TaxTMI 
TaxTMI 
2011 (10) TMI 788
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....ncome from its activities of clearing/forwarding and from trading. The firm filed its return of income for assessment year 2002-03 on 31.10.2002 declaring net loss of Rs. 7,00,54,515/-. The returned income was accepted u/s 143(1) on 19.3.2003 and a refund of Rs. 1,31,60,432/- was issued on 31.10.2003. The assessee is a partnership firm consisting of three partners. The total loss declared by the assessee-firm was arrived at after setting off of business loss of Rs. 7,15,54,959/- against an income of Rs. 13,06,365/- computed under the head 'Income from Property' and a further income of Rs. 1,93,076/- has been computed under the head 'Capital Gains'. The assessee-firm has computed net loss under the head 'business'. As per the Profit & Loss Account for the accounting period ended 31.3.2002 a net profit of Rs. 8,05,57,911/- has been reported. A long term capital gains of Rs. 20,09,691/- on the sale of shares for the accounting period ended 31.3.2002 was computed but net gains has been shown at Rs. 1,93,076/- because of setting off of the losses carried forward from the assessment years 1998-99, 1999-2000 and 2001-02. Finally, assessment order was made u/s 143(3) vide order dated 31.3.....
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....Assessing Officer had raised a net demand of Rs. 6,51,54,685/- which was inclusive of an interest of Rs. 1,45,81,770/- charged u/s 234B and an interest of Rs. 11,84,436/- levied u/s 234D of the Act. 2. Aggrieved, the assessee had challenged the above additions and after considering the rival stands, the ld. CIT(A) has given a part relief to the assessee and that is why both the parties are aggrieved. 3. The first two issues in the Revenue's appeal are against the allowance of interest paid by the assessee on borrowals which were utilized for reviving the business of M/s TTK Textiles Limited and write off of advance of Rs. 10.25 crores made to M/s TTK Textiles Limited allowed as a deduction. As the issues are interlinked, they are considered together. 4. For assessment year 2002-03, the assessee-firm M/s TTK & Co. had claimed a sum of Rs. 61,81,852/- as interest paid to ICICI Bank Ltd. As against this, a sum of Rs.15,51,070/- as representing interest received from ICICI Bank Ltd. had been adjusted and the net interest paid was shown as Rs. 46,29,782/-. The Assessing Officer observed that the firm had obtained a Term Loan of Rs. 10 crores from ICICI Bank Ltd during the accou....
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....er concern though incidental to carrying on of the business of the firm on the above lines, had to be treated as capital in nature. The Assessing Officer had mainly relied on the reasons given for a similar disallowance made in the assessee's own case for the earlier assessment year 2001-02. He had noted that the Advances, Deposits and the Investments had been coming down from what it was as on 31.3.2001 at Rs. 11,11,84,117/- to Rs. 6,10,46,782/- as on 31.3.2002. 5. TTK & Co., was the promoter of all the companies. The main business of the firm was trading, marketing, warehousing as well as promotion of companies to engage in various businesses. The firm promoted and invested in these companies, permitted the companies to use the valuable name and logo of 'TTK' In the initial years the firm also acted as a distributor of the products of the company till the companies were able to carry out the marketing on their own. The partners of the firm are also Directors of the company. The firm not only invests in the shares of the promoted companies, it also provides comfort and guarantee to the lenders of such companies. The firm is receiving huge royalty from the companies for the use ....
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....sion and Textile Division as its activity. Amongst others promotion of business entities is a business of TTK & Co.,Partners of TTK & Co., had provided Guarantees to Institutions and Banks in connection with the loans extended by them to TTK Textiles Ltd. Due to severe recession in the Cotton Spinning Industry, Spinning Division started making huge losses which affected the monies available for promotion of Tantex brands ay Hosiery Division. Thus this Division also started incurring losses. The company could not honour its commitments of repayments to the institutions as well as creditors who have supplied materials. The company was not in a position to pay wages in time to workers. In view of the default in payment of interest and instalments to institutions .the company was saddled with huge interest burden including compound interest and penal interest.The Company was in the process of being classified as defaulting Company and the promoters (TTK & Co) as defaulting promoters by financial institutions. The above situation led to affecting the image of the other companies in the TTK Group amongst the Banks and institutions. The other companies ....
