TMI Blog2012 (8) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... Raju (2012 (2) TMI 217 - ITAT HYDERABAD )- Decided against Assessee Sale of shares of other companies - dis-allowance of claim of long term capital loss - assessee contended that said shares were transferred as a part of the family settlement and could not be regarded as ‘transfer’ and invoking the provisions of section 47(iv), and treating the loss as a notional loss - Held that:- We restore the matter to the file of the A.O. for deciding this issue afresh on merits after examining the stand of the assessee in the light of relevant documentary evidence. Dis-allowance u/s 14A - Rule 8D - Held that:- As held in Godrej & Boyce Mfg. Co. Ltd. v. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] that disallowance u/s.14A for the years prior to AY 2008-09 has to be made by adopting some reasonable method, we restore the matter to the file of the A.O. for recomputation. - ITAs 2793 & 3388, 2588, 2792, 3392, 3396, 2791, 2389, 3389, 2688, & others Group Appeals/M/2010 - - - Dated:- 20-6-2012 - SHRI P.M. JAGTAP, AND SHRI SATBEER SINGH GODARA, JJ. Appellant Assessees by: S/Shri K. Shivaram, Arvind Dalal Ajay Singh Respondent Revenue by: Mrs. Kusum Ingale O R D E R PER B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (ITA No. 6147/M/2010), the Ld. CIT(A), however, took a different view holding that the amount of non-compete fees was chargeable to tax as business income. Aggrieved by the orders of the Ld. CIT (A) on this issue, the assessees and the revenue both have raised their respective grievances in the present appeals filed before the Tribunal. 4. At the time of hearing before us, the Ld. Counsel for the assessee has not pressed the relevant ground i.e. ground no.1 of the assessees appeals on this issue challenging the decision of Ld. CIT (A) treating the non-compete fees received by them as capital gain chargeable to tax except in the appeal filed in the case of Ruia Apparels Pvt. Ltd. where the Ld. CIT (A) has himself treated the non-compete fees as business income. Ground no. 1 raised in the eight appeals of the assessees (barring ITA NO. 6147/M/2010) is accordingly dismissed as not pressed. 5. As regards this issue raised in all the eight appeals of the Revenue and the appeal of the assessee filed in the case of Ruia Apparels Pvt. Ltd. (ITA No. 6147/M/2010) to the extent whether the non-compete fees received by the assessees in the year under consideration is chargeable to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transferor. He may also pay consideration to the transferor for transfer of business, for not engaging in competition. He may also pay consideration to persons associated with the transferor not to indulge in competition. The receipts by the transferor or other persons connected with the transferor can be divided into the following categories; a) The consideration paid by the transferee for transfer of the business to the transferor; b) Consideration paid to the transferor not to carry on same business directly or indirectly not to indulge in manufacturing same or similar products, not to use the trade names etc. ; c) Consideration paid to persons associated with the transferor to ensure that they also do not indulge in competing business; It has to be clarified that the case laws in which the transferee claims the consideration paid as above as revenue expenditure have no bearing whatsoever when we deal with the case of the tax treatment in the hands of the transferee. There are different considerations for determining whether the cost paid by the transferor is to be regarded as capital expenditure or revenue expenditure. 38. As far as category (a) is concerned the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipts on account of giving up right to carry on business even if it is capital receipt would now be chargeable to tax as income from business. The difference would be that if it is paid to the transferor for giving up right to carry on business, it would be regarded as capital gain, the cost of acquisition of right to carry on business being determined in accordance with the provisions of Sec.55(2)(a) of the Act. If it is compensation paid for not carrying out any activity in relation to any business , which the transferor is not carrying on, the same would be chargeable u/s.28(va)(a) of the Act. If a receipt is considered as payment for not carrying on business which the transferor is already carrying on then it would be regarded as capital gain, being transfer of a capital asset viz., right to carry on business. Thus for the provisions of Sec.55(2)(a) of the Act to apply the transferor must be carrying on a business which he agrees not to carry on. If the transferor is not already carrying on business then he receives consideration only for not carrying out any activity in relation to any business . In that case the provisions of Sec.28(va)(a) of the Act would apply and not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed in favour of the revenue and against the assessees by the decision of the Special Bench of the Tribunal in the case of Dr. B.V. Raju which is binding on this Division Bench. 