TMI Blog2018 (8) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... not carrying any activity in relation to any business (commodity trading business) would be taxable going by the plain meaning of section 28(va)(a). Section 28(va) was introduced w.e.f. 01.04.2003. Though there was no written agreement for payment of compensation, the letters of BNP Paribas dated 23.05.2008 and 27.05.2008 and the Board Resolution of the assessee-company stating that it would discontinue the commodity trading business of the assessee on receipt of compensation of ₹ 40 crore, would come within the ambit of an arrangement / undertaking / action in concert, whether or not, the same was formal or in writing or it was intended to be enforceable by legal proceedings and that would tantamount to an agreement for the purpose of section 28(va). The wordings of section 28(va) of the I.T.Act is unambiguous and clear. The said section does not restrict, the bringing to tax only the non-compete fee but any sum that was received or receivable in cash or kind for not carrying out any activity in relation to any business. The exception for such taxation is only the cash received on account of transfer of right to manufacture, produce or process any article or thing or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieu of the assessee discontinuing the commodity brokerage business, BNP Paribas offered compensation of ₹ 40 crore based on a valuation report obtained by BNP Paribas from Ernst Young. Thereafter resolution was passed by the Board of Directors of the assessee-company accepting the offer made by BNP Paribas. BNP Paribas vide its letter dated 23.05.2008 confirmed making payment of ₹ 40 crore to the assessee as compensation for shutting down the commodity brokerage business and for surrendering its membership in various commodity exchanges. The assessee-company was originally called M/s.Geojit Commodities Limited. After the receipt of the compensation and discontinuation of business in commodity trading, name of the assessee was changed to M/s.Geojit Financial Services Limited. 3.2 In the return of income filed for the assessment year concerned, the entire compensation of ₹ 40 crore received by the assessee from M/s.PNB Paribas for agreeing to discontinue its business in commodity trading was claimed as exempt as capital receipt. 3.3 The assessment was taken up for scrutiny by issuance of notice u/s 143(2) on 31.08.2010. In response to the Assessing Officer s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f GFSL and GCL to ask similar questions and take similar measures as and in tandem with the above to ensure that the Arm's Length Prices in respect of the international transactions entered into by GFSL and GSL in connection with the matters in reference in this Appeal are computed by the TPOs concerned, and the adjustments, if any, that result, incorporated in their respective taxable incomes assessed for the A.Y. 2009-10. This may be done so that the interests of Revenue and the public are protected. ( iii) Section 28(iic) is attracted. The taxing provisions of the charging section 28(iic) of the Act are fully attracted and applicable in the instant case, the Appellant being shown up and proved to be an agent of GSHL and the compensation received of ₹ 40 crores taxable in the hands of the Appellant. ( iv) The corporate veil has been pierced. There is every need in the present case to pierce the corporate veil, which has been done, and the true nature of the collusive transactions beneath stands revealed. Any argument that the original reason for carrying out the transactions in the manner as provided and for incorporating and setting up GCL was because of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss of business or business opportunity or of the right thereof for the Appellant is only temporary as well as pre-provided, pre-insured and pre-primed for resuscitation and eventual revival if and when favourable conditions come to prevail. This is also substantiated and buttressed by the fact that GFSL has reserved its right to re-start the commodities trading business. Therefore, any compensation received towards such loss is revenue in nature. The Hon'ble Supreme Court supports this position. ( ix) No enduring benefits created for anyone. Only the technical need to fulfill statutory (RBI/SEBI) requirements has taken place. Nothing of enduring benefit has been created or lost to the Geojit Group or in corollary to the Appellant through the receipt of the compensation of ₹ 40 crores from BNPP. The receipt thus cannot be held to be capital in nature. BNPP by making the payment has not received any enduring benefit, being absolutely uninterested and divorced from the commodities trading business. The Hon'ble Supreme Court supports this position ( x) Payments received for movement from one premises to another are revenue in nature. The Appellant's (th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the powers which the original authority may have in deciding the question before it subject to the restriction or limitation if any prescribed by the statutory provisions. In the absence of any statutory provisions to the contrary the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter . Consequently, all actions of the AO including the computation of assessable and taxable income in the instant case will be those of this office determined in consonant and congruent supersession of those carried out by the AO. The above would mean that this assessment can now be taken to be one completed as discussed in the body of the order above and as summarized below. There is nothing the AO has done which is not curable through this action. sss) The Appellant's arguments that the compensation received of ₹ 40 crores towards the loss of its profit-earning rights/apparatus/business of commodity brokerage was a capital receipt therefore are seen to lack merit. Therefore, based on the above arguments and reasoning, under and in accordance with the provisions of Section 28(iic) r.w.s 28(va) r.w.s 92A r.w.s 92B of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is held (as also evidenced through the resolution passed) to have the ability and means to author and follow up decisions favourable to its own commercial interests. 