ADDL CIT SP RG. 16, MUMBAI V. J K INVESTO TRADE (INIDA) ( FORMERLY KNOWN AS J.K. CHEMICALS LTD), MUMBAI

ITA 1671/MUM/2010

• Counselvise Citation: 167119914 RSA 2010
• Duration Of Justice: 1 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 28-11-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 04-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O A MAO
• Assessee Lawyers: S E DASTUR; SHRI
• Keywords: Scheme of amalgamation; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) ITA NO. 1671/MUM/2010 ASSESSMENT YEAR-1998-99 THE DCIT, CIRCLE-2(2), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. J.K. INVESTO TRADE (INDIA) LTD., (FORMERLY KNOWN AS M/S. J.K. CHEMICALS LTD.,) HIND HOUSE, 3, N.M. MARG, BALLARD ESTATE, MUMBAI-400 001 PAN-AAACJ 6284E (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI O.A. MAO RESPONDENT BY: SHRI S.E. DASTUR & SHRI PANKAJ TOPRANI DATE OF HEARING :28.11.2011 DATE OF PRONOUNCEMENT: 16.12.2011 O R D E R PER B.R. MITTAL, JM : THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 1998-99 AGAINST ORDER OF LD. CIT(A) DT. 16.12.2009. 2. THE RELEVANT FACTS GIVING RISE TO THIS APPEAL AR E THAT ASSESSEE IS A PUBLIC LTD. COMPANY CARRYING ON BUSINESS OF MANUFAC TURING OF CHEMICAL PRODUCTS. BESIDES, SAID BUSINESS, ASSESSEE WAS HAV ING CONDOM MANUFACTURING PLANT LOCATED AT MIDC WALUJ, AURANGABA D, WHICH WAS SET UP IN THE YEAR 1991. THE ASSESSEE COMPANY DECIDED TO HIVE OFF ITS CONDOM DIVISION. THEREFORE A SCHEME OF ARRANGEMENT WAS FORMULATED WI TH J.K. CONDOMS PVT. LTD. (PRESENTLY KNOWN AS J.K. ANSELL LTD.), (HEREI NAFTER TO BE REFERRED IN SHORT AS JKAL). IN THIS RESPECT, A JOINT VENTURE AGREEMEN T DT. 17.12.1996 WAS ITA NO. 1671/M/2010 2 ENTERED INTO BETWEEN PACIFIC DUNLOP LTD., A COMPANY INCORPORATED UNDER THE LAWS OF AUSTRALIA AND HAVING ITS REGISTERED OFFICE AT LEVEL 41, 101 COLLINS STREET, MELBOURNE, VICTORIA 3000 (HEREINAFTER REFER RED TO AS PACIFIC DUNLOP AND PACIFIC DUNLOP HOLDINGS (SINGAPORE) PTE, LTD., A COMPANY INCORPORATED UNDER THE LAWS OF SINGAPORE AND HAVING ITS REGISTER ED OFFICE AT 6, LOYANG WAT 1, #02-02 SINGAPORE 508704 (HEREINAFTER REFERRED TO AS PDSL. THE ASSESSEE COMPANY I.E. M/S. J.K. CHEMICALS LTD. PRESENTLY KNO WN AS M/S. J.K. INVEST TRADE INDIA LTD (HEREINAFTER TO BE REFERRED AS ASSE SSEE-COMPANY) AND RAYMOND LTD., A COMPANY INCORPORATED UNDER THE LAWS OF INDIA AND HAVING ITS REGISTERED OFFICE AT PLOT NO. 156/H NO.2, VILLAGE Z ADGAIBM RATNAGIRI, MAHARASHTRA 415 612 (HEREINAFTER REFERRED TO AS RA YMOND). UNDER THE SAID JOINT VENTURE AGREEMENT, IT WAS INTER ALIA DECIDED THAT IN CONSIDERATION OF TRANSFER OF CONDOMS DIVISION BY