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TMI Blog2015 (11) TMI 1299X X X X Extracts X X X X X X X X Extracts X X X X ..... nsolidation and break bulk. During the year under consideration, the assessee transferred the International Air Cargo business ('the business') to a company DHL Danzar Lemuir Pvt. Ltd. wherein 51% stake was held by the partners of the assessee firm and other members of their family and 49% was held by Deutsche Post International B.V., Netherlands, as a going concern for a total consideration of Rs. 547,365,000. The assessee offered the consideration received under the head 'Capital Gains', and also claimed exemption under Section 54EC, by depositing the sale proceeds in 'NABARD Bonds and NHB Bonds'. The AO, observed that the assessee had no rights which were capable of being transferred, which could amount to "property" as is understood in law. The AO further observed that the assessee was in the business of clearing, forwarding. international transportation etc. which are basically agency business, which in commercial terms cannot be transferred, and therefore, the consideration received cannot be said for transfer of business. The AO, thereafter, referred to clause 3.4 of the Deed of Transfer of Business dated May 29, 2003, which relates to terms and condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration to be treated as for transfer of right to carry on business does not hold merit as there is no alienation of the right of the Appellant. Also, the term 'Right to carry on business' has not been defined under the Act. 21. Accordingly, the consideration received by the Appellant, cannot be considered as received towards 'right to carry on business' but must be said to be for transfer of 'Goodwill'. It is important to mention here that the taxability in either case would be the same. The gains on transfer of 'Goodwill' or 'right to carry on business' would be able to tax under the head 'Capital Gains' and the cost of acquisition thereof, be determined as per Section 55(2)(a) of the Act, as amended with effect from April 1, 2003. 22. The agreement entered into by the appellant is a comprehensive agreement which includes the clause for stoppage of business (Clause 3.4 of Deed of Transfer of Business dated May 29, 2003) which states as under: "3.4 On and after the date hereof the vendor will not carryon the Business." Hence, in my considered opinion the receipt amount was: (i) For Goodwill; and (ii) For stoppage of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this amount is to be treated as income falling u/s. 28(va) of the I.T. Act. The other amount of Rs. 50,23,50,000/- is receipt taxable under the head Capital Gains. The appellant gets a relief of Rs, 50,33,50,000. The AO is therefore directed to recompute total income as directed above. The ground partly succeeds." 6. It was argued by the ld. CIT - D.R., Shri A.K. Srivastava that no asset was transferred by the assessee and it was only non-compete rights for which the assessee was in receipt of Rs. 54.73 crores and the same was liable to tax as business income u/s 28(va) of the Act. As per the ld. CIT - DR, the assessee has not transferred its staff, only staff was given option to join new company. No premises were transferred, no fixed assets were transferred. As per the ld. CIT - DR, the assessee was in agency business and by entering into the agreement, the assessee has not transferred any physical/material asset. What has been transferred is intangible thing i.e. un-written business contracts. As per ld. CIT - DR, what has been transferred is not the whole business, staff or any other fixed assets. Accordingly the amount received was liable to tax as business income. As per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale consideration as amount received for not-competing. The ld. Counsel further contended that the A.O. has completely ignored the proviso to section 28(va) while treating the non-compete clause of the Deed of Transfer. As per the ld. Counsel, the amount was received on account of transfer of right to carry on business and "for not carrying on any activity of any business", The ld. Counsel for the assessee placed reliance on the case of CIT vs. Mediworld Publications Pvt. Ltd. [2011] 337 ITR 178 (Delhi) in support of the proposition that the sale consideration received on transfer of rights of trade mark, brands, copyrights in journals and publications is a capital receipt and not a consideration arising out of business receipts u/s 28(va) of the Act. Further reliance was placed on the decision of ITAT Delhi Bench in the case of ACIT vs. Smt. Sangeeta Wij, [2012] 17 ITR (Trib) 162 (Delhi) wherein it was held that the proprietary concern of assessee taken over by company as going concern, consideration for transfer is taxable as long term capital gains and not as business income. Further reliance was placed on the decision of ITAT Special Bench in the case of ACIT vs. Dr. B.V. Raju, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the A.O., what has been transferred is not whole business or staff or premises or any other fixed assets, not even written contracts have been transferred. The only thing which has been transferred is "unwritten business contract". As per the A.O. , the "unwritten business contract" does not amounts to capital asset. By referring to the Deed of Transfer of Business, clause 3.4 of the agreement dated 29-5-2003, according to which "on and after the date thereof, the vendor will not carry on the business", the A.O. inferred that there was a clear cut understanding between the two sides that the assesee will not carry on such business. The A.O. inferred that any amount received against agreement not to compete is chargeable to tax under the head profit and gains of business or profession. The A.O. observed that the assessee was in this line of business for more than 50 years and is a market leader in India, while the transferee company comprises a world leader. As per the A.O., since assessee is a market leader in India, there is a distinct possibility that unless he agrees not to compete with this assessee in this line of business, he could once again build up a customer base and s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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