Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (9) TMI 542 - ITAT CHENNAI

2016 (9) TMI 542 - ITAT CHENNAI - TMI - Addition as business receipts under section 28(1)(va) OR short term capital gain - Held that:- From the facts, of the case we find that the Commissioner of Income Tax (Appeals) has thoroughly examined the issue and made a clear cut finding that the assessee had paid ₹ 90,00,000/- for acquiring the business which he has subsequently sold during the succeeding assessment year for the same price. In such circumstances, obviously the short term capital g .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ggrieved by the order of the learned Commissioner of Income Tax (Appeals)- II, Chennai dated 16.07.2014 in ITA No.438/13-14 passed under section 143(3) r.w.s. 250(6) of the Act. 2. The Revenue has raised several grounds in its appeal, however the crux of the issue is as follows:- The learned Commissioner of Income Tax (Appeals) has erred in deleting the addition of ₹ 90,00,000/- which was assessed as business receipts under section 28(1)(va) of the Act by the learned Assessing Officer as a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Tax (Appeals) deleted the addition of ₹ 90,00,000/- which was treated as business income under section 28(1)(va) of the Act by the learned Assessing Officer as against the Nil short term capital gains claimed by the assessee. 4. During the course of assessment proceedings, it was observed by the learned Assessing Officer that the assessee had claimed Nil capital gain as detailed below:- i) sale of shares on 27.03.2008 : ₹ 90,00,000 ii) Purchase of the same shares on 29.09.2007 : S .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ce of M/s. Onspec Technology Solutions Pvt. Ltd with Vijaya Bank and its outstanding employees payments etc., thus aggregate purchase consideration worked out to ₹ 90,00,000/-. Thereafter on 27.03.2008, the assessee had sold his business to M/s.Lambent Softsystems Pvt.Ltd., for sale consideration of ₹ 90,00,000/-. Thus, the short term capital gain was worked out by the assessee as Nil. However, the learned Assessing Officer opined that there was no purchase transaction on the earlier .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t the conclusion that the assessee had paid the purchase consideration of ₹ 90,00,000/- on 29.09.2007 for acquiring the portion of the business which was subsequently sold on 27.03.2008 for the same amount and therefore, allowed the appeal of the assessee. The relevant portion of the order of the learned Commissioner of Income Tax (Appeals) is reproduced herein below:- I have considered the assessee's submissions carefully. In the present case, the assessee's claim is that he has p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

/-. But the Assessing Officer did not accept the same. The Assessing Officer rejected this MOU basically for two reasons, i.e. (i) that the assessee has not reflected the purchase of this business in his return of income flied for A.Y.2007-08, and (ii) that the assessee has not acted upon the MOU. These two observations of the Assessing Officer are not correct. Since the assessee is an individual with no business income, has not enclosed any balance sheet or statement of affairs (as on 31.03.200 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, creditors etc. Subsequently, the assessee has cleared the said liabilities, Of) amount etc. These facts are clearly available from the assessee's bank extracts. These facts clearly establish that the assessee had acted upon the above MOU entered with M/ s. Onspec Technolgy P Ltd. Further, as could be seen from the above MOU, the assessee gets the right over the software brand "Elmaq.edu" developed by the company along with various course contents of the software. 4.2.4 Subsequent .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nts, by incorporating the various items included in the transfer in the respective heads of the balance sheet and P&L account. For example, the course content was debited in the P&L account and the creditors etc are merged with sundry creditors of the company. Even the director's report in the annual report of M/s. Edserv Softsystems Ltd for financial year 2007-08, clearly contained that the company acquired the business of Elmaq division from Shri Giridharan for ₹ 90 lakhs and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nsideration of 90 lacs, by issue of Fully convertible debentures for acquisition of ELMAQ DIVISION. 4.2.5 It is also important to mention here that Shri Girigharan was not doing any business on his own, as could be seen from the assessee's return of income. Therefore, but for acquisition of a business, it would not have been possible for the sale of business including the course contents, brand name of Elmaq, liabilities etc. In other words, if the sale of the business is to be accepted, its .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

clause in the business purchase agreement with M/s. Edserv Softsystems Ltd. But this doesn't mean that the amount was paid for "non-competition' only. Whenever, a business is transferred 'as a going concern', there will always be a general clause for non-competition for some period. What is required to be seen in each case is whether the non-compete clause is incidental for the transfer of the business or it was purely for non7 competition. In the instant case, as could be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

liabilities mentioned in the transfer agreement were taken over the M/s. Edserv Softsystems Ltd and necessary benefits/ deductions were also claimed in the return of income filed by M/s. Edserv Softsystems Ltd for A.Y.2008-09, like the course content value of ₹ 55,00,000/- debited in the P&L account. The revenue also accepted these claims. This also proves that the transfer of various assets/items, as mentioned in the transfer agreement, is genuine. In such a case, the consideration o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Officer is also not correct. Though everything is pertaining to the purchase and transfer of the business, there were three clear stages in the process, and each of the stage can be considered as a separate or independent transaction, as under: (i) assessee's purchase of business from M/s. Onspec Technology P Ltd for ₹ 90 lakhs on 13.03.2007 (ii) assessee's sale of the said business to M/ s. Edserv Softsystems Ltd for ₹ 90 lakhs on 29.09.2007 and receiving the consideration i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the Assessing Officer. 4.2.9 The last observation of the Assessing Officer is that the assessee failed produce Shri Ghose, one of the directors of M/s.Onspec Technolgy P Ltd for cross examination. As explained by the assessee, Shri Ghose left the country and residing in USA. Hence he could not appear before the Assessing Officer. 4.2.10 In view of the above reasons, the MOU entered between the assessee and M/s. Onspec Technolgy P Ltd on 13.03.2007, was actually honoured by the assessee and thus .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

business as a going concern and subsequently sold the same to another person, the same constitutes a capital asset in the hands of the assessee and liable for 'capital gains'. Since the length of holding was less than 3 years, it is liable for short term capital gains. The computation of capital gains, which is again in two stages, is as under: Stage-I: Sale of Business on 29.09.2007 : Rs.90,00,000* Less: purchase cost of business (13.03.2007) : Rs.90,00,000 Short term capital gains : R .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version