TaxTMI 
TaxTMI 
2015 (4) TMI 323
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....section 153C dated 31.01.2012 is also illegal and deserves to be set aside/quashed. 3. That the assessment made u/s 143(3) r.w.s. 153C is also invalid on the ground that no reasons u/s 153C were recorded by the Assessing Officer before issue of notice calling for return of income under the provisions of said section. 4. That on the facts and in the circumstances of the case, the ld. CIT(A) has erred in upholding the addition of Rs. 8,16,22,040/- made by the AO on the ground that the same is taxable as revenue receipt instead as a capital account within the meaning of Section 28(ii)(c) or Section 28(va) of the I.T. Act, 1961. 5. That the ld. AO has erred in levying interest u/s 234A, 234B and 234C of the I.T. Act." 2.0 Brief facts are that assessee had business relations with one Cabana group of Jaipur which was searched by the IT department on 31-7-2009. According to AO from one of the group entity's premises namely Cabana Hospitality Ltd. (for short CHL) documents were also seized indicating that assessee had transferred huge funds from the assessee. On the basis of these documents AO of Cabana group formed a belief that these documents belonged to assessee in ques....
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....sses and therefore, in 2008 Satyam filed a complaint u/s 36 of Monopolies and Restrictive Trade Practices Act (MRTP) before the MRTP Commission, New Delhi. They also filed application u 12 and 12A of MRTP Act. An arbitration application u/s 11 of the Arbitration and Conciliation Act of the High Court Rajasthan was also filed by the assessee. Subsequently, on 24-1-2008, Satyam entered into agreements. One with Atlantic, called Settlement Agreement vide which the bottling agreement dated 05-11-1997 was terminated on a settlement amount of Rs. 18,33,11,020/-. Out of this a sum of Rs. 5 crores had been paid in advance and balance was paid on15-12-2008. As a part of this settlement agreement on the same day i.e. 24-11-2008, the assessee also entered into another agreement called Asset Transfer Agreement with M/s. Coco Cola India (P) Ltd. vide which the assessee sold also its assets as specified in Schedule A of the agreement including its rights, titles, and interests in the immovable property to M/s. Coco Cola India (P) Ltd. for a consideration of Rs. 5,94,57,684/-. Further as a part of settlement agreement a conveyance deed was made between the assessee and Coco Cola India (P) Ltd.....
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....o bring home the point that Coca Cola was Monopolistic in its approach and was killing competition. The relevant paras of the settlement agreement read together demonstrate that the compensation was received merely for withdrawal of litigation. Such compensation was patently capital receipt and cannot be considered taxable revenue receipts in terms of any provision of I T Act. The AO however did not agree with assessee's submissions and held that entire receipt was not revenue in nature. Consequently AO split the compensation into two parts, one was held capital receipt and other part of Rs. 8,16,22,040/- was held as revenue in nature u/s 28(ii)c, as according to AO, the assessee has received it in consideration of terminating the agency held or modification of terms thereof. Relevant observations of AO in this behalf are as under: "On analysis the above mentioned important terms and conditions, it held that the amount of Rs. 18.33 crores received partake not just the character of a 'capital' receipt but also has an element of 'Revenue' receipt and in that sense the amount received can be said to be of 'composite' nature having both the elements of &#....
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.... Loss declared in Return (-) 1,80,94,965 Add: As per para 8, supra 8,16,22,040 Net income 6,35,27,075 Less: Set off/ b/f loss for A.Y.2001- 02 to 2008-09 4,52,50,814 Total income 1,82,76,261 10. The total income of the assessee in the status of company for assessment year 2009-10 relevant to previous year 2008-09 is assessed at Rs. 1,82,76,261/ u/s 143(3) r.w.s. 153C of the I.T. Act , 1961. The form ITNS 150 showing calculation of tax and interest chargeable, if any, is attached herewith and forms a part of this order. A notice of demand u/s 156 of the Act and challan for payment of tax, if payable, is hereby issued." 2.1 Aggrieved assessee preferred first appeal where the assessment order was challenged on the grounds of validity of notice u/s 153C, satisfaction note and jurisdiction for initiation of 153C proceedings along with grounds on merits about taxability of receipts. Ld. CIT(A) rejected assessee's grounds about satisfaction u/s 153C and upheld the order of ld. AO in this behalf. Qua merits however it was held that provisions of sec 28(va) are applicable and not sec 28(ii)c as applied by AO. Consequently the part of compensati....