ASSESSEE-COMPANY, M /S. JKAL WAS TO PAY TO ASSESSEE A SUM OF RS. 5.51 CRORES AND ALSO ASSESSEE COMPANY TO BE PAID AN AMOUNT OF RS. ONE CRORE UNDER THE NON-COMPETE AGREE MENT WHICH WAS ENTERED INTO ON 4.1.1997 WITH PDSL. A COPY OF JOIN T VENTURE AGREEMENT DT. 17.12.1996 ENTERED INTO CONTAINING RELEVANT CLAUSE S ARE PLACED AT PAGES 60 TO 73 AND AT PAGE 109 OF PAPER BOOK. A SCHEME OF A RRANGEMENT BETWEEN ASSESSEE COMPANY AND M/S. JKAL U/S. 391 R.W.S. 394 OF COMPANIES ACT WAS PREPARED AND FILED BEFORE HONBLE BOMBAY HIGH COURT FOR ITS APPROVAL. IT IS RELEVANT TO STATE THAT AS PER JOINT VENTURE AGREEME NT, EFFECTIVE DATE OF TRANSFER WAS DECIDED TO BE ON 1 ST JULY, 1996 FOR THE PURPOSES OF VALUATION OF ASSESSEES CONDOM BUSINESS OR SUCH OTHER DATE AS MA Y BE AGREED TO BY PARTIES. THE HONBLE BOMBAY HIGH COURT APPROVED TH E SCHEME BY ITS ORDER DT. 31 ST JULY, 1997 APPROVING SCHEME OF ARRANGEMENT WITH EF FECT FROM 1 ST JULY, 1996 AND ALL ASSETS AND LIABILITIES OF ASSESSEES C ONDOM DIVISION WAS TRANSFERRED TO M/S. JKAL WITH EFFECT FROM 1.7.1996 AS PER AUDITED ACCOUNT OF SAID DIVISION AS ON 30.6.1996. IT IS OBSERVED THAT ASSESSEE FILED RETURN OF INCOME FOR ASSESSMENT YEAR 1997-98 AND ALSO OFFERED CAPITAL GAIN IN RESPECT OF CONSIDERATION RECEIVED ON TRANSFER OF ITS CONDOM DIVISION. HOWEVER, NOM- COMPETE AMOUNT OF RS. 1 CRORE WHICH ASSESSEE WAS EN TITLED TO BE RECEIVED AS PER JOINT VENTURE AGREEMENT READ WITH NON-COMPETE A GREEMENT ENTERED INTO, ITA NO. 1671/M/2010 3 ASSESSEE DID NOT INCLUDE IT IN THE COMPUTATION OF I NCOME FOR ASSESSMENT YEAR 1997-98 AS ASSESSEE RECEIVED SAID NON-COMPETE AMOUN T OF RS. 1 CRORE DURING ASSESSMENT YEAR UNDER CONSIDERATION. IN VIEW OF AB OVE, THE ASSESSING OFFICER STATED THAT THOUGH NON-COMPETE AGREEMENT WAS ENTERE D INTO IN JANUARY, 1997, IT WAS OF LITTLEL CONSEQUENCE SINCE HIGH COUR T ORDER WAS RECEIVED ONLY ON AUGUST, 1997 AND WHOLE SCHEME OF COLLABORATION B ECAME OPERATIVE ONLY THEREAFTER. SINCE NO LEGAL RIGHT HAD ACCRUED BY AS SESSEE FOR NON-COMPLETE FEE BEFORE HIGH COURT APPROVED THE SCHEME AND THE ACTUA L TRANSFER OF BUSINESS, AO CONSIDERED SAID NON COMPETE AMOUNT OF RS. ONE CR ORE AS ACCRUED AND DUE TO ASSESSEE IN ASSESSMENT YEAR 1998-99 AND CHARGED TO TAX UNDER THE HEAD CAPITAL GAIN. BEING AGGRIEVED, ASSESSEE FILED APPE AL BEFORE FIRST APPELLATE AUTHORITY. 