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....t with the creditors as well as to revive the company without the cooperation and assistance of the promoters who had to work with the operating agency. It was stated that the Operating Agency being an independent agency was accountable only to the BIFR and hence the scheme prepared by the operating agency and as approved by the BIFR was binding on the company and its promoters. (ii) It was further submitted that if a company is referred to BIFR and continues to be registered under BIFR, it affect the image of the entire Group and the banks do not consider exposure to other companies of the group favourably. Further continuing to be registered under BIFR, reduces the operating flexibility. (iii) It was also stated that a company comes out of BIFR only after the networth is made positive and that this is achieved by several measures which include reduction of capital, converting part of the loans as capital waiver of interest, splitting of companies etc And so the scheme as approved by the BIFR for revival of M/s TTK Textiles Ltd involved the following activities to be carried out. a. Splitting of the company by transferring the Spinning Division to a sepa....
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....aken for revival of the company M/s TTK Textiles Ltd did not yield fruitful results and ultimately, the amounts invested by the assessee-firm that were treated as unsecured loans had to be written off by it in the accounting period ended 31.3.2002 as well as in the next accounting period. An extract from the submission made in this regard is given below: 1. After hiving off Spinning Division into a separate company, TTK Textiles Ltd focused on Hosiery business. 2. One of the proposals for TTK Tantex was to fund a Joint Venture partner. 3. The company looked for several overseas partners who were interested in coming into India for exploiting the Tantex brand and as well as outsource products for export brands. 4. The potential joint venture partners wanted 51% stake in the company However, as the Hosiery manufacturing wads reserved for small scale sector, the company had to seek approval from Foreign Investment Promotion Board (FIPB). 5. Due to policy and regulatory framework, the company was finding it difficult to obtain necessary clearances and the potential foreign collaborators lost interest. 6. The company tried for partic....
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....ing interest on the borrowed funds for the reason that the assessee had added on to its interest liability unnecessarily by diverting its funds for non business purposes. It was observed by their Lordships that where the expenditure claimed was shown to be for commercial expediency, the same must be allowed u/s.36. So, both the Madras High Court as well as the Supreme Court have clarified that wherever the diversion of the funds had taken place out of commercial expediency, the interest expenditure incurred by an assessee on borrowed funds that were diverted cannot be disallowed. Therefore, in the present appellant's case, the question of deciding the commercial expediency in the appellant firm borrowing from ICICI Bank Ltd and advancing to M/s.TTK Textiles Limited is revolving around the scheme of the BIFR. Even if it be that the appellant firm was bounded by the regulations of the BIFR to make advances to the sister concern which had become sick, still, it can be said that so long as the funds borrowed by the firm and given as advances to the sister concern were uitlised only in the business of that concern and the appellant firm did not derive any benefit even out of the allotme....
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....usiness of M/s TTK Textiles Ltd/TTK Spinning Ltd/TTK Tantex Ltd., It was already established in paragraph No.10.5.4 as to how the appellant firm had to enter the proceedings before the BIFR in its capacity as a promoter of M/s TTK Textiles Ltd which is part of business activity. There was certainly commercial expediency which made M/s TTK & Co go in for borrowals in order to find resources for making advances to its sister concern, M/s TTK Textiles Ltd without which the other company would not have been able to carry out the entire programme and get the scheme for its revival approved by the BIFR. This is evident from the salient features of the order of the BIFR that were brought out in paragraphs No. 7.1 to 7.6 above. And so, the ratio of the Supreme Court's decision in the case of S.A. Builders :Ltd., is squarely applicable to the facts prevailing in the present appellant's case. 10.5.4 Though the complete facts in the case of S.A. Builders Ltd are not available in the decision reported. The views expressed by the Supreme Court are very much relevant in the present context. Extracts of the relevant portions of this decision are given below: "In order to decide ....
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....f the above views are applied to the present appellant's case then it is clear that even if there had been no regular business transactions or no profits were expected to be earned by the appellant firm for the impugned accounting period or for the subsequent periods still it has to be held that the interest expenditure incurred by the firm on the Term Loan was for the purpose of the business of the appellant firm only because as rightly argued M/s TTK & Co had the bounded duty to protect the business interests of the concerns in the entire TTK group and it had volunteered to incur the expenditure to the benefit of the company M/s TTK Textiles Ltd in its capacity as promoter of this company. The firm might have lost ultimately and had not earned profits out of the entire deal but still it has to be held that the amounts advanced to the extent shares and bonds were issued as per the directions of the BIFR were out of commercial expediency as the firm's business itself was to promote companies and businesses. The observations made by the Assessing Officer in the impugned assessment order were brought out in paragraphs Nos. 4.1 to 4.1.8. The Assessing Officer had stated that ....
