TMI Blog2013 (6) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... Depreciation debited in P L a/c 4.86.03,150 Bonus 15,44,502 Provision for gratuity 8,71,210 Donation 41,550 Loss on sale of assets 80,125 Provision for property tax 7,44,000 Total (add) 5,18.84,537 Less Bonus paid during the year 19.54,092 Gratuity 4,56,551 Other exempt 9,15,700 Profit on sale of land considered separately 12,35,97,326 Depreciation as per IT Rules 4,10,15,999 Total less 16,79,39,668 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 12,95,02,272 in place of ₹ 12,82,91.646 as computed by the learned AO. 5. That the learned AO has erred in determining cost of acquisition at ₹ 87 per sq. yd. in place of ₹ 250 per sq. yd. as determined by the approved valuer. 6. In upholding the disallowance of interest under s. 36(I)(iii) amounting to ₹ 3,39,47,901 and further erred in upholding that security deposit to Balsamand Horticulture Animal Husbandry Enterprises and advances given to Shri Gaj Singh Jodhpur and other related persons and related companies etc. have been given out of the borrowed funds and not from own funds and further holding that the advanc,'s were intermingled funds, thereby not following provisions of law on the subject and the learned CIT(A) has further erred in upholding the contemplation of income which has neither been received nor accrued by the appellant. 7. In upholding disallowance of expenses incurred for payment received through credit cards amounting to ₹ 18,42,751 and treating the same to be 'commission' on which tax is deductible at source under s. 194H of IT Act, 1961 and further erred in upholding of invoking of provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20th Sept .. 2001 the assessee company had entered into a development agreement with M/ s Ess Gee Real- Estate Developers (P) Ltd .. Mumbai to develop Umaid Heritage. As per the agreement, the assessee was entitled to percentage of sale consideration on the rate of land at which the same was sold. During the year under consideration. the developer sold 32 plots totalling to 22,498 sq. yd. After retaining its share the developer remitted ₹ 12,93.34,116 to the assessee which was shown as sale consideration for the purpose of working of capital loss. The assessee showed long-term capital gain as under: Sale consideration 12.82.91.646 Less: Cost of acquisition of 22.498 sq. yds. @ 56.24,500 ₹ 250 per sq. yd. estimated as on 1-4-1981 indexed cost 56,24.500 x 582/100 3,27.34,590 Capita gain 9.55.57,056 It was further mentioned by the AO that in the above calculation. the assessee had taken the value of land sold and the land used for development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. The AO further mentioned that as per memorandum of association of the assessee company showed that the promoters of the company always intended to enter into real estate business. He specifically pointed out clauses of the development agreement of para B on p. 2. para C on p. 2. para G on p. 6. para 12 on p. 7. para 19 on page and para 12 on p. 10 which showed that the developer was engaged for the development and marketing of plots/villas. The AO further observed that the rights over the land were retained by the assessee and the assessee barred the developer from passing on the rights without its prior approval. The sale deed of each and every plot was signed both by the representative of the developer and the director of the assessee company which led to the conclusion that the assessee company was actively involved in the sale of each and every plot. The AO placed reliance on the following judicial decisions: 1. P. Kannan us. CIT(1985) 48 CTR (Kar) 273: (1985) 154 ITR 441 (Kar); 2. Addl. CIT us. Chikkaueerayya Lingaiah (1986) 51 CTR (Kar) 95 : (1987) 164 ITR 41 (Kar); 3. CITus. M. KrishnaRao 1978 CTR (AP) 287 4. Smt. Bhanumati A. Sanghavi us. CIT (1979) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sale consideration disclosed 12.82.91,646 Less cost @ ₹ 8 per sq. yd. for 22,498 yds. (8 x 22.498 x 5.82) 89.992 Long-term capital gain 12.72,44.139 2.4 After considering the submission of the assessee. learned CIT(A) has confirmed the action of the AO in treating the receipt of ₹ 12.82,01.654 from the sale of plots as its business income in place of ₹ 9.55,57,656. He has also enhanced sale receipts by ₹ 12,10,626 treating assessee's share at 60 per cent of the gross receipts, after giving requisite notice of enhancement under s. 251 (2) of the Act. 2.5 The assessee is aggrieved and has challenged both confirmation of the addition and enhancement of sale