TMI Blog2005 (11) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of unique type never entered into by Jain Group earlier with any body. Revenue has contested this proposition and accordingly it has been held that JVA was a business and commercial agreement and, therefore, compensation flowing from breach of such agreement is also a business/revenue receipt liable to be taxed. In our considered opinion, it has to be accepted that JVA was an isolated agreement entered into by Jain Group for the first time and it cannot be accepted that Jain Group was carrying on business of entering into such JVAs. It is not possible to accept on facts that Jain Group were entering into agreements with world renowned companies like Gilliete in the ordinary course of their business. It was an agreement entered into by Jain Group for purposes of business. JVA was a commercial deal providing respective rights and liabilities of parties relating to business agreed to be carried but it was not a business . JVA may not merely be a memorandum of agreement not connected with the business as contended by the assessee. It was a commercial agreement. But it was not business . We hold accordingly. Whether JVA here is a capital asset or a revenue asset - It is admitted even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature now the question whether compensation received for breach of above rights or waiver of such rights is revenue receipt or capital receipt is not difficult to decide. It is an admitted position that compensation was paid to Jain group for breach of commitment provided in JVA. It has also been observed that compensation was paid for loss of future profit or to reduce the future losses which the joint venture companies suffered or were likely to suffer. Documents referred to above make no reference to future profit or future losses and, therefore, it is not possible to enter into realm of actual losses or actual profit suffered in the joint venture. Parties to JVA or even revenue authorities did not take actual assessments of joint venture companies into account in the impugned orders. There is no such indication on record. Even compensation paid has no reference to profit or gain actually earned by the parties. It was open to the revenue to show that written agreements placed by the assessee on record were not reliable or acted upon and that compensation was paid for something else. But no case on lines above has been made out. No statement of parties to agreement was recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even assesses are members of Jain Group, which comprises of six individuals (D.K Jain, Usha Jain, Priya Jain, Pankaj Jain, Pooja Jain and Payal Kapur) and, a company called JHPL Holdings (P.) Ltd. 3. The relevant facts of the case are that in the year under consideration, the assesses collectively had shown an aggregate receipt of Rs 69.50 crores as capital receipt from M/s. Gillette Inc, USA. In a note annexed to their returns of income, it was claimed that this amount was not income liable for taxation. In the said note, it was stated that on19-3-1996, the members of Jain Group entered into a Joint Venture Agreement (JVA) with M/s. Gillette India (P.) Ltd. (GIPL) to jointly pool their resources and strengths to carry on the business of manufacture and marketing of writing instruments and stationery products in India. It was stated that the mutual covenants entered into by the parties are contained in the joint venture agreement assuring co-operation and non-compete terms. It was further stated that, joint venture company M/s. Luxor Writing Instruments. (P.) Ltd. (LWIL) would be the exclusive vehicle through which the business of manufacture and sale of writing instruments would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l asset and, nor there was a transfer of capital asset. 4. In the course of assessment proceedings, each of the assessee reiterated the stand taken in the return of income and, in support reliance was placed on six opinions of legal experts to the effect that the receipt under consideration is not exigible to tax, which we shall discuss later. It may be mentioned here that since the issue involved was identical, the cases of all the seven members of Jain Group were dealt in co-ordination by their respective three Assessing Officers and, a common text of the discussion and, determination was adopted for the purpose of assessments of all the assessees under section 143(3) of the Act. The Assessing Officer noted the features in the joint venture agreement in paras 3.15 and 3.16 which are reproduced below from the order of the learned CIT (Appeals): 3.15 Article 2 of the JVA laid down the basic principles of the Joint Venture which were to be followed in the formation, management and operation of the Company. These basic principles, briefly stated, are as follows: (a) That the parties desire to establish and develop a long term business alliance between the strengths of the Luxor Group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board of Directors of the Company) which is contrary to the terms of the Joint Venture Agreement, the parties themselves shall vote against such resolution. (Refer clause 21.4 of article 21 of the JVA). (b) Each of the parties agree not to sell, transfer etc any of its shares in the Company in the first seven years without the prior written consent of the other party. (Refer article 7.1 of the JVA). (c) Any such sale or transfer etc. of shares shall constitute material breach of the Joint Venture Agreement. (Refer articles 20.10 and 20.11 of the JVA). On the same date vide letter19-3-1996, M/s. Gillette Co., USA, holding company of GIPL had given an undertaking to Jain Group as stated in their letter. 