TMI Blog1995 (1) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... is whether the CIT (Appeals) was justified in directing the Assessing Officer to assess the receipt of Rs. 10 lakh on transfer of letter of intent for manufacture of white cement to tax as business income. This issue arises this way. The assessee is engaged in the business of manufacture of cotton and manmade fabrics, jute goods, carpet backing cloth, steel fabrication, paper and board, etc. On 5-11-1981, an application was made by the assessee to the Ministry of Industry, Govt. of India for the grant of an Industrial Licence under the Industries (Development and Regulation) Act, 1951 for manufacture of white cement. On 31-12-1981,a letter of intent was issued by the Ministry. The letter indicated the Govt.'s sanction for issuing an Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's business is not that of dealing in letters of intent. It is further submitted that the letter of intent was for setting up a cement factory which, had it been set up by the assessee, would have been a capital asset and, therefore, the transfer of the letter of intent would also give rise only to capital receipt. The decision of the Madras High Court in CIT v. A. R. Damodara Mudaliar Co.[1979] 119 ITR 583 was relied on. The second contention was that there was no cost of acquisition for the letter of intent and, therefore, there can be no liability to capital gains tax. In this connection our attention was drawn to the judgment of the Supreme Court in Addl. CIT v. Ganapathi Raju Jogi [1993] 200 ITR 612 and CIT v. B. C. Srini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or industrial licences. The assessee applied for the letter of intent for setting up a cement factory in Rajasthan and the same was granted to it. Had the cement factory been set up by the assessee itself, it would have constituted a capital asset in the assessee's hands and this position cannot be disputed. For reasons, not relevant for the purpose of the appeal, the assessee chose to transfer the letter of intent to another company for a price. The fact that the assessee-company is connected to the other company is neither here nor there. The transfer, in our opinion, is not in the course of carrying on of the business of the assessee nor did the receipt of the sale price arise out of the business activities of the assessee. There is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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