TaxTMI 
TaxTMI 
2007 (4) TMI 284
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....of s. 37(4) are not applicable. It is submitted that it may be so held now. 3. The assessee is in appeal against the order of the learned CIT(A) confirming the disallowance of Rs. 62,26,739 being expenditure incurred on guest house. At the time of hearing, the learned counsel for the assessee fairly admitted that the aforesaid amount represented expenditure incurred on rent, rates, taxes, insurance and depreciation relating to the guest house maintained by the assessee. He also conceded, in all fairness, that the issue was now concluded against the assessee by the judgment of the Hon'ble Supreme Court in Britannia Industries Ltd. vs. CIT (2005) 198 CTR (SC) 313 : (2005) 278 ITR 546 (SC). In this view of the matter, ground No. 1 taken by the assessee is dismissed. 4. Ground No. 2 taken by the assessee reads as under: 2. The learned CIT(A) erred in confirming that the cash compensatory assistance and duty drawback are to be taxed on accrual basis as against on receipt basis offered by the appellant. It is submitted that the appellant had changed the method of accounting from cash basis to accrual basis for its account purpose following the amendments in the Companies A....
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....ration. 6. In reply, the learned Departmental Representative submitted that the decision of the Tribunal in the assessee's own case for asst. yr. 1989-90 was not in conformity with the law laid down by the Hon'ble Punjab & Haryana High Court in CIT vs. Punjab Bone Mills (1998) 146 CTR (P&H) 63 : (1998) 232 ITR 795 (P&H) affirmed by the Supreme Court in CIT vs. Punjab Bone Mills (2001) 170 CTR (SC) 558 : (2001) 251 ITR 780 (SC) as also the statutory provisions contained in s. 145(2) of the IT Act and the circular issued by the Board in this behalf. The learned Departmental Representative has also filed his written submissions in this behalf in which he has made the following submissions: (i) The order of this Tribunal in the assessee's own case for asst. yr. 1989-90 should not be followed in view of the decision of Hon'ble Punjab & Haryana High Court in CIT vs. Punjab Bone Mills, which has since been affirmed by the Hon'ble Supreme Court in (2001) 170 CTR (SC) 558 : (2001) 251 ITR 780 (SC). It is pointed out that the High Court, in the aforesaid case, has dealt with a similar question and held in para 21 of its judgment that income in respect of cash incentive for export would....
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....956) 30 ITR 191 (Mad) and Motilal Ambaidas vs. CIT 1977 CTR (Guj) 165: (1977) 108 ITR 136 (Guj). 7. In his rejoinder submissions, the learned counsel for the assessee referred to the decision of the Supreme Court in CIT vs. Punjab Bone Mills, relied upon by the learned Departmental Representative and submitted that, in CIT vs. Punjab Bone Mills, the Punjab & Haryana High Court had to consider a case where the assessee was accounting for the incentives on a receipt basis and, therefore, had not accounted for the incentives even though they had accrued. The AO took the view that the incentives accrued when the export took place and, therefore brought to tax the amount. The Tribunal however had taken the view that the incentives accrued to the assessee on the date when the claim was made by the assessee to the competent authority. The assessee, in that case, accepted the aforesaid finding of the Tribunal and did not prefer any reference to the High Court. The Revenue in its reference had urged that the cash incentives accrued as and when the export was made and the Tribunal's conclusion was therefore erroneous. It was this contention of the Revenue that was rejected by the High Cou....
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....e assessee has recognized and accounted for duty drawback amounting to Rs. 3,26,29,893 on accrual basis in its books of account. It is therefore clear that the assessee has followed accrual basis and following that basis recorded the export incentives in its books at the time when it lodged the claims for export incentives before the concerned authorities. 9. Sec. 145(1) provides that the income chargeable under ss. 28 and 56 of the IT Act shall, subject to the provisions of s. 145(2), be computed in accordance with cash or mercantile system of accounting regularly employed by the assessee. Sec. 145(2) empowers the Central Government to notify accounting standards to be followed by any class of assessees or in respect of any class of income. Sec. 145(3) empowers the AO to discard the books of account if he is not satisfied about their correctness or completeness or where the method of accounting provided in s. 145(1) or accounting standards as notified under s. 145(2) have not been regularly followed by the assessee. It is therefore clear that, barring the cases covered by s. 145(2) and (3), the books of account maintained by the assessee are binding on the AO and will therefore....
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....The accounting treatment given by the assessee to the export incentives in the accounts maintained by it is in conformity with the income-tax law and more particularly in conformity with the accounting standards notified by the Government. We therefore confirm the orders of the AO and the CIT(A) in bringing the amount of export incentives to the charge of income-tax on the basis of their accrual as recognized and recorded by the assessee in its books of account. 11. The assessee has placed strong reliance on the decision of this Tribunal in the assessee's own case for asst. yr. 1989-90. That was the case for asst. yr. 1989-90 when accounting standards had not been notified. Now, the accounting standards have been notified w.e.f. asst. yr. 1997-98 in pursuance of the provisions of s. 145(2) and hence we have proceeded to consider and adjudicate upon the issue in the light of the law in force in the assessment year under appeal. 12. In view of the foregoing, the order of the CIT(A) is confirmed. Ground No. 2 is dismissed. 13. Ground No. 3 taken by the assessee reads as under: 3. The learned CIT(A) erred in confirming that 10 per cent of the total receipt be treated as exp....
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....st. yr. 1989-90. Ground No. 4 taken by the assessee is dismissed. 17. Ground No. 5 taken by the assessee reads as under: 5. The learned CIT(A) erred in confirming that the head office expenses are required to be allocated while arriving at the profit of the industrial undertaking for the purpose of allowing deduction under s. 80-I of the IT Act. Without prejudice, it is further submitted that the expenditure is allocated on a very higher side and it should be reduced substantially. 18. Briefly stated, the facts of the case are that the assessee had claimed a combined deduction under ss. 80-I and 80-IA of the IT Act in respect of 11 newly established undertakings out of which 7 undertakings were such in respect of which the claim had been made in the past and also allowed by the AO after detailed examination. However, the AO disallowed the claim in the year under consideration on the ground that the aforesaid units were situated within the existing factory buildings. According to him, the deduction is available only to a new entity that comes up on its own and has its own independent existence. On appeal the learned CIT(A) held as under: 10.3 The submissions made b....
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.... receipt the principle laid down therein would be equally applicable to an item of expenditure and hence, it was only that expenditure, which had a direct and proximate nexus with the earning of the profit that could be taken into consideration in determining such profits. He argued that the expenditure incurred at the head office would have no such nexus. In this regard, he placed reliance on a ruling of the Authority for Advance Ruling in National Fertilizers Ltd., In re (2005) 193 CTR (AAR) 498 : (2005) 142 Taxman 5 (AAR) wherein, in para 10 of the order, the Authority has observed therefore the income and expenditure transferred by the corporate office and the marketing office to Vijaypur unit ignored the fact that for the purpose of claiming the exemption under s. 80-I, it is only income derived from the industrial undertaking that has to be reckoned in computation as such the income and expenditure which are not directly relatable to Vijaypur unit cannot but be ignored. In view of this position, the expenditure allocated by the corporate office and the marketing division ought to have been excluded from the debit side of the P&L a/c for working out the profits of industrial u....
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....rn Medikit Ltd. (2006) 100 TTJ (Del) 382 : (2006) 153 Taxman 48 (Del)(Mag) in which it has been held that head office expenses would have to be allocated to each unit for determining profit derived for the purposes of s. 80-IA, unless there were compelling reasons to exclude specific items of expenses. According to him, the assessee has not given any compelling or special reasons for not apportioning the head office expenses to new units. 22. His next argument was that the IT Act always recognized allocation of head office expenses to compute the profits correctly. In this connection he referred to the provisions of s. 44C. According to him, head office expenses were always allowed for computing income of Indian branch, when head office was located out of India and one branch was in India. He referred to the decision in Grindlays Bank Ltd. vs. ITO (1979) 116 ITR 710 (Cal) which pertained to asst. yr. 1959-60 in which head office expenses were allowed by the AO and all other higher forums (dispute was on quantum/reopening). When s. 44C was introduced to regulate quantum of head office expenses, CBDT issued Circular No. 202, dt. 5th July, 1976 recognising deduction of head office ....
