TaxTMI 
TaxTMI 
2015 (4) TMI 323
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..... 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 question and represented its undisclosed income in terms of sec 153C. On the basis thereof a satis....
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....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. on 07-01-2009 vide which Rs. 4,23,31,296/- was received by the assessee company as full and final....
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....strate 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 'capital' and 'Revenue'. Being so, the capital component comprises of the amounts received on account of transfer of capital assets such as the plant and ....
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....,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 compensation indicated by AO was received by assessee was held taxable u/s 28(va) i.e. receiving for not carrying out of its business against Coca cola/ Atlantic. Thus on merits also ld CIT(A) upheld the AO's order though ....
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....nd 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 gain liability on such receipt. But the remaining amount of settlement agreement amounting to Rs. 8,16,22,040/- is also claimed to be a capital receipt and accordingly not offered for taxation. It may be noted that by such settlement ....
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....a), 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 between Cabana and assessee have not been denied by any party. During the course of such bipartite business relationship several documents are mutually exchanged, each party retains its part of documents as its belonging and such documents wil....
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....ents 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 referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person 3a[and that Assessing Officer shall proceed against each such other per....
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....at 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.Godavaridevi Saraf [1978] 113 ITR 589 (Bom.) and Taylor Instrument Co. (India) Ltd. v. Commissioner of Income-tax, [1998] 99 TAXMAN 155 (DELHI). 3. Hon'ble Delhi High Court in the case of Pepsi Foods Pvt. Ltd. (supra) on the relevant aspect held as under: "6. On a plain reading of Secti....
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....32(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 by the Assessing Officer. Mere use or mention of the word "satisfaction" or the words "I am satisfied" in the order or the note would not meet the requirement of the concept of satisfaction as used in Section 153C of the said Act. The satisfaction note itself must display the reasons or basis for the concl....
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....ession 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 have not been satisfied in the instant case. Consequently, the notices issued under section 153C of the Act and in pursuance thereto, the assessment orders passed under section 143(3) read with section 153C of the Act, deserve to be quashed. 2.7 Apropos merits it is contended that Ld. AO erred in applying section 28(ii)(c) f....
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....ly 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 Restrictive Trade Practices Commission ("MRTP Commission") for an inquiry into alleged unfair trade practices being conducted by Atlantic and its Affiliates; 82 D Satyam and Atlantic agreed upon heads of terms in a letter agreement dated August 25, 2008 ("Letter Agreement"), with the intent to resolve the disputes under the Bottling Agreement or ot....
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....serted 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 concealed, that it has or may have in the future against Atlantic or any of the other Atlantic Releases, directly or indirectly, arising out of or relating to the Bottling Agreement or any proceedings referred to in Schedule I or otherwise. It is the intent of Agreement to completely release all claims against the Atlantic Releases even if not specifically excluded or accepted individu....
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....greement, 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 Affiliates in any proceedings referred to in Schedule I or otherwise. 87 4.2 Satyam shall show proof of irrevocably and unconditionally withdrawing all notice(s), legal proceedings and claims, against Atlantic or any of its Affiliates (set out in Schedule I) before any court, tribunal or forum in order to procure appropriate orders of dismissal, discharge, disposal or withdrawal of such legal proceedings and c....
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....sferred." 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 '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, the amount received by the appellant as compensation was not assessable as capital gains. 2.10 It is further contended by ld. Counsel that: a. There is no cost of acquisition of right to sue. b. Any breach of contract or agreement entitles a person to file a suit. However in this case there is no award by the courts ....
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.... (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 DELHI held that: "9................................We are to determine whether damages received by the assessee were in respect of transfer of a 'capital asset'. There was a breach of contract and the assessee received damages in satisfaction thereof. He had a mere right to sue for damages. Assuming the same to be 'property', this could not be transferred under section 6(e). The relevant provision may be reproduced: "6. Property of any kind may be transferr....
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....erty 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 is not transferable. In Mulla's Transfer of Property Act, Seventh edn., we find the following statement:- "But a debt or actionable claim must be distinguished from a right to sue for damages. After breach of a contract for the sale of goods nothing is left but a right to sue for damages which cannot be transferred. But before breach the benefit of an executory contract for the sale of goods may generally be transferred and the buyer has the right to sue for the goods." ..............
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....n:- "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 Court rendered in the case of CIT vs. J. Dalmia reported at 149 ITR 215. The question before the Hon'ble Delhi High Court was whether, on the facts and in the circumstances of the case, the amount of Rs. 1,02,500/- is assessable as capital gains other than long term capital gains in the hands of the assessee?" The facts in that case were that M/s.Satish Kumar Sood & Sons were the owners of this property. They entered into an agreement to sell with one Krishan Prasad. There was a default of agreement and the d....
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....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 earlier years credited to the capital account by the assessee in the books of account as compensation for not enforcing his rights to sue in the court of law on account of full and final settlement. The assessee has not received any benefit in cash or kind which could be valued in the nature of income arising from the business for not competing. The provisions of section 28(va) of the Act provides that any sum whether received or receivable in cash or kind under an agreement for not carrying out any activity in relation to any bus....
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....visions. 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 that at preliminary stage sufficiency of reasons cannot be examined. The intense business relationship of assessee and Caban group and genuineness of seized documents has been accepted by the assessee. AO of the searched person does not know whether and how the assessee has accounted for the amounts in question or not. Cabana group during their assessment made huge surrender of income; looking at the entire documents AO recorded a satisfaction u/s 153C that relevant seized papers belonged to assessee in question. It has been repeatedly h....
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.... 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 other agreements were executed much earlier on 24-11-08. It has not been alleged that the agreements are a subterfuge, thus the genuineness of agreements is not in question. A reading of various clauses of said settlement agreement demonstrates that the consolidate compensation was paid by Coca Cola/Atlantic to assessee by settlement agreement Dtd. 24-11-08 mainly for following reasons: 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....
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.... 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 stand fully and finally settled. g) That Satyam fully, completely, irrevocably, finally and forever releases, acquits and discharges Atlantic and/or its affiliates. h) That the amount received by Satyam would take care of any and all or present and future claims, causes of action, rights, debts, liabilities, promises, agreements, demand, damages, accountings and costs and expenses of any kind whatsoever. i) That the intent of the agreement is to completely release all claims against Atlantic. j) That on receipt of settlement amount, Satyam will be left with no other outstanding clai....