receipts. After giving thoughtful consideration to the rival contentions and especially the submission of the learned Authorised Representative regarding nature of this receipt that it stands covered by the Tribunal order rendered in the case of this assessee in which similar receipt has been treated as capital gains, we have found that this receipt has to be treated as a long- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter, the said cost of development of 2,03,881 sq. yds. had been correctly claimed in the computation of taxable income from development and sale of plots. In the event that the entire cost of development of 2,03,881 sq. yds. is not to be allowed in the previous year relevant to asst. yr. 2008-09. the same would have to be spread over the asst. yrs. 2006-07 and 2007-08. which are also pending in appeal before the Hon'ble Tribunal (which appeals have been heard together along with appeal for asst. yr. 2008-09). But since we have allowed the main issue in favour of the assessee company. we don't find any reason to decide the alternative plea so raised. 49. Accordingly, we decide the main issue in favour of the assessee in all these appeals and hold that the assessee was not carrying on any business activates and the Income offered by It as Its long-term capital gain has to be accepted. Therefore, by respectfully following the above Tribunal order we hold that this income has to be assessed as long-term capital gain i.e. capital gain and not as a business income. 2.6 Regarding enhancement, it was submitted as under: It is respectfully submitted that the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ₹ 8. The rate of ₹ 250 per sq. yd., it is respectfully submitted was based on the fair market value certified by a registered valuer. which has been arbitrarily rejected by the AO. In the following cases it has been held that in case the AO disagrees with the valuation done by the registered valuer, he ought to have pointed out the discrepancies therein and record reasons for doing so. which the AO has failed to do in the instant case : CIT us. Raghunath Singh Thakur (2008) 216 CTR (HP) 248 : (2008) 6 DTR (HP) 56 : (2008) 304 1TR 268 (HP); Chitra Publicity Co. (P) Ltd. us. Asstt. C1T (2009) 32 DTR (Ahd)(TM)(Trib) 227: (2010) 127TTJ (Ahd)(TM) 1; Asstt. CIT us. Vinodkumar Agarwal (2002) 77TTJ (Hyd) 943 : (2002) 82 ITD 1 (Hyd); Amit Estate Organizer us. ITO (2008) 113 TTJ (Ahd)(TM) 1018 : (2008) 2 DTR (Ahd)(TM)(Trib) 481 : (2009) 316 ITR 190 (Ahd)(TM)(AT); Mrs. Sosamma Paulose us. Jt. CIT (2003) 79TTJ (Coch) 573; Shanti Complex us. 1TO (1997) 63 ITD 181 (Pat)(TM). Further, the sale proceeds realized by the appellant during net course of assessment proceedings were questioned by the AO on the ground of deviation from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentative and also considering the submission -of learned CIT Departmental Representative, we are of the considered opinion that the learned CIT(A) has committed an error in determining the cost of acquisition of the land at the rate of ₹ 8 per sq. yd. in place of ₹ 250 per sq. yd. as determined by the approved valuer. Therefore, we direct the AO to adopt the actual sales consideration, as against the enhanced sale consid eration. 3. The facts apropos ground No. (6) of assessee's appeal are that out of ₹ 52.54 crores recorded as loan and advances , the appellant had advanced interest-free sums aggregating to ₹ 31.49 crores to related parties. On the basis that the appellant had diverted borrowed funds to sister concerns free of interest, the AO. disallowed net interest expenses of ₹ 3.39,47,901 under s. 36(l)(iii) of the Act after reducing interest income of ₹ 30,09,870 from aggregate interest of ₹ 3,43,18,639 debited to the P L a/c. Such disallowance was calculated @ 12 per cent on average of opening and closing advances, which worked out to ₹ 3,49,03,613; however, the same was restricted to net interest expenses debited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cal); CIT vs. Reliance Utilities Power Ltd. (2009) 221 CTR (Bom) 435 : (2009) 18 DTR (Bom) 1 : (2009) 313 ITR 340 (Bom); CIT vs. Ashok Commercial Enterprises: IT Appeal No. 2985 of 2009 (Born); J.K. Industries Ltd. vs. CIT: IT Appeal No. 649 2004 [reported at (2011) 61 DTR (Cal) 153-Ed.]; Tata Fertilizers Ltd. vs. Dy. CIT (1997) 92 Taxman 423 (Mumbai)(Mag); Smt. Chanchal Katyal vs. CIT (2007) 207 CTR (All) 154; Dy. CIT vs. Samtel Electron Devices Ltd. (2006) 100 TTJ (Del) 706; Pramod S. Talwalkar (HUF) vs. Asstt. CIT (2001) 70 TTJ (Pune) 436 : (2000) 75 ITD 492 (Pune); Dy. CIT