TaxTMI 
TaxTMI 
2013 (6) TMI 727
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.... Depreciation debited in P&L a/c 4.86.03,150 Bonus 15,44,502 Provision for gratuity 8,71,210 Donation 41,550 Loss on sale of assets 80,125 Provision for property tax 7,44,000 Total (add) 5,18.84,537 Less Bonus paid during the year 19.54,092 Gratuity 4,56,551 Other exempt 9,15,700 Profit on sale of land considered separately 12,35,97,326 Depreciation as per IT Rules 4,10,15,999 Total less 16,79,39,668 Business profit (loss) shown by assessee (Loss) 4,68,18,291 Addition as per para 2 (business profit on sale of plots) . 12,82,01,654 Addition as per para 3 [disallowance of interest under s. 36( l)(iii)] 3,39,47,90.1 Addition as per para 4 [disallowance of commission expenses under s. 40(a)(ia)) 18,42,751 Addition as per para 5 (addition of business receipts on transfer cf business) 10,18,42,991 Total income 26,58,35,297 21,90,17,006 Rounded off 21,90,17....
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....pellant. 7. In upholding disallowance of expenses incurred for payment received through credit cards amounting to Rs. 18,42,751 and treating the same to be 'commission' on which tax is deductible at source under s. 194H of IT Act, 1961 and further erred in upholding of invoking of provisions of s. 40(a)(ia) of IT Act, 1961 and in not following provisions of law on the subject. 8(a) In upholding the addition of Rs. 10,18,42,991 as business income under s. 28(va) of IT Act, 1961 and in disregarding it as sale of capital assets to 100 per cent subsidiary Jodhana Heritage Resorts (P) Ltd. (JHRPL) and further erred in not treating it as exempt from capital gains and in not following provisions of law on the subject. (b) In upholding addition of Rs. 10,18,42,991 and in disregarding the same as lump sum payment made by Jodhana Heritage Resorts (P) Ltd. (JHRPL) to assessee company towards the sale of assets and instead treating it as its business receipts taxable under s. 28(va) and in not holding same to be capital gains which is exempt as claimed by assessee company and further erred in not holding JHRPL to be wholly-owned subsidiary of assessee company as per the provis....
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....at in the above calculation. the assessee had taken the value of land sold and the land used for development as on 1 st April, 1981 on the basis of its approved valuer who had valued the land in question as on 1 st April, 1981 and had taken at Rs. 250 per sq. yd. On the basis of details furnished. it was noticed by the AO that during the year 32 plots of total area 22,498 sq. yds. was sold for total consideration of Rs. 12,93.34.116 (own share). It was further pointed out by the AO that in the preceding assessment year I.e. asst. yr. 2008-09. income from sale of plots had been assessed as business income as against long-term capital. gain shown by the assessee. So. he issued a show-cause notice dt. 13th Dec .. 2011 requesting to show-cause that "why income from sale of plots in Umaid Heritage Scheme should not be considered as business income instead of long-term capital gain shown by you and why amount of sale proceeds should not be taken at Rs. 20,19,95,892 (I.e. 60 per cent share of gross receipt Rs. 33.63.59.820 as per AIR) instead of Rs. 12.82.91,646 shown by you". The assessee submitted its reply vide letter dt. 15th Dec .. 2011 wherein it was submitted that in the case of th....
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.... KrishnaRao 1978 CTR (AP) 287 4. Smt. Bhanumati A. Sanghavi us. CIT (1979) 13 CTR (Bom) 80 : (1979) 119 ITR 69 (Bom); 5. K. NaUathambiPiUai us. CIT(1975) 98 ITR 13 (Mad); 6. A.N. Seth vs. CIT (1969) 74 ITR 852 (Del); 7. CIT us. Bai Shirinbai K. Kooka (1962) 46 ITR 86 (SC); 8. RqjaJ. Rameshwar Rao us. CIT(1961) 42 ITR 179 (SC). In view of the above facts' and case laws cited. the AO concluded the activities of the assessee company in getting the land developed dividing it into number of plots and selling it in collaboration with developers was an adventure in nature of trade and hence income shown by the assessee shown under the head capital gain was treated as business income. The AO further held the land in question as part of the stock of the assessee company. It was pointed out by the AO that in asst. yr. 2008-09 value of plot of land was adopted. at Rs. 4 per sq. yd. therefore. same has been adopted for asst. yr. 2009-10 as under: Share in sale consideration 12.82.91.646 Less cost @ Rs. 4 per sq. yd. for 22.498 sq. yds. 89.992 Business profit 12,82,01,654 The AO further mentioned that even if assessee's version of capital gain is a....
