TMI Blog2021 (10) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 or Section 10[3] of the Act. Moreover, the order passed by the Tribunal at the first instance has reached finality. Hence, this substantial question of law has to be answered in favour of the Revenue and against the assessee. Non-competence fee receipt - Since we have held that the technical knowhow is not a goodwill, the arguments of the Revenue for remand would not inspire any confidence. The non-competence receipt was received by the assessee in cash. See case of Mahindra Mahindra Ltd [ 2003 (1) TMI 71 - BOMBAY HIGH COURT] wherein it is held that Section 28[iv] does not apply to benefits in cash or money, referring to the judgment of the Hon ble High Court of Gujarat in CIT V/s. Alchemic Pvt. Ltd . [ 1980 (8) TMI 42 - GUJARAT HIGH COURT] The non-competence fee was in fact a payment for sharing customer database and sharing of trained employees. The receipt towards the said transfer is not attributable to transfer of any assets or right and the mere fact that the receipt is not attributable to noncompete covenant, it cannot be automatically concluded that the receipt was either from business or income of an activity recurring in nature. - Decided in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axed? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the levy of interest under Section 220(2) of the Act by relying on its earlier decisions which have not reached finality and are distinguishable from facts of present case? 3. The assessee is a company engaged in the business of manufacture and trading of machinery components of locomotives. Asseseee has filed its return of income for the period under consideration. Assessment order came to be passed under Section 143[3] read with Section 254 of the Act holding that the consideration received by the assessee towards the sale of technical know-how was capital in nature as goodwill liable to be taxed under Section 45 of the Act as capital receipt at the value given by the purchaser in its financials. The Assessing Authority further held that non-competition fee of ₹ 30 crores as revenue receipt and the said authority also levied interest under Section 220[2] of the Act. 4. Being aggrieved, assessee preferred an appeal before the Commissioner of Income Tax [Appeals] which came to be dismissed. Assessee preferred further Appeal before the Tribunal. The Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technology for design, manufacture, test, quality assurance and servicing for all railway equipment and parts/components thereof as existing with the assessee, all liabilities relating to the operations and activities of the assessee s transportation business. Thus, it was slump sale. In the first round of litigation, the said contention of slump sale was not accepted by the department up to the Tribunal. Revenue in the first round of litigation has asserted that the said consideration of ₹ 53,10,00,000/- was towards the sale of technical know-how as no cost of the said assets could be determined. Referring to the remand order made by the Tribunal in the first round, it was argued that the Tribunal has observed that if the assessee has treated the cost/expenses relating to the acquisition/improvement/development of intangible non-depreciable assets in the revenue field, the gains arising as a result of sale thereof will have to be necessarily treated in revenue field either under Section 28 or Section 56 and not as capital gains. The provisions of Section 56 read with Section 10[3] are quite apposite. Entire sale consideration not allocable to inventories and non-depreciable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any means, for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. 11. The judicial pronouncement on the aspect of slump sale would indicate that the said slump sale would not be taxable neither as business income under Section 41[2] nor under Section 45 of the Act. In the case B.C.Srinivasa Setty Supra, the Hon'ble Apex Court has held that the charging section and computation section are integrated code and if one fails, other fails. Thus, it was held that the gain from the transfer of a bundle of asset on a slump basis is not chargeable to capital gain nor under Section 41 of the Act. 12. Section 50B of the Act was inserted with effect from 01.04.2000. Subsequent to decision of V.C.Sreenivas Setty supra, the Legislature inserted Section 55[2][a] by the Finance Act, 1987 with effect from 01.04.1989 to bring the transfer of goodwill under the tax net. By the Finance Act, 1997 with effect from 01.04.1998, provisions of Section 55][2][a] were amended. Circular No.763 dated 18.02.1998 was issued by the CBDT explaining the provisions of the Finance Act, 1997 wherein it is made clear that cost of acquisition and cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act by the Finance Act, 