9. After considering the rival submissions and perusing the relevant material on record, we are inclined to agree with the contention of the Ld. D.R. on this issue. It is observed that the facts which are material in the present context as involved in the present cases are similar to the case of the Dr. B.V. Raju (supra) decided by Special Bench of the ITAT. In the said case, Dr. B.V. Raju was a promoter and shareholder of two cement companies viz. RCL and SVCL while the assessees companies in the present cases were the promoters and shareholders of M/s. Dawn Mills Co. Ltd. Although Dr. B.V. Raju was not having controlling interest in RCL SVCL, this aspect of the matter, in our opinion, is not very relevant in the present context. In any case, all the assessee companies in the present cases collectively with some other companies were having controlling interest in Dawn Mills Co. Ltd. and not individually. In the case of Dr. B.V. Raju, RCL and SVCL were taken over by some other company similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceives as non-compete fees is the consideration only for not carrying out any activity in relation to any business , which would be covered by the provisions of sec.28(va) of the Act w.e.f. 01.04.2003. The consideration paid to Dr. B.V. Raju, which is similar to the one involved in the present cases, therefore was held by the Special Bench as falling under the category of payment for not carrying out any activity in relation to any business as covered by the provisions of sec.28(va)(a) and since the said provisions were applicable w.e.f. 01.04.2003, the amount received by Shri B.V. Raju as non-compete fees in the previous year relevant to A.Y. 2000-01 was held to be not chargeable to tax. In our opinion, the ratio of the decision of the Special Bench in the case of Dr. B.V. Raju is squarely applicable to the facts of the present cases and since the same is binding on us, we respectfully follow the same to hold that the non-compete fees received by the assessees in the present cases is chargeable to tax as business income as held by the AO and not as capital gains as held by the Ld. CIT (A). The impugned orders of the Ld. CIT (A) on this issue passed in the cases of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A) and it was submitted on behalf of the assessees before him that A.O. had wrongly considered the facts inasmuch as the shares of M/s. Special Paints Ltd. were sold at market price and the valuation report of the C.A. indicated that the said company had no reserves and was a loss making BIFR company. It was also submitted that the value of the said shares was negative at the relevant time. This stand of the assessee was not found acceptable by the Ld. CIT (A). According to him, the report of Directors of Special Paints Ltd. available in the paper book filed by the assessee was sufficient to show that the net worth of the said company was not negative but the same had turned positive as on 31st March, 2005. He also noted that new share capital worth Rs 3.16 crores was issued by the said company by issuing right shares during the financial year 2004-05 at Rs.25 per share. Keeping in view all these facts, the Ld. CIT (A) confirmed the disallowance made by the A.O. on account of loss claimed by the assesses on sale of shares of M/s. Special Paints Ltd. and other companies. 15. We have heard arguments of both the sides on this issue and also perused relevant material on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion i.e. A.Y. 2006-07, the concerned assessee companies had claimed certain income to be exempt from tax. No disallowance on account of any expenditure incurred in relation to the said exempt income, however, was made by the assessees as required by the provisions of sec.14A. The A.O. worked out such expenses by applying Rule 8D of Income-tax Rules, 1962 and made a disallowance to that extent. On appeal, the Ld. CIT (A) confirmed the said disallowance made by the A.O. u/s.14A r.w. Rule 8D relying on the decision of the Special Bench of the ITAT in the case of Daga Capital Management Pvt. Ltd. 117 ITD 169 (Mum) (SB) wherein it was held that Rule 8D has a retrospective application. 18. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. As agreed by the Ld. Representatives of both the sides, this issue now stands squarely covered by the decision of Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. 234 CTR 1 wherein it was held that Rule 8D of Income-tax Rules, 1962 is applicable only from assessment year 2008-09. As further held by the Hon ble Bombay High Court, the disallowance u/s.14A for the years prior ..... X X X X Extracts X X X X X X X X Extracts X X X X
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