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....nd exactness in the matter. As long as the proportion fixed by the Tribunal is based upon the relevant material, it should not be disturbed. (iii) CIT vs. Anniversary Investments Agencies Ltd. (1989) 78 CTR (Cal) 91 : (1989) 175 ITR 199 (Cal). (iv) Neyveli Lignite Corpn. Ltd. vs. State of Tamil Nadu (1992) 193 ITR 685 (Mad) for the proposition that, with a view to claim deduction, it was essential for the assessee to establish that the staff was employed and deployed exclusively for the agricultural activity and since it failed to establish that by producing any material or-evidence, the statutory authorities had the option either to reject the claim in toto or to do substantial justice and arrive at an estimate and they fairly adopted the latter course. (v) CIT vs. National & Grindlays Bank Ltd. (1993) 109 CTR (Cal) 264 : (1993) 202 ITR 559 (Cal): The question of allocation of expenditure may arise when different activities do not constitute one and the same business and income from some of the activities is not taxable. In such a case, composite business expenditure has to be allocated to each one of the activities. (vi) Kota Co-operative Marketing Society Ltd. vs. CI....
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.... the other hand, are profit centres or centres of business/industrial activity. The short question is whether head office expenses which are in the nature of common expenses are required to be allocated to different units or undertakings and more particularly to the undertakings claiming deduction under s. 80-IA of the IT Act in respect of the profits derived from those undertakings. 26. Sec. 14 of the IT Act classifies all income into five heads for the purpose of creating charge to income-tax and computation of total income. The term total income has been defined in s. 2(45) of the IT Act, to mean the total amount of income referred to in s.5, computed in the manner laid down in this Act. Secs. 15 to 59 of the IT Act lay down the rules for computing income for the purpose of charge ability to tax under specified heads. It is therefore clear that computation of income under a given head will require accounting of not only the receipts but also of the expenses relating thereto. In other words, the expenses relating to a given head must be considered under that head only so as to arrive at the net income under that head. Likewise the income (i) may be chargeable to tax; and (ii) ....
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....iew, defeats the basic principle of taxation whereby only the net income i.e. gross income minus the expenditure is required to be taxed. The head office expenses are, therefore, required to be allocated on pro rata basis between various undertakings, which according to the assessee are independent of each other. 28. In taking the aforesaid view, we are supported by a decision of the Hon'ble Supreme Court in Waterfall Estates Ltd. vs. CIT (1996) 132 CTR (SC) 495 : (1996) 219 ITR 563 (SC). In that case also the issue involved was whether managing agency commission, which was common to various sources of income, some of which were taxable and some non-taxable, should be allocated to the respective sources of income. In that case the Hon'ble Supreme Court upheld the order of the Tribunal and the High Court allocating common expenses namely management agency commission against the sources of income chargeable to tax as also to those not chargeable to tax. In the context of allocation of head office expenses to an industrial undertaking eligible for deduction under s. 80-IA, the Delhi Bench of this Tribunal has already held in Dy. CIT vs. Eastern Medikit Ltd. that head office expense....
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....om the industrial undertaking. Of course, any component of head office expenses, which has been incurred exclusively for the purposes of the business of any particular unit/undertaking/division will have to be adjusted against the receipts of that particular unit/undertaking/division only. Similarly, head office expenses or expenses which are common to all the units/undertakings/divisions expenses will have to be spread over and charged against the receipts of all the units/undertakings/divisions. If this course is not followed, then what would stand allowed under s. 80-IA would be inflated profits and not the net profits derived from the industrial undertaking in terms of the provisions of ss. 29 to 43. In this view of the matter and also in the absence of any better alternative, the CIT(A) is justified in holding that the assessee is entitled to deduction of the eligible amounts in respect of the profits derived from the eligible undertakings after the allocation of head office expenses in the ratio of turnover. We see no valid reason to take a view contrary to the one taken by the CIT(A) in this behalf. Ground No. 5 is dismissed. 30. Ground No. 6 taken by the assessee reads a....
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....he assessee according to the method of accounting regularly employed by him) in computing the income referred to in s. 28 of the previous year in which such sum is actually paid by him. It is submitted that in accordance with the rules governing the gratuity fund, the amount of Rs. 95,50,940, although it represented a liability for the year ended 31st March, 1997, was not a sum payable as on the last date of the accounting year and hence the provisions of s. 43B would have no application. In this regard, he has placed reliance on the ratio of the judgment of the Andhra Pradesh High Court in Srikakollu Subba Rao & Co. vs. Union of India & Ors. (1988) 71 CTR (AP) 34 : (1988) 173 ITR 708 (AP) wherein it has been held that, in order to apply the provisions of s. 43B, not only should the liability to pay the tax or duty be incurred in the accounting year but the amount should also be statutorily payable in the accounting year. According to him, the legislature has set at naught the ratio of the aforesaid decision by inserting Expln. 2 below s. 43B, which clarifies that it is only for the purposes of cl. (a) that any sum payable means the sum for which the assessee has incurred the liabi....
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....t the CIT(A) was not justified in confirming the disallowance. 35. In reply, the learned Departmental Representative submitted that the Rajasthan High Court in CIT vs. Udaipur Distillery Co. Ltd. (2004) 187 CTR (Raj) 369 : (2004) 137 Taxman 201 (Raj) has held that first proviso to s. 43B relieved the hardship by making liberalized exception to the general provision about sums falling in cls. (a), (c), (d) and (e) of s. 43B, which have been incurred during the concerned previous year and has been paid before filing the return for relevant assessment year within time allowed under s. 139 and return is accompanied by proof of such payments but this does not apply to the provisions of s. 43B(b) requiring actual payment within the previous year itself for claiming the deduction in respect of sums referred to in cl. (b) only if they were paid as and when they become due to be paid, under relevant statute or settlement, etc. 36. Referring to the facts of the present case, he submitted that the assessee company was required to pay to the gratuity fund by the end of the financial year or soon thereafter. According to him, payment made after 8-9 months of the end of the financial year ....
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....y to pay was incurred upon actuarial valuation carried out after the end of the previous year and hence the amount in question could not be paid during the previous year relevant to the assessment year under appeal. It is the 9ase of the assessee that the provisions of s. 43B are not attracted in its case as the impugned amount was not payable in the year under appeal. If that is so, the assessee, in our view, would not be entitled to claim deduction under s. 36(1)(v) itself in the year under appeal as the amount in question was not payable. However, if the case of the assessee is that it was payable in the year under appeal, it would, in that case also, be hit by s. 43B of the IT Act which, inter alia, provides that deduction for any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees shall be allowed, irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him, in computing the income referred to in s. 28 of that previous year in which such sum is act....
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....ess income for the purpose of deduction under s. 80HHE various deductions made by AO are as per the provisions of s. 80HHE. It is submitted that various deductions made from the business income are not as per the provisions of s. 80HHE and it may be so held now. 42. Briefly stated, the facts of the case are that the assessee has claimed a deduction for Rs. 1,37,58,241 under s. 80HHC of the IT Act. For the reasons given in para 15 of the assessment order, the AO has restricted the deduction to Rs. 1,08,76,244. One of the reasons for reduction in the eligible amount of deduction under s. 80HHC is the action of the AO in excluding 90 per cent of the receipts by way of the interest income, rental income, commission income and sundry income while computing the business profits under sub-cl. (i) of cl. (baa) of the Explanation to s. 80HHC. On appeal, the learned CIT(A) has confirmed the action of the AO in this behalf with the following observations: 14.2 In respect of the second area, the appellant's representative has submitted that the AO was not justified in excluding 90 per cent of the receipts by way of interest income, rental income, commission income and sundry income in th....
