TMI Blog2017 (11) TMI 1311X X X X Extracts X X X X X X X X Extracts X X X X ..... diary would be formed, various assignments of the bottling rights only to such a newly formed company and to be held and formed by Parle Group and later on the Coca Cola Company will join in after subscribing 30% of the shares, are the provisions or guidelines in the master agreement itself. It was to this subsidiary company that the bottling rights were to be given in the territory of Bangalore. This subsidiary company was formed as Parle Soft Drinks Pvt. Ltd. Thus, the assessee company was formed only for carrying out bottling activities in the territory of Bangalore. There was, thus, no dispute that the assessee was entitled to receive the compensation amount on the breach of this agreement from Coca Cola Company. Thus, even though the right of first refusal was with LFFL, but it was always agreed upon by the parties that the same should be for the newly formed subsidiary at Bangalore. That Bangalore subsidiary is the assessee company only. Once these bottling activities were to be carried out for the Coca Cola Company and the Bangalore territory that the assessee was formed. It was not necessary that the assessee should have installed entire plant and machinery for carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Revenue has filed Income Tax Appeal No. 978 of 2014 challenging the order dated 20th September, 2013 of the Income Tax Appellate Tribunal, Bench at Mumbai. The assessment year is 1998-99. 2. The facts in brief are that the respondent assessee is a private company and during the relevant assessment year, it had shown income from the hire charges of vehicles and interest. During scrutiny of the return for assessment year 1998-99, the Assessing Officer noted that the company had received a sum of ₹ 16.05 crores as compensation of a settlement for loss of its bottling rights with Coca Cola Company, USA. The company claimed the amount to be a capital receipt not liable to tax and was declared in the accounts as a capital reserve after deducting ₹ 10 lakhs for professional fees paid. 3. The Assessing Officer, on scrutinising the agreement dated 18th September, 1993, noted that the payment was made for settlement of dispute between the Coca Cola Company, UAS and the respondent assessee. Accordingly, the amount partakes the character of income in terms of section 2(24) of the Act and to be taxed as income from other sources. As an alternate argument canvassed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the Parle Group of Companies was engaged in the business of manufacturing, bottling and distribution of soft drinks and beverages under several popular brands, namely, Thums-Up, Limca, Gold Spot, Mazaa, Citra etc. The assessee had filed a return of income on 30th November, 1998 showing loss of ₹ 2,16,70,502/- under normal provisions of the Act and book profit under section 115JA was shown at ₹ 4,76,290/-. 9. The Assessing Officer observed, during the assessment, that the assessee had received a sum of ₹ 16,05,60,000/- from Coco Cola Company of USA (TCCC), which was claimed to be exempt from tax on account of it being a capital receipt. This compensation was claimed to have been received as compensation related to the right of first refusal for bottling rights in the city of Pune. A reference was made to the master agreement with Coca Cola Company of September, 1993 for transfer of intellectual property rights in the nature of trademarks, knowhow, franchisee rights etc. in respect of various brands of beverages/soft drinks owned by the Parle Group. After the transfer of trademark, as per the master agreement, wherein the Parle Group of Companies along wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e held to be revenue receipts. Further, the Tribunal erred in ignoring the reasoning of the Assessing Officer that up to the assessment year 1995-96, the assessee had claimed the purchases of bottles and crates as revenue expenses as the value was less than ₹ 5,000/- though the expenses were incurred for capital assets and therefore, the amounts received against such assets will be revenue receipts. 13. The appellant-Revenue has pointed out, according to Mr.Malhotra, these bottles and crates sold during the year were admittedly worn out over the period of time and the assessee was not able to furnish the details of sale of bottles on which 100% depreciation had been allowed and therefore, such assets purchased prior to 1st April, 1995, on which 100% depreciation had been claimed and allowed, were logically sold first vis-a-vis such assets purchased on or after 1st April, 1995 on which 50% depreciation had been allowed. Thus, Mr. Malhotra urges that the compensation of ₹ 16,05,60,000/- should have been treated as income. Secondly, he has adopted the arguments of the Revenue in Income Tax Appeal No. 978 of 2014. Thirdly, he has addressed us on the two other questions p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the