2022 (8) TMI 598

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....1186 and 1187 are similar so the ratio of decisions in ITA No 1185 will be applicable mutatis mutandis to rest of other two appeals of assessee. In ITA No. 1185/Mum/2020, the assessee has raised the following grounds of appeal: "The following grounds of appeal are without prejudice to one another. 1. On the facts and circumstances of the case and in law the Learned Assessing Officer erred in holding that the provisions of section 28(va) are applicable to the facts of the appellant's case, as per the grounds contained in the assessment order or otherwise. 2. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in confirming the view taken by the ld. Assessing Officer that the sale consideration received by the appellant on sale of shares of M/s. Kaygee Loparex India Pvt Ltd includes a business component being non-compete fee inspite of the fact that the agreement does not specifically mentions about payment of non-compete fees to the appellant. 3. On the facts and circumstances of the case and in law the Learned CIT(A) erred in holding that the sale consideration received by the appellant on account of sale of shares of M....

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....ARES at the price and on the terms and conditions hereinafter stated: 3.2 The VENDORS further represent, warrant and covenant as follows: - (a) Each of the Vendors Is the absolute owner of and has clear and marketable right, title and interest in, the KAYGEE shares shows against his/ her/ their/ its name in Annexure -B and the KAYGEE SHARES comprise 50% of the total subscribed and issued equity capital of the company. (C) On completion of the transaction contemplated under this Agreement, LOPAREX shall own 100% of the subscribed and paid-up equity capital of the company. 5. COMPLETION OF SALE OF KAYGEE SHARES 5.1 The VENDORS agree to sell and transfer and LOPAREX agree to purchase and accept the transfer of the KAYGEE SHARES at a price of Rs.1183.704 per share aggregating to Rs.63,92,00,000 Rupees Sixty-Three Crores and Ninety-Two Lakhs only (The "Price") 6. NON-COMPETE 6.1. The VENDORS covenant with the Company and LOPAREX that any of the VENDORS (and the VENDORS shall ensure that any of their affiliates, shareholders, group companies, Family Members) shall not, for a period of 3 years from the date of this Agreement, ....

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.... details of such new business opportunity with the Company, the Company shall give their consent or dissent within a period of 3 working days. In case of dissent, the Company shall also inform the VENDORS the reason for such dissent. It is further agreed between the VENDORS and the Company that the Company shall act in good faith and shall not unreasonably withhold the consent for the new business opportunity being explored by the VENDORS. However, the restrictions on being a shareholder/ director shall not apply in case of any investment by the VENDORS in shares of any listed company so long as their holding does not exceed 5% in each company. 6.2. Each of the restrictions as set out in Article 6.1 above is separate and distinct and is to be construed separately from other such restrictions. Each of the VENDORS acknowledge that they consider such restrictions to be reasonable both individually and in aggregate and that the duration, extent and application of each of such restrictions are no greater than is necessary for the protection of the goodwill and of the business of the Company and that the purchase of the KAYGEE SHARES by LOPAREX adequately compensates th....

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....ny such receipt which deprived the transferor from undertaking any transaction in similar business or trade is capital receipt. Such right of assessee is duly covered as capital asset as defined in sec 2(14). On such type of receipt being asset first charge on assessee will be under the head capital gain only. If assessee is not offering such receipt under the head capital gains, then only it is chargeable to tax under sec 28(va). Chargeability of such type of receipt under sec 28(va) was introduced in statute with effect from assessment year 2003-04 with a proviso mentioned supra. Whereas such type of transactions categorically covered by the finance act 1997 i.e., with effect from A.Y 1998-99 through sec 55(2)(a). 12. From the transactions and covenants of agreement mentioned (supra), it clearly emanates that the business was being carried out by M/s KLIPL and assessee was simply a shareholder and not directly into the business so it can be affirmed that the transactions of assessee with LOPAREX BV was transfer of shares and not of business itself. In this regard we relied upon the decisions of following Hon'ble high court/apex court i) CIT Vs New India Assurance Comp....

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....m/2020 (A.Y. 2016-17) 18. The facts and law applicable to this appeal are similar to ITA No. 1185/Mum/2020 (A.Y. 2016-17) (Supra). As the grounds of appeal raised by assessee in this appeal are also similar to ITA No. 1185 mentioned (Supra.), hence our decision in this appeal also applicable Mutatis Mutandis. Hence grounds of appeal raised are allowed. 19. In the result, appeal filed by the assessee is allowed. ITA No. 1309/Mum/2020 (A.Y. 2016-17) Grounds of Appeal Raised by Revenue Sl.No. Grounds of Appeal Tax effect (Amt in Rs.) 1 "Whether on facts and circumstances of the case, and in law, the Ld CIT (A) erred in treating only 5% of the income earned on account of sale of shares of M/s Kaygee Loparex India Ltd. on ad-hoc basis as non-compete fees despite specific clause in agreement for not carrying out any activities of specific business, supporting disallowance as noncompete fees?" 3,65,52,895/- 2 "Whether on facts and circumstances of the case, and in law, the Ld CIT (A) erred in arbitrarily rejecting AO's working of non-compete fees, based on difference of value of shares, adopted under rule 11UA and sale value of shares, and arb....

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....f computing his income chargeable to tax." There are 3 essential conditions are laid down to apply the provisions of sec 94(7) of the act as under: A) units must be bought within a period of three months prior to the record date; B) units must be sold within a period of 9 months after such date C) dividend or income on such units received must be exempt. If all the conditions mentioned (Supra) cumulatively fulfilled then only sec 94(7) will be attracted. 24. In the assessee's case, units were purchased much before 3 months period prior to record date, hence condition prescribed in clause (a) of sec 94(7) is not satisfied hence sec 94(7) can't be applied to the assessee's case. To substantiate our findings, we are relying on the following decisions of various High Courts and ITAT as under: "i). CIT Vs Shambu Mercantile Ltd. 325 ITR 535 (Del.) ii). CIT Vs Kailash Chandra Dhanuka 252 CTR 109 (M.P) iii). Vijaya Joshi Vs ACIT, ITA No. 979/Del./2013 iv). CIT Vs Walfort Shares and Stock Brokers Pvt Ltd 2019 CTR 409 (Bom.) Judgement of jurisdictional High Court in the case of CIT Vs Alka Bhosle 325 ITR 550 held as under: ....