formed only for carrying out bottling activities in the territory of Bangalore. Hence, there can be no dispute or a question, that the assessee was entitled for receiving the compensation amount on the breach of ROFR from The Coca Cola Co. Thus, even though ROFR agreement was with LFFL but it was always agreed upon by the parties to the agreement that the same should be for a newly formed entity as Bangalore subsidiary company which is the assessee company only. The agreement as well as the ROFR provided that the rights were given to the assessee for carrying out the bottling activities for The Coca Cola Co. for the Bangalor....
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....s guiding principle of the Hon'ble Supreme Court has been followed time and again not only by the various Courts but also by the Hon'ble Supreme Court itself. In case of Oberoi Hotels Pvt. Ltd. (supra), the Hon'ble Supreme Court has reiterated this principle and opined that if the injury was inflicted on the capital asset of the assessee and for giving up the contractual right on the basis of principal agreement which had resulted into loss of source of assessee's income the receipt in the hands of the assessee is a capital receipt. 34. If we apply the said ratio and the law laid down by the Hon'ble Supreme Court in the present case, then, what the assessee has lost, is the very source of his business and loss of a trading structure. If the right given by the ROFR would have continued, the assessee would have the source of income from the bottling business and this would have constituted its profit making apparatus. It is not a case that there was some breach of agreement during the course of carrying on the business or trading activity for which the assessee has received any kind of compensation. Here, even before the assessee's actual business could start, there was a breach b....
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....k, knowhow, etc., nor any kind of asset. Thus, it cannot be a case of transfer of an asset and, hence, cannot be subject to taxation under the head capital gain also. As a result of our finding, the ground no.1, as raised by the assessee is treated as allowed, whereas, ground no.1 and 2, as raised by the Revenue are treated as dismissed, as the issue of taxability of the amount received by the assessee from The Coca Cola Co. is decided in favour of the assessee that it is not taxable. 37. In ground no.2, the assessee has challenged disallowance of higher depreciation of 40% in respect of vehicle used in the business of hire. 38. The Assessing Officer noted that the assessee has disclosed hire charges of Rs. 6,18,900. These receipts have been received from the trucks / three wheelers which were leased out by the assessee. These vehicles were purchased during the year and depreciation of 40% was claimed. In response to the show cause notice issued by the Assessing Officer, it was submitted that the assessee was owner of these vehicles and were used for the purpose of its business i.e., for hiring and, therefore, depreciation has to be claimed @ 40%, as prescribed. The Assessing....
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.... up Revenue's appeal in ITA no.5284/Mum./2001, vide which, ground no.3 and 4, relate to disallowance of Rs. 10,00,000 being professional fees paid to Mr. R.M. Mungale director the assessee company. 43. The assessee has claimed that a sum of Rs. 10 lakhs was paid to Mr. R.N. Mungale, towards professional fees in connection with negotiation, drafting agreements and finally receiving the compensation from The Coca Cola Co. The Assessing Officer held that the communication was between The Coca Cola Co. and the assessee and moreover Mr. Mungale, is one of the employees of Parle associated group and, therefore, does not justify the payment of professional charges to him. 44. Before us, the assessee submitted a copy of Board resolution approving a payment of Rs. 10 lakhs to Mr. Mungale for the services rendered during the negotiating transactions with The Coca Cola Co. which has resulted in settling the dispute. He is neither related to the assessee nor a shareholder in the Parle group of companies. The learned Commissioner (Appeals) held that on these facts, the provisions of section 40A(2) does not attract and moreover payment of such professional charges has yielded Rs. 16.05 cro....
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...../2003. 54. Ground no.1, 2 and 8, relate to issue of taxability of amount of Rs. 16,05,60,000, as received by the assessee from The Coca Cola Co. in lieu of settlement of disputes. 55. In the present case, as already stated above, the learned Commissioner (Appeals) has taken a different view that the amount received by the assessee is casual and non recurring nature, whereas, the Assessing Officer has made protective addition after observing that substantive addition has been made in case of Aqua Bisleri Ltd. i.e., LFFL as the same is chargeable to tax as long term capital gain. Since the facts and issue are similar which issue has been discussed by us already in the forgoing paragraphs, the same will apply mutatis mutandis in the present case also, therefore, these grounds are treated as allowed as we have already held that the amount received by the assessee is a capital receipt which is not taxable. 56. In ground no.9 and 10, the assessee has challenged that both the authorities have not considered the assessee's claim for deduction in respect of deposit on bottles and crates refunded during the year amounting to Rs. 8,30,307. 57. The relevant facts, apropos the afor....
