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2015 (8) TMI 331 - ITAT BANGALORE

2015 (8) TMI 331 - ITAT BANGALORE - TMI - Slump sale - non-taxability of consideration received on sale of transportation business /undertaking - Held that:- The only way to bring to tax sale consideration received on transfer of "Technical know-how" is to call it "goodwill" and that is probably the reason why the AO preferred to call transfer of Technical know-how as transfer of goodwill. We are of the view that "Technical know-how" and "goodwill" cannot be equated. In fact the statutory amendm .....

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ansfer of technical know-how as goodwill. In this regard it is seen that in the Assessee’s letter dated 7.12.2009 to the AO, the contentions were made without prejudice and therefore the observations of the AO in this regard are not correct.

"Technical Know How " is a self-generated asset and the Assessee incurred no cost but developed in the course of conducting its business. Even if "Technical Know-how" is to be regarded as "right to manufacture an article or thing or a right to car .....

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old that profit on sale of "Technical Know-how" cannot be brought to tax as "Capital gain" u/s.45 of the Act.

With regard to the argument of the learned DR praying for a remand of the issue to the AO for a fresh consideration, we are of the view that the AO in the remand proceedings has consciously taken a decision that the gain on sale of Technical know-how was capital receipt chargeable to tax u/s.45 of the Act. By implication he was satisfied that it was not a revenue receipt charg .....

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respect of noncompete covenant was not believed by the Revenue. As to how it could be regarded as revenue in nature or receipts from business has not been substantiated by the revenue. The receipt of ₹ 30 crores by the Assessee cannot therefore be regarded as income. It should regarded as capital receipt not chargeable to tax. The prayer for a remand of the issue to the AO for fresh consideration as made by the learned DR before us cannot be accepted for the reasons which we have given whi .....

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ed after remand by the Tribunal that the reasons given in the original order will continue to hold good. The receipt in question cannot also be regarded as falling within the ambit of Sec.28(iv) of the Act as the consideration was received in cash and therefore cannot be regarded as value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. The decision of the Hon’ble Bombay High Court in the case of Mahindra & Mahindra Ltd. .....

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s Carbon Brushes Pvt.Ltd., (2007 (5) TMI 596 - ITAT CHENNAI), the finding of the tribunal was non-compete fee was in fact consideration for transfer of goodwill. In the present case the Tribunal has already held that the payment of ₹ 30 crores is not towards goodwill. Therefore reliance placed by the learned CIT(A) on the aforesaid decision cannot in any way improve the case of the revenue. We therefore hold that the sum of ₹ 30 crores cannot be brought to tax and delete the addition .....

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o the assessee. On a subsequent date, if due to orders of assessment or appellate orders passed, the interest granted to the assessee under section 244A of the Act is to be withdrawn, the assessee cannot be held responsible for any undue delay, thereby requiring any compensation. Hence, the principle of compensatory interest for undue delay in grant of refund can be applicable to the assessee but not to the Department.

In view of the above we direct the Assessing Officer to recompute .....

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This is an appeal by the Assessee against the order dated 30.09.2010 of CIT(A), LTU, relating to AY 1997-98. 2. During the previous year relevant to AY 1997-98, the Assessee was engaged in the business of Manufacturing and trading. The Assessee as part of its business activities was also engaged, in several years in the past, in the business of manufacture and sale of and distribution of machinery and components for electric locomotives, signalling systems and electrification for railways (the .....

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t; was defined to mean the operations and activities of the transportation business of the Assessee as a going concern on an as is where is basis and included all plant, machinery, current assets, industrial and other licenses, all intangible assets, all benefits and obligations of all current and pending contracts, technology for design manufacture, test, quality assurances and servicing for all railway equipment and parts/components thereof as existing with the Assessee, all liabilities relati .....

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trial activity which competes in India with the activities of the business that is transferred. In respect of this covenant not to compete, the Assessee was paid a sum of ₹ 30,00,00,00 by DEBAB. 4. Both the aforesaid receipts were claimed as not taxable in the return of income filed by the Assessee for AY 97-98. The note given by the Assessee along with the return of income reads thus: "Notes: 1. During the year vide an Agreement dated 28th June, 1996 the company had sold and transfer .....