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....hich will be chargeable under the provisions of capital gain. It appears that the objection and intention of the statute is very clear that whereas receipts on account of transfer or surrender of rights of manufacturing / production and when such receipts are composite nature i.e. some consideration is attributable to the fixed asset which are taxable under the provisions of capital gain and the consideration/ receipts which are not specifically covered under the capital gain are to be taxed and covered under provisions of Section 28(va) proviso (a) of I.T. Act. It may be noted that the appellant was having right to manufacture production and sell some specific Cadbury products and by way of such two agreements the appellant received total amount of Rs. 18,33,11,020/-. One settlement agreement was in respect of fixed assets included immovable property and vide this agreement dated 24-11-2008 all the fixed assets were taken over by Cocacola India (P) Ltd. in lieu of which the appellant received an amount of Rs. 10,17,88,980/- (59457864+42331296). Such consideration received by the appellant was taxable under the provisions of capital gain and the appellant was himself shown capital ....
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....e period before 01-04-2003 or in context of as to what should constitute capital receipt or revenue receipt. The important issue to be taken into consideration is that with such amendment and bringing into statute provisions of Section 28(va), such receipts/ consideration received on transfer/ surrender of rights of manufacturing of carrying out of business in any manner have specifically been brought under the purview of taxation. Therefore, the ratios of such case laws cannot be said to be applicable to the facts of the appellant's case. Keeping in view the facts and circumstances discussed above, it can be said that the amount of Rs. 8,16,22,040/- was rightly taxed by the AO. The addition made by the AO is accordingly confirmed." 2.3 Aggrieved assessee is before us. Ld. Counsel for the assessee Shri Ajay Wadhwa adverting to the grounds about validity of 153C proceedings; vehemently contends that the notice issued on the assessee u/s 153C is invalid, against the law and the documents seized from the Cabana Group do not fall within the scope of the term belongs or belong to the assessee. Following contentions are raised in this behalf. The existence of business relations....
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....y. The original thereof which belonged to assessee was in it's possession. The photocopy belonged to Jaipuria group as a party to the agreement cannot be held as belonging to assessee. Therefore, it was objected by the assessee that none of the documents found during the course of searches conducted on the Cabana Group which find mention in the Satisfaction Note dated 29.07.2013, could be said to be belonged to the assessee. Consequently, the proceedings under Section 153C of the said Act ought to be dropped as none of the conditions mandatory for initiation of these provisions was satisfied. Following contentions are made in this behalf. Provisions of the Act relating to the words belong or belongs to in sections 153C, 132(4) and 292C of the Act are as under; 1.1 Section 153C of the Act, Assessment of income of any other person. "(1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person refe....
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....ed, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested." A plain reading of all these provisions postulates that:- 1. Section 153C of the Act, prescribes a mandatory condition that a satisfaction of the AO that the documents seized belong or belongs to a person other than the person referred to in sec. 153A is to be recorded. It presupposes determination of question whether the document belongs to other assessee or not in the light of other relevant provisions as mentioned above. 2. Reliance is placed on following judgments which have further laid down judicial parameters as to how the satisfaction has to be recorded and the meaning of the phrase "belongs to" are in the case of : Pepsi Foods Pvt. Ltd. v. Assistant Commissioner of Income Tax, [2014] 52 taxmann.com 220 (Delhi) Dtd.-7 August 2014 Pepsico India Holdings Pvt. Ltd. v. Assistant Commissioner of Income-tax, [2014] 367 ITR 673 (Delhi) Dtd. 14 August 2014 Since these are the only High Court judgments available on the meaning of these terms, their ratio is pleaded to be binding on the Tribunal as held by Commissioner of Income-tax v. Smt.G....
