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2013 (9) TMI 45 - AT - Income TaxTransfer of capital or transfer of business - Sale of equity shares of the private limited company - applicability of provisions of section 28(va) - transfer of management - non-compete agreement - Held that:- It is apparent that the transaction in question was in the nature of purchase of business by the incoming company. The transaction entered into between the assessee before us as shareholder of M/s Excel Callnet Private Limited and the Managing Directors of M/s Pugmarks Interweb Pvt. Ltd. was not merely for the transfer of shares of the company but was in fact transfer of management of the company to the purchaser with a rider of non-interference by the sellers who were the Directors of the company. Because of the complexity of the handing over operation by the sellers i.e. the shareholders of the company to the Managing Director of the new company, the parties entered in to agreement on 26.3.2005 and had completed the process on 24.7.2005. If it was a mere sale of the investment by way of shareholding by the assessee then the said exercise was not required. Even the sale consideration agreed upon between the parties including the consideration on account of non-compete covenant was paid in installment over a period of time. Further the transfer of shares in effect translated into renunciation of management by the seller Directors in favour of the purchaser which is apparent from Article 5.1.1 of the agreement which enunciated the delivery of effective resignation in writing by the Directors as part of the activities of the completion. The next point under consideration is the non-compete covenants agreed upon between the parties as per Article 8, under which Article 8.4 clearly stated the seller agrees not to engaged in any call centre, business process outsourcing or IT enabled services business in the States of Chandigarh, Punjab, Haryana or Himachal Pradesh within a radius of 100 Kms from Chandigarh for a period of 2 years from the date of this agreement. Further non-compete covenants imposed a restriction upon the seller Directors to directly or indirectly solicit a business that the company has done since its inception without prior written permission of the company. Under Article 8.10 there was renunciation of brand equity of the company by the sellers in favour of the purchaser as the parties agreed that the sellers will not take advantage of the brand equity of the company by using any names, logos, trademarks, partnerships, affiliations, names etc. As per para 8.11 the sellers cannot use domains that contain the word Excel and would not use or claim the domain name www.Excel.net com. Article 9 of the agreement further refer to non-solicitation of employees covenant where by the seller will not directly or indirectly solicit, hire, employ, induce or attempt to induce any present or future employee of the company or the purchaser. The gain arising from the transfer of share is to be assessed as income from business. The provisions of section 28(va) of the Act are squarely applicable to the present facts of the case. - Decided against assessee.
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