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ng concern. As the undertaking has been transferred for a lump sum consideration, no part of consideration can be attributable to any individual assets which is comprised in the undertaking. Accordingly, no adjustment has been made in computing w.d.v. for the block of assets. 2. During the year company has received a sum of ₹ 33,21,00,000 under an agreement from M/S.ABB Bahnbetiligungen GmbH, Germany, for furnishing non-compete covenant in respect of transportation business. The amount rec .....

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the transferee to the effect that though there is transfer of business with effect from 1.1.1996 the Assessee will continue to run the business and the Assessee will also be entitled to profits of the business up to 31.7.96. The variation in the figure of non-compete fee is because of payment of interest by DEBAB at 18% on the sum of ₹ 30 crores which is the non-compete fee from 1.1.96 to 31.7.1996 which comes to ₹ 3,21,00,000/-. 6. Prior to the insertion of Section 2(42C) of the In .....

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as been held by judicial decisions to be not taxable neither as business income u/s. 41 (2) nor as Capital gains u/s. 45 of the Act. To attract section 41 (2), the subject matter should be depreciable assets and the consideration received should be capable of allocation between various assets. In case of a slump sale, an undertaking is transferred including depreciable and non-depreciable assets and it is not possible to allocate slump price to depreciable assets and therefore, the same cannot b .....

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ic provision like Section 50B, it is not possible to determine the cost of the said assets and thus, the computation mechanism fails and so does the charging section. Therefore, it was held that the gain from the transfer of a bundle of asset on a slump basis is not chargeable to capital gain also. Thus, slump sale was held to be not chargeable to tax prior to insertion of Section 50B. In the present case, we are concerned with AY 97-98 prior to insertion of Sec.50-B of the Act. 7. The claim of .....

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as case of itemized sale of assets and liabilities. The final conclusions in this regard are at Para-92 of the Tribunal s order. The Tribunal thereafter gave directions as to how profit/gain on the transfer in question has to be brought to tax. 9. The Purchaser of the Transportation business/undertaking had in his books assigned values for the different block of assets that were subject matter of sale by the Assessee. The following were the values so assigned by the purchaser:- Particulars Net B .....

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um of ₹ 33,21,00,000 received towards non-compete fee and interest was brought to tax as "Income from other sources". 11. The CIT(A) held that the consideration of ₹ 53.10 crores, after reducing the cost of the asset, which was determined by the Assessing Officer at ₹ 6.79 crores, was chargeable to tax as short-term capital gain in terms of section 50 and not as long-term capital gain as held by the Assessing Officer. As regards the taxability of ₹ 33.21 crores .....

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chargeable in the assessment year 1996-97 while the balance of the interest received for the period commencing on 1.4.1996 was chargeable to tax in AY l997-98. 12. The Tribunal modified the above directions of the CIT(A) as follows:- "96. We have heard both the parties. There are three distinct categories of assets which have been transferred under the Agreement and to which values have been assigned by the purchaser, namely, (i) value assigned to the inventory sold; (ii) value assigned to .....

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-98 of his order. This direction of the CIT(A) is also not relevant for disposal of the present appeal. We are only concerned with the direction with regard to taxability of profits or gains arising on transfer of other assets in this appeal. On the above aspect the ITAT gave the following directions in para 99 & 100 of its order as follows: "99. In view of our aforesaid direction modifying the order of the learned CIT(A) regarding the computation of capital gains u/s 50 in respect of d .....

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rring receipt u/s 56 read with section 10(3). Learned Commissioner (DR) has pointedly submitted that the assessee has already claimed cost of acquisition/improvement/development of non-depreciable assets in its accounts and hence cannot again claim deduction on the same account. He has also submitted that the assessee has neither capitalized those expenses nor shown them as investment or as capital assets in its accounts nor claimed any depreciation thereon. According to him, it is the total amo .....

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ubmissions including the written submissions. We find that this aspect has not been looked into by the learned CIT(A) but adjudication on this issue of taxability of profits or gains arising on transfer of non-depreciable assets is a necessary consequence of our directions to the AO to split the sale consideration into three parts. 100. We find that the purchaser has allocated ₹ 43.17 crores out of total sale consideration to technical know-how. The assessee has not purchased the technical .....

