TaxTMI 
TaxTMI 
2016 (10) TMI 357
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....Whether the computation of capital gains in respect of slump sale of trading businesses on account of purchase of shares by ESOP Trust, could be deducted from capital gain under Section 48 of Income Tax Act? 4. Is the finding on disallowance under Section 14A sound in law? And 5. Whether in the circumstances of the case, foreign exchange fluctuation in respect of amounts held by the assessee, could be treated as capital losses rather than as revenue expenditure? 3. Re: Question No. 1: Whether the payment towards trade mark and use of expertise in the field of commerce, finance etc amounted to capital or revenue expenditure? 4. The assessee acquired an undertaking/ unit of ICI Ltd. The assessee in 2006-2007 had debited amounts under the head "Techno Commercial Agreement" and a further sum was paid towards Brand Licensing Agreement, executed on 14.03.2005. The Assessing Officer "AO" was of the opinion that these expenditures were of an enduring kind and held that they were capital in nature. The assessee, on the other hand, contended that these were revenue expenditure. The CIT (A) accepted the assessee's contention; the ITAT affirmed the order. 5. The revenue's counsel argues ....
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....opinion that no question of law arises on this aspect. 7. Re Question No.2: The issue of excessive commission, was consistently ruled against the assessee, for all the five years. However, in both the CIT (A) and the ITAT, the revenue's contentions were not accepted. Here, the assessee's argument was that the commission could not be characterised as excessive because they were more customary in nature having regard to the historic relationship with M/S Asha export, its export agent. This court is of the opinion that such decisions as to the nature and quantum of commission may differ having regard to the uniqueness of each business and the relationship that it may possess with those associated with it. Unless, the revenue is able to pinpoint extraordinary features, it cannot scrutinize the commercial terms that a business takes into account in making a decision and contend that certain percentage or quantum of commission is "excessive". Therefore, we are of the opinion that no question of law arises. 8. Re Question No. 3: The revenue's contention here is that sum of Rs. 1,39,76,352/- spent by the assessee at the time of transfer of its business undertaking to fund the ESOP Trust....
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....co and Nitrex for the purpose of obtaining their acceptance to becoming employees than their current terms and conditions but which shall not include any stock holding and share holding option in Nitrex India Ltd. 3. Condition precedent - It shall be a condition precedent to completion of the transaction contemplated by the BTA that the management staff shall have confirmed that subject to the completion they will accept to be employee by Newco instead of Nitrex India Ltd. 4.4 EAC and/or Newco shall employ the employees from the completion date on terms and conditions of service which are no less favorable than those which the employees enjoyed immediately prior to the completion date with Nitrex India without any interruption and break in service (but excluding employees stock share holding option). l. As per the terms and conditions listed above, it was the condition precedent to the completion transaction contemplated in the BTA that the management staff shall have confirmed to accept the employment in the new company instead of the appellant company. It was also a condition that on acceptance of employment, the new company shall employ the employees on terms and conditions ....
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....appellant company was able to transfer its trading business to M/s EAC without any hindrance. For buy backing, the management shares by the Trust, the appellant company provided the money to Trust. It is claimed by the appellant that said money is not recoverable from the Trust. However, the company has paid said money in pursuance to the BTA and ETA which was a contractual liability of the company. Without buy back of the shares from the employees, the business transfer of the trading division would not have been possible. It is claimed by the appellant that the amount spent on buy back of shares by the Trust has been incurred wholly and exclusively in connection with the transfer of the capital assets as contemplated in Section 48 of the IT Act. Hence, the same has to be allowed as deduction while computing the capital gain in respect of the slump sale of trading business. 10. Section 48 of the Act to the extent it is relevant reads as follows:- The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :- (i) e....