3. IT WAS CONTENDED THAT SALE OF SAID CONDOM DIVISIO N AND THE CAPITAL GAIN ON TRANSFER THEREOF WAS OFFERED TO TAX IN THE RETURN FOR ASSESSMENT YEAR 1997-98. THAT NON-COMPETE ALLOWANCE WHICH WAS RECE IVED BY ASSESSEE WAS ALSO SHOWN IN THE RETURN OF ASSESSMENT YEAR 1997-98 AS NON TAXABLE, BEING A CAPITAL RECEIPT. IT WAS ALSO CONTENDED THAT RAYMOND LTD. UNDER THE SAID NON- COMPETE AGREEMENT READ WITH JOINT VENTURE AGREEMENT WAS TO RECEIVE A SUM OF RS. 60 LAKHS AND SAME WAS ALSO SHOWN IN THE RET URN OF RAYMOND FILED FOR THE YEAR 1997-98. IT WAS CONTENDED THAT AO HAS CONS IDERED SAID AMOUNT OF RS. 1 CRORE AS CAPITAL RECEIPT IN THE ASSESSMENT YE AR UNDER CONSIDERATION MERELY BECAUSE DATE OF COURTS ORDER IS AFTER 31 ST MARCH, 1997 BUT TOTALLY OVERLOOKED THE FACT THAT AS PER ORDER OF HIGH COURT , EFFECTIVE DATE OF ARRANGEMENT OF TRANSFER OF CONDOM DIVISION WAS 1 ST JULY, 1996. ON BEHALF OF ASSESSEE, ACTION OF AO WAS DISPUTED STATING THE FOL LOWING REASONS BEFORE LD. CIT(A) WHICH ARE MENTIONED AT PAGE 6 OF CIT(A)S OR DER AS UNDER: I) THE AO FAILED TO APPRECIATE THAT THE NON-COMPETE A LLOWANCE OF RS. 1 CRORE RECEIVED BY THE ASSESSEE WAS IN RESPECT OF THE HIVE OFF OF ITS CONDOM DIVISION AND THAT THE SAME WAS A CAPITAL RECEIPT, NOT LIABLE TO TAX. II) THE AO OVERLOOKED THE FACT THAT AS PER THE HIGH COU RTS ORDER, THE JOINT VENTURE AGREEMENT WAS SANCTIONED BY THE H IGH COURT ITA NO. 1671/M/2010 4 AND THE SAME RELATES BACK TO THE APPOINTMENT DATE W HICH WAS 1 ST JULY, 1996. THEREFORE, THE EFFECTIVE DATE OF THE TRANSFER AS PER THE SETTLED POSITION IN LAW AS ENUNCIATED BY TH E SUPREME COURT IN THE CASE OF MARSHALL SONS AND CO. (INDIA) LTD VS ITO (223 ITR 809) WOULD BE 1 ST JULY, 1996. ACCORDINGLY, THE TRANSFER OF THE SAID DIVISION HAS TAKEN PLACE IN THE A.Y. 19 97-98. III) IN THE IDENTICAL CIRCUMSTANCES, SUCH CONSIDERATION R ECEIVED BY RAYMOND LTD. UNDER THE AFORESAID CLAUSE 14.4 WAS BR OUGHT TO TAX IN THE A.Y. 1997-98 BY THE AO. IV) IN THE CASE OF THE ASSESSEE ALSO, THE AO HAS ACCEPTE D THE FACT THAT THE TRANSFER HAD TAKEN PLACE IN THE A.Y. 1997- 98 AND ACCORDINGLY, THE CAPITAL GAIN ON THE TRANSFER OF TH E SAID UNDERTAKING WAS BROUGHT TO TAX. V) THE AO HAS IN FACT, ACCEPTED THAT THE TRANSFER OF T HE SAID DIVISION HAD TAKEN PLACE IN THE A.Y. 97-98 AND HAS ACCORDINGLY TAXED THE PROFITS OF THE SAME ONLY UPTO 30.6.96 AND THE PROFITS AFTER THIS DATE ARE NOT BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. 4. LD. CIT(A) CONSIDERED THE SUBMISSIONS OF ASSESSE E VIDE PARA-5 AND HELD THAT FOR ALL PRACTICAL PURPOSES, ACTUAL DATE O F TRANSFER IS THE EFFECTIVE DATE I.E. 1 ST JULY, 1996 AND THEREFORE, NON-COMPETE FEE OF RS. 1 CRORE THOUGH RECEIVED BY ASSESSEE IN ASSESSMENT YEAR 1998-99 BUT HAS TO BE CONSIDERED IN ASSESSMENT YEAR 1997-98. THE SAID PARA-5 OF ORDER OF LD. CIT(A) READS AS UNDER: I HAVE CAREFULLY GONE THROUGH THE FACTS OF THE CAS E AND THE CONTENTIONS OF THE APPELLANT AS ALSO OF THE AO AND I AM OF THE VIEW THAT THE CLAUSES OF THE JOINT VENTURE HAVE TO BE ST RICTLY FOLLOWED WHERE THE AGREEMENT AND THE NON-COMPETE AGREEMENT AND TH E WHOLE OF THE SCHEDULE WAS EFFECTIVE FROM 1 ST JULY, 1996. THE JOINT VENTURE AGREEMENT WAS ENTERED INTO ON 17.12.96, THE NON-COM PETE AGREEMENT WHICH WAS PART OF THE JV AGREEMENT WAS SIGNED ON 4. 