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.... Hotels (P) Ltd. us. Addl. efT (2013) 156 TTJ (Jd) 697 : (2013) 92 DTR (Jd)(Trib) I-Ed.]. has held that the surplus arising from the sale of land is to be taxed as income under the head 'Capital gains' only. The facts in this year are exactly identical to the facts in asst. yrs. 2006-07 to 2008-09. There is not even a slightest difference in whatever manner. A copy of the order (supra) is enclosed at pp. 1 to 60 of paper book Vol. II (48­50). The Tribunal has held thus: "47. The learned CIT-Departmental Representative has contended that accounting treatment in the books of account is conclusive of the issue. We agree with learned CIT-Departmental Representative to that extent. However the accounting treatment, though not conclusive. but when seen in conjunction with surrounding circumstances, it because material to decide whether the activity carried out by the assessee accounts to mere realization of a capital asset or amounts to carrying on adventure in the nature of trade. Thus, in the given facts and the circumstances of the case. and in view of the above stated legal inescapable conclusion that follows is that the share of sale consideration received by the appe....
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....appellant's own case in the preceding asst. yrs. 2006-07 to 2008-09 vide order dt. 15th Feb., 2013 in ITA Nos. 75 to 77 jJdj2012. The Tribunal while holding that the surplus arising from sale of land was taxable as income under the head 'Capital gains', observed as under: '47. The learned CIT-Departmental Representative has contended that accounting treatment in the books of account is conclusive of the issue. We agree with learned CIT-Departmental Representative to that extent. However the accounting treatment, though not conclusive, but when seen in conjunction with surrounding circumstances. it because material to decide whether the activity carried out by the assessee accounts to mere realization of a capital asset or amounts to. carrying on an adventure in the nature of trade. Thus, in the given facts and the circumstances of the case, and in view of the above stated legal inescapable conclusion that follows is that the share of sale consideration received by the appellant from developer on sale of plots under the development agreement was in the course of realization of a capital asset held by the appellant for over 30 long years. giving rise to income taxa....
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....response thereto, the reconciliation was submitted before the CIT(A), which was accepted. However, with respect to the share of appellant, out of the sate receipts declared by the appellant, CIT(A) disputed and enhanced the receipts by Rs. 12,10.626, on the basis that the appellant's share should have been 60 per cent of the gross receipts. It is respectfully submitted that as per cl. 12(a)(iv) and (v) of the development agreement, entered with Mjs Ess Gee Developers (P) Ltd, the appellant's share of receipts arising from sate of plots varies with the price at which such plot is sold. That said agreement provides that where the plot of land is sold at price between Rs. 4.500-Rs. 5.500 per sq. yd., the appellant is entitled to receive 56 per cent of the sate proceeds. In case the price realized exceeds Rs. 5,500 per sq. yd. the appellant's share would rise to 60 per cent of the sale proceeds. In the present case, the CIT(A) has failed to appreciate that since some of the plots were sold at price tower than Rs. 5,500 per sq. yd. the appellant was not entitled to blanket 60 per cent of the gross sale receipts. Resultantly, the CIT(A) erred in applying share of 60 per....