5. Aggrieved by the order of the CIT(A), the assessee has filed the present appeal raising following grounds:- 1. The order of the Commissioner (Appeals) is against facts and law. 2. The AO should have appreciated that, the amount of ₹ 40,00,00,00/- was paid to the appellant by BNP Paribas, due to the fact that as per the regulations of Securities and Exchange Board of India and Reserve Bank of India, who were Regulators as per the applicable legislations, the group in which the incremental investment was proposed to be made was not allowed to have any exposure in commodity trading business. The appellant who was earning income from the business in commodity trading was paid the amount by BNP Paribas as compensation for discontinuance of the business in commodity trading .There was no prior agreement between the appellant or BNP Pari bas and it was only due to the regulatory restrictions that the surrender or commodity business had to be made by the appellant. It was compensating the loss of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e powers to do. The AO had powers to refer a return filed by the appellant to the Transfer Pricing Officer only when the time limit for issue of notice u/s 143(2) had not expired. In the instant case the assessment proceedings are not pending before the AO and hence the direction of the Commissioner(Appeals) to the AO to refer the appellant's assessment to the Transfer Pricing Officer is without the authority of law and is not sustainable. Moreover, the appeal pertains to the assessment year 2009-10 and hence any proceedings regarding determination of Arm's Length Price by the Transfer Pricing Officer in the assessment at this stage is barred by limitation. Prayer For these grounds and such other grounds as may be urged at the time of hearing it is prayed that the addition of the capital amount received may be deleted. 5.1 The assessee has filed two paper books, one enclosing the case laws in support of its submissions, and other, enclosing the financial statement for the year ending 31.03.2009, tax audit report, various correspondences between BNP Paribas, the assessee s parent company and the assessee, etc. The learned Counsel for the assessee has al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. According to the assessee, compensation received was capital receipts for loss of source of income / profit earning apparatus and hence not liable to tax. The Assessing Officer held that the assessee s source of income / profit earning apparatus was not impaired, since a new company under the same group Geojit was incorporated by common promoters and in essence there was no loss of profit making apparatus or source of income. Alternatively the Assessing Officer held that even it is assumed that the profit making apparatus of the assessee was impaired, the compensation received by the assessee was taxable in terms of the provisions of section 28(va) of the I.T.Act. The CIT(A) on his part, apart from affirming the order passed by the Assessing Officer, also held that the compensation received by the assessee was taxable u/s 28(ii)(c) of the I.T.Act. 6.1 The learned Counsel for the assessee reiterated the submissions made before the lower authorities that the loss of source of income is in the nature of capital receipt, and therefore, the compensation cannot be brought to tax. The relevant portion of the written submissions submitted by the learned AR reads as follows:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;I' : 53 ITR 261 (SC) - refer Page 1-12 of case' law PB CIT V. Prabhu Dayal: 82 ITR 804 (SC) CIT vs. Bombay Burmah Trading Corporation: (1986) 161 ITR 386 (SC) - refer Page 13-23 of case law PB Oberoi Hotel Pvt. Ltd. v. CIT: 236 ITR 903 (SC) - refer Page 24-27 of case law PB CIT Anr. vs. Sapthagiri Distilleries Ltd.: 275 CTR 532 (Kar) [Revenue's SLP has been dismissed by the Supreme Court in 229 Taxman 487] - refer Page 28-31, 32 of case law PB Khanna Annadhanam vs. CIT : [2013] 351 ITR 110 (Del) [Revenue's SLP has been dismissed by the Supreme Court in SLP CC 18904/2013] - refer Page 33-35, 36 of case law PB CIT v. Sharda Sinha: 237 Taxman 111 (Del) - refer Page 39-41 of case law PB Pri CIT vs. Satya Shee1 Khosla: ITA 289/2016 (Del) [confirmed decision of Delhi Tribunal in the case of Satya Sheel Khosla vs. ITO in ITA 882/Del/20 15] - refer Page 42-46,47-64 of case law PB CIT v. Ambadi Enterprises Ltd.: 267 ITR 702 (Madras) - refer Page 37-38 of case law PB. 6.2 Further it was submitted that the A.O. and the CIT(A) has erred in holding that there is no impairment of the profit making apparatus. It was submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it Comtrade Ltd. and transferred its commodities business alongwith its entire clientele. The promoters of M/s.Geojit PNB Paribas Financial Services namely, Mr. C.J. George and Ms. Shiny