1.97. THE EFFECTIVE DATE OF TRANSFER OF ALL THE ASSETS WAS 1 ST JULY, 1996. THE EFFECTIVE ENTRIES THOUGH MADE SUBSEQUENTLY BUT RELA TES FROM THE PERIOD 1 ST JULY, 1996. THEREFORE, ALL THE EFFECTIVE EVENTS O N THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTING WERE DURING THE ACC OUNTING YEAR 1996- 97 I.E. RELEVANT TO A.Y. 97-98 AND THE NON-COMPLETE ALLOWANCE WAS ALSO PART OF THE JOINT VENTURE AGREEMENT. THE AO COULD NOT ASSESS THE PARTICULAR INCOME ON THE BASIS OF THE SAME JV IN TH E A.Y. 97-98 WHILE ITA NO. 1671/M/2010 5 PART OF THE OTHER INCOME IN A.Y. 98-99. IT WAS RIGH TLY POINTED OUT THAT WHEN THE CAPITAL GAINS CHARGED TO TAX BY AO IN THE A.Y. 97-98, NON- COMPETE ALLOWANCE WHICH WAS ALSO PART OF THE SAME D EAL COULD NOT BE CONSIDERED FOR A.Y. 98-99. IT IS ALSO CORRECTLY STA TED THAT AFTER RECEIPT OF THE HIGH COURT ORDER, THE TERMS OF AGREEMENT WOULD RELATES BACK TO THE EFFECTIVE DATE WHICH IS STATED IN THE ORDER ITSELF. THERE, 17.96 IS THE ACTUAL DATE OF THE TRANSFER AND NOT THE DATE OF THE ORDER AND FOR ALL PRACTICAL PURPOSES, ALL THE ENTRIES RELATED TO A.Y. 97-98. SINCE, ALL THE EVENTS TOOK PLACE IN THE A.Y. 97-98 ITSELF, THE IMP UGNED SUM RELATES TO A.Y. 97-98 AND NOT TO A.Y. 98-99. THEREFORE, NO AD DITION IN THIS REGARD COULD BE MADE IN THE YEAR UNDER CONSIDERATION. 5. IT IS RELEVANT TO STATE THAT LD. CIT(A) ALSO RELI ED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF MARSHALL SONS & CO. INDIA LTD. VS ITO 223 ITR 809 WHEREIN HONBLE APEX COURT HAS HELD THAT DA TE OF AMALGAMATION/TRANSFER WAS THE DATE WITH EFFECT FROM WHICH IT IS PROVIDED IN THE SCHEME OF AMALGAMATION THAT SHALL TAKE PLACE UN LESS COURT SPECIFIES ANY OTHER DATE OF AMALGAMATION/TRANSFER. IT WAS HELD TH AT WHERE THE COURT DOES NOT PRESCRIBE ANY SUCH DATE BUT MERELY SANCTIONS T HE SCHEME PRESENTED TO IT, IT SHOULD FOLLOW THAT DATE OF TRANSFER IS THE DATE SPECIFIED IN THE SCHEME AS TRANSFER DATE. IT IS RELEVANT TO STATE THAT THE C ASE BEFORE US, THE HONBLE BOMBAY HIGH COURT APPROVED THE SCHEME OF ARRANGEMEN T OF TRANSFER OF CONDOM DIVISION THE EFFECTIVE DATE AS MENTIONED IN THE SCHEME ON 1 ST JULY, 1996. LD. CIT(A) HAS ALSO STATED THAT ON SIMILAR F ACTS AND CIRCUMSTANCES IN THE CASE OF RAYMOND LTD. AN AMOUNT SIMILAR IN NATU RE RECEIVED WAS BROUGHT TO TAX IN ASSESSMENT YEAR 1997-98 AND NOT IN