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....ion"." Thus the Hon'ble Delhi High Court lays down following four requirements in this behalf: (a) That the Assessing Officer of the searched person must be satisfied that the seized documents belong to a person other than the searched person. (b) The AO has to rebut the presumption u/s 132(4A) and sec. 292C and come to the conclusion or satisfaction that the documents in fact belong to some other assessee. (c) There must be cogent material available with the AO before he arrives at a satisfaction that the seized documents do not belong to the searched person but some other assessee. (d) Surmise and conjecture cannot take the place of satisfaction. Hon'ble Delhi High Court in the case of Pepsico held that the satisfaction recorded u/s 153C was invalid and quashed the proceedings by holding that: "11. It is evident from the above satisfaction note that apart from saying that the documents belonged to the petitioner and that the Assessing Officer is satisfied that it is a fit case for issuance of a notice under Section 153C, there is nothing which would indicate as to how the presumptions which are to be normally raised as indicated above, have been rebutted....
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.... denying the belonging of document nevertheless ld. AO records a satisfaction that they belong to assessee in question. Mere finding of photocopies in the possession of a searched person does not necessarily mean and imply that they "belong" to the person who is owner of the originals. Ownership of documents and possession of photocopies of documents are two altogether separate connotations. Seized photocopies lawfully belonged to Cabana Group which they never disclaimed. Satisfaction note itself must display reasons or basis of conclusion that the documents belong to a person other than the searched person. It is also settled law that the satisfaction note has to be read as it is without any addition, subtraction or with the help of allied documents. It cannot be supplemented or supplanted. Reliance is placed on: [East Coast Commercial Company 128 ITR 326 (Cal), Equitable Investment 174 ITR 714 (Cal) Pepsi Foods Pvt. Ltd.(supra) Pepsico India Holdings Pvt. Ltd.(supra)] 2.6 In the light of these contentions, it is pleaded that none of the purported seized documents, can be said to 'belong to' the assessee; thus the basic ingredients of section 153C of the Act....
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....ely for withdrawing this multifarious litigation and is purely a Capital Receipt which is not chargeable to tax u/s 28(va). None of the clauses of settlement agreement is attributable to any non compete agreement or for not carrying out any activity in relation to any business as held by authorities below. This aspect has been wrongly inferred by ld. CIT(A) without quoting any specific clause of compensation agreement. It is contended that the cases with MRTP were filed to bring home the point that Coca Cola was Monopolistic in its approach and was killing competition which was in violation of relevant Indian laws. Similarly arbitration suits were instituted as per the agreements and Indian Arbitration Act. Ld. Counsel adverted to the following relevant clauses of settlement agreement which is placed on the paper book: Pg. No. of PB- 2 Clause No. Particulars 82 C Certain disputes arose between Satyam and Atlantic under the Bottling Agreement pursuant to which Satyam initiated arbitration proceedings and filed an application before the High Court of Rajasthan for the appointment of arbitrator. Additionally, Satyam filed a complaint before the Monoploies and Restric....
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....quity, for or by reason of any matter, cause or thing, against Atlantic or any of its Affiliates arising under or relating to the Bottling Agreement, termination thereof or otherwise and/or the legal proceedings listed under Schedule 1. 85 2.2 The Parties agree that with effect from Completion, all disputes raised by Satyam, whether quantified or not and whether asserted or unasserted, arising out of the Bottling Agreement or otherwise and/or the legal proceedings listed under Schedule I shall stand fully and finally settled. 85 2.3 Satyam hereby fully, completely, irrevocably, finally and forever releases, acquits and discharges Atlantic, its Affiliates and Atlantic's successors and assigns and its current, former and future officers, directors, representatives, agents, employees and attorneys (collectively, the "Atlantic Releases") with effect from Completion, from any and all or present and future claims, causes of action, rights, debt, liabilities, promises, agreements, demands, damages, accountings and costs and expenses of any kind whatsoever in law or in equity, whether known or unknown, existing or contingent, asserted or unasserted, apparent or concea....