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....d: * CIT vs. Hotel Savera (1998) 148 CTR (Mad) 585 : (1999) 239 ITR 795 (Mad); * CIT vs. Tin Box Co. (2003) 182 CTR (Del) 171 : (2003) 260 ITR 637 (Del); * Dy. CIT vs. Marudhar Hotels (P) Ltd. (1999) 155 CTR (Raj) 437 : (2000) 245ITR 138 (Raj); * Marudhar Hotels (P) Ltd. vs. Addl. CIT. ITA Nos. 75 to 77/Jd/2011. Re : Apportionment of funds in a manner beneficial to the assessee : It has been held by the Courts that where there is mixed pool of funds, apportionment of funds should be in a manner beneficial to the assessee, I.e., borrowed funds should be presumed to be utilized for the purpose of business while interest-free own funds should be regarded as having been utilized for advancing loans to sister concerns free of interest. [Refer : Indian Explosives Ltd. vs. ClT (1983) 35 CTR (Cal) 244 : (1984) 147ITR 392 (Cal)' Marnite Polycast Ltd. vs. Asstt. CIT (1995) 53 ITD 345 (Del)] The Supreme Court in the case of East India Pharmaceutical Works Ltd. vs. CIT (1997) 139 CTR (SC) 372 : (1997) 224 ITR 627 (SC) impliedly approved the decisions of the Calcutta High Court in the case of Woolcombers of India Ltd. vs. CIT (1981) 23 CTR (Cal) 204 : (1982) 134 ITR 219....
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....ra); * CIT us. Dalmia Cement (Bharat) Ltd. (2002) 1 74 CTR (Del) 188 : (2002) 254 ITR 377 (Del). In Madhau Prasad Jatia us. CIT (1979) 10 CTR (SC) 375 : (1979) 118 ITR 200 (SC), the Supreme Court held that the following conditions needs to be satisfied for allowability of interest in terms of s. 36(l)(iii) of the Act. (a) That money (capital) must have been borrowed by the assessee; (b) it must have been borrowed for the purpose of business; and (c) the assessee must have paid interest on the said amount and claimed the same as deduction, The Courts have in the following cases held that so long as borrowed funds are utilized for purposes of business, no part of interest paid on borrowed funds can be disallowed on the ground that the assessee should have utilized the interest-free funds available for reducing the indebtedness instead of diverting the same to sister concerns free of interest/for non-business purposes: * Amna Bai Hajee Issa us. CIT (1964) 51 ITR 835 (Mad); * Ram Kishan OU Mills us. CIT (1965) 56 ITR 186 (MP); * CIT us. Bombay Samachar Ltd. (1969) 74 ITR 723 (Bom); * Regal Theatre us. CIT (1997) 143 CTR (Del) 81 : (1997) 225 ITR 205 (Del);....
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....ned CIT(A) and have to allow the ground raised by the appellant. The learned Authorised Representative has. however. taken us through various pages of paper book G-I and G-12 and established the case of the assessee. On the contrary, the Department has not discharged its onus. Therefore, we are left with no option but to allow this issue in favour of the assessee-company.' Re : H.H. Maharani Sahib Hemlata Rajye (Rs. 1.87.56.720) and Baiji Lal Shivraryini Kumwji (Rs. 34,87.820) Advance ofRs. 1.87.56.720 outstanding against Maharani Sahib Hemlata Rajye as at the end of the relevant previous year. included funds advanced over a period of years out of interest-free funds available with the appellant. Further. it may be pertinent to mention that this amount included Rs. 70,56.720 receivable on account of plot of land sold to her. with the intent of popularizing the area which was being developed by the appellant. Similarly, amount outstanding against Baiji Lal Shivranjini Kummji amounting to Rs. 34.87,820 represents unpaid sale consideration receivable from Baiji for sale of plot. These amounts reflecting as loan/ advance in the books of the appellant were, in fact, amount ....
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....st India Pharmaceutical (supra), the advances to related parties should be presumed to come out of profit and not out of borrowed funds, so as to warrant any disallowance of interest paid. (e) Further, the amounts advanced to Maharaja Gaj Singhji were utilized for the medical treatment of his son, Shri Shivraj Singh, managing director of the appellant company, who had suffered a major accident. Ordinarily, the appellant company was obliged to order not to burden the appellant company, the expenditure incurred on medical treatment of the managing director was treated as loan advanced by the appellant company to Maharaja Gaj Singhji who agreed to repay the same to the appellant company. It will kindly be appreciated that in the circumstances of the case, it was obligation of the appellant company to incur such expenses: merely because Maharaja Gaj Singhji agreed to absorb the expenses incurred on the medical treatment of the managing director (who happened to be his son), which was otherwise the obligation of the appellant company, would not result in the advances made being regarded as for non-bus!ness purposes. In such circumstances, even assuming for the sake of argument, th....