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pment of technical know-how have been claimed as revenue expenditure in which situation the entire receipt would also be taxable in revenue field. However, the position would be different if the assessee has capitalized the expenses/costs incurred towards acquisition/improvement/development of technical know-how in its accounts in which case the profit or gain arising on their transfer would be chargeable to tax as capital gains u/s 45 after allowing deduction for the costs of their acquisition .....

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the revenue field, the gains arising as a result of sale thereof will have to be necessarily treated in revenue field either u/s 28 or section 56 and not as capital gains. The provisions of section 56 read with section 10(3) are quite apposite. Entire sale consideration not allocable to inventories and non-depreciable assets can also be considered for taxation as a receipt of casual and non-recurring nature under section 56 of the I-T Act if the assessee is not in a position to establish that t .....

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ideration in accordance with law, after giving a reasonable opportunity of hearing to the assessee. 14. On the question of taxability of Non-compete fee, the Tribunal held as follows:- "129. In view of the foregoing, we endorse the order of the Departmental authorities that the impugned amount received by the assessee is not in lieu of restrictive covenant and that the said covenant is a colourable device to pass off the impugned receipts as non-taxable. 130. Ld. CIT(A) has noted in Para 21 .....

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gned receipt is also liable to tax on account of transfer of goodwill. At Para 21.7 (page 28) of his order the ld. CIT(A) has held that the receipt does not have the character of income and hence cannot be taxed as such and thereafter proceeded to decide that the impugned receipt was taxable as long term capital gain on the ground that the impugned amount represented receipt on account of transfer of goodwill to the purchaser. The order of the ld. CIT(A) is quite cryptic in as much as he has not .....

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f so, whether they were taxable under the aforesaid provisions instead of summarily rejecting it and proceeding to tax it as long term capital gain on the basis that the assessee has transferred the goodwill. He seems to have lost sight of the fact that it was the goodwill of ABB Group which was common both to the assessee-company and the purchaser-company and hence the assessee could not possibly have its own goodwill independent of the ABB Group for transfer to the purchaser-company. In any ca .....

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ion in accordance with law keeping in view the observations made by us earlier in this order. Ground no. 11 thus stands restored to the file of the Assessing Officer. 15. The present appeal arises out of the order of the AO and CIT(A) on remand pursuant to the aforesaid order of the Tribunal. TAXABILITY OF CONSIDERATION RECEIVED ON TRANSFER OF TRANSPORTATION BUSINESS/UNDERTAKING: 16. The AO in the proceedings pursuant to the order of the Tribunal held that the consideration received by the Asses .....

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rnataka High Court took the view that trademark, trade name etc., are indistinguishable, inseparable and part of goodwill. He held that the cost of acquisition was nil and therefore brought the entire sum earmarked for technical how by the purchaser of the transportation business/undertaking in his books as long term capital gain. 17. Before CIT(A) the Assessee contended that the revenue in coming to the conclusion that sale of the Transportation business/undertaking by the Assessee was not a sl .....

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emark, trade name etc., as indistinguishable, inseparable and part of goodwill, in as much as "Cost of Acquisition" in the case of self-generated assets like goodwill was amended by the Finance Act, 1987 w.e.f. 1.4.1989 by laying down that cost of acquisition of goodwill would be "nil". By the Finance Act, 2002 w.e.f. 1-4-2003 "a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any .....

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by the Finance Act, 2002. The Assessee also invited the attention of the CIT(A) to CBDT Circular No.14 of 2001 dated 12.12.2001 252 ITR (St.) 65 which also clarifies that "Goodwill of a business is an asset separate and distinct from a "Trade mark that is used in the business. It was argued that technical knowhow was also to be regarded as an asset separate and distinct from goodwill. In the absence of any cost of acquisition being incurred for acquiring such Technical Knowhow, which .....

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t to manufacture an article or thing or a right to carry on business" even then the amendment to Sec.55(2)(a) of the Act deeming "Cost of Acquisition" of these assets as "nil" was effective only from 1.4.2003 and prior to that the capital gain on transfer of these assets was incapable of being determined and therefore the charging provisions of Sec.45 read with Sec.48 of the Act were not capable of being applied and the charge to tax would fail on the principle laid down .....