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....evenue is in appeal. 13. We have considered the rival submissions. From the facts culled out by the CIT(A) in his elaborate order, following emerge - The assessee has started various companies permitted them to use the logo of 'TTK' giving them advance and also participated in their management by having partner of the assessee as a Director in the company. The Company also received income, apart from dividend declared by the promoter company by way of royalty for the use of the name as well as marketing their product or providing services to them. 14. Hence, the assessee is in the business of promoting company as well as providing service and earning income therefrom and apart from funding them whenever necessary. It is in this context TTK Textiles has become sick and referred to BIFR. The assessee-firm as a promoter have been implemented the scheme for reviving TTK Textiles Ltd. BIFR in their order has clearly embargo on the appellant company to charge any interest on the amounts advanced to TTK Textiles. They also directed that the assessee-firm should provide necessary fund for the revival of TTK Textiles Limited. It is in these circumstances, the assesse....
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.... be borne in mind that out of the total advance of Rs. 35.50 crores given by the assessee to M/s.TTK Textiles, the assessee been granted optional convertible bonds of Rs. 4 crores, equity shares of TTK spinning Mills ltd of Rs. 4 crores, difference in share in TTK Tantex of Rs. 1.4 crores, Optional convertible bonds of Rs. 2.39 crores aggregating to Rs. 11.89 crores. A sum of Rs. 50 lakhs was received from TTK Textiles Limited. Therefore, the assessee had written off the balance advance amount of Rs. 23.56 crores for the assessment years 2002-03 and 2003-04. Bonds and share issued for and on behalf of the TTK Textiles have been retained by the assessee and have not been written off. It is only an advance given to TTK Textiles which, in the opinion of the assessee, has become irrecoverable inasmuch as the scheme for reviving of sick company had not taken off. The CIT(A) has allowed the claim of the assessee by observing as under: "To conclude the inferences that are to be drawn from the discussions in the above paragraphs are as follows: (A) As far as the interest claim on the loan balance in respect of the Term Loan of ICICI Bank Ltd is concerned the following fin....
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....) The sums of Rs. 10.25 crores and Rs. 12.87 crores claimed as deduction from the profits of the accounting periods ending with 31.3.2002 and 31.3.2003 do not represent any 'bad debts written off' within the meaning of section 36(1)(vii) r.w.s 36(2) of the Act. (ii) The advances made by the appellant firm to the company M/s TTK Textiles Ltd/TTK Tantex Ltd. were in the course of its business of promoting businesses an companies. Furhter,t he firm was compelled to make a huge advances to its sister concern in order to revive it as per the scheme of the bIFR. When M/s TTK Textiles Ltd/TTK Tantex Ltd. became incapable of repaying the debts owing to the fact that there was no business carried on by it and its assets position was also reduced to minimal level and the advances were written off by the appellant firm, as per the ratio of the Supreme Court's decision in the case of CIT vs Amalgamations P. Ltd the firm is entitled to claim the amounts so written off as irrecoverable in its accounts as business losses and the same are alloable in principle. (iv) The Assessing Officer was certainly not correct in his observation that the appellant firm had written off the amou....
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.... be allowed as a deduction. Again the Apex Court in the case Amalgamations Ltd (226 ITR 188) has held that, when the assessee is in the business of promoting various companies and in the course of the same could not recover any amount paid for and on behalf of the promoted company, the same should be allowed as bad debt or business loss. The assessee also relied on other decisions of the ITAT in the cases of W.S.Industries Limited in ITA No 1373/Mds/08 and V.Ramakrishna and Sons in ITA No 2272/Mds/08 (confirmed by the Hon'ble Madras High Court reported in 326 ITR 315), Chemplast Sanmar Ltd in ITA No 911, 952/M/1993 (which was affirmed by the High Court in TCA No 844, 845/04) wherein the tribunal has allowed the deduction of advances to associate concern written off as irrecoverable. 20. Respectfully following the ratio of the above decisions, we find that CIT(A) has rightly allowed the claim of the assessee for write off of Rs. 10.25 crores, being part of advance which are become irrecoverable from TTK Textiles Ltd. Hence, we dismiss the grounds raised by the Revenue in this respect. 21. The next issue of this appeal is against allowance of 50% of the technical fees and c....
