9911796707
TMI Blog1986 (12) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... Rao Pimplapure (2) Shri Madhukar Rao Pimplapure (3) Shri Gopal Rao Pimplapure (4) Shri Divender Kumar Kunjabhai Patel (5) Shri Narendra Kumar Kunjabhai Patel The said firm was manufacturing bidies. The said company had finalised commencement of the business of manufacture and sale of 'bidies' in the State ofMadhya Pradeshwith a proposal of expanding its manufacturing activities in other States as well. The said firm decided to discontinue its manufacturing activities completely. There was an agreement between the said firm and the company on23-9-1971. This appears at pages 36 to 39 of the paper book. As per this agreement, the said company agreed to manufacture 'bidies' of required specifications and sell the same to the said firm. However, the company retained its exclusive right to manufacture bidies of its own with its own trade-mark, labels under its own trade name and to sell the same to whomsoever and at whatsoever place, it may choose. It was also agreed that the said firm, in such situation, shall have no concern, whatsoever, with any such transaction of the said company. The said company shall also be free to manufacture 'bidies' for any person, firm, or company and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sell to the said firm and the said firm agreed to purchase, the bidies manufacturing business of the company as a going concern from the date of this agreement. The business was to be purchased by the said firm, i.e., the vendees from the company, i.e., the assessee-vendor together with all the assets and the liabilities of the said bidi manufacturing business. It was agreed that the bidi manufacturing business of the vendor shall be purchased as a going concern as on15-12-1981. The vendor had to prepare a separate balance sheet of its bidi manufacturing business as on15-12-1981showing all the assets and liabilities of the bidi manufacturing business of the vendor. It was provided that the assets of the business shall also include the goodwill, the benefit of all subsisting contracts, books of account of reference to consumers and other books and documents, trade-marks, etc. As consideration for the purchase of the bidi manufacturing business as a going concern, with its assets and liabilities, the firm, i.e., V.M. & Co. was to pay to the assessee as 'slump price' of Rs. 5 lakhs. The vendees also agreed that all the employees of the vendor engaged in the manufacture of bidi for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ashtra Industrial Development Corpn., a Corpn. constituted under the Maharashtra Industrial Development Act, 1961, on18-10-1976. This agreement appears at pages 50 to 79 of the paper book. Under this agreement, the assessee-company was granted a licence under clause (1) only to enter upon the piece of land described in the First Schedule to this agreement for the purpose of building and executing works thereon as provided in this agreement and for no other purpose, whatsoever. However, after the terms and conditions of this agreement were fulfilled, the assessee was entitled to a lease of the said premises. Clause (2) of this agreement provided that nothing in these presents contained shall be construed as a demise in law of the said land hereby agreed to be demised or any part thereof so as to give to the licensee any legal interest therein until the lease hereby contemplated shall be executed and registered. Stipulations to be fulfilled by the assessee licensee were recorded. Sub-clause (m) of the agreement provided that the assessee will not directly or indirectly transfer, assign, sell, encumber or part with its interest the benefits of this agreement or any part thereof, in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction of sale had not been completed as the final sale deed had not been executed/registered during the previous year relevant to the assessment year under appeal. The learned IAC has also recorded that the assessee projected to him that D.K. Foods & Chemicals (P.) Ltd. stopped the payment of Rs. 50,000 of last cheque dated23-3-1982on the plea that the assessee-company while removing the machineries and plants from the factory building had damaged the building extensively. Since, according to the learned IAC, the transaction was not complete during the accounting period, loss of Rs. 1,90,162 was disallowed (Rs. 1,39,800 plus Rs. 50,362) because he was of the opinion that it does not pertain to the year under appeal. 