vs. Chloride Industries Ltd. (2001) 70 TTJ (Cal) 407 : (2001) 76 ITD 1 (Cal); Kumaragiri Textiles Ltd. vs. Dy. CIT (2006) 103 TTJ (Chennai)(7M) 805 : (2006) 100 ITD 57 (Chennai)(7M). Re : No disallowance of interest where borrowed funds diverted for business purposes : Where there is business justification for borrowed funds advanced/diverted to sister concern free of interest, no disallowance of interest is warranted as held in the following cases: S.A. Builders Ltd. us. CIT (2006) 206 CTR (SC) 631 : (2007) 288 ITR 1 (SC); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us both parties have maintained their earlier stand. It was submitted by learned Authorised Representative that the security deposit of ₹ 5 crores to BHAHE was not given during the current year, and was given in the financial year 2002-03 out of capital (preference shares raised during that year). He emphasized on the contention that it was the AO. who alleged diversion of funds. so it was he who has to prove tha( borrowed funds were diverted in making the advance for security deposit. He argued that this advance was given out of cash profits before depreciation amounting to ₹ 373 lacs and amount received on sale of plots totalling to ₹ 346 lacs. In this regard learned Authorised Representative also placed reliance on the decision of Hon'ble Rajasthan High Court in the case of the assessee reported as Dy. CIT vs. Marudhar Hotels (P) Ltd. (1999) 155 CTR (Reg) 437 : (2000) 245 ITR 138 (Reg). inter alia. It was vehemently argued that there is a business nexus as the assessee had taken its property on lease to the best of assessee's business needs. 55. Per contra, learned CIT-Departmental Representative has heavily relied on the orders of the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyees of the appellant would be given preference over other patients and would also be charged at concessional rate for medical treatment. It will kindly be appreciated that in the circumstances of the case, the advances made interest-free for business purposes, and therefore, only (no) disallowance of interest is called for in respect thereof. Further, such advances have been made out of interest-free funds/cash funds available with lie appellant as explained hereunder: Re: Other advances (balance ₹ 22,64,08,815) (a) During the year under consideration, the appellant company had granted fresh advances only to the tune of ₹ 6,91,93,894, as against closing balance of ₹ 32,54,60,387 considered by the AO. (b) Such amounts were advanced out of the substantial interest-free funds available with the appellant considering the fact that: (1) appellant had during the year earned ₹ 12,82,91,646 from sale of plots under the development agreement; (ii) even as per the P L a/c, the appellant had cash profit of ₹ 11,78,39,991 (after adding back non-cosh charge of depreciation amounting to ₹ 4,86,03.151 and including the sale proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of assessee-company's main director Shri Gaj Singh it was noticed that a debit balance of ₹ 3,01,30,422 (Rs. 2,22,86,764 + ₹ 77,43,658) has been shown but on that amount no interest has been charged. The reasons for not charging interest on this amount given by the assessee and the reasons for disallowance of deemed interest exactly identical to the preceding issue regarding advance of ₹ 5 crores to its sister concern. Accordingly, with similar reasons, which apply mutatis mutandis this ground also, we order to delete the impugned addition and decide this issue: Further, the AO has not been able to bring any evidence on record to establish nexus between the funds borrowed and the amount of advances made to related parties. On this ground alone, the Tribunal in the preceding year, referred supra, deleted the entire disallowance of interest with respect to interest-free advances given by the appellant. In the aforesaid circumstances, the disallowance of interest made by the AO and sustained by the CIT(A) is contrary to the facts of the case and the settled legal position. The same, therefore, calls for being deleted. 3.2 We are of the consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense under s. 40(a)(ia) of the Act. holding that the acquiring bank (IDBI) acted as an agent of the appellant company. In doing so, the CIT(A) distinguished the case laws cited by the appellant on the ground that none of the decisions made reference to disallowance of credit card expenses under s. 194H r /w s. 40(a)(ia) of the Act. 4.1 The submission of learned Authorised Representative in this regard are as under: Sec. 194H of the Act reads as under: '194H. Commission or brokerage.