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ssee had not produced any evidence in this regard before the AO. The CIT(A) thereafter referred to a decision of the ITAT Chennai Bench in the case of Indo Tech Electric Co. Vs. DCIT (2006) 282 ITR (A.T.) 197 (Chennai) wherein it was held, at the time of transferring the firm as a going concern for a consideration, what was sold under the guise of technical now-how was nothing but goodwill with the sole intention of evading tax. In the absence of any evidence of what was the technical know-how t .....

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taxability of consideration received towards transfer of "Technical know-how" under the head capital gain. According to the CIT(A) the consideration received by the Assessee in the guise of transfer of "Technical Know-How" is nothing but a ruse to avoid tax liability that would clearly arise otherwise. The CIT(A) therefore agreed with the order of the AO. 19. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. The learned counsel for the Asses .....

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t; or Sec.56 of the Act read with Sec.10(3) of the Act, as other income of a casual or non-recurring nature. If the expenditure on development of technical know-how had been capitalized by the Assessee in the books of accounts, than the gain on their transfer would be taxable as "Capital Gain" u/s.45 of the Act. The issue with regard to taxability of consideration received on transfer of Know-How was remanded to the AO only for the limited purpose set out above. According to him it was .....

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e has agreed to treat the receipt on transfer of technical know-how as goodwill. He pointed out that in the Assessee s letter dated 7.12.2009, the contentions were made without prejudice and therefore the observations of the AO in this regard are not correct. It was submitted by him that there was no basis for the AO to come to a conclusion that It was pointed out by him "Technical Know-how" cannot be equated with "Goodwill". It was also pointed out by him that the decision o .....

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al Know-How". He reiterated the argument that "Technical know-how" does not have a cost of acquisition and therefore computation of capital gain on such transfer is not possible prior to 1.4.2003 and therefore the charging provisions fail. 20. He placed reliance on the decision of the Hon ble Bombay High Court in the case of CIT Vs. Fernhill Laboratories and Industrial Establishment 348 ITR 1 (Bom.). The Assessee in that case sold trademark and designs for the considerations of &# .....

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to 1-4-2003 the sale of self-generated trademark was not liable to capital gain tax. It was only by amendment of section 55 (2)(a) words 'trade mark or brand name associated with the business was introduced. The amendment does have prospective operation. The Hon ble Bombay High Court upheld the view of the Tribunal. 21. The learned DR submitted that the AO in the proceedings after the order of the Tribunal remanding the issue on taxability of receipt on transfer of technical know-how, the Tr .....

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the gain on their transfer would be taxable as "Capital Gain" u/s.45 of the Act. According to him the AO has not carried out the directions of the Tribunal properly and therefore the issue should be remanded to the AO for fresh consideration to comply with the directions of the Tribunal. He relied on the decision of the Hon ble Supreme Court in the case of Kapurchand Shrimal Vs. CIT 131 ITR 451 (SC) wherein the Hon ble Supreme Court held the appellate authority has the jurisdiction as .....

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hile remanding the issue in para 99 & 100 of its order observed that the cost of "Technical Know-how" is ascertainable and therefore it was not possible to argue that there is no cost of acquisition of "Technical Know-how". 22. In his rejoinder the learned counsel for the Assessee submitted that the Tribunal cannot remand the matter now and doing so will be allowing a 3rd opportunity to the revenue. He relied on the decision of the Third Member Delhi in the case of ZUARI .....

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totally prohibited. It has to be borne in mind that litigants have to wait for long to have fruit of legal action and expect the Tribunal to decide on merit. It is, therefore, all the more necessary that matter should be decided on merit without allowing one of the parties before the Tribunal to have another inning, particularly when such party had full opportunity to establish its case. Unnecessary remand, when relevant evidence is on record, belies litigant s legitimate expectations and is to .....

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assigned to the depreciable assets sold; and (iii) value assigned to the other assets sold. The Tribunal dealt with the mode of computation of profits/gains arising on transfer of other assets. In para-100 of its order the Tribunal clearly expressed its opinion that the profits or gains arising on transfer of other assets (which comprises only of the asset "Technical Know-how") has to be computed and that the technical know-how was developed in-house by the Assessee and that it was not .....