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....at appellant's hotel. using credit cards. Copy of the proforma application form and agreement with IDBI Bank is placed at pp. D-I to D-II of the paper book. In the entire process, there is (1) cardholder (customer). (ii) card issuing bank, (iii) appellant as the merchant. (iv) acquiring bank (IDBI in this case) and (v) the credit card association for instance Visa. Master Card. American Express, etc.). Once a transaction of sale takes place at appellant's hotel. the customer who holds a credit card. instead of paying by cash, swipes his/her credit card. The credit card machine placed at appellant's desk is connected to IDBI's database. which in turn is connected to the card system owner's database, say Master Card. The moment the card is swiped. the credit card details are instantly transmitted to the card issuing bank's database, which approves the transaction after authenticating the credibility of the payer. Once the transaction is approved, the appellant merchant prints the credit slip. Such signed credit slips or a batch of transactions in electronic form are thereafter presented by the appellant merchant to the acquiring bank. against....
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.... ' Explanation.-For the purposes of this section,- (i) 'commission or brokerage' includes any payment received or receivable. directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset. valuable article or thing. not being securities; (ii) 'the expression 'professional services' means services rendered by a person in the course of carrying on a legal. medical. engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of s. 44AA;' The words 'on behalf of another person' in Expln. (i) to s. 194H of the Act. make it clear beyond doubt that for attracting the provisions of that section there must be principal-agent relationship between the principal and the service provider and the service fee should be payable for the service provider rendering service inter alia in the course of buying/selling of goods, while acting on behal....
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....ss specifically stated by the customer. The collection centers were under no obligation to always forward the samples to the assessee. The assessee conducted the tests and issued the report with regard thereto to the collection centre; the collection centre issued its invoice to the patient/customer; the fee for the testing was collected. by the collection centre and the receipt was also issued by the collection centre; the assessee raised a periodical invoice on the collection centers; the collection centre made payment to the assessee after deduction of tax at source un4er s. 194J of the Act Under the agreement. services were rendered by the assessee in the form of laboratory testing at discounted price vis-a-vis the price given in the standard price list. This discount was considered by the AO and the cn'(A) to be in the nature of commission on which tax was held to be deductible under s. 194H of the Act. On appeal, setting aside the decision of the lower authorities, the Tribunal held that the existence of principal-agent relationship is sin qua non for invoking the provisions of s. 194H of the Act and that in absence of such a relationship between the assessee and th....
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.... business days of the transaction and is independent of receipt from the customer. Further, the risk of loss during the process of the entire transaction is borne by IDB! Bank (refer d. 6 for IDBI's rights and obligations). If there is some credit card fraud, the appellant does not indemnify the bank for such acts (refer cl. 6.10). Thus, the risk of loss as well as the risk of recovery of .trade receivable is borne by the bank on its own account. Thus, principal-agent relationship is missing in the instant case. In view of the aforesaid, It Is respectfully submitted. that the appellant was not required to withhold tax under s. 194H of the Act from the acquiring fees paid to IDBI Bank in this regard. Decisions squarely applicable in appellant's case Your Honour's kind attention in this regard is invited to the recent decision of the Hyderabad Bench of the Tribunal in the case of Dy. CIT vs. Vah Magna Retail: ITA No. 905/Hyd/2011. In that case. the assessee was a company engaged in the business of direct retail trading in consumer goods. The assessee claimed deduction of Rs. 16.34.000 on account of commission paid to. the credit card companies. which was disal....