-Any person, not being an individual or an HUF. who is responsible for paying. on or after the 1st day of June. 2001. to a resident, any income by way of commission (not being insurance commission referred to in s. 194D) or brokerages shall at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode. whichever is earlier. deduct income-tax thereon at the rate of five per cent : Provided that no deduction shall be made under this section in a case where the amount of such income or. as the case may be. the aggregate of the amounts of such income credited or paid or likel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r receivable. directly or indirectly, is by a person acting on behalf of another person (I) for services rendered (not being professional services) or (it) for any services in the course of buying or selling of goods or (tii) in relation to any transaction relating to any asset, valuable article or thing. The element of agency is to be there in case of all services or transactions contemplated by Expln. (t) to s. 194H.' The said view has also .been recently affirmed by the Supreme Court in the case of CIT Ors. us. Ahmedabad Stamp Vendors Association (2012) 254 CTR (SC) 111 : (2012) 79 DTR (SC) 81 : (2012) 348 ITR 378 (SC). To the same effect is the decision of the Kerala High Court in the case of Kerala State Stamp Vendors Association Ors. us. Office of The Accountant General Ors. (2006) 200 CTR (Ker) 658 : (2006) 282 ITR 7 (Ker). Similarly, the Cuttack Bench of the Tribunal in the case Asstt. CIT us. SaT7 l4i (200f) 71 TTJ (Ctk) 783 : (2001) 77 ITD 358 (Ctk) held that where there is an agreement to sell and there is no element of agency, the paYment could not be held to be commission as envisaged under s. 194H of the Act. Attention in this regard is also i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12) 147 TTJ (Mwnbai) 443 : (2012) 73 DTR (mumbai)(Trib) 265. Further, the Delhi High Court in the case of CIT us. Mother Dairy India Ltd., IT Appeal No. 1925 of 2010 and 313 of 2011 [reported at (2012) 249 CTR (Del) 559 : (2012) 70 DTR (Del) 223-Ed.J, noted that agency requires some degree of supervision and, control by the principal over the activities of the agent and thatlrr 'absence of the same, principal-agent relationship, cannot be construed .. Application of legal principles to the facts of the case Whether the relationship between the parties is that of principal and agent. has to be judged from the nature of the contract. its terms and conditions, etc. In the present case. as submitted earlier. IDB! Bank has entered into agreement with the appellant. to provide credit card acquiring services. It has not been appreciated by the AO that the aforesaid agreement has been entered into on principal to principal basis and the bank provides services to the appellant as an independent service provider against payment of consideration for a fee. It is pertinent to note that the bank does not provide any service to the credit card 'holders on behalf of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted the claim of the assessee for deduction of the amount of ₹ 16,34,000 on the follOwing reasoning : '9.8 On going through the nature of transactions I find considerable merit in the contention of the appellant that commission paid to the credit card companies cannot be considered as falling within the purview of s. I 94H. Even though the definition of the term 'commission or brokerage' used in the said section is an inclusive definition, it is clear that the liability to make IDS under the said section arises only when a person acts on behalf of another person. In the case of commission retained by the credit card companies however, it cannot be said that the bank acts on behalf of the merchant establishment or that even the merchant establishment conducts the transaction for the bank. The sale made on the basis of a credit card LS clearly a transaction of the merchants establishment only and the credit card company only facilitates the electronic payment. for a certam charge. The commission retained by the credit card company is therefore in the nature of normal bank charges and not in the nature of commissioner brokerage for acting on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at source on such payment and therefore. no fault could be found with the assessee in not deducting tax at source. The pertinent findings are reproduced as under: '31. The object of introducing s. 40 (a)(ia) as explained in the CBDT Circular No.5, dt. 15th July, 2005 [(2005) 197 CTR (St) 1] is to augment compliance of IDS provisions in the case of residents and curb bogus payments. Moreover. though so 194J was inserted w.e.f. 1st July, 1995, till the assessment year in question that is asst. yr. 2005-06 both the Revenue and the assessee proceeded on the footing that s. 194J was not applicable to the payment of transaction charges and accordingly, during the period from 1995 to 2005 neither the assessee has deducted tax at source while crediting the transaction charges to the account of the stock exchange nor the Revenue has raised any objection or initiated any proceedings for not deducting the tax at source. In these circumstances. if both the parties for nearly a decade proceeded on the footing that s. 194J is not attracted. then in the assessment year in question. no fault can be found with the assessee in not deducting the tax at source Wider s. 194J of the Act and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 of 2012. dt. 31st Dec., 2012 vide point (vii) clarified that no tax is required to be deducted at source on payment made to bank on account of credit card commission for transaction between the merchant and the acquirer bank. The aforesaid notification though dt. 31 st Dec .. 2012. clarifies the position in law. which was otherwise obvious and. should therefore, be held applicable to the year under appeal. Without prejudice to the aforesaid, even if the amount retained by the banks is considered as 'commission' under s. 194H of the Act. provisions of the said section are not applicable,' for the further reason that the appellant does not payor credit any such amount to the account of the bank. either directly or indirectly. The obligation to deduct tax at source under s. 194H of the Act arises at the time of payment or credit of the amount in the books of the account of the payer. whichever is earlier. In the present case, the appellant receives from the bank. the amounts charged by the customers (against that credit card) as reduced by the acquiring fee charged by the bank. In circumstances. no payment flows from the appellant to the bank. Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment to the person concerned and when it is shown that there is no payment to the agent at the time of purchase of the ticket. the section automatically becomes inapplicable. If any prize or remuneration is payable by the Government, to any person. deduction at source as envisaged under the section. may arise. But when no payment is made in view of the mandate of section. no deduction is envisaged. Thai the ticket is given on a discount of 28 per cent, can by no imagination be pressed into service for an interpretation that. nonetheless. ten per cent of 28 paise is deductible as tax.' In the .present case the appellant only receives the net amount from IDB! Bank (Le .. the amount charged from the card-holders less the bank charges for the credit card facility). The credit card acquiring fee is not credIted to the account of the banks in the books of the appellant. In that view of the matter. the obligation to deduct tax at source under s. 194H otherwise. did not arise. In view of the aforesaid. it is respectfully submitted: there was. in law no obligation cast on deduct tax at source under s. 194H' and therefore. the impugned disallowance under s. 40(a)(ia) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per which title to assets. which were purportedly transferred by the appellant to JHRPL. were under ownership of the original owners and not the appellant. On this basis. the AO alleged that since the appellant was not the owner of such assets. no capital gains arose in the transaction. According to the AO the consideration received on account of slump sale of business is taxable in its entirety under s. 28(va) of the Act, III View of the fact that the slump sale agreement was a case of transfer of business right to operate hotels. 5.1 Aggrieved the assessee preferred appeal but learned CIT(A) has agreed with the AO and has dismissed the appeal. 