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TMI Blog2012 (8) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... the present cases along with some other entities were promoters of a company namely M/s. Dawn Mills Co. Ltd. and were holding 52.60 percent shares of the said company. They agreed to transfer their shares and controlling interest in M/s. Dawn Mills Co. Ltd. as per the shares purchase agreement dated 24.11.2005. As per the said agreement, the shares were agreed to be sold at a price of Rs.4,642/- per share. In addition, a sum of Rs.1,161/- per share was received by the transferor of shares including the assessees companies towards 'non-compete fees'. The said amount received on account of 'non-compete fees' was considered by the assessees as part of the sale consideration for transfer of shares while computing the capital gains arising on transfer of shares and the same was offered to tax @ 10% without indexation. This claim of the assessees was examined by the A.O. and the same was found to be not acceptable by him for the elaborate reasons given in the assessment orders. He held that the 'non-compete fees of Rs.1,162/- per share received by the assessees companies was not part of the consideration for sale of shares of M/s. Dawn Mills Co. Ltd. but the same constituted 'business i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on February 13, 2012 vide its order reported in 135 ITD 1 (Hyderabad) (SB). The said decision of the Special Bench, therefore, was brought to the notice of the Learned Representatives of both the sides and they were invited to make submissions on this issue involved in the present appeals in the light of the said decision of Special Bench. In this regard, the Ld. Counsel for the assessee has prepared and furnished a comparative statement to show that the facts involved in the present cases are different from the facts involved in the case of Dr. B.V. Raju (supra) decided by the Special Bench. On going through the said statement, it is, however, observed that the difference in facts as sought to be pointed out by the Ld. Counsel for the assessee is not material enough to say that the decision of Special Bench of the ITAT in the case of Dr. B.V. Raju (supra) has no application in the present cases. 6. As already noted, Hyderabad Special Bench of this Tribunal in its order passed in the case of Dr. B.V. Raju (supra) has considered a similar issue relating to taxability of 'non-compete fees' in the light of relevant provisions of the law as amended from time to time and after taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery provisions were amended to provide cost of acquisition being treated as nil. These amendments are set out in the later part of this order. As far as category (c) is concerned, the same would fall for consideration to see if it is capital receipt chargeable to tax as on the date of transfer because after 1-4-2003 such consideration even if regarded as capital receipt would be chargeable to tax u/s.28(va)(a) of the Act. Therefore the law as it prevails on the date on which a person agrees to desist from doing certain acts in relation to any business would be relevant. "39. If a payment is in the nature of non-compete fee received by the transferor when he sells his business and agrees not to carry on the business which he transfers then that would fall for consideration under (category (b) referred to earlier) section 55(2)(a) "right to carry on business". If the non-compete fee is paid to persons associated with the transferor then the same would fall for consideration only under Sec.28(va)(a) of the Act introduced by the Finance Act, 2002, w.e.f 1-4-2003. It is significant to note that the words used in Sec.28(va)(a) of the Act are "not carrying out any activity in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by not indulging in manufacturing same or similar product. He has submitted that the assessee companies in the present cases were having controlling interest in M/s. Dawn Mills Co. Ltd. and they being the 'transferors' of the said 'controlling interest', their cases are covered by para 37(b) and not by para 37(c)' which covers the persons associated with the 'transferor'. He has submitted that the assessee companies in the present cases are not the persons associated with the transferor but they themselves are the 'transferor' directly which are covered in 'Category given in para 37(b)'. 8. The Ld. D.R., on the other hand, has submitted that what is meant by "transferor" as mentioned in para 37(b) and 37(c) of the order of special bench is the transferor of the business and not the transferor of shares or controlling interest. She has submitted that such 'transferor of business' in the present case was M/s. Dawn Mills Co. Ltd., which was actually in the business and the assessee companies were only associated with the said 'transferor' i.e. M/s. Dawn Mills Co. Ltd. being Promoter/shareholder. She has submitted that the case of the assessee thus is squarely covered by para 37(c) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expression used in the provisions of sec.55(2a) was "a right to manufacture, produce or process any article or thing" while the expression used in sec.28(v)(a) was a "a right to carry on a business". The Special Bench held that theses two expressions have definite and different connotation. Explaining further, it was observed by the Special Bench that the expression used in sec.55(2)(a) contemplates existence of right to manufacture, produce or process an article or thing otherwise the question of extinguishment or curtailment of such a right would not have been contemplated by the Legislature. It was held by the Special Bench that it would be reasonable to presume that what has sought to be covered by the expression "a right to manufacture, produce or process any article or thing used any article u/s.55(2)(a) is intangible asset in the form of patent or a similar right. It was held by the Tribunal that when the transferor is already carrying on the business and agrees not to carry on the business transferred then the same would fall for consideration only under sec.55(2)(a) of the Act. 11. As regard the provisions of sec.28(va), the Tribunal held that with the insertion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No. 2389/M/2010) and SJS Investments Pvt. Ltd. (ITA No. 2790/M/2010) relates to the disallowance made by the A.O. and confirmed by the Ld. CIT (A) on account of assessees' claim for long-term capital loss on sale of shares of M/s. Special Paints Ltd. And other companies. 13. The concerned assessees had debited substantial amount in their profit and loss account of loss on account of sale of shares of M/s. Special Paints Ltd. and other companies. During the course of assessment proceedings, the A.O. required the assessees to furnish the complete details of the said loss as well as to produce the supporting evidence in the form of Broker's Note, Demat account etc. Although the assessee furnished relevant details showing that the shares of M/s. Special Paints Ltd. were sold at the face value, the documentary evidence required by the A.O. was not furnished by the assesses. The assessees also could not satisfactorily explain the reason for selling the shares of M/s. Special Paints Ltd. at face value. It was only explained that the said shares were transferred as a part of the family settlement between the two groups of the Ruia Family who were holding shares in the various group co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T (A) was not justified in assuming that the net-worth of the said company was not negative by relying on the share price of right issue. The Ld. Counsel for the assessee thereafter has taken us through the documentary evidence filed in his paper book to show that the net worth of M/s. Special Paints Ltd. was negative at relevant time and the said company was referred to BIFR. He has submitted that the claim of the assessee for loss on sale of shares of Special Paints Ltd. is thus required to be decided on merits in the light of the documentary evidence available with the assessee and the matter may therefore be sent back to the A.O. for such examination. Since the Ld. D.R. has not raised any objection in this regard keeping in view the submissions made by the Ld. Counsel for the assessee as well as documentary evidence placed on record, we set aside the impugned orders of the Ld. CIT (A) on this issue and restore the matter to the file of the A.O. for deciding this issue afresh on merits after examining the sand of the assessee in the light of relevant documentary evidence. Ground no.2 raised by the assesses in the relevant appeals is accordingly treated as allowed for statistica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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