TMI Blog1996 (7) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ltd., of which he was one of the directors. The proprietary business was started during the period relevant to the assessment year 1982-83. On 23rd March, 1984, the assessee had agreed to sell the said proprietary business with effect from 26th March, 1984, as a going concern with all its assets (including the goodwill and all the import quotas and quota rights as a whole and benefits of tenancy rights in respect of the rented premises at 225 Princess Street, Bombay) and liabilities for a slump price of ₹ 18,50,001 to Muchhala Consultants Pvt. Ltd. An agreement dated 23rd March, 1984, was executed to that effect between the two parties. The assessee had been paid a sum of ₹ 25,000 out of the sale consideration before execution of the agreement and the balance amount was agreed to be paid as specified in the said agreement. On 24th March, 1984, the purchaser company had made a reference to M. Mody Co., Chartered Accountants to work out the apportionment of the total purchase consideration of ₹ 18,50,001 to the various assets and liabilities of the business of M.M.P. International. The said Chartered Accountants had submitted a report dated 28th March, 1984, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Value of import licence at hand 1,00,000 (2) Value of right to receive/apply for import licences in the future 14,72,000 (3) Goodwill 50,000 (4) Sundry debtors (Being commission receivables) 6,75,000 4. The Assessing Officer also opined that sale of the proprietary concern of the assessee has been made after taking inflated value of the two assets mentioned at item Nos. 1 and 2 above and this has been done with the sole motive of creating capital in the hands of the assessee without payment of any tax. He, therefore, treated the transaction as adventure in the nature of trade. Hence, the sum of ₹ 15,72,000 representing the value of the import licences at hand and value of right to receive/apply for import licences in the future was treated as a business income. The amount of ₹ 6,75,000 representing the sundry debtors, being the commission accrued to the assessee was also added to the assessee's income under the head business income. 5. The assessee appealed before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 50,000. Thus, he concluded that it is not left to imagination to conclude that the contents of the valuation report were in contemplation as the basis of the price agreed upon in the agreement dated 23rd March, 1984, appeared in writing in the report on 28th March, 1984, and further acted upon in the agreement on 29th March, 1984. He, therefore, concluded that the computations in the valuation report are thus interpretative of price recorded in both the agreements. It was also held that the price apportioned to import entitlements in hand and the right to receive import entitlements already accrued has to be treated as trading receipts and not as capital receipts. Referring to the agreement dated 29th March, 1984, the learned Commissioner (Appeals) observed that no part of the sale price of ₹ 18,50,001 is attributable either to the goodwill of the business or the tenancy parted with by the assessee because both of them have been made the subject-matter of the second agreement and a separate consideration of ₹ 50,000 has been placed therefor. Referring to the report of the Chartered Accountants, it was observed that in the report the gross value of the total assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale dated 23rd March, 1984, and no value was assigned to the goodwill. It was argued that since goodwill and tenancy rights are intangible assets, another agreement dated 29th March, 1984, was executed with a view to handing over such assets, although those assets already stood transferred. According to the assessee, the legal advice received was that since an agreement is being executed with a view to hand over intangible assets, some value to the transferred assets has to be fixed and for that reason the sum of ₹ 50,000 was mentioned for the goodwill. It was argued that, in fact, no value was fixed for transfer of the goodwill and the assessee did not receive anything over and above the slump price of ₹ 18,50,001. It was highlighted that price of the goodwill is included in the said price. It was also argued that by mentioning the value of the goodwill at ₹ 50,000 in the agreement dated 29th March, 1984, the overall character of the transaction of sale does not stand changed. In that connection, reference was made to the decision of the Bombay High Court in Commissioner v. Markeshari Prakashan Ltd. (1992) 196 ITR 438 (Bom). It was pointed out that the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Chartered Accountants, in their report, have valued the import licences on hand at ₹ 1,00,000 and the value of right to receive/apply for import licences in the future based on the part import of machinery has been valued at ₹ 14,72,000. It was contended that there was no asset in existence with regard to the right to receive/apply for import licences and as such the receipt on that account is in the realm of capital asset, i.e., deemed profit. Since the receipt is in the realm of capital field, it cannot be changed into a revenue receipt. (8) As an argument in the alternative, it was submitted that the assessee was following cash system of accounting and in any event the entire sale consideration cannot be brought to tax during the year in issue. Filing the details of the amount received during the year in issue, available at page 41 of the assessee's compilation, it was contended that only the sum of ₹ 10,25,000 was received during the year. It was also contended that no part of the money received during the year relates to any trade asset. It was submitted that the assessee had no stock-in-trade and, therefore, no part of the amount received by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assets. He has also argued that the right to receive import entitlements is an asset and, therefore, the value of such entitlements is liable to be taxed. He has also argued that furniture and fixtures, etc. had a nominal value. It was also highlighted that the value of the goodwill was fixed by the assessee himself at ₹ 50,000 and, therefore, the transaction of sale cannot be treated as the sale of a going concern for a slump price. It was also submitted that in view of the provision contained in section 28(iiia), sale price received on transfer of the import entitlements is liable to be taxed as a revenue receipt. The learned Departmental Representative has also placed reliance on the reasons given by the Commissioner (Appeals) as also the decisions referred to by him in his order. 9. We have considered the recital submissions. The basic question that arises for decision in the instant case is whether it is a case of sale of a going concern for a slump price. The agreement of sale dated 23rd March, 1984, recites that the entire business of the assessee was agreed to be sold as a going concern with all its assets and liabilities including goodwill, all import quot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment dated 29th March, 1984, it cannot be held that the assets transferred by the assessee were separately valued. It is worthy of mention here that the agreement dated 29th March, 1984, itself recites that the assessee had agreed for the sale and assignment to the assignee of his business as a going concern with all its assets (including the goodwill and all import quota and quota rights as a whole) and liabilities therein for a lump sum price. It is thus evident that the assessee did not receive anything over and above the sale consideration of ₹ 18,50,001 and the agreement dated 29th March, 1984, was executed only in furtherance of the agreement dated 23rd March, 1984. Taking all these facts into consideration, we are of the considered opinion that the assessee had sold his entire business as a going concern for a slump price of ₹ 18,50,001. 11. Since it is the case of the sale of a going concern for a slump price and no part of the sale consideration is attributable to the stock-in-trade, it is not possible to hold that there was a profit other than what resulted from the appreciation of capital. We stand fortified in this view from the decisions cited on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the purchaser and out of it a sum of ₹ 10,000 was paid to the assessee. During the assessment proceedings it was contended that this payment was in the nature of compensation received by the assessee for restrictive covenant and, therefore, not taxable. The assessee's stand was rejected by the Revenue authorities and the sum of ₹ 10,000 was brought to tax. 16. The stand advanced before the Revenue authorities has been repeated before us and it was contended that the amount received by the assessee on account of a negative covenant is not taxable. In this connection, reference was made to the following decisions : (1) Gillanders Arbuthnot Co. Ltd. v. Commissioner (1964) 53 ITR 283 (SC); (2) Commissioner v. Best Co. (P.) Ltd. (1966) 60 ITR 11 (SC); and (3) Commissioner v. Saraswati Publicities (1981) 132 ITR 207 (Mad). 17. The submissions of the assessee were opposed by the learned Departmental Representative. 18. Having considered the rival contentions, we find that the view which is being canvassed on behalf of the assessee is sound. In the above cited decisions it has been held that the amount received by an assessee on account of restrict ..... X X X X Extracts X X X X X X X X Extracts X X X X
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