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TMI Blog2012 (8) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... an agent of Sharekhan." 2. After hearing both the parties, we find that during the assessment proceedings AO noticed that assessee has declared long term capital gains of Rs.1,11,00,000/-. This receipt was on account of goodwill sold to Sharekhan. It was further noticed that assessee was carrying on some broking business with Sharekhan from 1997 and had about 1800 clients. This business was transferred to Sharekhan w.e.f. 30-1-2006 and for the transfer of goodwill at Rs. 1.11 crores was paid by Sharekhan. Further since the cost of goodwill was nil and assessee had purchased the capital bonds, assessee claimed deduction u/s. 54EC. The AO Perused the sub-broking agreement and noted that vide clause 8(e) assessee could not execute any transaction for sale and purchase of securities for the initial period of three years except through the transferor i.e. Sharekhan. On the basis of this and some other clauses, AO concluded that assessee's argument that assessee has sold the goodwill could not be accepted because of the following reasons. "(i) The assessee, it may be borne in mind, was the sub broker of ShareKhan for past 8 years and that too under a contract. This agreement has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ker is not that of a principal or agent but the relationship is that of two principles. The sub-broker does not work on behalf of the broker but he solicits business from the clients and in turn provides business to the broker and the brokerage is shared between the sub-broker and the broker. The sub-broker is responsible for his own action and the appellant has correctly pointed out he cannot bind Sharekhan for his actions. The action of the A.O. to treat the appellant as agent of Sharekhan is found to be not correct. As the amount of Rs. 1,11,00,000/- was paid as compensation by the Sharekhan for trading infrastructure of business of the appellant, and the amount was received by the appellant as an agent but, the provision of section 28 (2)(e) is not applicable. The A.O. is directed to treat the amount of Rs. 1,11,00,000/- as capital receipt and assess income under the head "Income from Capital Gain" and allow exemption u/s. 54EC after verifying that the appellant has fulfilled the conditions provided in section S4EC. Ground 4 is allowed." 4. Before us, Ld. DR strongly supported the order of the AO and submitted that in fact during the year there was a change in the regulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tangible assets and charged a sum of Rs. 1.17 crores for transferring the net worth of 1800 clients and, therefore, it was simply a case of sale of tangible assets along with the intangible assets and it cannot be termed as termination of the agency. 6. We have considered the rival submissions carefully and find force in the submissions of the Ld. Counsel of the assessee. Section 28(ii)(c) reads as under: "28. (ii) any compensation or other payment due to or received by - (c) any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto ; A plain reading of the above provision clearly shows that any compensation or any other payment which is received by a person by whatever name called for holding an agency or in connection with the termination of such agency, the main ingredient of the provision is that such payment should be made by a principal to an agent. Whether the assessee was an agent or not can be deciphered from the sub-broking agreement entered into by the assessee on 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eror, certain tangible and Intangible assets of the said Undertaking more particularly listed out andscrlbedTn the SCHEDULE hereunder written, at the consideration and on the other terms and conditions mutually agreed upon. The aforesaid assets which are more particularly listed out, and, described in para A of the SCHDULE are hereinafter collectively referred to as "the said Tangible Assets" and the aforesaid assets which are more particularly listed out and described in para B of the SCHEDULE are hereinafter collectively referred to as "the said Intangible Assets". The said tangible Asses the said Intangible Assets are hereinafter collectively referred to as "the said Assets". It is hereby expressly provided that the said Tangible Assets do not include the said Office Premises". Clause (e) makes it clear that assessee has sold assets as per Schedule and the Schedule shows that assessee had agreed to sell furniture and fixtures, computer and printers, office equipment etc. along with the intangible assets consisting of net worth of 1800 clients and trained men power as well as research report and credit risk assessment procedures etc. The assessee had agreed to sell furniture, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat when a person was allowed to act as sub broker, he was initially allowed to issue even a contract note to his clients. Moreover, such sub broker could receive payments from clients and make payments to clients from his accounts. This position was changed vide Circular No. 9 (SEBI/MRD/MIRSD/DPS-1/CIR-31/2004) dated 26th August, 2004 as noted by the AO. But by this change assessee could still act as a remisier and the only restriction is that now he cannot issue the contract note for any transaction which has to be issued by the main broker. Even the payments were to be received and made by the main broker. However, assessee still remained entitled to his commission which was to be shared by the main broker with such remisier. Therefore, the assessee even after the change of regulation could have still acted and could have shared the commission with the main broker i.e. Sharekhan or he could have changed his broker or even he could have himself become a member of the stock exchange because he had a large client basis. Simply because assessee preferred to sell his business along with tangible assets would not mean that the agreement would become that of an agency. It still remaine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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