TMI Blog2018 (12) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y. 2002-03, 2003-04 & 2004-05 to the tune of ₹ 13,63,636/-, ₹ 18,18,132/- and ₹ 13,63,636/- respectively as business income which were duly assessed and to this extent we are not in agreement with the CIT(A) that the same should be assessed in one year i.e. 2002-03. So far as the license fee shown as capital gain A.Y. 2004-05 to the tune of ₹ 54,54,546/- is concerned we are in agreement with the CIT(A) that the same should be treated as revenue receipt following the same practice as followed in the earlier years. Accordingly, we modify the order of CIT(A) to this extent that income has to be amortized and therefore this appeal of the assessee is allowed on this issue. Receipt from sale of running business - Capital gains OR business income - allow deduction under section 54E towards investment in bonds of Rural Electrification Corporation Ltd. - Held that:- We find that CIT(A) has passed a very detailed and reasoned order and thus came to conclusion that ₹ 12,79,60,000/- has to be assessed as capital gain in A.Y. 2004-05 which in our opinion is correct. We are, therefore, fully satisfied with the reasoning of the CIT(A) on this issue and in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore the same are dismissed accordingly as not being pressed. 5. The facts in brief are that AO during the course of assessment proceedings observed that assessee has sold its entire business of tour and travels to M/s. Kuoni Travels India Ltd. in AY 2004-05 which constituted a part of assessee s total business for a consideration of ₹ 14,34,14,546/- including brand name and logo qua tour and travel and returned the income as capital gain under section 45 of the Act after claiming deduction under section 54E of the Act qua the capital gain. The AO has given detailed finding in A.Y. 2004-05 and taxed the said receipt as business income which was decided by the Ld. CIT(A) in favour of the assessee and directed the AO to assess the same as capital gain against which the Revenue is in appeal before us. 6. The assessee has received an amount of ₹ 1,00,00,000/- as non refundable license fee from M/s. Kuoni Travels India Ltd on 30.06.2001 in lieu of which the assessee allowed the proposed transferee to use its entire network for doing business with an option to buy the business out rightly which happened in 2004-05. The assessee has entered into various agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by exploiting the capital asset and the amounts received by the appellant as a revenue receipt. 4.4.1 The appellant's submission that it has amortized the receipts in view of the well accepted accounting norms is found to be not correct. As per the relevant part of accounting is standard quoted in appellant submission above, it says that the revenue are accrued and recognized as they are earned. In the present case, the revenue has already accrued to the appellant as the amount was non-refundable as per the license agreement and the amount was received also. 4.4.2. Further, there is no concept to amortize receipt in the Income Tax Act, and concept of amortization of expenses is limited to the provisions of Sec.35D, which is applicable for pre-operative expenses and for expenses incurred for expansion of undertaking etc. of existing business. The appellant s treatment of amortization of non-refundable receipt of ₹ 1 Crores over a three year period (though the appellant says as that as per agreement the period of five and half years), is found to be without any valid basis except to reduce the liability to tax. 9. After hearing both the parties and perusing the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have allowed the appeal of the assessee on the issue of amortization of income on pro-rata basis the ground No.2 which is a without prejudice ground raised by the assessee is rendered academic and needs no adjudication. 11. The appeal of the assessee is allowed. ITA No.4455/M/2011 (Revenue s appeal) 12. The grounds raised by the Revenue are as under: On the facts and in the circumstances of the case and in law, the CIT(A) erred in treating the amount of ₹ 12,79,60,000/- as capital gains instead of business income. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the assessee has not transferred any capital asset / business assets / fixed asset to M/s Kuoni Travels India Ltd. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that the assessee has not transferred its trade name to M/s Kuoni Travels India Ltd, as evident from the non-usage of the assesee's trade name by M/s Kuoni Travels India Ltd while conducting similar business. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Para 6.8 and entire business at Para 6.7, yet the AO erroneously concluded that the consideration received is not capital gain but business income . Sale of business is sale of Capital asset as defined in Section 2(14) of the Income Tax Act falling within the phrase property of any kind as held in large number of cases West Coast Electric Supply Corporation Ltd vs CIT 107 ITR 483, Syndicate Bank Ltd vs CIT 155 ITR 681, CIT vs Periera 184 ITR 461, Karvalas vs CIT 197 ITR 95, PNB Finance vs CIT 252 ITR 491. (b) Though the AO's findings are correct that the appellant has not-sold any trademark, brand , patent etc., the AO's finding that the appellant has not sold its entire business is not correct as appellant has not sold its fixed assets, sold its website separately and sold the rest of the part of its tour and travel business separately. Thus, the appellate in fact sold a part of the business and gains of such transfer are taxable as capital gains. (c) The amount of ₹ 12,79,60,000/-was for the transfer of a part of business (as discussed above) and the gains were not of business , as defined in Section 2(13) of the Income-tax Act to include ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is obvious from AO's observation quoted at Para 2.5 to his order which is again quoted as under: - The argument that assessee has sold business to M/s. Kuoni can further be augmented by the fact that the assessee has stopped showing business income from the travel and tour activity from A.Y. 20O2-O3 onwards. In the A. Y. 2003-04 2004-05, the assessee has shown income only from interest and other sources. This also shows the said income of tours and travels is the income of Kuoni and not the assessee. Gains from transfer of source of income give rise to capital gains and not business income. In the present case the appellant has sold its business to M/s Kouni and as the appellant has sold the source of its income itself. M.3 YEAR OF CHARGEABILITY - (a) Capital Gains do not accrue from day to day over a period of time but arises at a fixed point of time, the taxable event occurs on the date of transfer. To determine the year of chargeability, the relevant date is not the date of agreement to sale but the date of sale i.e. the effective transfer as contemplated by the parties, as has been held in large number of cases. (b) The transfer of a part of the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ascertained with reasonable certainty. (c) On fulfilment of conditions of agreement. ₹ 5,42,00,000/- was received during AY 2003-04 and ₹ 6,86,60,100 was paid by M/s Kuoni to the appellant during 2004-05 to complete the transaction and transfer. Thus, the transfer has taken place in AY 2004-05 and the capital gains of ₹ 12,79,60,000/- is taxable in AY 2004-05. (d) Regarding chargeability of the amount of ₹ 1,27,96.000/-, the amount is to be charged in the year in which the right to receive accrued to the assessee. The amounts actually received are as under:- A.Y. Rs. 2002-03 5,00,000/- 2003-04 5,42,00,000/- 2004-05 6,86,60, 100/- Total- 12,79,60,000/- (e) The transfer has taken place on fulfillment of various conditions only in A.Y. 2004-05 the sum of ₹ 12,79,60, OOO/- is, therefore, required to be taxed in the A.Y. 2004-05. 4.4 In view of the above discussion at Para 4.2. and 4.3, Pages 9 to 12 of this order, the AO's action to treat th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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