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....n of credit card facilities would be in the nature of bank charge arid not in the nature of commission within the meaning of s. 194H of the Act. The aforesaid decisions squarely cover the case of the appellant. The aforesaid issue came up for consideration before the Honble Tribunal, in appellant's own case in ITA No. 237/Jd/2012 for the asst. yr. 2007-08. Vide order dt. 14th Dec., 2012, the Tribunal held that such credit card collection charges was not 'commission', but only interest charged by the bank/financial institution issuing the credit card, and hence provision of s. 194H of the Act were not applicable. It may further be pointed out that the appellant has not been deducting tax at source out of payments toIDB! Bank in previous years as well, which was accepted by the Department. In that view of that matter, it is the submission of the appellant that since the appellant harboured a bona.fide belief that tax was not deductible at source out of payment to IDB! Bank, the provisions of s. 40(a)(ia) of the Act are not applicable. Attention in this regard is invited to the decision of the Bombay High Court in the case of CIT us. Kotak Securities Ltd. (2011....
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.... present case:, in view of the undisputed decade old practice, the assessee had. bona fide reason to believe that the tax was not deductible at source under s. 194J of the Act and, therefore. the AO was not justified in invoking s. 40(a)(ia) of the Act and disallowing the business expenditure by way of transaction charges incurred by the assessee. 32. Accordingly. we hold that the transaction charges paid by the assessee to the stock exchange constitute 'fees for technical services' covered under s. 194J of the Act and. therefore. the assessee was liable to deduct tax at source while crediting the transaction charges to the account of the stock exchange. However, since both the Revenue and the assessee were under the bona fide belief for nearly a decade that tax was not deductible at source on payment of transaction charges, no fault can be found with the assessee in not deducting the tax at source in the assessment year in question and consequently disallowance mod(: by the AO under s. 40(a)(ia) of the Act in respect of the transaction charges cannot be sustained. We make it clear that we have arrived at the above conclusion in the peculiar facts of the present case, wh....
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....mmission basis. The IT Department demanded deduction of tax and remittance thereof from registered agents when the amount. exceeded one thousand rupees. The State Government issued instructions to the Director of State lotteries for complying with the provisions of s. 194G of the IT Act. 1961. A writ petition challenging such instructions: it was observed as under: "If the face value of the ticket. for example. is Re. 1. notwithstanding the circumstance the petitioners receive it for 72 paise. The Sta,e. therefore. releases a ticket. receiving 72 paise. The petitioners may sell the ticket so obtained at any price of their choice. It is not the State's business to enquire into the matter at all. Therefore. it is difficult to assume that the petitioners have in all cases made a margin of 28 paise by the mere purchase of the ticket. His case is that resells it for 72.5 paise, and he derives a profit of half paise per ticket.' It was further observed. as follows: 'Only s. 194G deals with a situation of a slightly different category. The responsibility for deduction of tax is on any person responsible for paying to any person any income by way of commission. remu....
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....s in Rajasthan since several years. During the year under consideration. the appellant executed a business transfer agreement, dt. 1st Oct .. 2008. with Jodhana Heritage Resorts (P) Ltd. (JHRPL). a wholly-owned subsidiary of the appellant, for transfer of the business undertaking engaged in operating the following properties owned/taken on lease by the appellant by way of slump sale: (i) Balsamand Lake Palace (taken on lease) (ii) Connaught House (taken on lease) (iii) Maharani Orchard (taken on lease) (iv) Royal Tents (owned by the appellant) In consideration thereof JHRPL agreed to pay an amount of Rs. 10.18.42.991 to the appellant, which was discharged by the transferee by way of issuance of equity shares. Mter 1st Oct .. 2008. the income earned from operation of these properties was assessed in the hands of JHRPL. The aforesaid amount of Rs. 10.18,42.991 received in lieu of transfer/relinquishment of exclusive right to carry on hospitality business. for the purposes of capital gains. was treated as non-taxable since the transaction was not regarded as "transfer" in terms of s. 47(IV) of the Act. But the learned AO has treated this receipt as taxable and has denie....