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....acts, as noted by the learned Commissioner (Appeals), are that the assessee in the tax audit report filed along with the return of income has shown an amount of Rs. 1,63,901 as net prior period expenses. These expenses were not claimed as deduction in the return of income on the ground that the assessee was making a claim for deduction in respect of the said amount in the assessment year 1997-98. In the assessment year 1997- 98, the Assessing Officer has not allowed the said claim under section 143(3) and, therefore, it should be allowed in this year. 62. The Learned Commissioner (Appeals) has disallowed the assessee's claim on the ground that the same has not been claimed in the return of income for the assessment year 1998-99. and therefore, there should be no grievance. Moreover, this expenditure relates to the assessment year 1997-98 which should have been claimed and allowed in the assessment year 1997-98 only. Accordingly, he disallowed this claim. 63. Before us, the learned Counsel submitted that this claim has been crystallized during the year and, therefore, the same should be allowed in this year because the Assessing Officer has disallowed in assessment year 1997-9....
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....on. (v) On the facts and circumstances of the case and in law, the Ld. CJT(A) has erred in deleting the addition of Rs.22,22,249/- made on account of unutilised modvat credit failing to appreciate the fact that the decision of Bombay High Court in the case of CIT Vs. Nippon Chemicals Ltd. [245 ITR 384] has not been accepted by the department and a special leave petition has been filed to the Supreme Court; which is pending (vi) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to treat the sale consideration of bottles and crates as part of the block of assets; (vii) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact in earlier years the assessee claimed purchase of bottles and crates as revenue expenditure in the P & L A/c; (viii) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that the bottles purchased during A.Ys. 1993-94, 1994-95 and 1995-96 cannot form part of block of assets since on these bottles, 100% depreciation was claimed by the assessee and the value of such assets was zero. The Ld.CIT(A) f....
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....has affirmed the decision of Bombay High Court in CIT v/s Indo Nippon Chemical, 261 ITR 275. Accordingly, ground no.5, is treated as dismissed. 77. In ground no.6 to 9, the Revenue has challenged the direction of the learned Commissioner (Appeals) to treat the sale of consideration of bottles and crates as part of the block of assets. 78. The Assessing Officer noted that the assessee had shown sale of bottles amounting to Rs. 84,67,666 from the block of assets, comprising bottles on which depreciation @ 50% is admissible. He also noted that up to the assessment year 1995-96, the assessee has claimed depreciation @ 100% on bottles and crates as the cost was less than Rs. 5,000. He required the assessee to furnish details of these bottles on which 100% depreciation has been claimed in the previous year. The assessee replied that no separate registers have been maintained for the bottles and also accepted that bottles on which 100% depreciation has been claimed cannot be distinguished from the bottles on which 50% depreciation is being claimed in the year. In response to the show cause notice, the assessee, vide letter dated 17th March 2001, has given a detail submission which h....
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..... In the assessment order passed u/s. 143(3), the appellants' submissions have been rejected and sale of bottles and crates has been treated as revenue receipt and part of business income. Further, the block of assets comprising of bottles and crates eligible for depreciation @ 50% has not been reduced by the aforesaid amount and thereby additional depreciation if Rs. 42,38,833/- has been granted resulting in a net addition of Rs.42,38,833/." 80. Based on these submissions, the learned Commissioner (Appeals) has deleted the additions after observing and holding as under:- 25. Since the bottles and crates on account of sale on which Rs.84,67,666/- is received could not be segregated between those purchases prior to 1.4.95 and w.e.f. 1.4.95 the entire receipt is reduced from block of assets from the bottles and crates as per submission of the appellant. It is submitted by the appellant that: (a) The action of the A.O in treating the same as revenue receipt is wrong because they are sale purchases of capital receipts in form of bottles and crates. It is further submitted that there is no loss to revenue because if assessee's view point is accepted sale proceeds will get ta....
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....tantive basis in the case of the assessee. As already discussed in detail in the case of Parle Soft Drinks Pvt. Ltd. i.e., the Aqua Bisleri Ltd., was not entitled for receiving the compensation amount as the ROFR never vested with this assessee. The finding of the learned Commissioner (Appeals) is to this effect only. 86. Since we have already held that this amount is, firstly, not taxable as it is a capital receipt in the hands of Parle Soft Drinks Pvt. Ltd. and Parle Bottling Pvt. Ltd. and secondly, the present assessee was not entitled for any kind of compensation for the breach of ROFR. Accordingly, the findings of the learned Commissioner (Appeals) in this case are affirmed and the ground no.1, raised by the Revenue is treated as dismissed. 87. Ground no.2, the Revenue has challenged the deletion of addition of Rs. 3,94,863 on account of MODVAT credit on the ground that the decision of Bombay High Court in Nippon Chemicals Co. Pvt. Ltd. (supra), has not been accepted by the Revenue. 88. As admitted by both the parties, this issue now stands decided by the Hon'ble Supreme Court in the same case which is now reported as 261 ITR 75 (SC). Thus, there is no merit in the gr....