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....ts with different companies and making investments in those companies. M/s Kiwi TTK Ltd was one such joint venture in which the assessee-firm along with M/s TTK Pharma Ltd was participating and this joint venture company was engaged in the manufactured and marketing of products like leather care products, domestic hygiene products shoe polish etc., Kiwi is the shortened form of SARA LEE -KIWI HOLDINGS INC. This concern wanted to expand its capacities and go in for production of certain new products. The joint venture agreement for expansion of the business of M/s Kiwi TTK Ltd was entered into between Sara Lee Corporation, TTK & Co Group consisting of T.T. Krishnamachari & Co., and M/s TTK Pharma Ltd and Kiwi TTK Ltd on 17.9.1993. The products to be manufactured under the expansion programme and by the joint venture company M/s Kiwi TTK Ltd were toilet and drain cleaner liquid toilet cleaner, leather goods finishing preparations, house hold cleaner, laundry care products house hold insecticides and automobile care products. The necessary approval for the expansion was obtained from the Government of India, vide Order No. FC II 282 (92) 358(92) dated 14.8.1992 issued by the Ministry ....
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....eceipt was for relinquishment/ restriction of the commercial right arising from the shareholding agreement with M/s. Sara Lee and therefore, it was a capital receipt. It had also claimed that this sum was a mere payment for breach of the terms of the Shareholders' Agreement and therefore it would constitute capital receipts in its hands. It was further argued that that there was no cost of acquisition incurred by the firm to acquire this right of first refusal through the Joint Venture agreement and therefore no capital gains tax was also leviable on this sum. It was pointed out that this type of receipt does not fall into the terms specified in sec. 55(1)(b) of the IT Act Reliance was placed on the following decisions: (i) Oberoi Hotels Pvt Ltd. vs CIT (1999) 236 ITR 903(SC) (ii) Godrej & Co. vs CIT (1959) 37 ITR 381(SC) (iii) Kettlewell Bullen Co. vs CIT (1946) 53 ITR 261(SC) 28. After taking into consideration the contents of the shareholders' agreement the Joint Venture Agreement and the Sales Agreement entered into between M/s Sara Lee and the TTK Group of concerns of which the assessee-firm is one and after going into the other details furnished ....
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....cer erred in not levying tax on Rs. 10 crores at the rates applicable to income by way of capital gains. 30. During the course of hearing before the CIT(A), the assessee's representative furnished details and copies of the various agreements entered into by the TTK group of companies with Sara Lee and also the agreement under which the assessee-firm had received the sum of Rs. 10 crores. The circumstances under which M/s TTK & Co., was entitled to the sum of Rs. 10 crores are briefly narrated as under: "M/s Kiwi TTK Ltd which was formerly known as "New Way Chemicals and Polishes (P) Ltd" was a joint venture between Kiwi an affiliate of Sara Lee Corporation and M/s T.T.Krishnamachari & Co., the appellant firm. There was an agreement entered into on 17th September 1993 between TTK & Co., Group concerns the firm M/s TTK & Co., and M/s TTK Pharma Ltd and the joint venture company M/s Kiwi TTK Ltd for the sale of the products of Kiwi TTK. This joint venture agreement was also governed by a shareholders' agreement. Kiwi was holding 25% of the share capital of Kiwi TTK and the remaining 75% was held by M/s TTK & Co., Group. By virtue of Kiwi amalgamating with M/s Sara Lee, the....
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....ng certain new products in addition to the range of products that were being manufactured by them already and Kiwi was to supply the requisite knowhow. It is not only that the foreign shareholding was increased to 51% by the agreement dated 17.9.93 but there were certain other conditions imposed by the management of the joint venture company in respect of sales, trademark, warranties, etc., As per Article 10 of this agreement which is a restrictive covenant if either Kiwi or TTK intended to introduce any new product in the Indian market and such product belonged to the category products for shoe and leather care or household and personal care products. Such party shall notify the joint venture "Kiwi TTK" and the other party and "Kiwi TTK" shall be granted the option to add the manufacturing of these new products to the present range of products. It was further stipulated in this Article that should such option not be exercised by Kiwi TTK within three months after the date of such notice from either party then such party shall be entitled to manufacture such product by itself or to appoint a third party for the manufacture of such product in India. And also, both Kiwi and TTK reser....