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.... s. 47(iv) of the Act, any amounts arising to a parent company from transfer of a capital asset to its wholly-owned subsidiary, is exempt from tax provided the following conditions are fulfilled : (a) the parent company or its nominee held the entire share capital of the subsidiary company: and (b) the subsidiary company is an Indian company. 5.5 Under the provisions of s. 12(1) of the Companies Act, 1956 a private company should have a minimum of two members. Sub-so (3) of s. 49 of the said Act, enables a company to hold shares in its wholly-owned company in the name(s) of a nominee(s) of the company so as to ensure that the number of members of subsidiary is not reduced below two, if the subsidiary is a private company. Sec. 187C of the Companies Act, 1956 requires that every shareholder who does not hold beneficial interest in any share is required to make a declaration to the company to this effect. 5.6 In the present case, JHRPL, a private company had the following shareholders: (i) Marudhar Hotels (P) Ltd. (KMHPL") holding 39,50,000 shares of Rs. 10 each (constituting 98.75 per cent of the total issued, subscribed and paid up share capital of JHRPL). (ii) Ma....
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....similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities; " For purposes of s. 2(42C) of the Act the term "undertaking" is defined in Expln. 1 to S. 2(19AA) of the Act, which reads as under: "Any part of an undertaking. or a unit or division of an undertaking or a business activity taken as a whole. but does not include individual assets or liabilities or any combination thereof not constituting a business activity." 5.9 The transfer of an undertaking as a going concern with all its assets. Liabilities rights, obligations and personnel for lump sum consideration without values being assigned to individual assets, IS regarded as. slump sale". In the present case, the undertaking comprises of the business. of owning operating and managing hotels that was transferred as a going concern lock stock and barrel for lump sum consideration. The said undertaking comprised of, inter alia. the following: (1) Operating license to operate and manage the following hotels: (a) Connaught House. (b) Balsamand Lake Palace and (c) Maharani Orchard (ii) Fixed assets installed by MHPL. (iii) Current assets including stock, supplie....
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....perate any of the hotel projects on the closing date, howsoever arising; and (m) Any other assets of the transferor whether owned, leased or licensed and primarily relating to or used by the transferor in connection with the operation of the hotel projects. if and to the extent that such assets are not referred to in the preceding paras of this definition, 'Hotel projects' shall mean the hotels/heritage properties and Royal Tents owned/ operated by the transferor within the State of Rajasthan. India. details of which are set out in Sch. 1 hereto. 3.1 On the basis of the warranties made by the transferor and subject to the terms. conditions and exclusions set forth in this agreement, the transferee shall acquire and accept from the transferor, and the transferor shall irrevocably and forever assign, transfer and convey to the transferee as 'a going concern' the hospitality business free and clear of encwnbrances of any nature whatsoever, together with all the right. title. interest. claim and demand whatsoever at law and in equity of the transferor in. to, over or upon the hospitality business together with all deeds. documents. writings. vouchers and other ....
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....#39;Electric Supply Co. Ltd. us. ITO (1986) 17 ITD 1057 (Chd); VI. M.R. Muchhala us. ITO (1996) 56 TTJ (Mumbai) 504; . VII. Rallis India Ltd. us. Dy. CIT (1995) 53 ITD 381 (Cal); VIII. Industrial Machinery Associates us. CIT (2003) 78 TTJ (Ahd) 434 : (2002) 81 ITD 482 (Ahd); IX. Duchem Laboratories Ltd. us. Asstt. CIT (2010) 134 TT J (Mumbai) 532 : (2010) 47DTR (Mumbai)(Trib) 484: (2010) 32 SOT 183 (Mumbai); X. Asstt. CITus. RPG Life Sciences Ltd.: ITA No. 1579/Mum/2006; XI. CIT us. West Coast Chemicals & Industries Ltd. (in Liquidation) (1962) 46 ITR 135 (SC); XII. CIT us. Mugneeram Bangur & Co. (Land Department) (1965) 57 ITR 299 (SC). Reliance is placed on the decision of the Supreme Court in the case of' PNB Finance Ltd. us. CIT (2008) 220 C1R (SC) 110: (2008) 15 DTR (SC) 47 : (2008) 307 ITR 75 (SC). wherein the assessee. originally known as Punjab National Bank Ltd .. was carrying on banking business. which was acquired by the Government of India under the Banking Companies (Acquisition and Transfer of Undertaking) Act. 1969. w.e.f. 19th July. 1969. The said acquisition was. however. quashed by the Supreme Court in Rustom Cauasjee Cooper us. Union o....