5. In the order of assessment, the claim of the Jain Group was not accepted and it was held that the receipt in question was a revenue receipt taxable under section 28(i) of the Act. It was held that Jain Group had entered the joint venture agreement in the course of and for the purpose of carrying business or profession and, since receipt arose from the material breach of joint venture agreement, it was exigible to tax under section 28(i) of the Act. It was further held that members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuing to carry on business manufacturing since 1990. (b) Luxor Export, a partnership firm in export business since 1992 having Mr. D.K. Jain, Usha Jain and, Pankaj Jain as partners. (c) Kakkar Bros., another partnership firm, engaged in manufacture and sale of metal pens since 1989-90, of which 50 per cent shares were held by Pooja Jain and Payal Kapur. (d) Khanjia Industries Engineering (P.) Ltd. a private limited company owned by Jain family running a SSI unit. 6.2 It was further stated that all the aforesaid firms had no connection with the business of LWIL, i.e. Joint venture company and, the private limited company was subsequently merged with LWIL. It was contended that Jain Group was not engaged in the business of setting up of joint ventures. It was argued that reliance of the Assessing Officer on Gillanders Arbuthnot Co. Ltd.'s case was misplaced since in that case the assessee was engaged in the business of several managing agencies and one of the agencies of business was cancelled. The case had no application in these cases. It was contended that the findings of the officer in the order of assessment are contradictory inasmuch as it has been held that the source of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm in Mumbai. They have not entered into any joint venture other than joint venture with Gillette Group. It was held that, joint venture agreement by itself cannot be held to be business of the assessee. It is an instrument to bind the parties to joint venture and, define their legally enforceable rights and obligations. It was held that it was a link to set up of business but not business in itself. It was held that there is a clear nexus between compensation received and, breach of agreement and, it had no nexus with the business of LWIL as would be evident from the consent and waiver agreement and, assignment and assumption agreement. It was held that, it would be ironic to say that, Gillette paid money to assessee in the year 2001 on account of formation of a company which it desperately wanted to exist. In so far as taxability of section 28(i) of the Act, the learned CIT (Appeals) concluded that statutory provisions are inapplicable and, in view thereof, he proceeded to delete the additions made in the case of five of the appellants by holding that the receipt is a capital receipt. 6.4 The appeal in the case of JHPL Holdings Ltd. came to be disposed of by an order dated 16-8-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther proved that parties to JVA did carry on business, profession or vocation and, therefore, received compensation different from their contribution. It followed that compensation was received by parties to the JVA for formation, promotion, management control and running of the joint venture. The learned CIT(A) agreed that even the activity of formation and promotion of a company could be termed as carrying on of a business, profession or vocation and motive of earning profit was not essential and did not make any difference that parties to JVA could not derive any profit except dividend on their share held in the companies. 6.6 Further, the CIT (Appeals) held that the determination whether the sum received constituted the capital receipt or business income has to be decided, on the basis of two considerations, namely by determining the nature of the joint venture agreement which has to be ascertained from its object and purpose, and from the activities carried on by the parties as joint venture partners. She held that, it was very clear that the joint venture agreement was not entered into by the parties to entertain themselves, or to pursue any religious, charitable, political o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id to have carried on vocation, if it is held that she did not carry on business or profession. She observed that there was close link between activities of assessee as a party to the JVA and the receipt in question and, therefore, concluded that provisions of section 28(i) were applicable in this case. 6.8 The learned CIT(A) also agreed with the Assessing Officer that receipt in question was not of a capital nature being compensation for an injury to the trading structure of the assessees. The joint venture agreement and joint venture company formed and promoted thereunder remained unaffected in all respects because of substitution of Gillette Company by Newell. There was no loss of capital to the structure of the company or their capacity to earn. 6.9 The learned CIT (Appeals) noted in details the views of learned professionals. In respect of the submission that assessees were not engaged in business of setting up of joint ventures and had entered in one and single joint venture, the learned CIT(A) as under: 6.1 There is no such proposition of law that a person entering into only one partnership or joint venture would not be treated as earning on business profession or vocation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be taxed as receipt from business, profession and vocation. Accordingly, assessment made by the Assessing Officer was confirmed. 6.12 It is thus evident that the orders dated 2-6-2004 and 16-8-2004 by CIT(A)-26 and, CIT(A)-7 respectively are in respect of all the members of Jain Group other than Payal Kapoor and it has held that the impugned receipt of Rs. 69.50 crores is not taxable. However, in the case of Payal Kapoor, CIT(A)-23 in her order dated 18-2-2005 did not agree with the view taken by the other two CIT(A) and, for reasons stated in the order and, as noted above has held that Assessing Officer was correct in holding that receipt is a business receipt taxable under section 28(i) of the Act. In view thereof, six appeals are by revenue and, one appeal in the case of Smt. Payal Kapoor is by assessee. 