TaxTMI 
TaxTMI 
2026 (8) TMI 1653
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.... for the purpose to enhance their business by way of pooling resources of both the parties so that both of them will have 50% equity capital in the new entity. Accordingly, there was no any restraint on business activities of the assessee and its profit earning apparatus was never affected b. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) erred in ignoring the below mentioned facts I. That no new source of income was created and the source of income remained the same e processing; manufacturing and selling of Barley Malt in the country II. Even during the negotiation period of the joint venture, the assessee company kept on manufacturing the goods which were supplied. III. The joint venture never came into existence IV. Even after cancellation of the Joint Venture Agreement, the assessee company continued to enjoy its original position and kept on manufacturing various products and selling these products on its own c. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not taking into consideration the landmark judgement of Hon'ble Supreme Court in the case of Gill....
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....f the assessee company, were approached by M/s. Malteris Soufflet S.A.S (Soufflet in short), a prominent French company and leading malt manufacturer in Europe with a reputable trade name to explore a potential Joint Venture (JV) in the Jains family's malt business and whereby the assessee company's shareholding in MCIL was proposed to be transferred. To facilitate the negotiations for a joint venture in the malt business, Soufflet and MCIL signed a mutual Non-Disclosure Agreement (NDA) on 13.09.2009. For the proposed JV, Soufflet required exchange of confidential information with the Jain family's business. This NDA was entered to ensure that both parties would protect the confidentiality of sensitive information shared during discussions. A Memorandum of Understanding (MOU) dated 18-11-2010 was entered between Soufflet and Jain group represented by Mr. P K Jain for and on behalf of the company and M/s. MCIL. The MOU also outlined a non-solicitation clause, whereby neither Soufflet nor the Jain family (i.e. assessee company and MCIL) would initiate or engage in negotiations or discussions regarding any potential sale, transfer or issuance of shares in any entity associated with th....
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....y when the company was not obligated to restrict any kind of its business activity. 7. Aggrieved, the revenue is in appeal before us. 8. We find the operative portion of the observations made by the ld AO are as under:- "The reply filed by the assessee is considered. It has been observed from the reply dated 28.11.2016 that inspite of MOU being valid for 60 days as per para VI of MOU dated 18.11.2010. There was informal agreement between the assessee and Soufflet to achieve the end objective as prescribed in the MOU. The assessee in para 6 of its letter dated 28-11-2016 has stated as under: "After signing of the MOU various negotiations took place between both the parties, agreements were signed, correspondence exchanged, demerger scheme was filed, restricting of shares was done and various other activities were executed between both the parties between 2010 to early 2014. Copy of sample letters such as dated 27.07.2010, 02.11.2010, 25.08.2011, 27.10.2011. 15.11.2012, 04.02.2013, 08.03.2013, 23.05.2013.12.07.2013 and 23.09.2013 are enclosed herewith." On perusal of MOU it has been observed that both the assessee and Soufflet are in the business of p....
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....dered as capital receipt. The compensation so received by the assessee was not for loss of source of income but loss on account of breach of terms of the business agreement by Soufflet. There is no injury suffered by the assessee company for any of its capital assets whatsoever. Therefore, the amount received by the assessee on account of alleged exclusive fee is to be treated as revenue receipt instead of capital receipt. On perusal of the clause-C of the MOU dated 18.11.2010, as furnished by the assessee during the course of assessment proceedings, the activity of the JV would be as under:- "The joint venture's activity will be to produce and/or process in India and/or sell and/or trade malt processed from barley or wheat for the brewing and distilling industry in India and/or trade of any type of barely for which soufflé and/or its affiliates have an exclusive marketing or production right to the extent described in clause V.1.c hereof, and sale of malt exported by Soufflet to India as more fully described in Clause V.La) to e) hereof (JA business")" The plain reading of the clause makes it very clear that the proposed activities of the JV w....
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....it is absolute clear that the assessee Company has received Rs. 7,17,68,320/- during the year under review and Rs. 5,56,47,364/- during subsequent assessment year on account of pre-mature cancellation of agreement. Since the assessee is following mercantile system of accounting the receipt of Rs. 5,56,47,364/- in subsequent assessment year will be considered as income of the assessee for the year under consideration. Therefore, an addition of Rs. 12,74,15,684/- is being made to the total income of the assessee. Further, the assessee has not considered this receipt while calculating its profit under section 115JB of the Income Tax Act, 1961. After giving effect of this receipt, the book profit under section 115JB will be enhanced by an amount of Rs. 12,74,15,684/-. Since, I am satisfied that the assessee has furnished inaccurate particulars of its income, penalty proceedings under section 271(1)(c) are being initiated separately. (addition of Rs. 12,74,15,684/-) 9. The ld CIT(A) had dealt with the same as under:- "6.5 All the arguments of the appellant have been duly considered. First of all, whether the proposed transfer of shares was in the nature ....
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.... 10. We find that the ld AO had sought to invoke the provisions of Section 28(iv) of the Act to bring to tax the subject mentioned receipt. On plain reading of provisions of Section 28(iv) of the Act, we find that it is limited to non-monetary benefits arising from business operations. Admittedly the exclusivity fee in the instant case was received in cash. Hence as per the erstwhile provisions of section 28(iv) of the Act as it stood upto AY 2023-24, any cash consideration received would be outside the ambit of provisions of Section 28(iv) of the Act. Reliance in this regard has been rightly placed on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra Limited reported in 404 ITR 1 wherein it was held as under:- "13) On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that th....
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....and their compensation was worked out on the basis of 3 successive years of passed commission. The assessee in that case claimed the compensation receipt as capital receipt. The Hon'ble Supreme Court held that having regard to the vast array of business done by that assessee as agents, the termination of agency was in the normal course of business and the determination of individual agencies is a normal incident not affecting or impairing its trading structure. Hence, it could be seen that the facts prevailing before the Hon'ble Supreme Court are factually distinguishable with that of the facts prevailing in the instant case before us. 14. In view of the aforesaid observations and respectfully following the judicial precedents relied upon herein above, we hold that the ld CIT(A) had rightly adjudicated the issue in detail and on which we do not find any infirmity. Accordingly, the amount received in the sum of Rs 12,74,15,684 cannot be brought to tax both under normal provisions of the Act as well as in the computation of book profits u/s 115JB of the Act as they are only capital receipts. Hence the same has been rightly credited to capital reserve by the assessee compan....