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....current assets minus the liabilities taken over. On that basis. the appellant had computed taxable capital gains on slump sale of business at Rs. 10,18.42,991. which was claimed exemption in terms of s. 47(iv) of the Act. The AO has held that since the appellant did not have title to the assets of the lessor (taken on operating license). there was no transfer of capital asset. so as to result in capital gains in terms of s. 45 r/w s. 50B of the Act. As stated earlier. the capital asset transferred by the appellant by way of slump sale was the business undertaking. carrying on the activity of owning. operating and managing hotels. With business undertaking holding assets in terms of operating licenses. to operate and manage the hotels thereunder. It was not further necessary for the appellant as the operator/licensee to further own the assets of the hotel for which the appellant had taken the necessary operating litense(s). The appellant. by way of slump sale. transferred the right to carry on business of owning. operating and managing such hotels in favour of JHRPL such available right embedded in and formed part of the business undertaking set up by the appellant to carry on the b....
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....onveying of news or information, advertising, entertamment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging." (Emphasis, italicized in print, supplied) 5.15 In terms of the aforesaid section, compensation received by an assessee in lieu of undertaking negative/restrictive covenant by agreeing not to carry on directly or 'Indirectly any activity in relation to the business, is chargeable to tax under the head 'Business'. It is submitted that, the provisions of aforesaid section are applicable, only where the assessee undertakes a restrictive/negative covenant not to carry any particular activity in relation to a business, without there being any transfer of business right to carry on the business. It needs to be appreciated that there is a difference between undertaking restrictive/negative covenant for not doing business and transfer of right of doing business. While the former category requires taking on a negative obligation, the latter category refers to a positive action of transfer of such right in favour of another. 'In the former....
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....mpeting with the transferred specified assets. While the entire assets were transferred as above, the assessee retained a limited and non exclusive right to use the database of pharmaceuticals companies solely for the purpose of its clinical trials business and for no other purpose. In consideration of the abovesaid transfer, the assessee had reteived Rs. 3,80,02,500 from CMP Medical India Ltd. In the return of income, the assessee offered the aforesaid receipt as income under the head along-term capital gains". However, in the assessment order the AO treated the aforesaid receipt as business income under s. 28(va) of the Act on the ground that under the transfer agreement, the assessee undertook the restrictive covenant of not carrying on the business of publication of journals which was only a part of the business of the assessee. 5.18 The assessee preferred appeal against the aforesaid adjustment made by the AO. The CIT(A) accepted the contention of the assessee and held that the receipt in question was not taxable as business income, but was taxable under the head 'Long-term capital gains' since the same arose on transfer of assets. The order of CIT(A) was also uphel....
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....but was mainly for the transfer of all intangible assets being trademarks, brands, copyright and the associated goodwill of the healthcare journals and communications business. As per the law, the consideration for the transfer of intangible assets being trademarks, brands, copyrights and tl;1e associated goodwill of healthcare journals and communications business is also taxable as long-term capital gain by virtue of s. 55(2)(a) r/w cl: (i) of the proviso to s. 28(va). The Authorised Representative has also relied on the provisions of s. 45(1) r/w ss. 2(14), 2(1 1)(9b) , 48 and s. 55(2)(ii) of the Act The combined reading of the above provisions and of s. 28(va) leaves no ambiguity that law makers specifically excluded the income from the purview of main s. 28 (va)' . " (Emphasis, italicized in print. supplied) On perusal of the clauses of the agreements executed between the parties, it is found that in the totality, the appellant had transferred the exclusive right to carry on hospitality business in favour of JHRPL, which constituted 'capital asset' in the hands of the appellant as per the provisions of s. 2( 14) of the Act. The fact that the hospitality busine....