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non-recurring nature. If the expenditure on development of technical know-how had been capitalized by the Assessee in the books of accounts, than the gain on their transfer would be taxable as "Capital Gain" u/s.45 of the Act. The issue with regard to taxability of consideration received on transfer of Know-How was remanded to the AO only for the limited purpose set out above. As rightly contended by the learned counsel for the Assessee it was not open to the AO in the remand proceedi .....

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e claims that it was towards goodwill. As already stated at no point of time in the original proceedings did the authorities take a stand that the consideration allocated towards "Technical know-how" was in fact not for transfer of "Technical know-how" but towards "Goodwill". The CIT(A) in the proceedings after the order of the Tribunal sustained the order of the AO on the basis that the Assessee failed to produce any details/information called for to substantiate t .....

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less the context otherwise requires, have the following meanings. (a) "undertaking" means the operations and activities of the transportation business of the Vendor as a going concern on as is where is basis and shall include, inter alia: (I)…….to (v)……. (vi) Technology for design, manufacture, test, quality assurance and servicing for all railway equipments and parts/components thereof as existing with the Vendor as on the date of the transfer whether purch .....

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eat the payment of ₹ 43,17,62,000/- as consideration towards goodwill is because even though "goodwill" is a self-generated asset and therefore its costs of acquisition cannot be determined, by reason of amendment to the provisions of Sec.55(2)(a) of the Act by the Finance Act, 1987 w.e.f. 1.4.1989, the cost of acquisition of "Goodwill" is nil and therefore it is possible to compute of capital gain on transfer of goodwill. Such an approach cannot be adopted if the capit .....

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that the expression "capital asset" is defined in section 2(14) to mean "property of any kind held by an assessee" and therefore was of the widest amplitude, and apparently covers all kinds of property and goodwill is not expressly excluded by the definition. The Hon'ble Court however held that the definitions in section 2 of the Act are subject to an overall restrictive clause viz., "unless the context otherwise requires". The Hon'ble Court therefore went i .....

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he inherent quality of being available on the expenditure of money to a person seeking to acquire it. The Hon'ble Court held that goodwill is something built up by the carrying on of a business or profession and cannot be acquired by just paying money. Therefore there can be no cost of acquisition for goodwill which is a self - generated. The Court held that Sec.45 which is the charging section and Sec.48 which is the computation provision together constitutes an integrated code. When there .....

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ere introduced by the Finance Act, 1988 w.e.f 1-4-1989. These provisions read as follows: "55. Meaning of "adjusted", "cost of improvement" and "cost of acquisition".- (1) ............. (2) For the purposes of sections 48 and 49, "cost of acquisition",- (a) in relation to a capital asset, being goodwill of a business,- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price .....

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ee by purchase from a previous owner, means the amount of the purchase price ; and (ii) in any other case not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49, shall be taken to be nil ; 27. Circular No. 763, dated 18th February, 1998 explaining the above provisions of Finance Act, 1997 is as follows:- "30.1 Cost of acquisition and cost of improvement of certain capital assets 30.1 Up to the assessment year 1988-89, the gains arising on the transfer of goo .....

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odwill is purchased by the transferor, the cost of acquisition is taken to be the purchase price and in all other cases it is taken to be nil. The cost of improvement in either case is taken to be nil. 30.2 Instances have come to light where rights to manufacture, produce or process any article or thing have been extinguished for a consideration and claimed to be not taxable. 30.3 The Act has, therefore, amended sections 55(1) and 55(2) of the Income-tax Act in order to bring extinguishment of s .....

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252 ITR (St.) 65 which also clarifies that "Goodwill of a business is an asset separate and distinct from a Trade mark that is used in the business". 29. By the Finance Act, 2002, w.e.f. 1-4-2003, the provisions of Sec.55(2)(a) was amended as follows:- "(2) For the purposes of sections 48 and 49, "cost of acquisition",- (a) in relation to a capital asset, being goodwill of a business, or a trade mark or brand name associated with a business or a right to manufacture, pro .....

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ained the above provisions of Finance Act, 2002, as below: "39. Amendment of section 55 of the Income-tax Act, 1961 39.1 Under section 45, any capital receipts arising out of transfer of any business or commercial rights are taxable under the head "Capital gains". The amount of "capital gains" is computed according to section 48 of the Income-tax Act, 1961. For this purpose, "cost of acquisition" and "cost of improvement" are defined under section 55. .....