14. This assessment was challenged in appeal before the learned Commissioner (Appeals). The learned Commissioner (Appeals) considered the reasons given by the IAC (Assessment) and the submissions made before him by the learned counsel for the assessee. He gave a finding that the receipt of Rs. 5 lakhs by the assessee-company is not in pursuance of termination of any agency granted by V.M. & Co. to the assessee. The learned Commissioner (Appeals) held that there was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Commissioner (Appeals)'s holding that the assessee had acquired any rights and or interest in the land as a result of its agreement dated 18-10-1976 with Maharashtra Industrial Development Corpn. and that the execution of the documents transferring the assessee's rights to D.K. Foods & Chemicals (P.) Ltd. required registration, which was not done during the accounting period relevant to the assessment year under appeal. 18. The revenue, on the other hand, in its appeal, is aggrieved with his order in holding that the sum of Rs. 5 lakhs received by the assessee-company represents capital gains and should be assessed as such and in not holding that the receipt of Rs. 5 lakhs is taxable under section 28(ii)(c) as compensation for termination of the agency of manufacturing bidies. In the grounds of appeal as an alternative it is also contended that the learned Commissioner (Appeals) erred in not holding that under agreement dated23-9-1971a contract for manufacture of bidies was entered into and the receipt of Rs. 5 lakhs is revenue receipt representing payment for termination of contract entered into in the ordinary course of business. 19. We have heard the parties and careful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have abstracted supra, the salient terms of the agreement entered into between the assessee company and the registered firm in 1971. This agreement clearly is one of the type which is entered into on principal to principal basis. The agreement shows that both the parties tried to protect their commercial interests by incorporating into the agreement provisions for this purpose. In this agreement, there is no provision, whatsoever, which could be interpreted as the assessee acting as an agency of the firm for the purpose of manufacture of bidies. The system of accounting arrived at in which the assessee could get the maximum profit of 10 per cent was for the mutual protection of the business interests of the parties. The case law relied upon by the learned IAC for holding this case as that of an agency is, therefore, absolutely irrelevant. 22. The learned Commissioner (Appeals), in our considered opinion, therefore, rightly held that the IAC (Assessment) was wrong in coming to the conclusion that it was a case of termination of agency. We also endorse his view that the case is also not one of termination of contract. In fact, this conclusion is embedded in our first decision to hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation 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. 26. In the case of Mugneeram Bangur & Co., the Hon'ble Supreme Court held by applying the principles of Doughty's case and West Coast Chemicals & Industries Ltd.'s case, that in the sale of a whole concern with a slump price no part could be attributable to any other assets and no part of the price was taxable. 27. When we examine the case before us in the light of the law so laid down by the Hon'ble Supreme Court, we find that the decision arrived at by the learned Commissioner (Appeals) to hold that the sum of Rs. 5 lakhs gave rise to capital gains was wholly erroneous because in a slump transaction no such capital gain could arise because the sale was of a going concern and the transaction was not in business. In view of the ratio of the decisions of the Supreme Court in the above cases, this decision of the learned Commissioner (Appeals) on the facts of the case is clearly untenable. We reverse this decision and hold that Rs. 5 lakhs is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1,39,800 by way of additional premium. This premium was paid on12-1-1982itself. On18-1-1982there was a tripartite agreement, between MIDC, the assessee and D.K. Foods & Chemicals (P.) Ltd. It is only by this tripartite agreement that it was provided that this agreement is supplemental to the principal agreement and the principal agreement shall hereafter be construed as if the grantor entered into the principal agreement with the parties of the third part, i.e., D.K. Foods & Chemicals (P.) Ltd. and the party of the third part alone had agreed to observe and approve the stipulations contained in the principal agreement and the payment of Rs. 1,39,800 paid to the grantor by the licensees as premium shall be considered as paid by the party of the third part. 29. It is clear that it is the tripartite agreement that puts the seal of finality on the right of transfer of the licensee's right and interest. It is common ground, as there is no controversion of the facts recorded by the learned Commissioner, that the factory building, etc., regarding the transfer of right to which short-term loss is claimed was built by the end of 1978. The transfer of rights to D.K. Foods and Chemicals (P ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