George are the promoters of Mis Geojit Comtrade Ltd. ( d) While Mrs. Shiny George, who is the wife of Shri C.J. George holds 53.13% in the new Company M/s. Geojit Comtrade Ltd., Shri C. J George and Mrs. Shiny George together hold 20.42% in M/s. Geojit BNP Peribas Financial Services Ltd., the holding company of the assessee. ( e) The assessee company has surrendered its License with the commodity exchanges namely MCX, NCDEX and NMCE in the month of December, 2008. At the same time, just before its surrender, the company M/s. Geojit Comtrade Ltd. has obtained Licences by becoming a member in Mis. Commodity Exchanges namely MCX, NCDEX and NMCE. ( f) The entire clientele of the assessee company consisting of about 6000 clients were transferred in toto to M/s Geojit Comtrade Ltd. In this connection, a note submitted by Mis. Geojit Comtrade Ltd. vide its letter dated 11-11-2011, is reproduced hereunder: NOTE ON CLIENT FUND TRANSFER ENTRY IN CLIENT When Geojit Commodi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of commodity broking business, continue to be the franchisees of the new company M/s. Geojit Comtrade Ltd. There are around 86 franchisees who continue to be the franchisees of the newly formed company M/s. Geojit Comtrade Company. 6.3 From the above finding of the Assessing Officer, it is clear that the assessee s commodity trading was transferred entirely along with its clientele to the new floated company M/s.Geojit Comtrade Limited. The new company, though not a subsidiary of the assessee or its parent company, was promoted by the promoters of M/s.Geojit BNP Paribas Financial Services Limited, the holding company of the assessee. In the new company, 53.13% of the share belongs to the wife of Shri C.J.George, who is the promoter of the holding company of the assessee. Though the assesseecompany had surrendered its license with various commodity exchanges in the month of December 2008, at the very same time, the new company GCL had obtained license, as a member of commodity exchanges where the assessee had surrendered its license. The entire clientele consisting of 6000 clients were transferred in toto to the new company GCL. The credit balance in respect of the clients o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned AR relied on the order of the Delhi Bench of the Tribunal in the case of Satya Sheel Khosla v. ITO [ITA No.882/Del/2015 order dated 10.11.2015]. It was submitted that the aforesaid order of the Tribunal was affirmed by the Hon ble High Court in the case reported in 237 Taxman 111. 6.5 Section 28(va) of the I.T.Act, which was inserted by the Finance Act, 2002 with effect from 01.04.2003, reads as follows:- ( va) any sum, whether received or receivable in cash or kind, under an agreement for ( a) not carrying out any activity in relation to or profession ; or ( b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services. Provided that sub-clause (a) shall not apply to-(i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head Capital gains ; ( ii) any sum received as compensation, fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h received on account of transfer of right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head Capital gains . 6.6 The learned AR also contended that payment of ₹ 40 crore would be covered within the mischief of newly inserted section 28(ii)(e) of the I.T.Act, which is prospectively introduced from the assessment year 2019-20 and therefore, not taxable u/s 28(va) of the I.T.Act. This contention of the learned AR is devoid of any merits, since we find that the payment of compensation to the assessee was for not carrying on its commodity exchange business and going by the literal interpretation of section 28(va) of the I.T.Act, all payment of compensation for discontinuance of a business activity would be covered under the said provision unless the same was liable to be taxed under the head capital gains . For these reasons, we hold that the amount of compensation received is liable to be taxed u/s 28(va) of the I.T.Act. The judicial pronouncement relied on by the learned AR in the case of Satya Sheel Kohsla v. ITO (supra) is distinguishable on facts. In the said case the amount of compensation was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rangement between the assessee and the parent company wherein it can be concluded that there was a principal and agent relationship as alleged by the CIT(A). Moreover, the compensation received by the assessee was not in lieu of surrender of any agency and secondly when such compensation was received from BNP Paribas and not from GFLS with whom the agency relationship has been alleged by the CIT(A), we are of the view that the compensation does not fall within the ambit of taxation u/s 28(ii)(c) of the I.T.Act. Further we are of the opinion that the CIT(A) s direction to the A.O. to refer the matter to the Transfer Pricing Officer is also devoid of merits. The Assessing Officer has to refer the case to the TPO within the time limit for issuance of notice u/s 143(2) of the I.T.Act. Since the time limit for issuance of notice u/s 143(2) had already expired, any proceedings regarding the determination of Arm s Length Price by the TPO at this stage of the proceedings is barred by limitation. The learned AR also contended that the compensation of ₹ 40 crore received should also be excluded from the calculation of book profit u/s 115JB of the I.T.Act, in view of the legal position ..... X X X X Extracts X X X X X X X X Extracts X X X X
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