7 During the course of hearing, both assessee and revenue have filed detailed written synopsis. The assessee has also filed paper book comprising of 258 documents along-with an application for admission of additional evidence. Shri C.S. Aggarwal, Senior Advocate appeared for the assessee and Smt. Rani S. Nair learned Commissioner of Income-tax (DR) appeared on behalf of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essential step but it cannot be said to be carrying on of the business itself, which principle stands affirmed by the Apex Court in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. 8.2 He submitted that the Joint Venture is not a firm or body of individual or association of person, a Private Limited Company, incorporated under the Companies Act to carry any business. The business was admittedly carried by LWIL. He submitted that, it is otherwise settled law that a shareholder in a company does not derive income from the business of the company and, any dividend received by him does not partake the character of income assessed in the hands of the company. He placed reliance on the judgment of Apex Courtin the case of Bacha F. Guzdar v. CIT [1955] 27 ITR 1. 8.3 He argued that the observation and the findings recorded in para 9 page 29 in the case of Payal Kapoor, it was admitted that to compensate the Jain Group, M/s. Gillette USA paid the consideration for loss of future profit was also incorrect . He contended that no opportunity whatsoever was granted to the appellant before recording such an adverse finding. In view thereof, he sought to place on record orders of assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the judgment of Apex Courtin the case of Oberoi Hotel (P.) Ltd. v. CIT [1999] 236 ITR 903 and, the decision of ITAT in the case of Sak Inds, copy placed in paper book at pages 202 to 230. He submitted that facts of the two cases are identical and, therefore, on the basis thereof, it cannot be held that receipt is a business receipt taxable under section 28(i) of the Act. Amount received was a capital receipt not liable to tax. 9. The learned DR on the other hand contended that the orders passed by two CIT (A)-7 and CIT (A)-26 are erroneous since they have been made in haste without granting fair and proper opportunity and, without application of mind. However, she contended that revenue strongly relies on the order of learned CIT(A)-23 in the case of Smt. Paval Kapoor, whose facts are identical to the six cases above. 9.1 She further contended that the contention of the assessed hat amount had been received as a result of a 'Bluff' is beyond the realms of credibility since it is not so easy to bluff and fool multinational corporations. 9.2 She submitted that in absence of full facts of the commercial arrangements and negotiations which took place between the parties, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Compensation received on facts of the case was a business receipt. 9.5 The learned DR has further placed reliance on the judgments in CIT v. G.R. Karthikeyan [1993] 201 ITR 866 (SC), Workmen Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. [1986] 157 ITR 77(SC) and Juggilal Kamlapat v. CIT [1969] 73 ITR 702 (SC) that, in order to see whether this receipt of US $15 million was a taxable income, we have to lift the corporate veil and see the real intention of the parties to the JVA and, the real reason why a multinational company has parted with USD 15 million. It has been submitted that there is no document on record to show and support the premise that LWIL was distinct from the shareholders, though under the law it was distinct but in actual conduct of affairs the shareholders were managing the affairs of the company. Hence, it was submitted that the receipt for compensating the Jain Group from the threat of reduced profits in the future or enhancement of losses of LWIL was a business receipt and, was therefore taxable in the hands of each and every recipient. 10. In rejoinder, the learned counsel of the assessee has at the outset stated that perusal of order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, on incorporation of LWIL i.e., on 7-11-1995, the proprietorship business of Sh. D.K. Jain, M/s. Luxor Pen Company ceased to exist whereas the fact is that business of M/s. Luxor Pen Company ceased to exist only on signing of JVA on 19-3-1996 and, not on 7-11-1995. Therefore, the inference drawn that, business in normal course should have been carried on by LWIL from 7-11-1995 i.e., date of incorporation is also incorrect. 10.2 It was submitted that no submissions have been made on the judgment of the Apex Court in the case of Oberoi Hotel (P.) Ltd. and decision of ITAT in the case of Sak Inds (Del.) heavily relied upon by the assessee in support of the claim that the impugned receipt is a capital receipt. Further, judgments cited by DR are inapplicable and, have no relevance to the facts of the case. 10.3 In view thereof, it was submitted that, it be held that amount received by assessees was merely a capital receipt and, not assessable to tax as business income under section 28(i) of the Act. 11. We have heard the rival contentions, carefully considered the submissions made by both the parties and perused the material on record. We first deal with the preliminary objection befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer and on appeal CIT(A) decided the issue after considering provisions of JVA notices issued on behalf of Jain Group, consent and waiver agreement and other documents placed by the assessee on record. Genuineness, validity and veracity of documents referred to above was not disputed and doubted at any stage of the proceedings. It was not even alleged that payment in dispute was made not under the documents as claimed but under some other arrangement not brought on record. The learned D.R. was also vague and did not spell out what was the other arrangement. Suggestion is to imagine some arrangement, which on facts is not possible. There is no justification why company should not be taken a legal entity different from shareholders in this case. We would take apparent as real. We reject above arguments. 