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....ugh third parties. And in that process, the TTK Group agreed to waive the right of first refusal for payment of Rs 10 crores as consideration. 32. Thus, it was his contention that the right to do business in a new product is a major right and as the TTK Group had to give up this right for capital consideration the sum of Rs. 10 crores did not fall into any category of income liable to be taxed under the Income Tax Act. 33. After considering the various arguments by the assessee as well as case laws cited by them, the CIT(A) held that receipt was revenue receipt observing as under:- "It was noted in paragraphs Nos. 8,9 & 13.4.2. above that one of the main activities of M/s TTK & Co was to promote companies and businesses. And so the joint venture agreement it had entered into with Sara Lee Corporation was in the course of its business activity, that is, promotion of businesses and companies. And the appellant firm had also made substantial investments in the shares of the joint venture company Kiwi TTK Ltd., All these activities were governed by the Joint Venture Agreement dated 17.9.1993 the Amended Agreement dated 12.10.1993 Shareholders' Agreement dated 17.9.1993 a....
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.... by this agreement dated 30.9.2001 it had not lost any capital asset which would deny the firm its profit earning apparatus. In fact it was brought out in paragraphs Nos. 13.3.5, 13.3.9 &13.3.9.1 above that even after the removal of the restrictive covenant the TTK Group concerns were dealing in products like Brylcream. In view of what is stated above, it is clear that the sum of Rs. 10 crores has to be taxed as revenue receipt under the head, "Business" and in such an event, the assessment will get enhanced. When the above views were put forth before the appellant's representatives they did not come up with substantial arguments or objections as to how and why the assessment should not be enhanced. The ratio of the Supreme Court's decision in the case of CIT v Gangadhar Baijnath (86 ITR 19) has to be necessarily applied in the present context. It has to be mentioned here that this decision has found application in various other decisions rendered by Courts later on. So, in the light of this decision, the appellant's arguments that the sum of Rs 10 crores was to be treated as capital receipt are not acceptable. This sum becomes taxable in the hands of the appellan....
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....ies would not in any way alter the character of the receipt for accepting a negative covenant as a capital receipt. As there is no cost of acquisition for the same it is not taxable as capital gains. It cannot also be taxed as revenue receipt u/s 28(va) as the section is not applicable to the year under appeal. 35. The next issue of this appeal relates to disallowance of 50% of the technical fees of Rs. 3 lakhs and the interest of Rs. 60,000/- paid to late Shri T.T.Vasu. As against the fee paid to Shri T.T.Vasu and the interest payment to him, the CTI(A) has held as under:- "The above sums were disallowed for the only reason that these payments had been made to (Late) Shri T.T.Vasu who was just a relative to the partners. As regards the claim towards interest expenditure of Rs. 60,000/- it was specifically noted by the assessing officer that no prudent buisnessman would incur expenditure by way of interest when already huge balance were due from this person. In this connection, it has to be stated that identical amounts of expenditure were claimed as payable by the appellant firm to (Late) Shri T.T.Vasu for the earlier assessment year 2001-02 which the assessin....
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.... Rs. 28,44,852/- ------------------------ Long Term Capital Gains Rs. 3,21,14,748/- ------------------------ 40. The Assessing Officer had recomputed the income by way of long term capital gains at Rs.3,94,85,148/- by adopting the sale consideration at Rs. 4,23,30,000/- in the above working. The Assessing Officer had enhanced the sale consideration by applying section 50C of the Act. The facts apropos this issue are that initially the asse....
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....lance of Rs. 73,70,400/- was received by M/s Dynasty Developers P. Ltd in their capacity as a confirming party. Though the Assessing Officer had taken cognizance of the fact that the assessee received only the sum of Rs. 3,49,59,600/- on the sale of the said land and had not received anything extra in the deal, still, he adopted Rs. 4,23,30,000/- as the sale consideration by referring to clause IX of the agreement dated 19.9.2001 entered into between the firm and M/s DDPL, a specific finding was given by the Assessing Officer in paragraph No.8.4.11 of the impugned order that as per the terms of clause IV of the agreement dated 19.9. 2001 the transfer of the land should have been completed within 30 days, i.e. by 13.1.2002 or a few days later depending on the date of receipt of the order of the Appropriate Authority, Bangalore, and as the sale deed was not executed by this time and further the sale deed was executed only on 30.5.2002 and it was registered on 31.5.2002, clause IX of the agreement dated 19.9.2001 became operative. The Assessing Officer had adopted the value taken by the Stamping Authorities as the sale consideration received by the assessee and computed capital gains ....