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We are of the view that "Technical know-how" and "goodwill" cannot be equated. In fact the statutory amendments to sec.55(2)(a) clearly shows that the legislature has not equated "goodwill" with trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business. The attempt made by the AO to equate transfer of "Technical know-how" with trade mark, trade name, goodwill etc .....

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been set aside and remanded to the Hon ble High Court by the Hon ble Supreme Court. As rightly contended by the learned counsel for the Assessee, technical knowhow has to be regarded as an asset separate and distinct from goodwill. In the absence of any cost of acquisition being incurred for acquiring such Technical Knowhow, which fact is not disputed by the AO/CIT(A), the entire consideration could not be brought to tax having regard to the principle enunciated by the Hon ble Supreme Court in C .....

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that the capital gain on transfer of these assets was incapable of being determined and therefore the charging provisions of Sec.45 read with Sec.48 of the Act were not capable of being applied and the charge to tax would fail on the principle laid down by the Hon ble Supreme Court in the case of B.C.Srinivasa Setty (supra). We therefore hold that profit on sale of "Technical Know-how" cannot be brought to tax as "Capital gain" u/s.45 of the Act. 32. With regard to the argum .....

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of the revenue than it could have explored the other options available under the Act to rectify the error. Prayer for a remand to the AO, in our view, would not be sustainable. 33. Thus the relevant grounds of appeal of the Assessee are allowed to the extent indicated above. TAXABILITY OF NON-COMPETE FEE 34. We have already seen that under an agreement dated 24.6.1996, the Assessee agreed with ABB Bahnbeteiligungen GmbH, hereinafter referred to as 'DEBAB", which effectively held all the .....

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that it possessed a probable and viable means of competition and that the NCA was economically real and meaningful. Thereafter the Tribunal held that the AO had taxed the noncompete fee either u/s.28 or u/s.10 (3) or as attributable to transfer of goodwill. The CIT(A) however held that non-compete fee was nothing but receipt on account of transfer of goodwill of the Assessee to the purchaser.. According to the Tribunal the order of CIT(A) was cryptic and had not analysed as to whether the receip .....

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asons have been assigned by the AO for coming to this conclusion. 36. Before CIT(A) the Assessee contended that the question whether the receipt of ₹ 30 crores constituted business receipts u./s.28 of the Act or income of a casual and non-recurring nature u/s.10(3) of the Act read with Sec.56 of the Act was not concluded by the ITAT in its order and the same was left open for determination by the AO. It was pointed out had the decision of the Tribunal been to hold that the receipt in quest .....

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receipt which is otherwise not in the nature of income, is income and in this regard placed reliance on the decision of the Hon ble Supreme Court in the case of Parimisetti Seetharamamma Vs. CIT 57 ITR 532 (SC). It was argued that mere rejection of the Assessee s argument will not result in the receipt being of the character of income or in the nature of income from business or other sources. It was argued that there is no basis or material on the basis of which it could be concluded that the r .....

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on- compete fee was in fact a payment made to the Assessee sharing customer database and sharing of trained employees and was chargeable to tax. The CIT(A) also referred to another decision of ITAT Chennai in the case of Madras Carbons Pvt. Ltd., Vs. ACIT 2007-TIOL-255-MAD wherein the Tribunal held the payment of non-compete fee was in fact a payment made on account of goodwill and to avoid tax the same was camouflaged as non-compete fee. After referring to the aforesaid two decisions the CIT(A) .....

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td. (supra), the finding of the Tribunal was that the non-compete fee was in fact a payment for sharing customer database and sharing of trained employees and therefore chargeable to tax. He pointed out that the receipt in the case of the Assessee is not attributable to transfer of any asset or right and the mere fact that the receipt is not attributable to non-compete covenant it cannot be automatically concluded that the receipt was either from business or income of a casual or recurring natur .....

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t the receipt in question is on revenue account and chargeable to tax either as business receipts or income of a casual or non-recurring nature. He drew our attention to the decision of the Hon ble Supreme Court in the case of Partimisetti Seetharamamma (supra) and explained the ratio laid down therein. Further reliance was placed by him on the decision of the Hon ble Bombay High Court in the case of MEHBOOB PRODUCTIONS PRIVATE LTD. vs. COMMISSIONER OF INCOME TAX 106 ITR 758 (Bom) for the propos .....