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....gislature has brought at par the components of export turnover and sales turnover. Both the numerator and the denominator show that they refer to sale proceeds. Any receipt which does not form part of the sale proceeds cannot come within the ambit of the above ratio. This is also in view of the fact that proration applies to business profits in order to work out the export profits. Further, the exclusion provided under cl. (ba) to the Explanation further establish that the legislature clearly intended to exclude all receipts which have no nexus with the sale proceeds from the export activity. 14.6 In view of the above, as far as this area relating to computation of deduction under s. 80HHC is concerned, the action of the AO to hold the receipts as falling under cl. (baa) of the Explanation is as per law and hence is sustained. 43. Aggrieved by the aforesaid order, the assessee is now in appeal before this Tribunal. 44. In support of the aforesaid ground, the learned counsel for the assessee submitted that the assessee had claimed a deduction under s. 80HHC of Rs. 1,37,58,241, which has however been restricted by the AO to the extent of Rs. 1,08,76,244 and therefore the iss....
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....ut his alternative contention was that the assessee, after the said exclusion, would still be left with the actual commission receipt of Rs. 39,09,286 as is apparent from p. 125 of the assessee's compilation and hence 90 per cent of the same should be excluded from the profits of the business under Expln. (baa) to s. 80HHC to which the learned counsel replied by contending that it would only be the net amount of commission that would be excluded following the principle laid down in Lalson's case. As regards the issue whether the AO is justified in reducing the profits of the business by a sum of Rs. 1,02,28,161 being the sundry income, the learned counsel took us through the details at p. 125 of his compilation and submitted that the amount was received from the insurance company towards indemnification of the loss suffered by the assessee and hence could not be regarded as a receipt of a nature similar to interest, rent, commission or brokerage as is contemplated in cl. (baa) of the Explanation. In this regard, he placed reliance on the decision of the Ahmedabad Bench of this Tribunal in Gujarat Alkalies & Chemicals Ltd. vs. Dy. CIT (2002) 77 TTJ (Ahd) 245 : (2002) 82 ITD 135 (Ahd....
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....ny other High Court. He submitted that judicial discipline requires that the view taken by a superior judicial body, i.e., Supreme Court or High Court in matters of law should be preferred over the view taken by the Tribunal in a given case. His alternative submission was that even otherwise the decision in Lalsons case was on net interest as it was based upon a judgment of the Supreme Court regarding netting of interest to partners under s. 40 and hence it cannot be extended to rent, commission, etc., especially when two High Courts are against the decision in Lalsons. 46. We have heard the parties and considered their submissions including the authorities referred to by them in their submissions. According to Expln. (baa) to s. 80HHC, Profits of the business means the profits of the business as computed under the head Profits and gains of business or profession as reduced, inter alia, by 90 per cent of any sum referred to in cls. (iiia), (iiib) and (iiid) of s. 28 or any receipt by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in such profits. Bare perusal of the aforesaid Explanation shows that the profits of the busines....
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....for those expenses. The Hon'ble High Court has thus drawn a clear distinction between operational business income as meaning that business income, which has an element of turnover and non-operational business income, which does not have an element of turnover. Learned CIT(A) has recorded a categorical finding that the items, like interest, rent, commission are not included in the turnover. He therefore treated them as non-operational income falling under sub-cl. (1) of cl. (baa) of Explanation to s. 80HHC. In our opinion, learned CIT(A) is right in his observation that the profits of the business is required to be reduced by 90 per cent of the interest, rent, and sundry income as all these items of income have been held by the learned CIT(A) to be in the nature of non-operational income. The decision taken by the learned CIT(A) is broadly in conformity with the decision of the Hon'ble jurisdictional High Court in Bangalore Clothing Co. 47. It is, however, contended by the assessee that it is 90 per cent of the net amount of interest income, rental income, commission income and sundry income, which can be considered for reduction from the profits of the business. The learned coun....
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....re can be a nexus between interest paid and interest received but there cannot be any such nexus in earning other non-operational income like rental income, commission income and miscellaneous/sundry income of similar nature. As already mentioned above, deduction of expenses @ 10 per cent has already been statutorily provided for netting non-operational income. Statutory fixation of 10 per cent for expenses can neither be increased nor decreased by us. Netting of non-operational income is permissible @ 10 per cent alone. No further netting can therefore be allowed. 49. It has been pointed out by the learned counsel for the assessee that the actual amount of receipt on account of commission is only Rs. 39,09,286 and hence it is 90 per cent of this amount which should be considered for exclusion from the profits of the business. The learned counsel for the assessee however submitted that it is 90 per cent of net commission alone, which, in terms of the decision of the Special Bench of this Tribunal in Lalsons Enterprises, should be considered for exclusion from the profits of the business. We have already rejected the aforesaid submission of the assessee and held that netting of c....
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....). We shall now deal with each one of them. Ground No. 9: Issue of slump sale and matters connected therewith 52. We shall first take up the issue raised in ground No. 9 that the impugned sale is a slump sale and hence the profits and gains arising on transfer are not taxable. Briefly stated, the facts of the case are that the assessee was, inter alia, engaged in the business of manufacture, sale and distribution of machinery components for fabricating locomotives, signaling systems and electrification for the railways, compendiously referred to in the agreement as the transportation business. At a meeting of the board of directors of the assessee company held in December, 1995, it was resolved that the transportation business would be sold as a going concern to a company called ABB Diamler Benz Transportation (India) Ltd. (hereinafter referred to as the purchaser). It was also resolved that the assessee would enter into an agreement with the purchaser whereby it would furnish a covenant that it would not compete with the purchaser of the company in its business activities. A formal agreement dt. 28th June, 1995 (agreement in short) was executed between the assessee and the purc....
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....p; 108.31 (b) Furniture and fixtures 30.34 (c) Tools and moulds 17.95 (d) Vehicles 3.58 (e) Technical know-how 4,317.62 (f) Building Nil (g) Inventories 3.09 55. In the return of income filed by the assessee, the assessee claimed that no part of the considerati....
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....ed in two parts and accordingly the interest for the period from 1st Jan., 1996 to 31st March, 1996 was chargeable in the asst. yr. 1996-97 while the balance of the interest received for the period commencing on 1st April, 1996 was chargeable to tax in asst. yr. 1997-98. The assessee is aggrieved by the order of the CIT(A) with regard to the taxability of the aforesaid amounts. Submissions made on behalf of the assessee 57. As regards the taxability of Rs. 53.10 crores, being the amount received in pursuance of the first agreement transferring the transportation business, the learned counsel for the assessee submitted that the conclusion reached by the learned CIT(A) was erroneous and therefore the claims made in the return of income ought to be accepted. According to him, the subject-matter of transfer is the transportation business as such and, therefore, the gain, if any which arises from such transfer ought to be computed on that basis. He referred to the following decisions in support of his submission that when a business as a whole is transferred as a going concern the capital gains, if any, ought to be computed on the basis that whole of the business is a capital asset and ....
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....m the various items that constitute it. 59. The learned counsel submitted that, in order to ascertain whether the transportation business has been transferred as such as a going concern for a lump sum amount, the following tests should be applied: (i) Whether the parties to the transaction intended to transfer the business as a going concern for a lump sum consideration for the business as a whole? (ii) Whether, as a result of the transfer of the business, the transferee is in a position to carryon the business that the transferor was carrying on? (iii) Whether the transferee would have purchased the individual assets at all? 60. Applying the aforesaid tests to the facts of the present case, the learned counsel submitted that the intention of both the parties was very clear. The assessee not only transferred the transportation business as a whole but also ceased to carryon the said business after the transfer was effected. The purchaser, on the other hand, took over the transportation business as a whole and started to carry on the said business. According to him, the parties did not intend in any manner whatsoever that the there would be itemized transfer or acquisi....