LATER YEAR. WE REPRODUCE RELEVANT PARA I.E. PARA 5.2 OF ORDER OF LD. CIT(A) WHICH IS AS UNDER: THE APPELLANT HAS ALSO RIGHTLY POINTED OUT THAT ON SIMILAR FACTS AND THE CIRCUMSTANCES IN THE CASE OF RAYMONDS LTD. AN AMOUNT SIMILAR IN NATURE RECEIVED HAS BEEN BROUGHT TO TAX IN A.Y. 19997- 98 AND NOT IN LATER YEAR. SURPRISINGLY, THE AO IN THE PRESENT CASE AS WELL HAS CONSIDERED RESULTANT CAPITAL GAINS IN A .Y. 1997-98 WHILE NON COMPETE FEE WHICH ARISES FROM THE SAME SCHEME, HAS BEEN TAXED IN THE SUBSEQUENT ASSESSMENT YEAR. IT IS ALS O NOTED THAT THE AO HAS IN FACT, ACCEPTED THAT THE TRANSFER OF THE S AID DIVISION HAD TAKEN PLACE IN THE A.Y. 1997-98 ITSELF AND HAD ACCO RDINGLY, TAXED THE PROFITS OF THE SAME ONLY UPTO 30.6.96 AND THE P ROFITS AFTER THIS DATE WERE NOT BROUGHT TO TAX IN THE HANDS OF THE AS SESSEE. ITA NO. 1671/M/2010 6 HENCE, DEPARTMENT IS IN FURTHER APPEAL BEFORE TRIBU NAL. 6. ON BEHALF OF DEPARTMENT, IT WAS CONTENDED THAT A CTUAL DATE OF TRANSFER OF ASSETS TO BE CONSIDERED FOR TAXING CAPITAL GAIN AND REFERRED THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF SHRI SURESHCHANDRA AGARWAL VS ITO IN ITA NO. 2377/M/10 AND SMT. SUSHILA S. AGARWAL VS ITO (2 011) TIOL 66S DT. 14 TH SEPTEMBER, 2011 AND DECISION OF ITAT B BENCH PUNE IN ITA NO. 834/PN/2008 DT. 4.10.2011 IN THE CASE OF B.V. KODRE (HUF) VS ITO. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ASSETS A ND LIABILITIES OF CONDOM DIVISION DID NOT TAKE PLACE IN ASSESSMENT YEAR 1997 -98 AND SAME HAD BEEN TRANSFERRED ONLY AFTER HONBLE BOMBAY HIGH COURT AP PROVED THE SCHEME VIDE ITS ORDER DT. 31.7.1997. THEREFORE ACTUAL TRANSFER OF ASSETS HAVE TO BE CONSIDERED IN ASSESSMENT YEAR 1998-99 AND CONSEQUEN TLY NON COMPETE AMOUNT OF RS. 1 CRORE RECEIVED BY ASSESSEE IN ASSE SSMENT YEAR 1998-99 HAS RIGHTLY BEEN CONSIDERED FOR TAX AS CAPITAL GAIN BY AO. HOWEVER, LD. AR SUPPORTED THE ORDER OF LD. CIT(A) TO CONSIDER NON C OMPETE AMOUNT OF RS. 1 CRORE RECEIVED BY ASSESSEE AS CAPITAL RECEIPT IN AS SESSMENT YEAR 1997-98. LD. AR SUBMITTED THAT THIS NON COMPETE AMOUNT OF RS. 1 CRORE RELATES TO ASSESSMENT YEAR 1997-98 AS JOINT VENTURE AGREEMENT WAS ENTERED INTO ON 17.12.1996 BY WHICH ASSESSEE AGREED TO TRANSFER ITS CONDOM DIVISION WITH ASSETS AND LIABILITIES AND ALL RIGHTS INCLUDING IND USTRIAL AND OTHER LICENCES, PERMITS, TRADE NAMES, COPY RIGHTS, TRADE MARKS MAR KETING AND DISTRIBUTION NET WORK TO JKAL. THE LD. AR REFERRED TO CLAUSE 14 .4 OF JOINT VENTURE AGREEMENT, A COPY OF WHICH IS PLACED AT PAGE 109 OF PAPER BOOK AND SUBMITTED THAT PURSUANT TO JOINT VENTURE AGREEMENT, IT WAS AGREED THAT ASSESSEE CEASED TO CONTINUE OR INITIATE ANY BUSINES