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t if it is regarded as income it must be held to be exempt being income of a casual or non-recurring nature. The Hon ble Bombay High Court held that the receipt was no in the nature of income and was not a trading receipt. The learned counsel highlighted the following observations of the Hon ble Bombay High Court:- "On the material before us there is nothing to show that the assessee-company had produced the said picture Mother India with the slightest expectation that the same would be exe .....

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that the payments appear to be entirely at the discretion of the Government and that the exemption can be withdrawn by the Government even without any default on the part of the assessee (see cl. 4 of Annexure A-1) would not be sufficient to disentitle the receipts from being considered as income. It is true that the object of the subsidy was to assist the producers (as annexure "A" shows) and to encourage future production of films of sufficiently high quality and which served a high .....

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r of the assessee, viz., that they did not constitute income." 39. According to him if the receipt is not towards non-compete fee than it cannot be regarded as trading receipt as the Assessee never had the expectation that he would receive ₹ 30 crores at the time of transfer of "Transportation business/undertaking". It must therefore be held that it was not in the nature of income at all. 40. Further reliance was placed by him on the decision of the Hon ble Bombay High Court .....

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taken by the Hon ble Bombay High Court in the case of Cadell Weaving Mill Co.Pvt.Ltd. (supra). 41. The learned DR submitted that in the original order of the AO he has discussed as to how the receipt on account of non-compete fee is taxable and those findings will support the conclusions of the AO in the order passed after remand by the Tribunal. Alternatively the learned DR pleaded that the issue be remanded to the AO to explain as to how the receipt in question is taxable as income. According .....

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ned counsel for the Assessee submitted that Sec.28(iv) of the Act will not apply to the facts of the present case as what the Assessee received was monetary consideration. In this regard he relied on the decision of the Hon ble Bombay High Court in the case of Mahindra & Mahindra Ltd. Vs. CIT 261 ITR 501 (Bom) wherein the question was as to whether waiver of loan to acquire a capital asset can be regarded as receipt chargeable to tax u/s.28(iv) of the Act. The Hon ble Bombay High Court held .....

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e was carrying on the business of manufacturing radiators. It imported copper ingots from USA which were to be converted into strips at Bombay and then sent to assessee for being used as raw material. The ship carrying assessee's copper ingots were seized by Pakistan during war. The Assessee received claim from insurance company. Due to devaluation of rupee, assessee got ₹ 3,43,556 as against payment of ₹ 2,00,164. The difference was not a revenue receipt as so far as the ingots .....

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taxable 43. We have given a very careful consideration to the rival submissions. The facts go to show that the Assessee claimed to have received ₹ 30 crores under an agreement that it will not carry on any business competing with the business that it sold viz., "Transportation business/undertaking". The tribunal has already held that there was no threat of any competition by the Assessee and therefore the receipt of ₹ 30 crores cannot be said to be for agreeing to a covena .....

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with Sec.56 of the Act. In the set aside proceedings neither the AO nor the CIT(A) have given a finding as to whether the receipt in question is chargeable to tax either u/s.28 or u/s.10(3) read with Sec.56 of the Act. 44. In the case of Parimisetti Seetharamamma (supra), the facts were that the Assessee carried on business at Nuzvid as a moneylender and conducted a cinematograph theatre. In respect of income from property and business she submitted a return of her income for the asst. yr. 1947 .....

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as inclined to treat the money and jewellery given to the appellant as remuneration for services rendered to Sita Devi as a maidservant. He accordingly issued a notice under s. 34 of IT Act and called upon the appellant to submit an explanation adducing all documentary and other evidence in her possession relating to the receipt of assets admitted by her in her statement" dt. 26th Aug., 1949, and relating to other cash amounts and cheques received by her between 25th Aug., 1948, and 23rd Oc .....

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the Assessee did not substantiate that the receipts from the Maharani were out of nature love and affection and not for services rendered by the Assessee. On further appeal the Hon ble Supreme Court held:- "In so observing, the High Court in our judgment has committed an error of law. By ss. 3 and 4 the act imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a .....

