TaxTMI 
TaxTMI 
2019 (8) TMI 805
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....e of the assessee and this being the reason, the Revenue has filed two tax case appeals. 3.A decision in T.C.(A) No.568 of 2008 would cover both cases. The appeal was admitted, on 03.07.2008, on the following substantial question of law:- "Whether on the facts and circumstances of the case, the Tribunal was right in holding that the price shown @ Rs. 14.75 per share should be accepted as genuine, when the same shares were sold by the company for Rs. 127 per share?" 4.The assessee is the Chairman and Managing Director of M/s.Empee Distilleries Ltd. A search was conducted in the business premises of the company and the residence of the assessee was also searched. 5.The Revenue would state that it was found that the assessee and his family members had sold their shares to M/s.McDowell Alcobev Ltd., at Rs. 14.25 per share when the remaining share held by M/s.Empee Sugars & Chemicals Ltd., were sold at Rs. 127.35 per share. The assessee received Rs. 10 Crores as non compete fee which he claimed was not taxable. The Assessing Officer found that the price of the same shares was sold at a much higher price in the hands of Empee Sugars & Chemicals Ltd., who had huge accumulated losses ....
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....minarayan Madan Lal vs. CIT reported in [1972] 86 ITR 439 (SC); and Mc Dowell & Co. Ltd., vs. Commercial Tax Officer reported in [1985] 154 ITR 148 (SC). 12.Mr.A.S.Sriraman, learned counsel appearing for the respondent/assessee sought to sustain the order passed by the Tribunal firstly by contending that there is absolutely no seized material emanating out of the search and seizure operations warranting assessment under Section 153C of the Act. In this regard, the learned counsel placed reliance on the decision in the case of CIT vs. Sinhgad Technical Education Society reported in [2017] 397 ITR 344. 13.It is further submitted that whatever material which is said to have been seized were all disclosed by the assessee about one year back, when the returns were filed, and the present assessment could not have been done with those material. It is further submitted that the non compete fee which was received by the assessee pursuant to an agreement dated 30.03.2002, should always be treated as a capital receipt especially when, there is a negative covenant restraining the assessee from commencing identical business that was transferred to McDowells for a period of seven years. Furthe....
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....was issued along with questionnaire in which, details were called for. 20.The assessee was called upon to show cause as to why the non compete fee of Rs. 10 Crores should not be brought to tax in view of the facts brought out as a result of search. The assessee filed his reply dated 20.03.2006. The Assessing Officer, upon analysing the transaction as a whole, held that it is a device employed by the assessee to avoid tax and accordingly, the sum of Rs. 10 Crores received by the assessee has the character of capital gains on transaction of shares and the income was taxed at 20%. 21.The assessee preferred appeal before the CIT(A), who by order dated 15.12.2006, allowed the appeal in part. 22.The assessee and the Revenue filed appeals before the Tribunal. The assessee's appeal was allowed by the Tribunal. Consequently, the Revenue's appeal was dismissed. This is how, the Revenue is before us by way of these appeals. 23.In the show cause notice issued to the assessee pursuant to the search and seizure operations, it was stated that the seized material contains documents relating to transfer of M/s.Empee Breweries Ltd., as a growing concern to M/s.McDowell Alcobev Ltd., and....
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....s family members. Further, the assessee stated that by asset purchase agreement dated 28.02.2002, Empee Breweries Ltd., purchased operating assets and licences of the Brewery unit from Empee Distilleries Ltd., and in terms of the share purchase agreement, the assessee transferred the entire shares held by him and his family members in Empee Breweries Ltd., to McDowel Alcobev Ltd. 25.The assessee contended that there is no material to warrant the conclusion that the transaction is a colourable device to avoid tax. It was stated that the sum of Rs. 10 Crores paid to the assessee is the consideration as per agreement dated 30.02.2002 for accepting restrictive covenant in the aforesaid agreement. Further, the assessee contended that Empee Breweries Ltd., is a public limited company in which, public are not substantially interested and he and his family members held more than 50% of the shares in the company, its performance had not been encouraging and the said buyer agreed to purchase the shares, but insisted that the restrictive covenant should be accepted and to accept the same, Rs. 10 Crores was paid to the assessee. 26.Further, it was stated that the share purchase agreement an....
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....e and the same should be reduced from the gains in the hands of Empee Sugars & Chemicals Ltd. 29.Aggrieved by the same, the assessee had preferred appeal before the Tribunal. The Tribunal pointed out that the adequacy of consideration is between the transferor and transferee and in the absence of any theory of collusiveness, the value as accepted by the parties represents the full value of consideration. The Tribunal noted that the share purchase agreement was not rejected by the authorities, the agreement was acted upon and the ultimate purchaser was a stranger and the transaction itself is at arms length and the entire fund flow was through banking channel. 30.The Tribunal accepted the stand of the assessee, who placed reliance on the decision of the Hon'ble Supreme Court in K.P.Varghese vs. Income-tax Officer reported in [1981] 131 ITR 597 (SC). The Tribunal observed that the price for which shares are agreed to be sold is a justified reasonable price, as at that time, the brewery licence was not accorded sanction by Government of Tamil Nadu and sanction was granted, subsequently. 31.Further, the Tribunal observed that while reading the full value of consideration, one ha....
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.... the back of the assessee and such Board Resolution alone cannot be taken as a valid piece of evidence particularly when, it was not confronted to the assessee. The Tribunal had failed to note that the Assessing Officer, at the first instance, while calling upon the assessee to show cause as to why non compete fee of Rs. 10 Crores should not be brought to tax, placed reliance on the seized material in file no. Ann/MP/D&D/S.35. There is a specific reference to the same in paragraph 4.2 of the assessment order. Therefore, we fail to understand as to how the Tribunal came to the conclusion that there was no material to frame the assessment under Section 153C of the Act. There has been no attempt made by the Tribunal to examine the seized material which was the basis of the assessment proceedings, papers and documents were recovered from the residence of the assessee and the companies controlled by by him. Therefore, to say the least, the finding of the Tribunal, in this regard, is wholly unsubstantiated and without any material and consequently, perverse. 35.Mr.A.S.Sriraman, learned counsel argued that the amount paid to the assessee to refrain from competing with Empee Breweries Ltd....
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....ssee and its selling agents or payment of certain amounts as commission, assuming there was such payment did not bind the Income-tax Officer to hold that the payment was made exclusively and wholly for the purpose of the assessee's business. It was further pointed out that although there might be such an agreement in existence, and payments might have been made, it was still open to the Income-tax Officer to consider the relevant factors and determine for himself whether the commission said to have been paid to the selling agents or any part thereof was properly deductible under Section 37 of the Act. This decision is a clear answer to the stand of the assessee and by applying the same, the stand taken by the assessee deserves to be out rightly rejected. 39.In the decision in Mc Dowell & Co. Ltd. (supra), it was pointed out that it is open to everyone to so arrange his affairs as to reduce the brunt of taxation to the minimum, tax planning may be legitimate provided, it is within the framework of law; colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by restoring to dubious ....