S WHICH WAS SIMILAR OR WOULD RESULT IN COMPETITION WITH THE CONDOM BUSINES S OF JKAL AND FOR THAT PURPOSE IT WAS ALSO DECIDED TO ENTER INTO A NON-COM PETE AGREEMENT, WHICH WAS ENTERED INTO ON 4.1.1997. THAT PURSUANT TO NON -COMPETE AGREEMENT IT WAS AGREED THAT ASSESSEE TO RECEIVE RS. 1 CRORE BY WAY OF CONSIDERATION. BESIDES, RAYMOND TO RECEIVE NON COMPETE AMOUNT OF R S. 60 LAKHS. LD. AR REFERRED TO PAGES 49 TO 59 OF PAPER BOOK WHICH IS A COPY OF NON COMPETE ITA NO. 1671/M/2010 7 AGREEMENT DT. 4.1.1997 ENTERED INTO BETWEEN PACIFIC DUNLOP LTD., THE ASSESSEE-COMPANY AND RAYMOND LTD. THE LD. AR SUBMIT TED THAT TILL THE SCHEME WAS APPROVED BY HONBLE BOMBAY HIGH COURT BY ITS ORDER DT. 31.7.1997, ASSESSEE COMPANY CARRIED ON BUSINESS FOR AND ON BEHALF OF JKAL AND ON APPROVAL OF SCHEME, ASSESSEE COMPANY TRANSFE R NOT ONLY THE ASSETS AND LIABILITIES OF CONDOM BUSINESS BUT ALSO PROFIT FOR THE PERIOD 1.7.1996 TO 31.3.1997 IN RESPECT OF SAID DIVISION TO JKAL. TO SUBSTANTIATE HIS SUBMISSION, LD. AR REFERRED PAGE-15 OF PAPER BOOK WHICH IS A CO PY OF NOTES ON ACCOUNT OF ASSESSEE COMPANY FOR THE YEAR ENDED 31.3.1998. LD. AR ALSO FILED SEPARATELY A COPY OF ANNUAL REPORT AND ACCOUNTS OF ASSESSMENT YEAR 1997-98 AND REFERRED TO PAGE-3 THEREOF WHICH IS A PART OF DIREC TORS REPORT TO SHARE HOLDERS AND SUBMITTED THAT IT WAS SPECIFICALLY STATED THAT ON APPROVAL OF SCHEME BY HONBLE BOMBAY HIGH COURT CONSEQUENTIAL ADJUSTMENTS WOULD BE MADE IN THE NEXT YEAR ACCOUNT IN RESPECT OF ASSETS AND LIABILIT IES OF CONDOM DIVISION AND THE ASSESSEE DID SO AFTER THE SCHEME WAS APPROVED B Y HONBLE BOMBAY HIGH COURT. LD. AR SUBMITTED THAT ONCE SCHEME IS APPROV ED BY HONBLE HIGH COURT, THE HONBLE APEX COURT HAS HELD IN THE CASE OF MARSHALL SONS & CO. (INDIA) LTD. VS ITO (SUPRA) THAT DATE OF AMALGAMATIO N AS PROVIDED IN THE SCHEME OF AMALGAMATION AND APPROVED BY COMPANY COUR T BE DEEMED TO HAVE TAKEN PLACE ON A DATE AS PROVIDED IN THE SCHEM E, EVEN THOUGH THE AMALGAMATION IS SANCTIONED BY COMPANY COURT LATER. HE SUBMITTED THAT IN THE SAID CASE THE DATE OF SCHEME OF AMALGAMATION WA S PROVIDED 1 ST JANUARY, 1982 BUT SANCTIONED BY COMPANY COURT WAS LATER ON, AND THE AMALGAMATING COMPANY WAS STRUCK OFF THE REGISTRAR OF COMPANIES O N 21.1.1986 BUT THE DATE OF SCHEME WAS HELD TO BE 1.1.1982. HE SUBMITT ED THAT IN THE CASE OF ASSESSEE EVEN THOUGH SCHEME WAS APPROVED IN ASSESSM ENT YEAR 1998-99, BUT EFFECTIVE DATE AS APPROVED BY HONBLE BOMBAY HIGH C OURT IS 1 ST JULY, 1996 AND THEREFORE ALL THE RIGHTS AND LIABILITIES HAVE T O BE CONSIDERED TO HAVE CRYSTALLISED AS PER THE SCHEME IN ASSESSMENT YEAR 1 997-98. LD. AR SUBMITTED THAT ASSESSEE