1987 w.e.f. 1.4.1989, the cost of acquisition of Goodwill is nil and therefore it is possible to compute of capital gain on transfer of goodwill. Such an approach cannot be adopted if the capital asset transferred is Technical know-how . As we have already noticed the Hon'ble Supreme Court in the case of in CIT v. B. C. Srinivasa Seetty [1981] 128 ITR 294 (SC) dealt with the question whether capital gain accrue or arise when Goodwill of a business is transferred. The Hon'ble Supreme Court held that section 45 of the Act operates if there is a transfer of a (Assessment Year 2000-01) capital asset giving rise to a profit or gain. The Hon'ble Court held that the expression capital asset is defined in section 2(14) to mean property of any kind held by an assessee and therefore was of the widest amplitude, and apparently covers all kinds of property and goodwill is not expressly excluded by the definition. The Hon'ble Court however held that the definitions in section 2 of the Act are subject to an overall restrictive clause viz., unless the context otherwise requires . The Hon'ble Court therefore went into the question whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held that the assets are self-generated and would not attract the capital gains. The decision of the Tribunal has been accepted by the Revenue and thus the Hon'ble Apex Court held that there was no reason for taking a different conclusion with the said decision. This dictum pronounced by the Hon'ble Apex Court certainly has a bearing on the present set of facts. It cannot be gainsaid that the assets were self-generated and the cost of acquisition of the said assets was indeterminable. The whole exercise was done by the Revenue merely for the reason that the purchaser in his books of accounts has shown the same as the technical know-how. If such technical know-how could not attract capital gains, in view of B.C.Srinivasa Setty supra, the Revenue has made an attempt to treat the technical know-how as goodwill in the second round. 15. This reasoning of the Tribunal cannot be faulted with, in the light of the judgment of the Hon'ble Apex Court in B.C.Srinivasa Setty supra. The gain from transfer of business by implication was not a Revenue receipt chargeable to tax either under Section 28 or under Section 56 or Section 10[3] of the Act. Moreover, the order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department to establish that these receipts were chargeable to tax. 17. Since we have held that the technical knowhow is not a goodwill, the arguments of the Revenue for remand would not inspire any confidence. 18. The non-computation receipt of ₹ 30 Crores was received by the assessee in cash. At this juncture, it would be beneficial to refer to the judgment of the High Court of Bombay in the case of Mahindra Mahindra Ltd., V/s. CIT [261 ITR 501 (Bom)] wherein it is held that Section 28[iv] does not apply to benefits in cash or money, referring to the judgment of the Hon ble High Court of Gujarat in CIT V/s. Alchemic Pvt. Ltd., [(1981) 130 ITR 168 (Guj)]. 19. The non-computation fee was in fact a payment for sharing customer database and sharing of trained employees. The receipt towards the said transfer is not attributable to transfer of any assets or right and the mere fact that the receipt is not attributable to noncompete covenant, it cannot be automatically concluded that the receipt was either from business or income of an activity recurring in nature. (M/s. Helios Matherson Information Technology Ltd.,]. 20. For the aforesaid reasons, no exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isconceived. 23. In Sandvik Asia Ltd., supra, the Hon ble Court was considering the payment of interest by the Revenue, in the context of withholding the amounts unjustifiably. The Hon ble Court enunciated the principles, assuming that there is no provision in the Act for payment for compensation, compensation for delay is required to be paid. The defence taken by the Revenue for not granting the interest was that the amounts on which interest was claimed were amounts of advance tax and no interest under Section 214 of the Act could be paid on advance tax after the date of the order of the assessment which was rejected by the Hon'ble Apex Court. Thus, it has been held that there is no exception to the principle laid down for an unjustifiable withholding. The said judgment would be of no assistance to the Revenue in the facts of the present case. 24. It is not in dispute that the interest under Section 244A of the Act was paid by the department for the delay caused in giving refund due to the assessee. If the orders under which such refund was made, subsequently if gets reversed, the interest paid to the assessee under Section 244A if to be withdrawn, no fault can be fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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