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2013 (5) TMI 605 - AT - Income TaxSlump sale - transfer of undertaking - Transfer of intangible assets of merchant banking business - revenue v/s capital receipt - Held that:- Clause 2.2 of the Transfer of Business Agreement suggests that the assessee has received Rs.2.5 million (Rs.25 lacs) as consideration for transfer of the business. Non justifiable reason on the part of the authorities below to consider the transaction as sham which involves colourable device. The impugned receipt is capital in nature and not in the nature of compensation received during the course of business as has been found by the CIT(A) as the assessee has received the impugned receipt for the transfer of its business of merchant banking in the form of employees, contracts in the form of customer and client relationship, a list of ten largest clients and certain know-how related to merchant banking business of the assessee, which necessarily qualify impugned receipt for the transfer of the said intangible assets in the category of 'capital nature' as the subject matter of transfer has resulted in the loss of enduring trading assets. Regarding the possibility of taxing the said impugned capital receipt under the head of capital gains, since no cost of acquisition is involved by the assessee for these assets, the same cannot be taxed under the head capital gains also. It is needless to emphasis that the nature of the transfer does not attract the provision of section 50B in relation to slump sale also as there is no transfer of an undertaking by the assessee. Accordingly, ground no A in favour of the assessee. Non-compete fees - revenue v/s capital receipt - Held that:- The perusal of the materials indicate that in the case of the assessee, the sole and main business or revenue earner i.e. merchant banking has been discontinued. The reasoning that of the authorities below that since the agreement is only for a period of 3 years and not absolute is not a relevant factor to determine the receipt as revenue in nature as generally all the non-compete agreements are limited in point of time which prescribes the period of non-competition. In view of that matter, we decide this ground in favour of the assessee and delete the impugned addition. Disallowance of bad debts - Held that:- Since these debts are on sale of leased assets i.e. in the course of business the same should be allowed as a business loss in view of the decision of CIT v. Anjani Kumar Co. Ltd. (2002 (7) TMI 44 - RAJASTHAN High Court) wherein it has been held that advance for acquiring land to set up factory being lost, is allowable as business loss. With respect to the bad debt pertaining to expenses incurred for the companies promoted by it & since these companies have not started any activity and is in the process of winding up, the amount is claimed as bad debts qualifies as a business loss under section 28 of the Act. Interest charged for default in the payment of lease rentals could not be recovered from the party written off as bad debts. Advisory services have been rendered to Business India Publication Private Limited for which an amount of Rs.3,00,000/- was billed to the client as consultancy fees. As the interest and advisory fees charged from the clients have been offered for tax in earlier years, the conditions of section 36(2) are fulfilled. As the debts have also been written off, the same should be allowed as a deduction u/s 36(1) in view of the decision of the TRF Ltd. (2010 (2) TMI 211 - SUPREME COURT). The loans given to staff has been written off since the same are irrecoverable in view of transfer of the merchant banking business. The said loans are not taken over by M/s. Arthur Anderson. All the employees had either been taken over or resigned. Since these expenses have been incurred in the normal course of business,the said expenses qualifies as a business loss under section 28. Disallowance on account of pre-paid expense - Held that:- It is an admitted fact that the assessee has discontinued the merchant banking business and has also sold off the intangible assets pertaining to the said business. Since these expenses are pertaining to the said business, the Ld.CIT(A) has correctly upheld the impugned addition as there is absolutely no basis for claim of deduction in respect of existing business of the assessee in the absence of any nexus with it. Against assessee. Disallowance of membership and subscription fees - Held that:- Once the assessee paid the amount to a club for membership it is a payment once and for all resulting in an enduring benefit to the institution. The mere fact that assessee's representative, like the Managing Director's participation in the club promoted the assesse's business did not change the character of the payment which was made once and for all. See Punjab State Industrial Development Corporation Ltd. vs. CIT [1996 (12) TMI 6 - SUPREME Court] . In these circumstances the expenditure was allowed under section 37(1). Moreover neither the AO nor the CIT(A) has gone into the factual matrix of the case for disallowing the claim of the assessee - the matter can be re- examined by the AO after obtaining the details and examining the justification in claiming the impugned expense as business expenditure. In favour of assessee for statistical purpose. Disallowance of depreciation on residential flats - Held that:- The issue is covered against the assessee in A.Y. 1998-99 in his own case where the claim of the assessee for depreciation has been rejected. As the assessee has not brought any material differentiating the facts in relation to the assessment year under consideration ground is dismissed. Addition on account of income from house property - Held that:- he issue is covered against the assessee in A.Y. 1998-99 in his own case where the claim of the assessee for depreciation has been rejected. As the assessee has not brought any material differentiating the facts in relation to the assessment year under consideration ground is dismissed.
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