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..... vs. ITO. He explained that, in the present case, there were sound commercial reasons for not transferring the building, viz., having regard to its location in the midst of the assessee's existing factory and hence it was physically incapable of being segregated and handed over to the purchaser. 63. Having contended that what was transferred was an undertaking as a whole amounting to a slump sale, the learned counsel submitted that the provisions of s. 50, as applied by the learned CIT(A), would not at all be applicable. According to him, three conditions that are required to be fulfilled to attract s. 50, namely, (1) the asset must form part of a block of assets; (2) depreciation ought to have been allowed in respect thereof; and (3) the full value of the consideration accruing in respect of the transfer of that asset should be ascertainable, are not complied with in the present case and hence the learned CIT(A) was not justified in directing the AO to apply s. 50. Elaborating his submissions, he submitted that the asset that was transferred was the business as such which would undoubtedly comprise of various items in respect of which depreciation might have been individually ....
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....ot an undertaking itself but some of the assets of the factory located at Baroda. 65. Referring to the factual matrix of the decisions cited by the learned counsel for the assessee, he submitted that all of them had one common feature and that feature was that all the assets including land and building were sold whereas, in the present case, land and building were not sold. Referring to the decision of Bangalore Bench of this Tribunal in Dy. CIT vs. Mahalasa Gases, relied upon by the learned counsel for the assessee, he submitted that the Bangalore Bench has not decided the matter on the legal premise that the sale of land was not warranted in order to term the sale as slump sale, but it was held in para 35 of that order that the land retained was never used for the business of transferred unit and that it was surplus land. He also referred to the judgment of the Hon'ble Bombay High Court in Premier Automobiles Ltd. relied upon by the assessee and submitted that the issue in that case was not decided on the legal premise that sale of land/building was not warranted in order to term the sale as slump sale. What was held, according to the learned CIT-Departmental Representative, i....
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....so referred to the decision of this Tribunal in Mahindra Sintered Products Ltd. vs. Dy. CIT (2005) 96 TTJ (Mumbai) 785 : (2005) 95 ITD 380 (Mumbai) and submitted that the issue under consideration was squarely covered by the said decision in favour of the Revenue that the impugned sale was not a slump sale. 67. He took us through the agreement placed at p. 133 of the paper book filed by the assessee and submitted that what the assessee had transferred were tangible and non-tangible assets. Repelling the submissions made by the learned counsel for the assessee that the cost of acquisition and cost of improvement were indeterminate in respect of intangible assets and hence not exigible to capital gains tax, he submitted that their costs of acquisition and improvement already stood allowed to the assessee in earlier years and hence it was not open to the assessee to contend that their costs of acquisition and improvement were indeterminate and thereby to contend further that they were not exigible to capital gains tax as the computation of capital gains would fail due to the indeterminate nature of their costs of acquisition and improvement. According to him, whatever expenditure w....
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....80 CTR (Kar) 87 : (2003) 264 ITR 124 (Kar): .......In the present case, admittedly, the assets of the firm as a going concern were sold for a consideration of Rs. 92 crores without expressly specifying the value of the individual assets of the firm which included lands and buildings, plant and machinery and the goodwill. Therefore, in a traditionally and judicially accepted sense the transaction can be said to be a slump sale. But, neither the IT Act nor any judicial pronouncement declares that where sale of the assets is made for a lump sum consideration, it cannot be subjected to tax under the heading Capital gains. The law is that if individual assets can be reasonably valued for ascertaining their respective cost of acquisition, then by resorting to statutory parameters and mode of calculation devised under the head Capital gains in Chapter IV, the gains so computed can always be brought to tax. This aspect of law has been considered and declared to this effect by the Supreme Court in the case of CIT vs. Artex Manufacturing Co. (1997) 141 CTR (SC) 290 : (1997) 227 ITR 260 (SC).... Keeping in view the law declared by the Supreme Court in CIT vs. Artex Manufacturing Co. ....
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....hich is not the case of the assessee herein. A careful reading of cls. 1 and 13 of the agreement reveals that liabilities do not enter into this transaction and what is sold is the assets, movables and immovables, comprised in the Annexures and not the liabilities (Annex. 5) to cl. 1 of the agreement. Clause 13 of the agreement makes it more clear that the liabilities will be the responsibility of the liquidator. Thus it was not a slump sale, rather only the assets excluding investment and deposits was sold and the liabilities remained with the assessee. In the cited cases of the Supreme Court, the sale of business as a running concern had involved both assets and liabilities. We agree with the view of the CIT(A) that in a case of slump sale of running business, there is always been a difficulty in applying the provision of s. 41(2) as well as those of capital gains in respect of depreciable assets, it is because in such cases of sale of assets with liabilities, to determine precisely what asset was sold and what consideration was attributable to that asset posed a moot point and when the business is sold as a running concern what possess on is the assets tagged with liabilities i.....
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....sa Shetty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC), only exception being in respect of the assets specifically mentioned in the deeming clause of s. 55(1)(a). The assessee has however not claimed the expenses of any such intangible assets for being part of sale transaction. We thus find no infirmity in the order of the CIT(A) in this regard. 70. Learned Departmental Representative further contended that capital gain arising on transfer was taxable regardless of whether the impugned transaction was a slump sale or not. As regards the computation of profits arising on transfer, he submitted that no fruitful purpose would be served by referring the matter back to the AO/DVO for valuation afresh as the matter was about 10 years old and all the relevant parameters for valuation, like ownership, location, and the state of assets transferred must have undergone changes over such a long period. According to him, no deduction could be allowed in respect of intangible assets, for the reasons given earlier by him. As regards the valuation of tangible assets, he submitted that the CIT(A) has estimated the profits after duly considering the entire material available on record before ....
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....apital asset within the meaning of s. 2(14)/45 but it was for the first time, by a fiction, deemed as to how the cost of acquisition of such business would be computed. He submitted that such a provision could never have retroactive/retrospective effect. He contended that if the contention of the Revenue in this behalf was to be accepted it would mean that the amendments made in s. 55(2)(a) deeming the cost of acquisition of certain assets to be nil would equally have retroactive/retrospective effect which was contrary to the judgment of the Hon'ble Supreme Court in CIT vs. D.P. Sandhu Bros. Chembur (P) Ltd. (2005) 193 CTR (SC) 578 : (2005) 273 ITR 1 (SC) in which it has been clearly held that the amendments in s. 55(2)(a) deeming the cost of acquisition of a tenancy right to be nil would have only prospective effect. He referred to the order of the Ahmedabad Bench of this Tribunal in Industrial Machinery Associates and the order of the Hyderabad Bench of this Tribunal in Coromandel Fertilizers, have both specifically rejected a similar contention urged by the Revenue. In fact, the very decision of the Supreme Court relied upon by the learned Departmental Representative in support ....
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....not has been complied with in that the intention of the parties was to transfer the business as a whole for a lump sum consideration and that the transferee would have never acquired the individual assets as such and also the fact that the purchaser was in a position to carry on the business from 1st Aug., 1996 that were handed over to the purchaser and in fact had so carried on the business as received on transfer. He contended that the mere fact that the land and building in which the undertaking that was operating were not transferred was not determinative of the issue as there were sound commercial reasons for not transferring the land and building. Both, the Bombay High Court in the case of Premier Automobiles Ltd. as well as the Bangalore Bench of the Tribunal in the case of Mahalasa Gases Ltd. have held, according to the learned counsel, that the mere fact that some assets have not been transferred would not negate the sale from being a slump sale. 75. The decision of the Bangalore Bench of the Tribunal in Kampli Co-operative Sugar Factory Ltd. vs. Jt. CIT relied on by the learned Departmental Representative was, according to the learned counsel, also distinguishable on f....