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....appeal stage the appellant's representatives have not filed a copy of the sale agreement dated 30.4.2002 entered into between the appellant firm and M/s Topaz Investments P. Ltd It was only a copy of the sale deed dated 30.5.2002 which was registered on 31.5.2002 that was made available. In the absence of the sale agreement dated 30.4.2002 entered into between the appellant firm and M/s Topaz Investments P. Ltd it is not possible to comment anything about the correctness of the amount of extra sale consideration if any, which the appellant firm was actually entitled to, in the entire deal. 4.5.1 So, if we go by the sale agreement dated 19.9.2001 and the sale deed dated 30.5.2002 it is clear that the appellant firm was entitled for a sale consideration of Rs. 3,49,59,600/- only. It is a fact that the appellant firm originally entered into a sale agreement with M/s Dynasty Developers P. Ltd to sell the subject land for a consideration of Rs. 3,49,59,600/- and it is also a fact that M/s Dynasty Developers P. Ltd was to be paid a sum of Rs. 73,70,400/- by the ultimate purchaser M/s Topaz Investments P. Ltd as a "Confirming party" as per the sale deed dated 30.5.2002 . So there....
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....r their nominee at the request of DDPL. Having received the full value of consideration as per agreement with M/s. DDPL, the assessee sold the property to M/s.TIPL nominated by M/s. DDPL. The deed of conveyance has clearly specified that the sale consideration is to be split up whereby a sum of Rs. 3,49,69,600/- has to be paid to the Appellant and Rs. 73,70,400/- was to be paid to DDPL as the confirming party. Thus, the assessee has the right to receive only a sum of Rs. 3,49,69,600/- on the sale of the property. The payment is in the nature of improving the title of the assessee in the property and hence, the amount should be allowed as a deduction under section 48. The Hon'ble Madras High Court in the case of CIT v A.Venkatraman (137 ITR 846) has held that the amount paid to the existing tenant to vacate the premises should be allowed as a deduction u/s 48 in computing the capital gains. Applying the same ratio, the amount paid to the agreement holder for giving up its rights for specific performance should also be considered as expenditure incurred in connection with transfer for the purpose of improving the title of the assessee and hence, should be allowed as a deduction i....
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....as irrecoverable from M/s.TTK Textiles Ltd. We find that similar issue came up for consideration for the assessment year 2002-03. With similar reasoning, we uphold the order of CIT(A) allowing the deduction of interest payable of Rs. 20,29,291/- and advance written off of Rs. 12,86,70,007 in connection with revival of the sister concern of M/s.TTK Textiles Limited. 52. In the result, the appeal filed by the Revenue for assessment year 2003-04 stands dismissed. I.T.A.No. 1043/Mds/2009 - A.Y 2004-05 53. This appeal of the assessee, for assessment year 2004-05, is directed against the order of the ld. CIT(A)-XII, Chennai, dated 31.3.2009. 54. The first issue of this appeal relates to disallowance of advertisement expenditure of Rs.3,33,334/-. The Company had completed 75% years of business successfully. They are promoters and key shareholders of various TTK group. They render various services like warehousing, dealer relations, invoicing, clearing and forwarding, selling etc. Therefore, the assessee has developed vast contacts and business links in the Industry. To celebrate the completion of 75 years in business, the assessee has given various gifts to clients and associa....
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.... "Sasmi organic Chemicals Pvt Ltd, was manufacturing and supplying Niacinamide chemicals and we were doing business on consignment basis. Commission earned on consignment sales was taken as income during those years. They were enjoying term loans and other credit facilities against the undertaking given by T.T.Krishnamachari & Co. The business did not progress as per the expectation and the bank decided to enforce the bank guarantee given by T.T.Krishnamachari & Co as per the undertaking agreement. Bank of Baroda proceeded through the Debt Recovery Tribunal and decree was passed against T.T.Krishnamachari & Co. The firm negotiated with the bank of Baroda and arrived at a settlement whereby an amount of Rs. 33,39,065/- was paid in full settlement as per bank of Baroda letter (enclosed herewith). As Sasmi organic Pvt Ltd became defunct and there was no possibility of recovering any amount from them. Therefore, the firm decided to write off the said amount as a prudent measure. The expenses having incurred in connection with the business of the company, the same may be allowed as bad debts or business loss". 4.3 He also filed the following evidence a. copy of....