5.2 Before us. it was argued by the learned Authorised Representative Shri Ajay Vohra that the surplus arising on transfer of 'capital asset .IS chargeable to tax in the previous year in Which transfer IS effected in terms of s. 45 of the Act. He further agreed that s. 4 7 operate' as a caveat to the applicability of s. 45 of the Act by seeking to exempt certain transactions from the purview of the latter section. On the other hand. the learned CIT-Departmental Representative has relied on the orders of the authorities bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Maharaja Gaj Singh holds shares in JHRPL as a nominee of MHPL and in view of the further fact that beneficial interest in such shares had been declared by Maharaja Gaj Singh in terms of S. 187C of the Act. it could be evident that the holding of shares in JHRPL by Maharaja Gaj Singh was only in order to comply with the requirement of Companies Act to have minimum two shareholders. In terms of s. 47(iv) of the Act, the entire share capital of the subsidiary company must be held by the parent company or its nominees. Only because that shares are held by the nominees of the parent company, exemption under this section cannot be denied. In that view of the matter. the denial of exemption under s. 47(iv) of the Act by the AO/CIT(A) on the aforesaid ground is not valid in law. 5.8 The appellant company is engaged in the business of owning. operating and managing hotels. The aforesaid activity constitutes 'business undertaking'. The said business activity/undertaking was transferred by way of slump sale in favour of JHRPL the appellant has computed capital gains on slump sale of the undertaking, treating the undertaking as q capital asset in terms of S. 2(14) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions set out herein. 'Hospitality business' shall mean the hospitality business of the transferor in terms whereof the transferor is managing and operating hotel projects owned/operated by the transferor and/or proposing to undertake or implement new hospitality projects and included ,all rights. benefits and licenses attached to such hotel projects or connected therewith including but not limited to: (a) Operating licenses of Maharani Bagh Orchard. Balsamand Lake Palace and (b) Connaught House; (c) Hotel Land Banks; (d) Assets; (e) Current liabilities; (f) Assigned contracts; (g) All the originals of all databases in whatever manner stored and all the books and records maintained in relation to the hospitality business including but not limited to all records. books. payroll ledgers. invoices. marketing and promotion documentation and materials, internal memos and information relating to customers and vendors along with the list of the customers and suppliers. agents and distributors. files, employee records and all other related information on whatever media used for storage of such information and any other records embodying other informati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sset subject of transfer is the undertaking. which is distinct from the assets that comprises of the undertaking. In R.C. Cooper vs. Union of India AIR 1970 SC 564. the Supreme Court held that the aggregate value of components is not necessarily the value of the entirety of a unit or property acquired. especially when the property is a going concern with. an organized business . The word undertaking is a well defined expression in Company Law. It occurs in s. 125(4)(f), s. 293(1)(a) and s. 394(I)(i) of the Companies Act. The word is also used in ss. 6. 7 and 7 A of the Indian Electricity Act, 1910 and s. 36AE(1) of the Banking Regulation Act and s. 6(2) of the State Bank of India Act. As per all the aforesaid provisions, the entire business of a going concern is covered by the word undertaking , It has been held that although various ingredients make up an undertaking. the term describes not the ingredient, but the completed work from which the earnings arise. [Halsbury Laws of England. 3rd Ed. Vol. VL (1954) p. 431. 5,11 We have heard the rival submissions and have carefully perused the entire material on record. Where the undertaking is sold as a going concern for slump ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation of ₹ 10.20 crores for acquisition of its undertaking under the said Act. The assessee claimed that the banking undertaking was not a capital asset and further that there was no C9st of acquisition ascertainable for the undertaking. subject of transfer. 