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....g whatsoever arising out of, based in whole or in part upon, relating to, or existing, by reason of the transactions, events, occurrences, acts, omissions or failures to act, of whatever kind or character whatsoever relating to the Bottling Agreement and amendments made to the aforesaid agreements, or set forth in the Recitals, above. 86 2.9 Satyam shall immediately upon the execution of this Agreement, file irrevocable applications, or letters, as appropriate, to withdraw all legal proceedings pending before the MRTP Commission, the Rajasthan High Court and the arbitral tribunal more specifically set out in Schedule 1 and settle all claim(s) raised therein together with all claim(s) connected thereto. 86 2.10 Satyam irrevocably agrees that in the event that the Director General (Investigation & Registration) of the MRTP Commission were to initiate any enquiry relatable to the subject matter of any of the complaints withdrawn by Satyam, Satyam shall fully cooperate with Atlantic and its Affiliates and take all efforts to defend the interests of Atlantic and its Affiliates and to take efforts to ensure that no prejudicial order is based against Atlantic or its Affi....
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....(iii) It did not constitute a capital asset which could be transferred under the Transfer of Property Act as well as did not fall within the provisions of section 2(14) r.w.s. 45 of the Act. (iv) Section 6(e) of the Transfer of Property Act, which reads as under : "6.Property of any may be transferred, except as otherwise provided by this Act or by any other law for the time being in force:..... (e) A mere right to sue cannot be transferred." The word 'transfer' in relation to capital asset has been defined in section 2(47) of the Income-tax Act, 1961, which includes 'sale, exchange or relinquishment of the asset or the extinguishment of any right therein'. The damages which were received by the assessee cannot be said to be on account of relinquishment of any of its assets or on account of extinguishment of its right of specific performance under the bottling agreement. (v) A mere right to sue certainly cannot be transferred. (vi) There cannot be any dispute with the proposition that in order that a receipt or accrual of income may attract the charge of tax on capital gains the sine qua non is that the receipt or accrual must have originated in a ....
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....l and not recurring in nature. Consequently it can neither be an income within the meaning of section 2(14) nor 28(v) of the Income-tax Act, 1961. g. It is not alleged that business of the assessee to file cases. Hence compensation in lieu of the case withdrawal cannot also be said to be a business activity. Reliance is placed on following cases in supports of above propositions: (i) In the case of Union Of India vs Raman Iron Foundry, 1974 AIR 1265, 1974 SCR (3) 556, Hon'ble Supreme Court held that: "18............When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not in actionable claim and this position is made amply clear by the amendment in s. 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred. (ii) In the case of Commissioner of Income-tax v. J. Dalmia, [1985] 20 Taxman 86 (Delhi), by the Hon'ble HIGH COURT OF DEL....
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....1986] 158 ITR (GUJ) it was held that: "5.The contention of the assessee is that on breach of the contract by K.C.P. Ltd. and the sale of the subject-matter to a third party, the only right which survived in the assessee was a right to sue for one or more of the reliefs available on breach of contract. This right was not an actionable claim within the meaning of section 3 of the Transfer of Property Act, since it could not be said to be a debt or a beneficial interest in movable property not in the possession of the assessee................................ 6. When a contract is broken, it gives rise to a civil wrong which may entitle the injured party to sue the wrong doer for damages liquidated or unliquidated, or for specific performance and in some cases for restitution or even an injunction.................................... But once there is a breach of contract and the defaulting party not only refuses to perform his part of the contract but also disposes of the subject-matter, the injured party has nothing left in the contract except the right to sue for damages.............. After the amendment a mere right to sue, whether arising out of tortuous act or ex-contractual....
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....icals Ltd. vs. CIT(supra), the assessee had entered into an agreement with one M/s K.C.P. Ltd., Madras, contracted to sell a second hand GHH Mill Subsequently, the vendor committed a breach of the contract by defaulting to sell the machinery to the assessee-company. The assessee and the vendor arrived at the settlement and the assessee in that case received compensation. The compensation so received was taxed by the A.O. The following question had been referred to the Hon'ble High Court for its opinion:- "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount received by the assessee-company by way of damages for breach of contract of sale of movable property was chargeable to tax under the head 'Capital gains'?" 4.2. The Hon'ble Gujarat High Court after examining various judicial pronouncements at length observed that payment by way of compensation or damages is distinct from consideration for complying with the contract. The Hon'ble High Court after examining all aspects answered the question against the Revenue. 4.3. The reliance was also placed on the decision of Hon'ble Delhi High Co....