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....oned in the schedule to the agreement in that case, like the case of the present assessee, transferred but other assets such as trademarks, trade name, pending contracts, patent, licences were also transferred which led to the inescapable conclusion that what was transferred was the business and not the individual assets. Findings and decision 78. We have heard the parties and considered their submissions including the authorities referred to by them in their submissions. Both the parties have relied upon several decisions to support their respective cases. According to the well settled theory of precedents, every decision contains three basic ingredients: (i) findings with regard to material facts, direct and inferential; (ii) statement of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of (i) and (ii) above. For the purpose of the parties themselves and their privies, ingredient (iii) is the material element in the decision for it determines finally their rights and liabilities in relation to the subject-matter of the action. It is the judgment that estops the parties from reopening the disput....
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....irst issue that arises for consideration is whether the transfer of a part of the moveable assets, etc. out of several other assets and manufacturing activities at Baroda factory of the assessee, to ABB Diamler Benz Transportation (I) (P) Ltd. (the purchaser) is a slump sale. The advantage of a slump sale is that the business profits attributable to stocks cannot be treated as business profits taxable at normal rates applicable for taxing the business profits: In case of slump sale, the profit on sale of depreciable assets covered earlier under s. 41(2) could not be taxed at normal rates. After s. 41(2) was substituted by s. 50, incidence of tax on short-term capital gains arising on transfer of depreciable assets can also be avoided in cases of slump sales. Now s. 50B has been inserted in the IT Act w.e.f. asst. yr. 2000-01 to provide for a special procedure for computation of income from slump sale. Capital gains in case of slump sales are taxable under s. 50B in accordance with the mode of computation prescribed therein. The benefit of indexation is, however, not available for computing the capital gains under s. 50B. It is thus quite clear that tax implications are substantial ....
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....r than what results from the appreciation of capital. The essence of the matter, however, is not that an extra amount has been gained by the selling out or the exchange but whether it can fairly be said that there was a trading from which alone profits can arise in business.' It follows from the above that once it is accepted that there was a slump transaction in this case, i.e., that the business was sold as a going concern, the only question that remains is whether any portion of the slump price is attributable to the stock-in-trade. 82. It is thus quite clear that the concept of slump sale has always been in existence and judicially recognized with well-defined parameters as to what constitutes a slump sale. The tests for determination of what constitutes a slump sale are laid down in Artex Manufacturing Co. in which severalty in the sale, on the facts of that case, was inferred and held that it was not a slump sale and in CIT vs. Electric Control Gear Manufacturing Co. in which the Hon'ble Court inferred, on the facts of that case, that it was a slump sale. Both the decisions are reported in 227 ITR. 83. After the decision in CIT vs. Mugneeram Bangur & Co. it was alway....
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....ctual cost would have to be charged as capital gains. Referring to the decision in Mugneeram Bangur's case, the Hon'ble Court has held that where there is a slump transaction, and the business is sold as a going concern, what is to be seen is whether any portion of the slump price is attributable to the stock-in-trade, and if on the basis of the facts it can be found that a particular price is attributable to a particular item, then the excess amount would be chargeable to tax under s. 10(2)(vii), proviso (ii) of the 1922 Act (s. 41(2) of the 1961 Act), as applicable in that assessment year. The decision in Artex has proceeded on the basis of three material facts: one, the items were severable; two, the values to the individual items were assigned by the valuer and not by the vendor; and, three, it is the information available on record that attracted the applicability of doctrine of severalty to reject the plea of slump sale. 85. In CIT vs. Electric Control Gear Manufacturing Co., the assessee was a partnership concern and had entered into an agreement whereby it transferred the entire assets of the business together with liabilities as a going concern to a limited company for ....
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....mprised in the business; (iii) The materials available on record do not indicate item-wise value of the assets transferred; and (iv) There is no material on record to infer severalty in the sale, as in the case of Artex. In other words, if the materials available on record indicate severalty of sales in terms of identification of items and their values, the sale would not be a slump sale. 87. From the foregoing, it is quite clear that all composite sales are not necessarily slump sales. A sale of various items put together may not constitute a slump sale unless it satisfies all the tests of a slump sale, as outlined in the preceding para. Learned CIT(A) has held that the impugned sale/transfer is, at the best, a composite sale of the items described in the agreement but not a slump sale. 88. In para 20.1 of his order, the learned CIT(A) has examined the shareholding pattern of the companies involved in the impugned transaction and observed that all the companies to the transaction are part of ABB Group. He has also observed that the purchaser company was incorporated as a part of the global restructuring of the operations of the group. It is on the strength of the facts....
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....ncern or as an undertaking was undertaken for the first time in the agreement itself. The finding of fact recorded by the learned CIT(A) is not in dispute. As already stated above, the ABB Group had the option to draft the agreement in a manner that promoted its interest. The transportation business was recognized as an independent undertaking in the agreement only without there being any recognition and identification of such business either in the books of assessee or in terms of its independent existence. Since the transportation business identified in the agreement was neither recognized in the books of account nor had otherwise any independent existence, the parties to the agreement were tempted to identify the items, which could constitute transportation business and define it as undertaking to have the benefit of a slump sale. Secondly, the list of all items as given in the agreement is not precise and comprehensive inasmuch as the items so listed do not have any precise identification of the items to be transferred. Precise identification of the items in the agreement would have been possible only if the assessee had identified and allocated the assets and liabilities perta....
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....nding of the CIT(A). 91. In para 20.6 of his appellate order, the learned CIT(A) has referred to the treatment given by the purchaser, a-part of the ABB Group, in allocating the value to each item of the asset transferred. The assessee submits that the treatment given by the purchaser is immaterial in that it is a unilateral action on the part of the purchaser which cannot form the basis for holding that the assessee transferor has allocated the value to each item. He has referred to certain decisions, cited supra, to support his submission. The learned CIT-Departmental Representative controverts the aforesaid submission by saying that it is not a case where the transaction is at arm's length in that the impugned transfer has been effected between group companies. In our view, the submissions made by the learned CIT-Department Representative carry greater conviction. It cannot be said that the group management controlling both the companies was unaware of the aforesaid allocation of the value. Even though in law the group companies have separate existence and are separate entities it is well established that in certain circumstances, the veil of corporate personality can be pier....
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....axability of the profits/gains in the absence of a slump sale. 93. One of the inevitable consequences of the transaction being treated as a case of non-slump sale is that the sale consideration is allocable. We have already held that the impugned transfer does not amount to slump sale. Consequently we direct that the gains arising on transfer of (i) inventory; (ii) depreciable assets; and (iii) other assets be charged to tax in terms of the directions given hereinafter. 94. Having held that the impugned transaction is not a slump sale, the learned CIT(A) has held in para 22(iii) of his appellate order as under: The sale consideration of Rs. 53.10 crores as reduced by the profit of Rs. 4.25 crores arising to the appellant company from 1st Jan., 1996 to 31st July, 1996 is chargeable to tax as short-term capital gains under s. 50 of Act and not as long-term capital gain as held by the AO in the assessment order. Hence the net sale consideration after reduction of the cost of asset taken by the AO at Rs. 6.79 crores is liable to tax as such. 95. The learned counsel for the assessee submits that the aforesaid order of the learned CIT(A) is not in conformity with the provisio....
