M/s Prajna Technologies & Services Pvt. Ltd., Hyderabad V. DCIT, Hyderabad

ITA 1331/HYD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3246 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-05-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 22-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: READ AS UNDER OF CIT A IS
• Keywords: Capital asset; Cost of acquisition
• Section: 143(3); 2(14); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI G.C.GUPTA, VICE PRESIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO.1331/HYD/2010 : ASSESSMENT YEAR 20 02-03 M/S. PRAJNA TECHNOLOGIES & SERVICES PVT. LTD., BEGUMPET, HYDERABAD. (PAN:AABCP 9162 A) VS DCIT, CIR-16(3), HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT: SHRI A.V.RAGHURAM RESPONDENT: SHRI VENKAT REDDY O R D E R PER AKBER BASHA, AM:- THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE CIT (A)-V, HYDERABAD DATED 11-8-2010 AND I T PERTAINS TO THE ASSESSMENT YEAR 2002-03. 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER:- 1. THE ORDER OF THE CIT (A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. ITA NO.1331 OF 2010 M/S PRAJNA TECHNOLOGIES & SERVICES PVT. LTD., HYDERABAD. ====================== 2 2. THE CIT (A) ERRED IN NOT DECIDING THE GROUND AGAI NST RE- OPENING UNDER SECTION 147 OF THE ACT. 3. THE CIT (A) OUGHT TO HAVE APPRECIATED THE FACT THAT THERE IS NO DEFINITE INFORMATION WITH THE ASSESSING OFFICER THAT THERE IS ESCAPEMENT OF INCOME AND THEREFORE OUGHT TO HAVE HELD REOPENING AS BAD IN LAW S. 4. THE CIT (A) ERRED IN HOLDING THAT WHAT IS TRANSFERR ED THROUGH MOU IS ONLY RIGHT TO PRODUCE AVIATION SOFTWARE WITHOUT APPRECIATING THE FACT THAT BUNDLE OF RIGHTS WHICH INCLUDES CONSULTANCY ALSO AND THEREBY ERRED IN HOLDIN G THAT SUCH A TRANSFER ATTRACTS CAPITAL GAINS. 5. ANY OTHER GROUND THAT MAYBE URGED AT THE TIME OF HEARING. 3. GROUND NOS. 1 AND 5 ARE GENERAL IN NATURE AND THEY DO NOT REQUIRE ANY ADJUDICATION. 4. GROUND NOS. 2 AND 3 ARE NOT PRESSED DURING THE COU RSE OF HEARING AND HENCE THEY ARE DISMISSED AS NOT PRESSE D. 5. THE ONLY REMAINING EFFECTIVE GROUND FOR OUR CONSIDERATION READS AS UNDER:- THE CIT (A) ERRED IN HOLDING THAT WHAT IS TRANSFER RED THROUGH MOU IS ONLY RIGHT TO PRODUCE AVIATION SOFTW ARE WITHOUT APPRECIATING THE FACT THAT BUNDLE OF RIGHTS WHICH INCLUDES CONSULTANCY ALSO AND THEREBY ERRED IN HOLD ING THAT SUCH A TRANSFER ATTRACTS CAPITAL GAINS. ITA NO.1331 OF 2010 M/S PRAJNA TECHNOLOGIES & SERVICES PVT. LTD., HYDERABAD. ====================== 3 6. BRIEFLY STATED FACTS OF THIS ISSUE ARE THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF CONSULTANCY FOR B USINESS MANAGEMENT AND FINANCIAL MANAGEMENT, FILED ITS RETU RN OF INCOME FOR THE ASSESSMENT YEAR 2002-03 ON 31-10-2002 ADMITTI NG NIL INCOME. THE RETURN OF INCOME WAS PROCESSED UNDER SE CTION 143(1) OF THE ACT ON 27-12-2002. SUBSEQUENTLY, IT WAS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD SOLD COM MERCIAL RIGHTS FOR A CONSIDERATION OF RS.31,75,000/- TO M/S PINTELL SY STEMS PVT. LIMITED. IN ORDER TO CONSIDER THE ISSUE OF CAPITAL GA INS, THE ASSESSMENT WAS REOPENED AND THE ASSESSING OFFICER CO MPLETED THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 14 7 OF THE ACT BY DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.13,53,218/-. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE AS SESSEE WENT IN APPEAL BEFORE THE CIT (A). ON APPEAL, THE CIT ( A) HELD THAT, AFTER CONSIDERING THE ARGUMENTS OF THE ASSESSEE AS WE LL AS ALL THE FACTS OF THE CASE, SECTION 55(2)(A) OF THE ACT IS APPLICABLE IN THE INSTANT CASE. THE CIT [A] FOUND THAT WHAT THE ASSES SEE HAD SOLD IS NOT THE RIGHT TO CARRY ON ANY BUSINESS OBSERVING THAT T HE ASSESSEE COMPANY IS IN THE BUSINESS OF CONSULTANCY FOR BUSINE SS MANAGEMENT, FINANCIAL MANAGEMENT, SOFTWARE DEVELOPME NT AND PROJECT EXECUTION WITH M/S ELDIS. BY REFERRING TO MOU W ITH M/S. ELDIS, HE POINTED OUT THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S ELDIS SRO FOR MAKING CERTAIN SPECIFIC SOFTWARE FOR THAT COMPANY AS AND WHEN REQUIRED UNTIL 31-3-2010 AND HENCE, IT IS A SALE AGREEMENT WITH A SPECIFIC CLIENT . THE SAME MOU ITA NO.1331 OF 2010 M/S PRAJNA TECHNOLOGIES & SERVICES PVT. LTD., HYDERABAD. ====================== 4 WAS THEREAFTER SOLD TO M/S PINTELLS SYSTEMS (P) LIMITED. HE HELD THAT THE SALES CONTRACT WITH REGARD TO CERTAIN SOFTWARE FOR A PARTICULAR CLIENT FOR A SPECIFIED PERIOD WAS SOLD TO M /S PINTELLS SYSTEMS PRIVATE LIMITED. IT WAS HELD BY THE CIT(A) TH AT THE ASSESSEE HAD NEVER SOLD ITS RIGHT TO CARRY ON THE BUSIN ESS OF SOFTWARE DEVELOPMENT OR ITS RIGHT TO CARRY ON ANY BUSINE SS AND IT MERELY SOLD A SPECIFIC SALES CONTRACT WITH A CLIENT, WHICH IS ROUTINE OUTSOURCING IN ALL BUSINESSES. THE CIT (A) AFTER CONS IDERING THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND ALSO REF ERRING THE EXPRESSION FROM SECTION 55(2)(A) OF THE ACT, RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THING, HELD THAT THE ASSESSEE CLEARLY FELL WITHIN THE PURVIEW OF SUB- SECTION 55(2)(A) OF THE ACT. HE ACCORDINGLY CONFIRMED THE ACTION OF TH E ASSESSING OFFICER THAT THE AMOUNT RECEIVED ON THE SALE OF THE MOU WAS TAXABLE AS PER SPECIFIC PROVISION OF THE ACT. AGGRIEVE D BY THE ORDER OF THE CIT [A], THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED TH AT SECTION 2(14) OF THE ACT DEFINES THE TERM CAPITAL ASSET TO MEAN PROPERTY OF ANY KIND HELD BY AN ASSESSEE WHETHER OR NO T CONNECTED WITH HIS BUSINESS OR PROFESSION. CERTAIN EXCEPTIONS H AVE BEEN PROVIDED IN THIS SUB-SECTION. THEREFORE, MARKETING RIG HTS CAN BE CONVENIENTLY INCLUDED IN THE DEFINITION OF THE CAPI TAL ASSET AND IN ORDER TO COMPUTE THE AMOUNT OF CAPITAL GAIN, IT IS SI NE QUANON THAT THE CAPITAL ASSET TRANSFERRED MUST POSSESS COST OF AC QUISITION. IN THE INSTANT CASE, WHAT THE ASSESSEE TRANSFERRED WAS IT S COMMERCIAL ITA NO.1331 OF 2010 M/S PRAJNA TECHNOLOGIES & SERVICES PVT. LTD., HYDERABAD. ====================== 5 RIGHT OF CONSULTANCY AND OF DEVELOPMENT OF DIFFERENT TYPES OF SOFTWARE IN THE AVIATION FIELD, FOR WHICH IT RECEIVED CONSIDERATION OF RS.31,75,000/- WHICH THE ASSESSEE ACQUIRED BY VIRTUE OF EARLIER AGREEMENT ENTERED INTO WITH ELDIS SRO CZECH FREE OF CO ST ON 1-10- 2001. AS PER THE PROVISIONS OF SECTION 48 OF THE ACT , 1961 DEALING WITH MODE OF COMPUTATION OF CAPITAL GAINS, CLAUSE ( II) OF THE SAID SECTION STIPULATES THAT COST OF ACQUISITION OF THE ASSET AND THE COST OF IMPROVEMENT THERETO SHALL BE DEDUCTED FROM THE FUL L VALUE OF CONSIDERATION ACCRUING OR RESULTING AS A RESULT OF TRANS FER OF THE CAPITAL ASSETS. IT IS SUBMITTED THAT UNLESS THERE IS COST OF ACQUISITION OF A CAPITAL ASSET TRANSFERRED BY AN ASSE SSEE THE COMPUTATION PROVISIONS AS PRESCRIBED UNDER SECTION 48 C ANNOT BE APPLIED AND THE RECEIPT WOULD FALL OUTSIDE THE NET O F