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....ay not be property but it certainly cannot be transferred. There cannot be any dispute with the proposition that in order that a receipt or accrual of income may attract the charge of tax on capital gains the sine qua non is that the receipt or accrual must have originated in a 'transfer' within the meaning of s. 45 r/w s. 2(47) of the Act. Since there could not be any transfer in the instant case, it has to be held that the amount of Rs. 1,02,500/- received by the assessee as damages was not assessable as capital gains." (v) Govindbhai C. Patel v. Deputy Commissioner of Income-tax, Circle 9, Ahmedabad, [2010] 36 SOT 270 (AHD.) "12. In view of the above provisions, the sum received or receivable in cash or kind under an agreement for not carrying out any activity in relation to any business or not sharing the receipts from know-how etc., the value of any benefit will be taxable under section 28(va) of the Act. But from the facts of the present case, it cannot be said that the assessee was carrying on business of obtaining loans or was in the business of money-lending or any other related business, but the transaction was out of the amount standing as liability in earl....
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.... AO or the provisions of section 28(va) as applied by the Ld. CIT(A), have no applicability to the facts of this case. The receipt of Rs. 8,16,22,040 is neither taxable under section 28(ii)(c) nor under section 28(va). The receipt being for payment of compensation for withdrawing court cases filed by the assessee against Atlantic, is purely a capital receipt not chargeable to tax. 2.12 Ld. CIT(DR) Ms. Rolee Agrawal vehemently contends that the satisfaction u/s 153C has been properly recorded and it conforms to the language of the provisions. The validity is further demonstrated by the fact that though the assessee challenged them by writ petition before Hon'ble Rajasthan High Court the same has been dismissed as withdrawn. 2.13 Apropos the meaning and scope of the words "Belongs or belong to" much agitated by the assessee, it is vehemently contended that sec 153C does not refer to ownership, the reference is to belong which has wider connotations. Besides at the initial satisfaction stage what is required from AO is prima facie satisfaction and not demonstration of conclusive satisfaction. Hon'ble Supreme court in the case of Phoolchand Bajranglal 203 ITR 456 has held....
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....ed in support of various observations; same are relied on by ld. CIT(DR). It is pleaded that the sum and substance of settlement agreement is to the effect that assessee closed its business and undertook not to compete with the Coca Cola/ Atlantic. The revenue authorities are empowered to bifurcate the composite receipt and consider which part is capital receipt and which part is attributable as revenue receipt. Ld. CIT(A) has rightly invoked the provisions of sec. 28(v)(a) to hold that part of compensation received by assessee was revenue receipt. His order is relied on. 2.17 We have heard the rival contentions and perused the material available on record. We deem it expedient to first decide the issue on merits of taxability of compensation. Ld. CIT(A) while deciding the appeal has held the impugned amount to be specifically taxable u/s 28(va) of the IT Act, same has been reproduced above. Revenue has accepted this order. Consequently on merits, the issue before us is narrow - Whether the amount in question can be held to be falling within the scope of sec. 28(va). Search in the premises of Cabana group was conducted on 31-7-09 whereas the settlement agreement in question and ....
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....ment for non competition. This being so the compensation neither falls in the ambit of sec. 28 (ii) c as held by AO nor u/s 28 (va) as held by ld. CIT(A). Besides both the authorities in various paras of their orders have referred to the following facts and observations in respect of these agreements: a). That certain disputes arose between the assessee company and Atlantic Industries/ Coco Cola India Pvt. Ltd. b) That the intention of the Settlement Agreement was to resolve the disputes and amicably settle all demands fully and finally. c) That in consideration of the mount received from Atlantic Industries, the assessee company would irrevocably and unconditionally release, acquit, waive, relinquish, withdraw all claims and complaints against Atlantic and its affiliates. d) That Satyam would not initiate and proceed with or prosecute any of the claims or the complaints and forever discharge Atlantic and/or its affiliates. e) That Satyam received the consideration amount towards full and final settlement of all its outstanding differences, disputes, damages, claims or demands against Atlantic and/or its affiliates. f) That all disputes raised by Satyam .shall sta....