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M/s. Aditya Birla Nuvo Ltd. (Successor of Birla Global Finance Ltd.) Versus ACIT/DCIT CC-1, Mumbai And Vice-Versa

2016 (5) TMI 855 - ITAT MUMBAI

Premium amount receipt - Nature of receipt - revenue’s view is that the same is a business receipt chargeable under the head Income from business - assessee’s contention is that it is a capital receipt not taxable at all, even though it initially offered the same as goodwill chargeable under the head Capital Gains - Held that:- Joint Venture would give benefits to the new company due to the large scale presence of Birla Group in the Indian Markets, since the Birla group is also well versed with .....

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shared would depend upon the core expertise of each of the parties and the difference, if any, is usually compensated through the variation in the profit sharing ratio. Under this principle of business, a prudent businessman would not agree to give any amount to a novice on account of strategic relationship. In fact, the all joint venture agreements are various types of strategic relationship only and they are normally entered for carrying an activity jointly by using expertise of each of the p .....

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her, it has got branches all over the India and hence it is specifically provided in the joint venture agreement that the business expertise in all the fields shall be contributed by the Birla group to the Joint venture. Hence, the Birla group was considered to have an edge over M/s Sunlife, Canada. The business expertise, experience or edge, in our view, is considered as good will. Accordingly, we are of the view that the impugned payment of ₹ 12.92 crores received by the assessee is in t .....

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d accordingly allowed the claim. We notice that the assessee has given the advance to various parties for purchase of securities in the course of carrying on business of non-banking finance company. Accordingly, we are of the view that this claim is allowable as trading loss, if not as bad debts. Accordingly we set aside the order of Ld CIT(A) on this issue and direct the AO to allow the claim.

Disallowance of claim relating to TDS certificates - Held that:- Non-allowance of TDS credi .....

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me is capital in nature in view of the decision of Hon’ble Supreme Court rendered in the case of Brooke Bond India Ltd (1997 (2) TMI 11 - SUPREME Court ). - I.T.A. No. 1802/Mum/2005, I.T.A. No. 2046/Mum/2005 - Dated:- 17-5-2016 - Shri B. R. Baskaran (AM) And Pawan Singh (JM) For the Assessee : Shri J.D. Mistry For the Department : Shri A.K. Dhandial ORDER Per B. R. Baskaran, AM These cross appeals are directed against the order dated 07-01-2005 passed by Ld CIT(A), Central-I, Mumbai for assessme .....

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A.R stated that the appeal filed by the assessee was numbered as Income tax Appeal No.685 of 2010 and the Writ petition is numbered as Writ Petition No.1894 of 2010 in the Hon ble High Court. The appeal and the writ petition filed by the assessee were disposed of by the Hon ble High Court by a common order dated 20th September, 2010 with the following observations:- 2. Having heard both the above matters for some time, Mr. Sahadevan the Learned Counsel for the Revenue stated that the impugned o .....

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arties dispensing with reasons in support of our order. The proceedings are remitted back to the Tribunal for consideration afresh with expeditious dispatch. No order as to costs. All contentions kept open. 3. Two appeals filed by the revenue have been numbered as Income tax Appeal No.1449 of 2010 and Income tax Appeal No.1454 of 2010 in the Hon ble High Court. They were disposed of by the Hon ble High Court, vide its order dated 14/2/2011 as under:- 1. Counsel on both sides agreed that the orde .....

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rred to the Income tax Appeal No.685 of 2010 filed by the assessee. 4. Accordingly, the appeal of the assessee (ITA No.297/M/2005) and the appeal of the revenue (ITA No.2046/M/2005) filed before the Tribunal were listed for fresh hearing consequent to the orders passed by Hon ble High Court of Bombay. Before us, the Ld Counsel appearing for the assessee submitted that issues that were contested by the revenue before the Hon ble High Court of Bombay have been dismissed as infructuous and accordin .....

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ourt has set aside the orders passed by the Tribunal in the appeal as well as in the Miscellaneous petition, meaning thereby, all the issues disposed of by the Tribunal have been revived. Further the Hon ble High Court has held that the appeals of the revenue have become infructuous, since the matters have been restored to the Tribunal for de-nova consideration. The reasoning given by the Hon ble High Court, in our view, shows that it has intended to restore all the issues to the file of the Tri .....

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y. Since the Birla Global Finance Ltd has been merged with the above said company, the present orders are being passed in the name of the present company. The first issue urged in the appeal of both the parties relates to the taxability of ₹ 12.92 crores received by the assessee from M/s Sunlife Assurance company of Canada. 6. The assessee treated the above said amount as a receipt towards Good Will and accordingly offered the same for taxation under the head Long term capital gain. Howeve .....

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ly, it is being contended that the same is not taxable under the Income tax Act. 7. The facts in brief are that the assessee entered into a Joint venture agreement with M/s Sunlife Assurance company of Canada on 19th May 1999 as per which, the Sunlife has agreed to acquire a significant percentage of the total number of issued and outstanding shares in the capital of each of the Birla Group companies stated in the agreement. The agreement also proposed to start an insurance company in accordance .....

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de by the assessee) and (b) the operating license for running an Insurance company should be obtained. It is further stated that the above said amount of premium shall be reduced by the amount, if any, by which the aggregate amounts paid towards acquisition of shares of Birla group companies specified therein (including the payments on account of goodwill) exceeds CDN$43 million. 8. In the immediately preceding year, i.e., in the year relevant to AY 2000- 01, the assessee had received payment to .....