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....vides for computation of capital gains arising on transfer of depreciable assets. Sec. 50 being a special provision will override the general provisions in the matter of computation of capital gains on transfer of depreciable assets. Sec. 50 envisages taxability of short-term gain arising on transfer of depreciable assets with reference to sale consideration and written down value of the depreciable assets with some other adjustments but in no case with reference to the cost of the assets, as directed by the learned CIT(A). We agree with the learned CIT(A) that s. 50 is applicable to the case of the assessee but that applicability has to be restricted to the gains arising on transfer of depreciable assets alone and to no other asset. Besides, the computation of short-term capital gain on transfer of depreciable assets needs to be done in the manner prescribed in s. 50 itself. Therefore, the order of the CIT(A) as given in para 22(iii) of his appellate order requires two-fold modification: one, that the computation of short-term capital gain under s. 50 shall be restricted to the depreciable assets alone; and, two, the computation shall be made in the manner prescribed by s. 50 and ....
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.... as revenue expenses in the accounts, made by the learned CIT-Departmental Representative, in its submissions including the written submissions. We find that this aspect has not been looked into by the learned CIT(A) but adjudication on this issue of taxability of profits or gains arising on transfer of non-depreciable assets is a necessary consequence of our directions to the AO to split the sale consideration into three parts. 100. We find that the purchaser has allocated Rs. 43.17 crores out of total sale consideration to technical know-how. The assessee has not purchased the technical know-how. It has developed the technical know-how in-house. It is unbelievable that the assessee could have developed the technical know-how in-house without incurring any expenditure or cost. There is nothing before us to indicate that the assessee has capitalised the expenses towards acquisition/improvement/development of technical know-how in its accounts or claimed depreciation thereon. The only inference that can be drawn is that the expenses incurred towards acquisition/improvement/development of technical know-how have been claimed as revenue expenditure in which situation the entire rec....
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....ispose them of without prejudice to our aforesaid finding. It is the submission of the assessee that profit arising on slump sale is not taxable as it is not possible to determine the cost of acquisition with reference to any particular point of time. In our view the submission made by the assessee is not tenable in law. It is admitted by the learned counsel for the assessee as well as the learned Departmental Representative that the slump sale of a business as a whole and as a going concern is a capital asset under s. 2(14) being property held by the assessee prior to transfer. The fact that the said property has been transferred for a consideration during the year ending 31st March, 1997 is also not in dispute. Thus, there is a capital asset, which has been transferred for a consideration during the year ending 31st March, 1997. In B. Raghurama Prabhu Estate vs. Jt. CIT, it has been held that neither the IT Act nor any judicial pronouncement declares that where sale of the assets is made for a lump sum consideration, it cannot be subjected to tax under the heading Capital gains and that the law is that if individual assets can be reasonably valued for ascertaining their respectiv....
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....s that the determination of the value of an asset or liability for the sale purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities. It may be reiterated that cl. (42C) has been inserted in s. 2 of the IT Act by the Finance Act, 1999 w.e.f. 1st April, 2000. Assessment year involved in the appeal before us is asst. yr. 1997-98. Thus, the definition of the slump sale as now given in s. 2(42C) was not available on the statute book in the assessment year under appeal. Nevertheless the concept of slump sale was and continues to be a well known and judicially recognized concept. The concept of slump sale, which was hitherto judicially recognized has now been codified and inserted in the form of cl. (42C) in s. 2 of the IT Act. What was earlier Judge made law is now a codified law. In Premier Automobiles Ltd. vs. ITO, the Hon'ble jurisdictional High Court has held at p. 223 of the said report thus; ..... The concept of slump sale initially was evolved under Judge-made law which has subsequently been recognized by the legislature by inserting s. 2(42C)..... Thus, the definition of s....
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....we may fruitfully refer to the heading of s. 50B which reads: Special provision for computation of capital gains in case of slump sale. It is therefore quite evident that s. 50B deals with computation of capital gain in cases of slump sale. While sub-s. (1) of s. 50B declares the existing law and thus puts the same beyond the pale of any doubt, sub-ss. (2) and (3) thereof merely lay down the machinery for computation of capital gains from slump sales. 105. The issue that now arises is whether the computational provisions enacted in s. 50B(2) and (3) to provide simplicity, uniformity and certainty the three pillars of taxation for the computation of capital gains are retroactive or not. In order to answer this question, we can fruitfully refer to the decision of the Hon'ble Supreme Court in CWT vs. Sharvan Kumar Swamp & Sons (1994) 122 CTR (SC) 380 : (1994) 210 ITR 886 (SC) wherein it has been held that machinery provisions, which provide for the machinery for the quantification of the charge, are procedural provisions and therefore would have retroactive operation and apply to all pending proceedings. Sub-ss. (2) and (3) of s. 50B are thus procedural provisions inasmuch as they ....
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....ents made in s. 55(2)(a) deeming the cost of acquisition of certain assets to be nil would equally have retroactive operation. According to the learned counsel, the Hon'ble Supreme Court in CIT vs. D.P. Sandhu Brothers has held that the amendments to s. 55(2)(a) deeming the cost of acquisition of a tenancy right to be nil would have only prospective effect and not retrospective effect. In our view, the aforesaid decision has been rendered in the context of the provisions of s. 55(2)(a) which deems the cost of acquisition of tenancy right to be nil and not in the context of s. 50B(2) and (3) which merely simplifies and standardizes the procedure for computation of cost of acquisition/improvement in cases of slump sale. It is not the case of either party that there is no cost of acquisition of the properties. Subject-matter of a slump sale will always have some cost of acquisition. There are several methods to compute the cost of acquisition. Sec. 50B(2) and (3) merely simplifies and standardizes the procedure for computation of cost of acquisition/improvement. It does not deem, like s. 55(2)(a), the cost of acquisition to be nil. There is a vast difference between a provision deemin....
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....d not be taxable once it is held that the impugned sale is a slump sale. However, the question of computation of profits and gains from slump sale would arise only when the transaction is held to be a slump sale. Since we have already held that the impugned sale is not a slump sale, we cannot restore the matter to the file of the AO and direct him to compute the capital gains from slump sale in the light of the principles laid down in Premier Automobiles. The submissions made by the parties in this behalf stand disposed off with the aforesaid observations. Ground No. 10 Taxability of interest income 110. Clause 3 of the agreement provides that Rs. 31.58 crores would be paid on the transfer day that was defined in the agreement to be 1st Aug., 1996 along with interest on the amount for the period from and including 1st Jan., 1996 upto and including 31st July, 1996 at the rate of 18 per cent per annum and the balance Rs. 21.52 crores to be paid on 1st Oct., 1996 along with interest @ 18 per cent p.a. on the said amount for the period from 1st Jan., 1996 to 30th Sept., 1996. Any delayed payment was to carry interest at a rate per annum equal to one percentage point above t....
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.... of the arbitration award, possession of the property was given against payment of sale price as enhanced by interest to compensate for the increase in the price. The fact situation in the case before us is altogether different. Here the possession was given as per agreed schedule. The purchaser was required to pay interest due to withholding of payment of consideration and not in order to compensate the assessee for the increase in the value of the property due to delay in transfer. Interest has accrued to the assessee due to the withholding of payment by the purchaser. Interest is nothing but compensation for use of money. Since the purchaser used the amount of sale consideration till it paid the same, it was required to pay interest. On these facts, we hold that the amount of interest received by the assessee was not in the nature of sale price or compensation for transfer of property but in the nature of interest per se arising after the property stood transferred. The law laid down by the Hon'ble Supreme Court in Dr. Shamlal Narula vs. CIT (1964) 53 ITR 151 (SC) and the Hon'ble jurisdictional High Court in K.S. Krishna Rao vs. CIT (1990) 84 CTR (SC) 164 : (1990) 181 ITR 408 (S....
