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2014 (12) TMI 935 - HC - Income TaxRevision of an order u/s 263 - erroneous and prejudicial to revenue order - Interpretation of Sections 28(ii)(c) and 45 - Transfer of goodwill taxable as 'profits and gains of business' under Section 28(ii)(c) of the Income Tax Act and not under the head 'capital gains' - Held that:- By Sub-Agency Agreement dated 8.11.1992, Sea Land (I) Ltd. appointed CHAKIAT as their sub-agents in South India for all cargoes carried by Sea Land Service Inc., USA - Clause (1) of the agreement dated 1.6.2000 provided that the assessee will transfer to MAERSK the shipping sub-agency business related to Sea Land and covered by the Sub-Agency Agreement dated 8.11.1992 along with goodwill in relation thereto – assessee is a recipient of certain amount for holding an agency in India for the activities relating to the business of Sea Land (I) Ltd. and it is only in connection with the termination of the agency, the assessee received certain payment under Clause (1) of the agreement dated 1.6.2000 by transferring such rights covered by the sub-agency to MAERSK and that is referable to the initial Sub-Agency Agreement dated 8.11.1992 - Section 28(ii)(2) would come into play and the income received by the assessee has to be certainly treated as profits and gains of business - it can partake the character of transfer of capital asset, as what is transferred is the sub-agency and goodwill attached. The Tribunal was rightly of the view that the AO has not applied the correct provision of law and the CIT was justified in invoking Section 263 of the Act to revise the erroneous order - Insofar as prejudice to the interest of the revenue is concerned, it is apparent on the face of the record that but for the application of Section 28(ii)(c) of the Act, the assessee would be entitled to the benefit of claiming the receipt of the amount as capital gains under Section 45 of the Act and the consequent exemption that they have sought for. Therefore, the claim of the assessee would certainly be prejudicial to the interest of the revenue – the order of the Tribunal is upheld – Decided against assessee.
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