13. The Assessing Officer and on appeal, the learned CIT(A) have observed that Jain Group was carrying on activities of promoting, financing, setting up, controlling, managing and running various group firms and company and drawing and implementing their expansion and diversification plans and strategies. Exact source of above observations is not revealed in the order. No instances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts and obligation of the parties in JVA as well as various undertakings given by the M/s. Gillette Co., USA. The material portion of the said notice is as under: We wish to express our deep concern and anxiety and to lodge our protest against the proposed sale of Gillette Stationery products business to Newell Rubbermaid in the present circumstances. At the outset, we wish to record that no such sale can take place without our prior written consent and a settlement with the Jain Family, JHPL Holdings Pvt. Ltd. and Luxor Writing Instruments Ltd. Any such sale by the Gillette Company and its Stationery products business including trade marks and the Parker Pen Group writing material breach of the commitments and representations made under the JV Agreement dated 19-3-1996 and the undertakings given by you vide your letter of March 19, 1996 (Appendix-I). The JV Agreement was signed on the commitment and the understanding that the Jain Group and the Gillette Company through GIPL will establish a long term alliance and will pool their respective resources and strengths including partners Luxor Assets, the Luxor Trade Marks and the Parker Trade Marks and to develop the JV with the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the terms of the JV Agreement as signed between Gillette and the Jain Group were unacceptable to Newell. Nothing material was discussed and no Agreement was reached. In fact, we are now informed that Mr. Beyer has since resigned. The JV Agreement between the Jain Group and Gillette was negotiated over a period of approx. 18 months. During this period, we held a very large number of meetings both in India and overseas and with a large number of Gillette executives from its various international divisions. The business plans were discussed and substantial time was spent in coming to know and understand one another. It is only after both the parties had satisfied themselves and established a level of comfort and confidence in one another that we proceeded to sign the JV Agreement. How does Gillette expect the Jain Group to accept Newell Rubbermaid or for that matter any other Company as its JV, partner without any meaningful meetings or discussions and without first establishing any level of comfort or confidence? At our meeting yesterday we were informed by Ms Michelle Viotty that Newell was willing to accept our JV agreement but on condition that we agree to delete the clauses of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany and accordingly signed the Joint Venture Agreement dated19-3-1996. AND WHEREAS, Gillette on 21-8-2000 signed a Sale and Purchase Agreement with Newell Rubbermaid Inc. (together with its affiliates Newell ) and agreed to transfer to Newell Gillette's entire business and interest in the Writing Instruments and Stationery Products business internationally including Gillette's interest in the Joint Venture with the Jain Group. AND WHEREAS the Jain Group had declined to give their consent to the proposed sale and vide their letter of (December 15, 2000) gave notice to Gillette of disputes having arisen between the parties and notified Gillette of its intentions to refer the disputes to Arbitration unless the matter is resolved amicably in terms of article 32 of the Joint Venture Agreement. AND WHEREAS pursuant to the negotiations and discussions between the parties it was agreed that the said disputes be resolved and the parties wish to record the terms of the said settlement. Hence this Agreement. NOW THEREFORE THIS AGREEMENT WITNESSETH AS FOLLOWS: 1. In appreciation of the Jain Group agreeing to withdraw all claims and disputes and in particular the disputes raised vide t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id as per tripartite agreement between three parties referred to above. The payment of Rs. 69.50 crores received in the above circumstances is claimed by the assessees as a non-taxable receipt whereas according to the department it is a revenue receipt liable to be taxed under section 28(i) of the Income-tax Act. The payment is documented and genuineness, validity and veracity of documents has not been challenged at any stage of the proceedings. This fact is to be emphasized as parties to the dispute are conversing different reasons for making payment. In our opinion there is no need to put any stress on imagination when reasons for demand and payment of compensation are clearly stated in writing. We see no justification for not taking the writing on its face value. 