same should be for the newly formed subsidiary at Bangalore. That Bangalore subsidiary is the assessee company only. Once these bottling activities were to be carried out for the Coca Cola Company and the Bangalore territory that the assessee was formed. It was not necessary that the assessee should have installed entire plant and machinery for carrying on such business. The right of first refusal itself stated a substantial right and foundation on which the assessee could have built its bottling business. If such right would have been assigned to the assessee, it would have been the source of assessee's income and profit making apparatus. The assessee has also submitted its business plans and various modes for carrying out the bottling business to the Coca Cola Company. There is no dispute that the Coca Cola Company has breached the agreement and particularly the right of first refusal by not assigning the rights. It was on account of breach of this agreement that the compensation amount was settled between the parties. The fundamental right for starting the bottling business was taken away as a result of breach of the right of first refusal by the Coca Cola Company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the assessee received this sum of ₹ 16,05,60,000/- as compensation from the Coca Cola Company for breach of the right of first refusal agreement with regard to bottling rights of Pune territory. The Assessing Officer, according to the assessee, solely relied upon the observations and findings in the assessment order dated 30th March, 2001 in the case of Aqua Bisslery Limited, wherein, the receipt was taxed under the head long term capital gains . Once the factual basis was laid before the Commissioner (Appeals) and it was found that the same was identical to the case of Parle Soft Drinks Private Limited except for the fact that in the present case, the assessee was in the bottling business for Parle Group of Companies, there was a right of first refusal and the assessee was to carry on the business of bottling for the Coca Cola Company. A detailed business plan was submitted. However, the Coca Cola Company, without any specific reason, rejected the business plan. Thus, there was a breach of the right of first appeal, there was after negotiation received compensation in the above sum, which was shown as non-taxable capital receipt. The argument was identical that the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation has been claimed in the previous year. The assessee replied that no separate registers have been maintained for the bottles and also accepted that the bottles on which 100% depreciation has been claimed cannot be distinguished from the bottles on which depreciation of 50% has been claimed in the year under consideration. There was a reply given to the show cause notice by the assessee and the assessee's contentions were rejected by the assessing officer on the ground that up to the assessment year 1995-96, the assessee has claimed expenditure on the purchase of bottles and crates as revenue expenditure being the value less than ₹ 5,000/- and in the assessment year in question, namely, 1998-99, the assessee has failed to prove whether these bottles and crates sold were purchased after 31st March, 1995. Accordingly, the Assessing Officer allowed the depreciation on the block of assets comprising of bottles and crates of ₹ 42,38,833/- and the balance was added. On these facts and findings of the Assessing Officer, the Tribunal proceeded to then note the conclusions of the Commissioner of Income Tax (Appeals) deleting the addition. Thus, the conclusions are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the impugned payment represented a settlement of damages on breach of the contract, which was distinct from the settlement of a contract. The Tribunal dismissed the departmental appeal against this order. Hence, the reference. 28. The Hon'ble Supreme Court, on noticing the rival contentions, came to the conclusion that the award of damages for breach of contract is not the same thing as a party to the contract accepting satisfaction of the contract otherwise than in accordance with the original terms thereof. Thus, this is not a speculative transaction. A speculative transaction has been defined. The contract before the Hon'ble Supreme Court was questioned. The Hon'ble Supreme Court held that award of damages or breach of contract did not bring the transaction within the definition of speculative transaction set-forth in clause (5) of section 43. It is that matter which was highlighted by the Revenue. The Tribunal found it to be not speculative transaction. There was a breach of the contract. It is not, therefore, proper to read this one sentence in isolation. Preceding that sentence, the Hon'ble Supreme Court has made some pertinent observations. Even th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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