TaxTMI 
TaxTMI 
2017 (11) TMI 1311
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.... Assessing Officer noted that the company had received a sum of Rs. 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 Rs. 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 assessee that the amount was received as surrender of the right of first refusal for giving up the rights of setting up a bottling plant, the Assessing Officer noted that this right was assigned to Limca Flavours and Fragrances Ltd. (LFFL) and the respondent assessee was not in a position to show how it had acquired the rights. That is how the assessee's alternate argument was also rejected. 4. The aggrieved assessee went in appeal before the C....
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.... the assessment, that the assessee had received a sum of Rs. 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 with Mr. Ramesh Chauhan and Mr. Prakash Chauhan is the seller and TCCC is the buyer along with Coco Cola South Asia Honding (Inc.) as the confirming party, bottling of soft drink was to be continued by Mr. Ramesh Chauhan and Mr. Prakash Chauhan through Parle Bottling Company having bottling rights in Pune while LFFL known as Aqua Bisleri, having bottling rights in the territory of Bangalore. In the said agreement itself, a draft of right of first refusal regarding bottling r....
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....ld 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 Rs. 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 proposed as question nos. 6.3 and 6.4 at page 7 of the paper book. 14. Mr. Malhotra relied upon a judgment of the Hon'ble Supreme Court in the case of Commissioner of Income Tax vs. Shantilal (P.) Ltd. (1983) 144 ITR 57. 15. Mr. Mistri and Mr. Andhyarujina learned senior counsel appearing for the respondent would submit that there is no merit in both the appeals. They would submit that the Tribunal, in Appeal No. 978 of 2014, had before it the undisputed facts. The compensation amount can be treated as....
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....ness. 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. That is the reason why the Coca Cola Company paid this amount to the assessee and not to LFFL. 16. To our mind, therefore, all the tests that were evolved by the Hon'ble Supreme Court in the decisions noted above, have been applied and to arrive at the correct conclusion. We do not think that the view of the Tribunal is any way erroneous or illegal. Thus, it is not vitiated by any error of law apparent on the face of the record of perversity. 17. Mr. Mistry was also right in relying upon the Judgment of ....
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....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 Coca Cola Company has deprived the assessee of all potential right and that was to set up a bottling plant for Pune territory. There was a breach of contract giving rise to a claim for damages and same was paid on account of failure to honour the commitment. That is capital in nature. That source of income, by way of setting up of a bottling plant at Pune territory was lost forever. Hence, relying upon the judgment in the case of Oberoi Hotel Pvt. Ltd. (supra), the argument that such a receipt cannot be taxed as revenue receipt or....
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....d expenditure on the purchase of bottles and crates as revenue expenditure being the value less than Rs. 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 Rs. 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 reproduced in para 80 of the order under appeal. The Tribunal concluded that the Commissioner of Income Tax (Appeals) was right that sale proceeds on a capital assets cannot be held to be a revenue receipt and after the sale, the block of assets have been reduced and accordingly whatever is there in the block of assets, deprecation has to be allowed in accordance with the provisions of law. Thus, the finding of fact recorded by the Commissioner of Income Tax (Appeals) has been endorsed and confirmed by the Tribunal. 24. We do not think that this findin....