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t was that the receipts did not fall within the taxing provision : it was not her case that being income the receipts were exempt from taxation because of a statutory provision. It was therefore for the Department to establish that these receipts were chargeable to tax." (emphasis supplied) 45. In our view, the principle laid down in the aforesaid decision would squarely apply to the facts of the present case. In the present case the claim of the Assessee that the receipt of ₹ 30 cror .....

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given while dealing with the first issue of taxability of consideration received on transfer of "Technical Knowhow". The argument of the learned DR that the reasons given by the AO in the original order of assessment should be regarded as reasons given in the order passed by him after remand by the Tribunal, is not acceptable. The original order of the AO has been set aside by the Tribunal and therefore the reasons given therein can no longer be looked into. It is not the case of the A .....

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ra & Mahindra Ltd. (supra), relied upon by the learned counsel for the Assessee clearly supports the plea of the Assessee in this regard. The two decisions relied upon by the learned CIT(A) does not help the case of the revenue. In the case of M/S.Helios & Matherson Information Technology Ltd. (supra), the finding of the Tribunal was that the noncompete fee was in fact a payment for sharing customer database and sharing of trained employees and therefore chargeable to tax. The receipt in .....

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lready held that the payment of ₹ 30 crores is not towards goodwill. Therefore reliance placed by the learned CIT(A) on the aforesaid decision cannot in any way improve the case of the revenue. 46. We therefore hold that the sum of ₹ 30 crores cannot be brought to tax and delete the addition made in this regard and allow the relevant grounds of appeal of the Assessee as indicated above. 47. The Assessee has also raised an issue with regard to the manner in which the AO has computed i .....

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97 which was a sum of ₹ 34,49,92,215 and which was adjusted on 22.10.1999. The above refund included refund of tax of ₹ 26,33,52,847 and interest on tax refund u/s.244A of the Act of a sum of ₹ 8,16,39,368. The Assessee had already offered to tax as income the sum of ₹ 8,16,39,368 in AY 2000-01. The plea of the Assessee was that only a sum of ₹ 26,33,52,847 ought to be added to the sum of ₹ 1,70,94,171 and not the sum of ₹ 34,49,92,215. According to the .....

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the calculation of interest u/s.220(2) of the Act as done by the AO is incorrect and that done by the Assessee which is at page- 18 of the Assessee s paper book should be accepted as correct. The CIT(A) without understanding the above claim of the Assessee merely observed that charging of interest u/s.220(2) of the Act was mandatory. 48. Before us the learned counsel for the Assessee pointed out that identical issue was considered as decided by the ITAT in Assessee s own case for AY 96-97 & .....

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aised. It is contended by the learned Authorised Representative that the computation of interest adopted by the Assessing Officer is flawed and erroneous. It was submitted that interest under section 244A of the Act granted under one order should not be considered as the principal amount while passing a subsequent order for charging interest under section 220(2) of the Act or granting interest under section 244A of the Act. Otherwise, it would amount to tax on an amount which was earlier treated .....

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arity, of reasoning or reverse analogy interest on interest can be charged under section 220(2) of the Act. In support of the assessee s stand and the arguments put forth, the learned Authorised Representative placed reliance on the following judicial decisions: i) Girnar Investments Ltd. V CIT (2012) 340 ITR 529 (Del) ii) CIT v. Fluoro Chemicals SLP (C) No.11406 of 2008 dt.18.9.2013. ITA Nos.437 & 439/Bang/12 4.2 Per contra, the learned Departmental Representative supported the orders of th .....

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ich also includes interest under section 244A of the Act, should not be considered: but what should be considered is only the principal amount of tax. If the entire amount of refund granted earlier is considered, then that would amount to double taxation of the interest component as it has been offered as income for tax separately in the year of receipt. Per contra, the view of revenue, as emerges from the order of the CIT(Appeals), is that charging of interest on interest is correct and is allo .....

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statutory Interest. The Hon ble Court had clarified that in the case of Sandvik Asia (supra), the Hon ble Apex Court had directed Revenue to pay compensation for the under delay in issuing of refund and not interest on interest. Therefore, the settled legal position is that interest has to be granted only as per the provisions of the Act and that what has been granted in the case of Sandvik Asia (supra) is only a compensation for the undue delay in grant of refund. The decision cannot be read t .....

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