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....r under s. 28 or under s. 10(3). In the alternative he has taken the view that the amount received would be on account of goodwill and thus also chargeable to tax. 113. The assessee carried the matter in appeal before the CIT(A). Learned CIT(A) has dealt with the issue in para 21 of his appellate order. The learned CIT(A) has upheld the view taken by the AO that it is the substance of the transaction and not the form of transaction that needs to be looked into to decide the true character of the receipt. He has also agreed with the AO that the assessee was not in a position, after execution of the agreement, to compete with the purchaser and hence the impugned amount was not received for non-competition. He has however not agreed with the AO that the impugned receipt has the character of income chargeable to tax under s. 28. According to him, the ...so-called non-compete fee of Rs. 30 crores is on account of transfer of goodwill the cost of which is nil. Hence the entire receipt is taxable as long-term capital gain and not as revenue receipt. The assessee is aggrieved by the order of the CIT(A) with regard to the taxability of the aforesaid amount and hence is in appeal before t....
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....hed R. Desai, ITA No. 3924/Mum/2000 (order dt. 27th May, 2004), Jt. CIT vs. Desai Jamshed Rustom, ITA No. 347/Mum/2001 (order dt. 29th Nov., 2004), Dinshaw F. Pandole vs. Jt. CIT, ITA Nos. 639-640/Mum/2000 (order dt. 27th Sept., 2000), Naval F. Pandole vs. Jt. CIT, ITA Nos. 5884-85/Mum/2000, Asstt. CIT vs. Ashit M. Patel (2005) 96 TTJ (Mumbai) 439, Jt. CIT vs. Clea Advertising, ITA No. 90/Mum/1999 (order dt. 14th June, 2005), CIT vs. A.S. Wardekar (2005) 199 CTR (Cal) 255, CIT vs. Saroj Kumar Poddar (2006) 200 CTR (Cal) 616 : (2005) 279 ITR 573 (Cal), CIT vs. Milk Food Ltd. (2005) 199 CTR (Del) 567 : (2006) 280 ITR 331 (Del), etc. Referring to some of the aforesaid judgments, he submitted that they would, inter alia, disclose that non-compete fee was paid to an individual who was a shareholder of the company because the other joint venturer wanted to be reasonably certain that its investment in the Indian company was adequately protected. Referring to the allegation by the Revenue that the assessee had attempted to show a part of the sale price as the consideration for non-competition, he submitted that there was no material at all to establish the said allegation. He contended tha....
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....was no possibility of any competition being given by the assessee and therefore the claim of the assessee that the impugned sum was received in lieu of its agreeing to a restrictive covenant was a mere colour able device to gain tax advantage. He also referred to the report of KPMG, valuer and submitted that the valuer has raised enough apprehensions against the claim of non-competition and finally, without giving any scientific basis, just mentioned that one third be taken for non-competition component of the transaction. He submitted that both the parties, in view of their close connection and management, could prepare the agreement and NCA in a manner that helped the assessee in gaining tax advantage. 116. Learned CIT-Departmental Representative has also referred to the judgment in CIT vs. Coal Shipments (P) Ltd. 1972 CTR (SC) 151 : (1971) 82 ITR 902 (SC) and several other decisions for the proposition that payment made to ward off competition in business to a rival dealer would constitute capital expenditure if the object of making that payment is to derive an advantage by eliminating the competition over some length of time but the same result would not follow if there is n....
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....d Dictionary, Volume V, p. 162; Stroud, Vol. 11, pp. 14-16). In the United States of America and in Australia both of which also are English speaking countries the word 'income' is understood in a wide sense so as to include a capital gain. Reference may be made to Eisner vs. Macomber (1919) 252 US 189, Merchants' Loan and Trust Co. vs. Smietanka (1920) 255 US 509 and United States of America vs. Stewart (1940) 311 US 60 and Resch vs. Federal Commissioner of Taxation (1943) 66 CLR 198. In each of these cases a very wide meaning was ascribed to the word 'income' as its natural meaning. The relevant observations of the learned Judges deciding those cases which have been quoted in the judgment of Tendolkar quite clearly indicate that such wide meaning was put upon the word 'income' not because of any particular legislative practice either in the United States or in the Commonwealth of Australia but because such was the normal concept and connotation of the ordinary English word 'income'. Its natural meaning embraces any profit or gain, which is actually received. This is in consonance with the observations of Lord Wright to which reference has already been made...... The argument foun....
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....ination of contract being a normal incident of the business and such cancellation leaves the recipient of the amount free to carry on his trade, the receipt is revenue. His alternative submission was that the amount was also taxable under s. 56 r/w s. 10(3) of the IT Act in the year under appeal, being a receipt of a casual and non-recurring nature. 121. At this stage of his argument, his attention was drawn by us to the fact that the learned CIT(A) has not approved the action of the AO in taxing the impugned receipts under s. 28 or s. 10(3) of the IT Act and that the Department has not filed any appeal against the aforesaid order. The Bench therefore sought to know as to how the learned Departmental Representative could argue on a point, which was not the subject-matter of appeal either by the Department or by the assessee before this Tribunal. The learned Departmental Representative explained that the issue of taxability of impugned receipts is very much involved in the appeal filed by the assessee. He contended that the Department has succeeded before the CIT(A) regarding the taxability of impugned receipts in that the CIT(A) decided the issue in favour of the Department by h....
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....long-term capital gain on the ground that the impugned amount was received not in lieu of non-competition but in lieu of parting with goodwill. He submitted that the assessee was not right in its stand that the impugned receipts were not taxable even as a long-term capital gain as held by the CIT(A). 123. In his rejoinder, the learned counsel for the assessee referred to the judgment in CIT vs. Coal Shipments relied upon by the learned Departmental Representative and submitted that the Supreme Court, in the context of the deductibility of an amount paid for furnishing a restrictive covenant, has held that the expenditure incurred for furnishing a restrictive covenant is generally to be regarded as an expenditure on capital account if the object of making the payment is to derive an advantage by eliminating competition over some length of time. Since the advantage was to endure for a very short period in that case, the Hon'ble Supreme Court held that the expenditure incurred was on revenue account. He also referred to certain other decisions were relied upon by the learned Departmental Representative, viz., (1980) 122 ITR 839 (Del), Smt. Nayantara G. Agrawal vs. CIT (1994) 117 CT....
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....whether the compensation paid for the agreement is severable from the price paid for acquired goodwill. Pursuant to this test, the purchaser must demonstrate that the vendor possessed a probable and viable means of competition; *whether either party to the contract is attempting to repudiate an amount knowingly fixed by both the purchaser and the vendor as allocable to the non-competition agreement; *whether there is proof that both parties actually intended, when they signed the sale agreement that some portion of the price be assigned to the non-competition agreement; and *whether the non-competition agreement is economically real and meaningful. 125. At the time of hearing, the learned counsel was requested to supply copies of the judgments referred to in the aforesaid report. He expressed his inability to do so. Be whatever it may, the fact remains that the assessee's own consultants, who are quite reputed in the field, have referred to the US decisions, which, inter alia, require that (i) the purchaser must demonstrate that the vendor possessed a probable and viable means of competition; and (ii) the non-competition agreement is economically real and meaningful. We....
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....enture for many reasons. Firstly, the activities relating to the supplies to the railways were highly technical activities requiring specialized plants and machinery. Having transferred the plant and machinery, and other assets to the purchaser, it was not possible for the assessee to start similar activity and that too so soon as to give competition to the purchaser. Secondly, the management of ABB Group had taken a conscious decision to carry out restructuring of its operations globally and therefore it was neither the intention of the group management that two entities of the same group should compete with each other in future nor it would have allowed them to compete with each other. Thirdly, the gestation period in setting up the entire facility afresh so as to give competition to the joint venture was so long and the time frame envisaged in the NCA for non-competition was so low that it would not have given the joint venture any benefit of enduring nature on account of non-competition. Besides, the assessee and the purchaser belong to the same group and are thus, in reality, sister concerns and not rivals and thus the requirement of the compensation being paid to a rival deal....