16. Having seen the background under which payment was made, we move to some of the important decisions which have bearing on the case and on which reliance has been placed by parties:- In the case of Ram Prashad Their Lordships of Delhi High Court had held that amount in dispute was stipulated for and in-fact had been promising remuneration for services rendered in promoting and forming the company and the promised rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessive years of passed commission. The assessee claimed that receipt was a capital receipt. Their Lordships of Supreme Court held that having regard to the vast array of business done by the appellant as agents, the acquisition of agencies was in the normal course of business done by the appellant as agents, the acquisition of agencies was in the normal course of business and determination of individual agencies a normal incident not affecting or impairing its trading structure. The amounts received by the appellant for the cancellation of the explosives agency therefore did not represent the price paid for the loss of a capital asset : they were of the nature of income. Their Lordships of Supreme Court further held and observed that it cannot seriously be disputed that compensation paid for agreeing to refrain from carrying on competitive business in the commodities in respect of which the agency was terminated, or for loss of goodwill would, prima facie, be of the nature of a capital receipt. But there is no evidence-that compensation was paid to the appellant as consideration for giving the undertaking not to carry on a competitive business, or as compensation for loss of goodw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is evident from above that in the case of Gillander Arbuthnot Co. Ltd. the assessee was not able to produce evidence to show that distributory agency cancelled was not one in which the assessee functioned as distributing agent. It was not even suggested that in the determination of the agency, trading structure of the assessee's business was impaired. In the other case Their Lordships of the Apex Court drew a distinction between agency contract and a trading contract. Agency contract was held to be apparatus which leads to business rather than business itself. Agency contract was thus held to be a capital asset invested in the business but trading contract entered in the ordinary course of business was held to be business itself. Their Lordships also emphasized that for determining the question it has to be seen whether compensation is for a capital asset or for stock-in-trade. If it is for stock-in-trade then it was a revenue receipt otherwise it is capital. In the case of CIT v. Gangadhar Baijnath [1972] 86 ITR 19 (SC) Their Lordships of Supreme Court held that compensation received for relinquishment of interest in partnership was a revenue receipt. Such contracts are liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for the income-tax department to clearly establish that the case fell within the exception to the ordinary rule. In the present case, according to the findings of the Tribunal, the termination of the agency in question had resulted in the destruction of a source of income of the company. The Tribunal had arrived at the conclusion that the managing agencies held by the company represented the source from which it received its income by way of commission. Their Lordships further observed as under:- Where, on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated), the receipt is revenue: where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of the said amount is capital receipt or revenue receipt. The Income-tax Officer arrived at a conclusion that it was a revenue receipt, the Commissioner of Income-tax (Appeals) held that it was a capital receipt, the Tribunal confirmed the said finding, on a reference to the High Court, the High Court arrived at a conclusion that it was a revenue receipt assessable to income-tax as business income for the assessment year 1979-80. Their Lordships of theApex Courtafter considering its earlier judgments had held: Applying the aforesaid test laid down by this court in the present case, in our view, the Tribunal was right in arriving at a conclusion that it was a capital receipt. The reason is that as provided in article XVIII of the first agreement the assessee was having an option or right or lien, if the owner desired to transfer the hotel or lease all or part of the hotel to any other person, the same was required to be offered first to the assessee (operator) or its nominee. This right to exercise its option was given up by a supplementary agreement, which was executed in September, 1975, between the receiver and the assessee. It was agreed that the receiver would be at li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ordinary course of their business. It was an agreement entered into by Jain Group for purposes of business. JVA was a commercial deal providing respective rights and liabilities of parties relating to business agreed to be carried but it was not a business . JVA may not merely be a memorandum of agreement not connected with the business as contended by the assessee. It was a commercial agreement. But it was not business . We hold accordingly. 20. The revenue authorities for holding that compensation in question was a revenue receipt has held that JVA was entered in the course of business carried on by Jain Group. The phrase in the course of business has been mis-applied by the revenue authorities on the facts of the case. Every right/asset acquired or every transaction entered or carried in the course of business cannot give rise to a revenue gain or revenue asset. There is no doubt that the Apex Court in some of the cases quoted above has held that compensation paid on termination of agencies were business receipts as agencies were acquired in the normal course of business carried by the assessee. The aforesaid observation has to be read in the context and on peculiar facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturer also has structure to carry on the trade like shop, factory, car, distribution agencies etc. etc. The structure - machinery, mechanism or structure with which trade is carried, are all capital assets and may be called business assets but cannot be taken to be business . If above distinction and principles involved there