TaxTMI 
TaxTMI 
2017 (5) TMI 787
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....(ii) Whether the Hon'ble ITAT erred in law and on facts in treating receipt of Rs. 10 Lacs as receipt in lieu of sale of goodwill and chargeable the same as Long Term Capital Gain?" 2.00. Facts leading to the present appeal in nutshell are as under :- 2.01. That the assessee filed return of income for A.Y. 2007-08. That the assessee was already having the sole selling agency with M/s. ATE Marketing (P) Ltd., which was for a period of five years. The assessee was also having graphic division. The graphic division was running in loss and therefore, the assessee sold the graphic division for a total consideration of Rs. 15.25 Crores. Simultaneously, the assessee also prematurely terminated the sole selling agreement with M/s. ATE Marketing (P) Ltd. The assessee paid Rs. 2.5 Crores to M/s. ATE Marketing (P) Ltd. towards compensation, paid to the said sole selling agent, which was required to be paid as terms of agreement for premature termination of the agency. Therefore, the assessee claimed deduction of Rs. 2.5 Crores paid to M/s. ATE Marketing (P) Ltd. as compensation for premature termination of the agency treating it as revenue expenditure. Out of the total sale consideratio....
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....nt to sole selling agent and treating the same as capital expenditure. 3.02. Mr.Nitin Mehta, learned counsel appearing on behalf of the revenue has further submitted that in fact, cogent reasons have been given by the learned CIT(A) while confirming the disallowance of Rs. 2.5 Crores made by the A.O. in respect of payment to sole selling agent. It is submitted that the learned CIT(A) rightly appreciated the fact that in fact sole selling agency was with the sister-concern only and the assessee and sole selling agency were having common directors. It is submitted that therefore, the learned tribunal has materially erred in deleting disallowance of Rs. 2.5 Crores in respect of payment to sole selling agent. 3.03. Mr.Nitin Mehta, learned counsel appearing on behalf of the revenue has further submitted that even the learned tribunal has also materially erred in treating the receipt of Rs. 10 Lacs as receipt in lieu of sale of goodwill and chargeable the same as Long Term Capital Gain. It is submitted that the assessee sold the entire graphic division and therefore, the assessee could not have considered and/or treated part of sale consideration as receipt in lieu of sale of goodw....
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.... :- "3.3. We have heard the rival submissions and perused the material before us. We find that the assessee had entered into sole selling agreement with the ATEMPL for sale of its products namely IMD products, Screen Division Products, Graphic Division Products, that the agreement was for a period of five years i.e. from 28/11/2002 to 27/11/2007, that as per the terms of the agreement the assessee was required to pay commission at the prescribed percentage of sales, that clause 11.4.3 of the agreement dealt with the termination of the agreement by the assessee, that as per the agreement in case of termination of termination of agency ATEMPL was entitled to get compensation as per the formula given in the agreement, that assessee terminated the agreement in respect of the Graphic Division Products with effect from 30/6/2006, that it had closed the business of graphic division, that it has incurred a loss of Rs. 98,2 lakhs from the graphic division, that it had sold the graphic division, that it was prohibited from carrying out dealing the same or similar products as that of graphic division, that it had paid compensation in pursuance of the clause 11.4.3 of the agreement, that th....
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.... observed by the learned tribunal, it was the prerogative of the assessee to run the business in a particular manner. Under the circumstances, making above observations in para 3.3 when the learned tribunal has treated and considered the payment of Rs. 2.5 Crores paid to sole selling agency - M/s. ATE Marketing (P) Ltd. as revenue expenditure, it cannot be said that the learned tribunal has committed any error. We are in complete agreement with the view taken by the learned tribunal. 4.03. Now, so far as the impugned order passed by the learned tribunal treating the receipt of Rs. 10 Lacs as receipt in lieu of sale of goodwill and chargeable the same as Long Term Capital Gain, is concerned, at the outset it is required to be noted that against the total sale consideration received by the assessee of Rs. 15.24 Crores received by sale of graphic division, the learned A.O. claimed receipt of Rs. 10 Lacs only as on transfer of goodwill and claimed Long Term Capital Gain on the same. The break-up of the consideration of Rs. 15.24 Crores included the amount of Rs. 10 Lacs under the head of goodwill, marketing division, know how and approvals etc. While treating the receipt of Rs. 1....