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....e receipts under s. 28 and then as income of casual and nonrecurring nature under ss. 10(3)/56 of the IT Act and it was only in the alternative that he recorded the finding that the impugned receipt is also liable to tax on account of transfer of goodwill. At para 21.7 of his order the learned CIT(A) has held that the receipt does not have the character of income and hence cannot be taxed as such and thereafter proceeded to decide that the impugned receipt was taxable as long-term capital gain on the ground that the impugned amount represented receipt on account of transfer of goodwill to the purchaser The order of the learned CIT(A) is quite cryptic inasmuch as he has not given a well reasoned consideration to the relevant aspects of the issue. He has not recorded any finding as to how the impugned receipt failed to pass the test of being business profits or being the income of casual and non-recurring nature under ss. 10(3)/56. He ought to have first examined the correctness of the decision of the AO as to whether the impugned receipts were in the nature of business profits under s. 28 or income in the nature of casual and nonrecurring receipt under ss. 10(3)/56 if so, whether th....
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.... (v) The order of the CIT(A) that the amount received as non-compete fee is not in lieu of restrictive covenant and that the said covenant is a colourable device to pass off the impugned receipts as non-taxable, is confirmed. However, the issue regarding the taxability of the amount represented by non-compete fee is restored to the file of the AO with the direction to consider its taxability under appropriate head afresh in accordance with the provisions applicable to them, in terms of the directions given earlier in this order. (vi) The decision of the CIT(A) regarding taxability of interest on accrual basis on revenue account is confirmed. 132. Ground Nos. 9 to 11 stand disposed of in terms of the aforesaid directions. 133. Ground No. 12 reads as under: The learned CIT(A) erred in confirming disallowance of Rs. 10,40,64,853 being customs duty paid and included in closing stock of raw materials/components. It is submitted that your appellant is entitled to deduction under s. 43B of the IT Act. 134. The facts of the case, in brief, are that the assessee had imported certain raw materials in respect of which it paid customs duty. The raw materials so imported were ly....
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....d by the employees while on travel outside the headquarters on conveyance, telephone etc. On appeal, the learned CIT(A) has deleted the disallowance made by the AO following the decision of the jurisdictional High Court in CIT vs. Chemet (1999) 240 ITR 624 (Bom). Learned CIT(A) has committed no error in following the order of the Hon'ble jurisdictional High Court, which is equally binding on us, in deleting the addition. Ground No. 1 taken by the Department is dismissed. 140. Ground No. 2 reads as under: (ii) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the AO to re-compute the deduction under s. 80M by making estimation of expenses at 1 per cent of the dividend income as against 5 per cent taken by the AO. 141. We have heard the parties. The AO has estimated the expenditure @ 5 per cent and reduced the same from the dividend receipts in order to arrive at the net dividend income. On appeal, the learned CIT(A) has reduced the expenses estimated by the AO at 5 per cent to 1 per cent after taking into account the submissions made by the assessee that dividends were received on units of UTI and shares of ICICI, HDFC a....
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.... of their children to school. As regards the balance, it was submitted that the balance expenditure was on gifts given to acquaintances on various social occasions. These are in the nature of expenditure incurred for the purposes of business eligible for deduction under s. 37(1) of the Act. 16.2 The submissions made have been considered. Insofar as the expenditure incurred on gifts without any logo it has been held elsewhere that no disallowance can be made. In respect of the balance amount considering the purpose and occasion it is held that no disallowance can be made. Consequently, the disallowance of Rs. 3,78,814 is deleted. 146. We have heard the parties. In our view, the learned CIT(A) has correctly appreciated the factual and legal aspects of the case while deleting the impugned disallowance. His order in this behalf is confirmed. Ground No. 5 is dismissed. 147. Ground No. 6 reads as under: (vi) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs. 15,35,962 being expenditure incurred on issue of bonus shares without appreciating the fact that such expenditure is a capital expenditure as laid do....
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....ent expenses. It is submitted that it may be so held now. 153. We have heard the parties. The learned counsel for the assessee has fairly submitted that the issue was partly covered in favour of the assessee by the decision of this Tribunal in assessee's own case for asst. yr. 1997-98 in which the disallowance of 50 per cent of expenses has been confirmed and remaining 50 per cent deleted. The AO is directed to restrict the disallowance in the light of the order of this Tribunal in assessee's own case for asst. yr. 1989-90. Ground No. 2 is partly allowed. 154. Ground No. 3 reads as under: 3. The learned CIT(A) erred in confirming that 10 per cent of the total receipt be treated as expenditure incurred for earning the technical fees in foreign currency and therefore, deduction under s. 80-O is to be restricted to 90 per cent of the fees received. It is submitted that in the facts and circumstances of the case as no expenses was incurred in foreign currency, deduction should be allowed on gross fees received. 155. We have heard the parties. Learned counsel for the assessee fairly contended that the issue is covered against the assessee by the decision of a Special B....
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....ntribution is made based on valuation. As the amount was paid before filing the return, the same should be allowed as deduction under s. 43B. 161. We have heard the parties. At the time of hearing the learned counsel for the assessee did not press the aforesaid ground. Ground No. 7 is therefore dismissed as not pressed. 162. Ground Nos. 8 and 9 taken by the assessee read as under: 8. The learned CIT(A) erred in confirming disallowance for excise duty of Rs. 10,89,577 which was only provision towards possible cut in the claim for refund of excise duty which was wrongly disallowed in asst. yr. 1995-96 and in the current assessment year same amount of provision is reversed. Hence this would have been allowed as deduction. Alternatively, the learned AO may be directed to allow the same for asst. yr. 1995-96. 9. The learned CIT(A) erred in confirming disallowance of deduction under s. 43B for Rs. 11,84,61,702 being custom duty paid and included in the closing stock. It is submitted that as per provisions of s. 43B of the IT Act, such payment is allowable as deduction and the learned CIT(A) ought to have allowed the same. 163. We have heard' both the parties. Learned CIT(A....
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....6. In the facts and circumstances of the case, there is no question of accrual of any interest as transfer itself took place only after 31st March, 1996. If at all any interest is to be accrued it should be considered as part of the sale consideration of transportation undertaking. Without prejudice, it is further submitted that such interest is held as accrued, is only a capital receipt. 168. We have heard the parties. The AO has taxed interest amounting to Rs. 3,73,95,000 payable to the assessee for the period commencing on 1st Jan., 19913 and ending on 31st March, 1996 on account of late payment of sale consideration as provided in cl. 3 of the agreement between the assessee and the purchaser. The AO has taxed the impugned amount on the ground that it relates to the year ending 31st March, 1996. The AO did not accept the plea of the assessee that the impugned interest became payable to the assessee by virtue of agreement dt. 20th Aug., 1996 and hence could be brought to tax in asst. yr. 1997-98 only and not in asst. yr. 1996-97. On appeal, the learned CIT(A) confirmed the order of the AO in this behalf. The assessee is now in appeal. 169. We have heard the parties. T....
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....assessee is partly allowed. ITA No. 2714/Mum/2003 for asst. yr. 1996-97: Department's appeal 172. Ground No. 1 taken by the Department reads as under: (i) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the disallowance of Rs. 20,00,000 under r. 6D without proper appreciation of the facts. 173. We have heard the parties. Identical issue has already been considered and decided by us against the Department in the Department's appeal for asst. yr. 1997-98. Ground No. 1 is therefore dismissed. 174. Ground No. 2 reads as under: (ii) On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the disallowance of Rs. 7,96,610 being the contribution to school and expenditure on social occasions without appreciating the fact that these expenses are not incurred wholly and exclusively for the purpose of business. 175. We have heard the parties. We have perused the order of the CIT(A). We are in agreement with his order. Identical issue has already been considered and decided by us against the Department in the Department's appeal for asst. yr. 1997-98. Ground No. 2 is theref....