TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 548
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....ing that payment of compete fee is a revenue expenditure and an allowable deduction? b) Whether on the facts of the case, the ITAT was justified in law and in facts in allowing various expenses incurred for starting entirely different line such as health care division, Maxxon etc. as revenue expenditure? c) Whether the ITAT was justified in law and in facts in holding that various expenses incurred for expansion of business are revenue expenditure ignoring the fact that the same has been incurred on projects that were subsequently either shelved or were an entirely new line? d) Whether the ITAT was justified in law and in facts in holding that the assessee is at liberty to convert its stock into investment ignoring the wholistic picture where in the end result of the conversion is to escape provisions of explanation to section 73 of the Income Tax Act? e) Whether the ITAT was justified in law and in facts in not considering that the selective conversion of shares from stock in trade to investment has resulted in undue benefit to the assessee which falls within the purview of tax avoidance through colourable devices which has already been held to be not acceptable by the....
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....t after setting off of brought forward losses. The Assessing Officer while making assessment made the following additions/disallowances:- i) Disallowance on account of non compete fee payment; ii) Disallowance of expenses on account of expansion of business of healthcare division; iii) Disallowance of expenditure on account of expansion of Maxxon business, Max Foil Division; iv) Disallowance of speculation loss in trading of shares. Aggrieved by the assessment order, the assessee company filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 12.1.2011, Annexure A.2, the CIT(A) allowed the appeal and deleted the additional/disallowances made by the Assessing Officer. Not satisfied with the order, the revenue filed appeal before the Tribunal. Vide order dated 8.3.2013, Annexure A.3, the Tribunal dismissed the appeal. Hence the instant three appeals by the revenue before this Court. 6. We have heard learned counsel for the parties. 7. Firstly, while taking up ITA No.187 of 2013, question (a) as to whether payment of compete fee is a revenue expenditure and an allowable deduction, the same has already been considered and concluded a....
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.... Act invoked by the Assessing Officer was held to be not applicable in relation to sale of investments in the appeal for the assessment year 2001-02. The relevant findings recorded by the Tribunal read thus:- "14. First of all, we take up appeal of the Revenue in ITA No. 103 (Asr)/2006 for the assessment year 2001-02 as under: (i) The brief facts regarding first ground of Revenue, which are in three parts are that Max Corporation Limited (MCL), a wholly owned subsidiary of the assessee was incorporated on 12.09.1996 was merged with the assessee w.e.f. 1.7.1999, pursuant to a scheme of merger approved by the Hon'ble Punjab & Haryana High Court. Pursuant to merger, all assets and liabilities of Max Corporation Ltd; including various shares held by Max Corporation Ltd, as stock in trade and as investments, vested in the assessee. On 3.7.2000, as per the decision of management, shares of 11 companies, which were acquired by MCL and were held as 'stock in trade', prior to merger and which vested with the assessee post merger, were decided to be held as 'investment'. Accordingly, the said shares were converted from stock in trade to investment. On the date of conversion, the assess....
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....directed to allow loss of Rs. 3.72 crores arising on sale of shares as normal business loss (Refer page 15 of Ld. CIT (A)'s order). 15. We may point out that the assessee has accepted the order of the Ld. CIT (A) disallowing notional loss arising on conversion of stock in trade into the investments on 3.7.2000 and no appeal has been filed by the assessee against the aforesaid decision of Ld. CIT (A). 16. The Revenue has challenged the aforesaid order of the Ld. CIT (A) accepting conversion of stock in trade into investments and allowing loss arising during the relevant previous year on sale of part shares so converted and other shares held as stock in trade." xxxxxxxxxxxxxxxxxx 22. We have heard the rival contentions and perused the facts of the case. We are of the view that conversion of part of shares acquired from Max Corporation Ltd; as stock in trade into investments cannot be said to be a device for evading the tax and such conversion cannot be rejected. It is the prerogative of the assessee as to whether it wants to hold the shares as stock in trade or as an investment or partly as stock in trade or partly as an investment. Reference is made in this regard to the....