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ITAT quashed the revision order passed by the Ld CIT. The order passed by the Tribunal has since been upheld by the Hon ble Bombay High Court, vide its order dated 17-06-2011 passed in the appeal filed by the revenue in Income tax Appeal No.1099 of 2007. 9. During the year under consideration, the assessee received a sum of ₹ 12.92 crores as premium towards Strategic relationship entered by way of Joint venture agreement. The assessee offered the same as Long term capital gain, but the AO .....

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₹ 12.92 crores is just a capital receipt and it is not taxable at all. 10. The Ld D.R drew our attention to the order passed by the Tribunal in AY 2000-01 against the revision order passed by Ld CIT(A), wherein the ITAT has held that the identical payments received by the assessee as Good Will exigible to tax as Long term Capital gains. He submitted that the order passed by the ITAT was in the context of revision proceedings u/s 263 of the Act and hence the same cannot be considered to be .....

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Aditya V Birla Group promoted Birla Mutual Fund, stock broking business and distribution business in joint venture with Capital International Inc. of USA. During the relevant assessment year, M/s Sun Life Assurance Company of Canada approached the Appellant to joint its hands as a JV partner to carry on business and services in financial sector in India. Pursuant to which, the Appellant Company entered into Share Purchase agreement with Sun Life, Canada. The good will was received as a consider .....

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n the financial service businesses. In AY 2001-02, the Appellant has received Goodwill of ₹ 1292.33 lacs in consideration of the establishment of Strategic relationship with Sunlife Assurance Company of Canada by entering into JV Agreement. Accordingly, it was contended by the assessee that the impugned amount of ₹ 12.92 crores is not in the nature of Goodwill as described in the accounts, but it is a payment received for establishing strategic relationship. The assessee has not tran .....

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d in excess, if any, shall be adjusted against the premium stated above. The dispute is with regard to the nature or character of this premium amount. 13. The revenue s view is that the same is a business receipt chargeable under the head Income from business. The assessee s contention is that it is a capital receipt not taxable at all, even though it initially offered the same as goodwill chargeable under the head Capital Gains. 14. We notice from the order passed by the Tribunal in AY 2000-01 .....

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it may, a perusal of the Joint Venture Agreement shows that the agreement provides for Respective Roles and Responsibilities, as per which the specific role of the assessee is specified as under:- (iii) BGFL shall provide to the Joint Venture its extensive business expertise in the Indian Market and its understanding and knowledge of local market conditions, regulatory requirements and business practices. A careful reading of the above said clause would show that the assessee herein is required .....

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e large scale presence of Birla Group in the Indian Markets, since the Birla group is also well versed with the nuances of the Indian Markets. Hence, in our view, the impugned premium amount of ₹ 12.92 crores is nothing but a payment given by M/s Sunlife in exploit the business expertise held by M/s Birla group, which is nothing but a payment towards good will only. We have taken this view on account of one more reasoning, i.e., in the case of joint venture agreements, normally the parties .....

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ip only and they are normally entered for carrying an activity jointly by using expertise of each of the parties. 16. M/s Sunlife Canada is aware of the strengths of M/s Birla group and hence the impugned amount has been given by it as premium for establishing strategic relationship. The undisputed fact remains that M/s Sunlife Canada is a new entrant in the Indian markets and it would take considerable time for it to under the complexities of the Indian market. On the contrary, M/s Birla group .....

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are of the view that the impugned payment of ₹ 12.92 crores received by the assessee is in the nature of goodwill only and hence we uphold the decision rendered by Ld CIT(A) on this issue. 17. The next issue contested by both the parties relates to the disallowance of bad debts claimed by the assessee. The following amounts claimed as bad debts by the assessee were disallowed by the AO:- Investment in Govt. securities 22,43,625 Investment in Shares 15,88,988 TDS receivable 25,00,000 The L .....

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through M/s Mafatlal Securities Ltd. When the certificates were sent for transferring the name, some of the securities were returned back as bad. The assessee wrote off a sum of ₹ 22.43 lakhs, since it could not recover the certificates or amount. The AO disallowed the claim. The Ld CIT(A) held that the assessee has purchased the securities in the course of carrying on its business of finance company and hence the same is a normal business loss. Accordingly he allowed the claim. In the fir .....

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come in AY 2007-08. Accordingly we are of the view that the Ld CIT(A) was justified in allowing this claim. 20. In the appeal of the assessee, it is contesting the confirmation of disallowance of ₹ 15.88 lakhs written off from debtors balance as unrecoverable. These amounts were also claimed to have been given to various parties towards purchase of securities. The AO as well as Ld CIT(A) took the view that this claim is not allowable as the assessee has not disclosed the same as income in .....

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t aside the order of Ld CIT(A) on this issue and direct the AO to allow the claim. 21. The next issue contested by the assessee pertains to the disallowance of claim relating to TDS certificates. The AO disallowed this claim and the Ld CIT(A) took the view that the assessee should seek remedy u/s 264 of the Act. The Ld A.R submitted that the tax has been deducted by the clients from out of business receipts and due to mismatch or other unavoidable reasons, the claim of TDS to the extent of ͅ .....

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