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TMI Blog2017 (11) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of business leads of the appellant as assessable under the head 'Capital Gains' instead of 'Business Income'. 2. On the facts and circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of interest and finance charges by treating the same as non-revenue expenditure. 3. The appellant company craves leave to add to, alter or modify any of the above grounds of appeal." 2. Briefly stated, the facts of the case are that the assessee company which is engaged in the business of software development activities had filed its return of income on 14.11.2003, declaring total income of Rs. Nil. The return of income filed by the assessee company was processed as such under Sec. 143(1) of the 'Act' on 02.09.2004. The case of the assessee was thereafter selected for scrutiny assessment u/s 143(2). 3. That as per the facts averred by the assessee before the lower authorities which are available on record, the assessee company was incorporated in May, 2000 with the main object of providing web based financial services. It commenced its operation by way of a joint venture with Blue Stone Capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be signed by, given to and executed by L&T Infotech Ltd. That pursuant to the aforesaid arrangement the contracts which otherwise would have been awarded to and executed by the assessee company were ultimately awarded to L&T Infotech Ltd. That on the transfer of the aforesaid potential customers, L&T Infotech Ltd. benefitted to a very large extent not only in terms of its existing business, but also in terms of potential business in future. That the consideration for parting with the opportunity to execute the contracts and major source of income, as well as considering the order value and generation of future revenues, was determined at Rs. 9,80,50,000/-, which was paid by L & T Infotech Ltd. to the assessee. 4. That during the course of the assessment proceedings the A.O called upon the assessee to show cause as to why the consideration of Rs. 9,80,50,000/- (supra) received by it from L&T Infotech Ltd. may not be treated as a consideration received on slump sales. The assessee submitted before the A.O that as unlike in a case of slump sale which would involve transfer of one or more undertaking, the assessee had only transferred some of its customers and business leads to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business income of the assessee and brought the same to tax in terms of the provisions of Sec. 50B of the 'Act'. The A.O after treating the amount of Rs. 9,80,50,000/- (supra) as an amount received on "Slump sale", therefore, disallowed the amount of Rs. 22,11,152/-paid by the assessee towards interest and finance charges on Intercompany deposits held by it, and claimed by the assessee as revenue expenditure, by concluding that the same were relatable to the slump sale transaction. 5. The assessee being aggrieved with the order of the A.O therein carried the matter in appeal before the CIT(A). It was submitted by the assessee before the CIT(A) that as there was transfer of only one asset, namely business leads without any other assets and liabilities based on its present value of future cash flows, therefore, the same had wrongly been characterized as a "Slump sale" by the A.O and as such brought to tax as per the provisions of Sec. 50B. It was submitted by the assessee that as per Sec. 2(42C) slump sale was defined as the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) further upheld the disallowance of the revenue expenditure in the nature of interest cost of Rs. 22,11,622/-which was paid by the assessee on the intercompany deposits which were held by the assessee. 7. The assessee being aggrieved with the order of the CIT(A) upholding the treating of amount of Rs. 9,80,50,000/- (supra) as consideration received in lieu of slump sale, as well as disallowance of the interest cost expenditure of Rs. 22,11,622/- as claimed by it, had therein carried the matter in appeal before us. That at the very outset of the hearing of the appeal it was submitted by the Learned Authorized Representative (for short 'A.R.') for the assessee that as the latter had not sold its business as a going concern, therefore, the provisions of Sec. 50B were not attracted. The Ld. A.R. in order to fortify her aforesaid contention drew our attention to Schedule-3, i.e. 'Fixed assets' Schedule (Page 50) of 'Paper book' (for short 'APB') forming part of the balance sheet of the assessee on 31.03.2003, which therein revealed that the 'Block of assets' (Computer) held by the assessee as on 01.04.2002 at a W.D.V. of Rs. 60,58,927/-, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include assets and liabilities or any combination thereon not constituting a business activity. We shall in the backdrop of the aforesaid statutory provisions now adjudicate as to whether the amount of Rs. 9,80,50,000/- (supra) received by the assessee in lieu of transfer of the business leads to L & T Infotech Ltd. could be categorized as an amount received in lieu of a slump sale transaction, which thus could be brought within the sweep of Sec. 50B. We are of the considered view that as contemplated u/s 2(42C) a slump sale presupposes the transfer of one or more undertakings for a lump sum consideration without values being assigned to the individual assets and liabilities. We further find that the term 'Undertaking' as defined in Explanation 1 of Sec. 2(19AA) includes any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. We have deliberated on the facts of the present case and are of a firm convic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rawal of Blue Stone Capital Partners (supra) the business of the assessee had ceased and it was only left with the aforementioned business leads. We find that the facts of the case revealed that the assessee had received an amount of Rs. 9,80,50,000/- (supra) in lieu of transfer of its business leads to L & T Infotech Ltd., which would in no way be held to constitute a 'Business activity' in itself. We are of the considered view that the facts that the aforesaid amount of Rs. 9,80,50,000/- (supra) was received by the assessee only for transfer of an individual asset, viz. its business leads can safely be gathered beyond doubt from the very fact that the other assets, viz. Computers (forming part of the block of assets) remained as such with the assessee. Similarly, we find that the business liabilities of the assessee, viz. Sundry Creditors of Rs. 1,03,68,351/- (Page 51 of 'APB') also remained with the assessee on 31.03.2003. We further find that the assessee had in the notes forming part of its accounts as on 31.03.2003, had in terms of Accounting Standard 18 (AS-18) in its 'Related party disclosures' therein categorically disclosed that the aforesaid amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pronouncement would not be of any assistance in the backdrop of the facts of the present case before us. We thus in the backdrop of our aforesaid observations set aside the order of the CIT(A) and therein conclude that the amount of Rs. 9,80,50,000/-(supra) had rightly been reflected by the assessee as a business income. The Ground of appeal No. 1 is allowed. 9. That in the backdrop of our aforesaid observations, now when we have held that the amount of Rs. 9,80,50,000/- (supra) was liable to be brought to tax under the head business income, therefore, the disallowance by the A.O of the interest cost of Rs. 22,11,622/- on the intercompany deposits held by the assessee, for the reason that the same were attributable to the earning of income from transfer of business leads, which had been held to be liable to be assessed as "Slump sale", thus, cannot be sustained. We therefore set aside the disallowance of the aforesaid expenditure of Rs. 22,11,622/-, which we find is allowable as an expenditure. The Ground of appeal No. 2 is allowed. 10. The appeal of the assessee is allowed. I.T.A. No. 5286/Mum/2012 11. We shall now take up the appeal of the assessee wherein the latter had ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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