in are kept in view, it is easier to resolve the controversy before us. 22. We have first to find whether JVA here is a capital asset or a revenue asset. What is the nature of JVA? It is admitted even by the Assessing Officer and CIT(A) that parties, as per the JVA agreed to establish, develop, long-term business alliances to strengthen Luxor group and world renowned Gillette group. Under the agreement, business of manufacture and sale of writing instrument and stationeries was to be carried by exclusive vehicle of joint venture (LWIL etc.) companies. The joint venture companies in business was to follow Gillette's management, financial, personal, manufacturing, internal control, reporting system, policies, practices, procedures and were to be guided by Gillette's mission and value statement . Products of Gillette were to be manufactured and so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l asset invested in the business but not business itself. It was clearly a capital structure having two shades, one of Jain group and other of Gillette both having committed to provide not only finances but also management skill and even culture etc. etc. It could not be treated as stock-in-trade or a revenue asset. It was a capital asset. 26. Having reached the conclusion that JVA gave rise to rights which were capital in nature now the question whether compensation received for breach of above rights or waiver of such rights is revenue receipt or capital receipt is not difficult to decide. It is an admitted position that compensation was paid to Jain group for breach of commitment provided in JVA. 27. As per notice dated 15-12-2000 Jain group lodged protest and complaint with Gillette group of breach of contract and how they have failed to fulfil their elaborate and long-term commitments. Newell was a competitor and it was difficult to align with such competitors. For the breach of commitments and for leaving joint venture, the Jain group demanded compensation apart from other things. Para 2 of the notice quoted, above is relevant. 28. Thereafter after mutual discussion and consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the structure referred to above was caused on account of departure of Gillette group. This inference does not conform to the Notice issued by Jain group. As observed earlier, both the parties have accepted that loss was caused and one party paid compensation to the other party for the loss, breach and/or for giving consent and waiving rights under the JVA. Notice and waiver agreement have been extensively quoted and it is not necessary to repeat them here. However, it is not possible to ignore them (written agreements). Further there is no evidence to support the stand of the revenue. On facts it is not possible to argue that no loss was caused to Jain Group on account of departure of Gillette. Observations of revenue being against record cannot be accepted. 31. It has also been observed that compensation was paid for loss of future profit or to reduce the future losses which the joint venture companies suffered or were likely to suffer. Documents referred to above make no reference to future profit or future losses and, therefore, it is not possible to enter into realm of actual losses or actual profit suffered in the joint venture. Parties to JVA or even revenue authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference to loss or damage caused to the trading structure on account of departure of Gillette. In the above circumstances, we see no reason to admit additional evidence filed by the assessee. 33. It is rather difficult to find decided cases having identical facts, but in our considered opinion, the decision of House of Lords in the case of Van Den Berghs Ltd. v. Clark (H.M. Inspector of Taxes) [1935] 3 ITR 17, the facts were quite identical. In the said case, the assessee like Jain Group had entered into an agreement to pool their resources to avoid business competition. JVA here and agreement involved in the cited case are quite identical. One agreement might be more extensive than the other but that in our considered opinion does not make any difference to the character of agreement involved and nature of compensation received on its breach or termination. Ultimately, compensation of 450,000 pounds were paid to the assessee. The said sum was held to be a capital receipt. The House of Lords further elaborated on what is in the course of carrying on the business (trade) . The facts of the case and the decision given is as under: A Dutch company and the appellants, who were competi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into an agreement whereby they bound themselves for the future to work in friendly alliance and to share their profits and losses in conformity with an elaborate scheme detailed in the agreement. Each of the two companies had a controlling interest in a number of other companies and they undertook that, if either of them or any of the companies which they controlled should acquire an interest in any other margarine concern, the fact should be communicated to the other party, who should have an option to require such interest to be brought within the operation of the agreement. Both companies further undertook on behalf of themselves and of their controlled companies not to enter into any pooling or price arrangements with their parties which might be deemed inimical to the interests of the two companies under the agreement. The directors and managers of the respective companies were parties to the agreement and bound themselves for twenty years not to engage in any margarine business other than that of the two companies. Provision was also made for the setting up of a representative joint committee which was empowered make arrangements with outside companies and firms as t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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