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....le applies to the sum of Rs. 33,39,065/- written off by the firm in its accounts for the assessment year 2004-05 also. It is in the course of the firm's business that it had to guarantee the loans and credit facilities sanctioned to the company M/s.Sasmi Organic P Ltd by Bank of Baroda and once that company failed, the appellant firm was under obligations to make good the debts to the Bank. 4.7.1 Thus, it is held that the sum of Rs. 33,39,065/- is allowable as a business loss in the hands of the appellant firm." 60. Now the Revenue is aggrieved. 61. We have considered the rival submissions and have perused the entire material available on record. It is an undisputed fact that the assessee-firm had trading relationship with M/s Sasmi Organics Pvt. Ltd. and therefore, earning commission income out of the consignment sale of the product of that company. In order to facilitate M/s Sasmi Organics Pvt. Ltd. obtained credit for manufacture of the product the assessee had given letter of undertaking to the Bank of Baroda not only guarantying the liability owed by that company to the bank but also agreed not to withdraw the amounts advanced to M/s Sasmi Organics Pvt. Ltd. In ....
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...., the appeal filed by the assessee for assessment year 2001-02 stands dismissed. I.T.A.No. 1185/Mds/2009 - A.Y 2001-02 68. In this cross appeal by the Revenue, the first issue raised vide Ground Nos.2 and 2.1, is against allowing the claim of Rs. 3 lakhs as commission and Rs. 1.5 lakhs as technical fees paid to Late Shri T.T.Vasu. We have decided similar issue in assessee's appeal as well as in Revenue's appeal in the former part of this order. With the similar reasoning, we uphold the order of the CIT(A) on this issue and dismiss the grounds raised by the Revenue on this issue. 69. The next issue raised vide Ground Nos.3 and 3.1 is against the allowance of Rs. 89,04,253/- being interest payable on term loan obtained for the purpose of grounds of advance given to its associate concern M/s.TTK Textiles Ltd. 70. We find that this issue has come up for consideration for assessment year 2002-03. For the reasons stated in the Revenue's appeal in I.T.A.No. 1186/Mds/09 for the assessment year 2002-03, we uphold that the amount borrowed from the bank should be considered to have been used for the purpose of business of the assessee and hence the entire payment of interest of Rs....
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....TTK Biomed Limited has got merged with TTK Healthcare Limited this receipt was reflected in the accounts of TTK Healthcare Limited which it had claimed as exempt from taxation. It was argued that this sum was not taxable, because, the whole structure of the assessee company's profit making apparatus had been given up by the Company. On this basis, the ITAT allowed the non-compete consideration as capital receipt in the hands of TTK Healthcare Limited. The ld. CIT(A) has observed that the situation in the present assessee's case is not the same as that of TTK Healthcare Limited. In respect of the same transaction which TTK Healthcare Limited had entered into with LIG that Company had received Rs. 344.92 Lakhs as compensation which the ITAT had held as not liable to tax, because, the non-compete fee received, resulted in loss of particular source of income, the Company had to stop manufacturing of contraceptives as a consequence of the non-compete agreement. Whereas in the case of assessee-firm, it was not involved in any activity of manufacturing and selling of contraceptives before the non-compete agreement which it had to give up after the agreement, but, its role was that of a pr....
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....for restrictive covenant has to be held as capital receipt and the amendment made to Section 28(v)(a) is prospective and applicable only for the assessment year 2003-04 onwards. Further, we found that non compete fee on same transaction with M/s.TTK Healthcare Limited (formerly known as 'TTK Pharma Ltd') of Rs. 34492820/- has been held by the ITAT as capital receipt not subject to tax. The assessee being a promoter and having a name of repute in the field of manufacturing condoms could have started companies in competition with the business transferred. It is to avoid this competition. New Bridge Hong Kong Ltd. had entered into a non compete agreement with the assessee. Applying the ratio of the decision of the Apex Court as well as the decision of the ITAT in respect of non compete fee received by TTK Healthcare Limited from the same transaction, we hold that the amount of Rs. 1,90,74,000/- received by the assessee as capital receipt not subject to tax. 75. In the result, the appeal of the assessee for assessment year 2000-01 stands allowed. I.T.A.No. 1184/Mds/2009 - A.Y 2000-01 76. The only issue involved in this cross appeal filed by the Revenue, for assessment year 200....