TAXATION. THE AMENDMENT TO SECTION 55(2)(A) BRINGING THE TRANSFER OF COMMERCIAL RIGHT TO CAPITAL GAINS TAX IS EFFECTIVE FRO M THE ASSESSMENT YEAR 2003-04 AND NOT 2002-03 AND THIS IS FORTIFIED BY THE DECISION OF 8ASF INDIA LTD., VS. ADDL. CIT, RANG E 6(1), MUMBAI (2009) 119 ITD 337 (MUM). AS STATED HEREINABOVE, WH ILE WORKING OUT THE CAPITAL GAINS, THE ASSESSING OFFICER HAS ADO PTED NIL COST FOR THE ASSET WHICH SHOWS THAT HE IS IN AGREEMENT WITH T HE ASSESSEES CLAIM THAT THERE WAS NO COST OF ACQUISITION FOR THE A SSET SOLD. WHILE ACCEPTING THE ASSESSEES CONTENTION BUT IGNORI NG THE HONBLE SUPREME COURTS DECISION IN THE CASE OF B. C. SRINIV ASA SETTY APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER ARBITRARILY IMPOSED CAPITAL GAINS TAX ON THE ENTIRE CONSIDERATION RECEIVED ON ACCOUNT OF TRANSFER OF THE S AID ASSET. ITA NO.1331 OF 2010 M/S PRAJNA TECHNOLOGIES & SERVICES PVT. LTD., HYDERABAD. ====================== 6 8. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE AUTHORITIES B ELOW AND SUBMITTED THAT THE ASSESSEE NEVER SOLD ITS RIGHT TO CARRY ON THE BUSINESS OF SOFTWARE DEVELOPMENT OR ITS RIGHT TO CARRY O N ANY BUSINESS. WHAT WAS SOLD BY THE ASSESSEE COMPANY IS ONLY A SPECIFIC SALE CONTRACT WITH THE CLIENT WHICH IS ROUT INE OUTSOURCING IN ALL THE BUSINESS. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND FROM THE ORDER OF THE CIT (A) THAT THE ASSESSEE HAD NEVER SOL D ITS RIGHT TO CARRY ON THE BUSINESS OF SOFTWARE DEVELOPMENT OR ITS RIG HT TO CARRY ON ANY BUSINESS AND IT MERELY SOLD A SPECIFIC SALES CONTRACT WITH A CLIENT, WHICH IS ROUTINE OUTSOURCING IN ALL BUSINESS ES AND IN THE PRESENT CASE, ONLY A SPECIFIC CONTRACT HAS BEEN OUTS OURCED. WE FURTHER FIND THAT THE EXPRESSION FROM SECTION 55(2)(A) OF THE ACT WHICH IS APPLICABLE IN THE INSTANT CASE RIGHT TO M ANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THING, AND IN OUR OPI NION, THE CASE OF THE ASSESSEE CLEARLY FELL WITHIN THE PURVIEW OF SUB-SECTION 55(2)(A) OF THE ACT AND THERE IS NO DOUBT THAT THE AMOUNT RECEIVED ON THE SALE OF THE MOU WAS CLEARLY TAXABLE A S PER SPECIFIC PROVISION OF THE ACT. THE SAID EXPRESSION IN SECTION 55(2)(A) OF THE ACT WAS INSERTED BY THE FINANCE ACT, 1997 WITH EFFEC T FROM 1-4- 1998 AND HENCE THE CONTENTION OF THE LEARNED COUNSE L FOR THE ASSESSEE THAT THE AMENDMENT TO SECTION 55(2)(A) BRIN GING THE ITA NO.1331 OF 2010 M/S PRAJNA TECHNOLOGIES & SERVICES PVT. LTD., HYDERABAD. ====================== 7 TRANSFER OF COMMERCIAL RIGHT TO CAPITAL GAIN TAX IS EFF ECTIVE FROM THE ASSESSMENT YEAR 2003-04 AND 2002-03, IS NOT CORRECT. IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE TOTALITY OF FA CTS AND THE CIRCUMSTANCES OF THE INSTANT CASE, WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE CIT (A) IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER. THEREFORE, NO INTERFERENCE IS CALLED FOR. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER WAS PRONOUNCED IN THE COURT ON 24 - 06-2011. SD/- SD/- (G.C. GUPTA) (AKBER BASHA) VICE PRESIDENT ACCOUNTANT MEMBER DT. 24 -06-2011. JMR* COPY FORWARDED TO: 1. 2. 3. 4. 5. A.V. RAGHURAM, ADVOCATE, 610, 6 TH FLOOR, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD. DCIT, RANGE- 16(3), AAYAKAR BHAVAN, HYDERABAD. CIT(A)-V, HYDERABAD. CIT, AP, HYDERABAD. DR, ITAT, HYDERABAD. ITA NO.1331 OF 2010 M/S PRAJNA TECHNOLOGIES & SERVICES PVT. LTD., HYDERABAD. ====================== 8