5.12 The Delhi High Court in the case reported as PNB Finance Ltd. us. CIT(2001) 168 CTR (Del) 509: (2001) 252 ITR 491 (Del) decided the matter against the assessee holding that the banking undertaking. which was nationalized. was a capital asset. distinct and separate from the assets comprised in the undertaking. The High Court. further. held that the cost of acquisition/improvement of the undertaking was ascertainable and. therefore. it was possible to compute capital gains on transfer thereof under s. 48 of the Act. 5.13 At the instance of the assessee. the matter travelled to the Supreme Court. Reversing the decision of the Delhi High Court. the Hon'ble apex Court held that it was not possible to ascertain the cost of acquisition of assets/improvement of the banking undertaking and for that reason; it was not possible to compute capital gains in terms of s. 45 of the Act. While arriving at the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der s. 28(va) of the Act. The action of the AO is not sustainable in law for the following reasons : Attention was invited to the provisions of s. 28(va) of the Act which read as under: '28. The following income shall be chargeable to income-tax under the head 'Profits and gains of business or profession' (va) any sum. whether received or receivable in cash or kind. under an agreement for not canying out any activity in relation to any business; or (b) not sharing any know-how, patent, copyright, trade mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services: Provided that sub-cl. (a) shall not apply to (i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head 'Capital gains': (ii) any sum received as compensation, from the multilateral fund of the Montreal Protocol on substances that deplete the ozone layer under the United N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45 would be applicable and s. 28(va) cannot be resorted to in view of cl. (i) of proviso to the said section which provides that amount received on transfer of capital asset, like right to manufacture or right to carry on business, which is taxable under the head 'Capital gaigs', cannot be taxed as business income under the latter section. 5.16 Reliance in this regard is placed on the decision of Delhi High Court in the case of CIT vs. Mediworld Publications (P) Ltd. (2011) 244 CTR (Del) 387 : (2011) 61 DTR (Del) 391 : (2011) 200 Taxman 1 (Del) wherein it has been held that, where a complete business is transferred, coupled with undertaking restrictive covenant of non-compete, the entire consideration would be taxable under the head 'Capital gains' and not as business income under s. 28{va) of the Act. In that case, the assessee was engaged in the business of healthcare, print media and electronic media communications. During the relevant previous year, the assessee sold all its rights, title and interest in specified assets of one of its businesses, viz., healthcare journals and communications business. These assets as per the agreement were (a) periodicals (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld the view taken by the CIT(A) as well as Tribunal. The High Court also held that since the amount was received by the assessee in lieu of transfer of capital assets and the restrictive covenants were only part of the assets transfer agreement, the same was taxable under the head KCapital gains and the provisions of s. 28(va) could not be applied. The relevant portion of the order of High Court is as under: II. The CIT(A) as well as Tribunal have rightly held that in this backdrop provisions of s. 28(va) would not apply to the instant case. In this behalf, it is to be borne in mind that the clinical trial business which the assessee continues to carry on was distinct and separate from the business of healthcare journals and communication. As far as healthcare journal and communication business is concerned, it had been given up in entirety in favour of the transferee. Therefore, the 1\.0 was wrong in holding that the assessee had given up only one of the activities in relation to its business. In such circumstances, the proviso to s. 28(va) becomes applicable which stipulates that s. 28(va) was not applied to any sum received on account of transfer of right to carry on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of acquisition of certain self-generated assets as 'nil'. The aforesaid section reads as under : K55. Meaning of 'adjusted', 'cost of improvement' and 'cost of acquisition'. (2) For the purposes of ss. 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, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours,- (i) in the case of acquisition of such asset by the assesses 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-cIs. (i) to (iv) of sub-so (1) of S. 49, shall be taken to be nil; (Emphasis, italicized in print, supplied) The aforesaid section it would be appreciated. recognizes right to any on any business as a separate intangible/self-generated capital asset. In view of the above. the exclusive right to conduct the hospitality business vested with the appellant. constituted a capital asset capable of transfer. To reiterate. in ..... 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