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....relation to sale of investments in the appeal for the A.Y. 2001-02. Therefore, being no change in the facts and position in law in the relevant previous year as compared to assessment year 2001-02 and in the absence of any new arguments having been raised by the parties, we dismiss this ground of appeal of the Revenue following our own order for the assessment year 2001-02 hereinabove." 9. Further in Commissioner of Income Tax Vs. Yatish Trading Co. Private Limited, [2013] 359 ITR 320 (Bom), it was held that the shares sold were held by the assessee as investments and the gains arising out of the sale of the investments were to be assessed under the head "Capital gains" and not under the head "Business profits". The relevant paras of the judgment read thus:- "The assessee is engaged in the business of investments and also dealing in shares and securities. In the assessment year 2006-07, the assessee declared income under the heads 'profits and gains of profession' and also under the head capital gains. The assessing officer noted that a part of the capital gains declared was in respect of transfer of shares / securities which were held by the assessee originally as sto....
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.... sold nearly two years after conversion of stock in trade into investment with a specific declaration. Therefore, the Tribunal rightly set aside impugned assessment order. The Delhi High Court upheld the order passed by the Tribunal. The relevant paras of the judgment read thus:- "3. The Assessing Officer has recorded that as per the business activities under taken by the assessee, they were dealing and trading in shares and financial securities in Bombay Stock Exchange, Delhi Stock Exchange and Calcutta Stock Exchange. The respondentassessee was a registered broker with the said exchanges. The Assessing Officer held that the business of the assessee was not to invest in shares but to deal with the shares as a stock broker and trader. He observed that conversion of stock in trade into investment was done with the intention not to pay taxes as Section 10(38) was introduced by Finance Act, 2004 with effect from Ist April, 2005. Accordingly, he held that the entire amount was taxable as a "trading receipt" and not under the head "capital gains". 4. The assessment order does not mention the date on which the shares in question were purchased. We also note that the assessment orde....
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....7th November, 2007 but the Assessing Officer did not object to the said conversion. These shares were subsequently sold as detailed in paragraph 2.9 of the order of the Commissioner (Appeals) in August, 2005, September, 2005 and substantial portion was sold in March, 2006 and long term capital gains was declared. He observed that statute did not reject or frown upon conversion of stock in trade into investment and the said conversion was permissible. Commissioner (Appeals) referred to the Circular No.4/2007 dated 15th June, 2007 issued by the Central Board of Direct Taxes, which stipulates that two portfolios one for stock in trade and one in respect of investments could be maintained by the same assessee. He took into account the period of holding by the assessee and the fact that the conversion into investment was made on Ist April, 2004 and outlay was disclosed in the audited accounts for the Assessment Year 2005-06. The sales made, as noticed above, were after considerable delay of approximately two years thereafter. 7. In view of the aforesaid factual findings recorded by the Commissioner (Appeals) and the tribunal, we do not see any reason to interfere and issue notice on ....
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....receipt of consideration of Rs. 1.43 crores which was claimed as capital receipt not liable to tax. The Assessing Officer held that since the assessee extinguished its right to re-enter the market of plating chemicals and process for general metal finishing and electronics plating for consideration, the same amounted to transfer of right to carry on business and therefore the amount of consideration received was liable to be taxed under the head capital gains. The CIT(A) held that undertaking a restrictive convenant not to carry on business without transfer of any business was not in the nature of right to carry on business to be regarded as transfer of capital asset. The CIT(A) held non compete fees received as capital receipt not exigible to tax under the provisions of the Act. Identical issue was considered by the Tribunal in assessee's own case for the assessment year 1998-99 and the Tribunal held that taking over a restrictive obligation did not amount to transfer of right in any business and therefore non compete fee could not be considered as resulting in capital gains. Even Section 55(2)(a) of the Act which was prospective in nature was not held to be applicable to the fact....
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....TR 602 (SC), the assessee was carrying on the business of manufacturing, selling and distribution of pharmaceutical and medical preparations. It received Rs. 50 lakhs from Ranbaxy as non competition fee. It agreed to transfer its trade marks to Ranbaxy and in consideration for such transfer the assessee agreed that it shall not carry on directly or indirectly the business hitherto carried on by it. The agreement was for 20 years. The Tribunal held that the amount was a capital receipt, but the High Court reversed the decision. The Apex Court reversed the decision taken by the High Court holding that prior to April 1, 2003, when Parliament stepped in to specifically tax such receipts, the payment was in the nature of a capital receipt. The relevant para of the judgment reads thus:- "7. Two questions arose for determination, namely, whether the amounts received by the appellant for loss of agency were in normal course of business and therefore whether they constituted revenue receipt? The second question which arose before this court was whether the amount received by the assessee (compensation) on the condition not to carry on a competitive business was in the nature of capital r....