TaxTMI 
TaxTMI 
2018 (12) TMI 209
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.... 1,00,00,000/- as business income of A.Y.2002-03. The appellant prays that the above income of Rs. 1,00,00,000/- received should be allowed to be amortize over the period of 3 years as done by the assessee in its return of income. Ground No. 2: Without prejudice to the Ground No. 1, on the facts and in the circumstances of the case and in law, the Hon'ble CIT (A) - 18, Mumbai erred in confirming the action made by A.O. and enhancing Business Income of the appellant by Rs. 31,81,818/-, stating that the income by way of License fee was accrued and received during the current year and should not be amortized over three year period. The appellant prays that the addition of Rs, 31,81,818/- may kindly be deleted." 3. The issue raised in ground No.1 is against the order of Ld. CIT(A) confirming the action of AO in treating the license fee of Rs. 1,00,00,000/- as business income of A.Y.2002-03 whereas according to the assessee the income should be allowed to be amortized over a period of three years. The ground No.2 is without prejudice to ground No.1 and is against the order of Ld. CIT(A) confirming the action of the AO in enhancing the business income of the asse....
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....9x12) Business Income 4. 2004-05 54,54,546 (i.e. Rs. 1,00,00,000 - 13,63,636 - 18,18,182 - 13,63,636) Capital Gain 7. According to the assessee the said income should be amortized over a period of time to which it related as the license fee was received qua the use of business set up of the assessee including brand and logo relating to tour and travel business over a period of time or till the taking over the business which ultimately passed on to the transferee in A.Y. 2004-05 and therefore according to the assessee the income was rightly offered to tax and has correctly been accepted by the Department. However, the AO rejecting the contentions of the assessee treated the entire sale consideration as income from business and added the same to the income of the assessee by framing assessment vide order dated 17.12.2007 on the ground that it has to be taxed under section 28 of the Act. 8. In the appellate proceedings, the Ld. CIT(A) partly allowed the appeal of the assessee by observing and holding as under: "4.4. As may be seen from the appellant contention that it has earned revenue by exploiting the capital asset and the amounts received by the appel....
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....e was no confirmation of purchase of business by the said transferee, the same can not be treated as capital gain. The assessee offered the income on pro-rata basis as business income and once the transferee exercises the option to purchase the business, income falling thereafter was offered as capital gain. In our view, the assessee has rightly offered the income in A.Y. 2002-03, 2003-04 & 2004-05 to the tune of Rs. 13,63,636/-, Rs. 18,18,132/- and Rs. 13,63,636/- respectively as business income which were duly assessed and to this extent we are not in agreement with the Ld. CIT(A) that the same should be assessed in one year i.e. 2002-03. So far as the license fee shown as capital gain A.Y. 2004-05 to the tune of Rs. 54,54,546/- is concerned we are in agreement with the Ld. CIT(A) that the same should be treated as revenue receipt following the same practice as followed in the earlier years. Accordingly, we modify the order of Ld. CIT(A) to this extent that income has to be amortized and therefore this appeal of the assessee is allowed on this issue. 10. Since we have allowed the appeal of the assessee on the issue of amortization of income on pro-rata basis the ground No.2....
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....efore according to the AO this does not come under the definition of transfer of capital assets under section 45 of the Act. According to the AO the said receipt from sale of running business has to be treated under section 28 of the Act and not under section 45 and accordingly treated the entire sale consideration as income from business in A.Y. 2004-05 by framing assessment under section 143(3) vide order dated 29.12.06. 15. The Ld. CIT(A) directed the AO to treat the sum of Rs. 12,79,60,000/- as income from capital gain for A.Y. 2004-05 and also directed to allow deduction under section 54E of Rs. 5,50,00,000/- towards investment in bonds of Rural Electrification Corporation Ltd. by observing and holding as under: "4.2. Treatment of Rs. 12,79,60,000/- received for transfer of part of the business:- The action of the AO to treat the sum of Rs. 12,79,60,000/- as "business income" instead of "Capital Gains" is found to be not correct on account of following:- (a) The AO held that the appellant has sold its "running business" at para 5.4, Para 6.2, (sub Para 1), and Para 6.8 and "entire business" at Para 6.7, yet the AO erroneously concluded that the co....
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....)(l) and 55(2) refers to "cost of improvement" and cost of acquisition" in relation of a capital asset being goodwill of a business or a trade mark or a brand name associated with a business or a right to manufacture, produce or process any article or right to carry on any business, tenancy rights, stage carnage permits or loom hours. Amendment in Section 55(l)(b) and Section 55(2) for treating "cost of acquisition" and "cost of improvement" at NIL, has been brought to settle various decisions of the High Court and Supreme Court wherein it was held that since the cost of acquisition or cost of improvement cannot be determined the consideration received from transfer of capital asset cannot be taxed. The legal position has always been abundantly clear that "business undertaking" is the capital asset and gain from transfer of business undertaking is taxable as income from capital gain. The gains of the appellant for transfer of its "part of the business" are, therefore, capital gain and not business income. (e) The appellant has basically sold its source of income from travels and tours business as is obvious from AO's observation quoted at Para 2.5 to his order....
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....ayments to be received by appellant was not known during AY 2002-03. Hence to tax the sum of Rs. 12,79,60,000/- in AY 2002-03 that too as "business income" is absolutely incorrect. (c) The AO's reference to amendment in section 45 of the Income-tax Act regarding transfer of property being governed the Section 53A of the Transfer of Property Act and its applicability in the present case is not correct at all on account of following- (i) Section 53A of the Transfer of Property Act deals with the part performance in case "immovable property" and in the present case no immovable property has been transferred (ii) Section 53A of the Transfer of Property Act deals with a contract to transfer "immovable property" in writing of a case where the term necessary to constitute the transfer can be ascertained with reasonable certainty. In the present case, the amount of consideration on 30/06/2001 depends on future uncertain events on the basis of Profit before taxation of tour and travel business of the period leading up to March 2004? In the present case the term necessary to constitute the transfer (the consideration of transfer) cannot be ascertained with reas....