FILED RETURN FOR ASSESSMENT YEAR 1997 -98 ON 28 TH NOVEMBER, 1997 AND REFERRED PAGE-10 OF RETURN (COPY FILED SEP ARATELY) AND SUBMITTED THAT IN THE SAID RETURN, ASSESSEE STATED THAT NON C OMPETE ALLOWANCE OF RS. 1 ITA NO. 1671/M/2010 8 CRORE HAD ACCRUED BUT IT WAS CLAIMED TO BE EXEMPTED FROM INCOME TAX. THE LD. AR SUBMITTED THAT IN VIEW OF DECISION OF HONBL E APEX COURT IN THE CASE OF MARSHALL SONS & CO. (INDIA) LTD. VS ITO (SUPRA) THE RIGHT TO RECEIVE NON COMPETE FEE TO ASSESSEE AROSE ON 1 ST JULY, 1996 AND THEREFORE LD. CIT(A) HAS RIGHTLY HELD THAT IT IS TO BE CONSIDERED IN ASSESSM ENT YEAR 1997-98 AND NOT IN ASSESSMENT YEAR 1998-99. HE SUBMITTED THAT DATE OF PAYMENT IS NOT RELEVANT. LD. AR ALSO SUBMITTED THAT AO HIMSELF AS SESSED THE CAPITAL GAIN IN RESPECT OF SHARES ALLOTTED TO ASSESSEE BY JKAL ON T RANSFER OF CONDOM BUSINESS IN ASSESSMENT YEAR 1997-98, EVEN THOUGH SH ARES WERE ACTUALLY ALLOTTED IN ASSESSMENT YEAR 1998-99 I.E. SUBSEQUENT TO APPROVAL OF SCHEME BY HONBLE HIGH COURT. HE SUBMITTED THAT ORDER OF LD . CIT(A) TO HOLD THAT SAID AMOUNT OF RS. 1 CRORE IS TO BE CONSIDERED IN ASSESS MENT YEAR 1997-98 IS IN ORDER. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LD. REPRESENTATIVES OF PARTIES AND HAVE PERUSED ORDERS OF AUTHORITIES BELO W. WE HAVE ALSO PERUSED RELEVANT EXTRACT OF JOINT VENTURE AGREEMENT DT. 17. 12.1996 COPY PLACED AT PAGES 60 TO 73 AND 109 OF PAPER BOOK, COPY OF NON-C OMPETE AGREEMENT DT. 4.1.1997 PLACED AT PAGES 49 TO 59 AND ALSO SCHEME O F ARRANGEMENT FILED BEFORE HONBLE BOMBAY HIGH COURT PLACED AT PAGES 75 TO 80 OF PAPER BOOK AS WELL AS HONBLE HIGH COURT ORDER APPROVING THE SCHE ME PLACED AT PAGES 81 TO 89 OF PAPER BOOK AND HAVE ALSO CONSIDERED THE RELEV ANT PAGES OF PAPER BOOK AND THE CASES CITED BEFORE US (SUPRA). 8. WE OBSERVE THAT AS PER JOINT VENTURE AGREEMENT, EFFECTIVE DATE OF TRANSFER OF ASSETS AND LIABILITIES OF CONDOM DIVISI ON OF ASSESSEE TO JKAL IS 1ST JULY, 1996 AND UNDER THE SAID JOINT VENTURE AGREEME NT AS PER CLAUSE 14.4, ASSESSEE COMPANY SHALL CEASE TO CONTINUE OR INITIAT E ANY BUSINESS WHICH IS SIMILAR OR WILL RESULT IN COMPETITION WITH THE COND OM BUSINESS OF JKAL. NOT ONLY ASSESSEE COMPANY BUT RAYMOND LTD, WHICH IS THE MAJORITY SHARE HOLDER IN ASSESSEE COMPANY, SHALL ALSO CEASED TO CONTINUE OR INITIATE ANY BUSINESS WHICH IS SIMILAR OR WILL RESULT IN COMPETITION WITH CONDOM BUSINESS OF JKAL. ITA NO. 1671/M/2010 9 PURSUANT THERETO, A NON- COMPETE AGREEMENT WAS ENTE RED INTO DT. 4.1.1997 AND RAYMOND LTD. RECEIVED A SUM OF RS. 60 LAKHS AND ASSESSEE COMPANY RECEIVED A SUM OF RS. 1 CRORE BY WAY OF CONSIDERATI ON. THERE IS NO DISPUTE TO THE FACT THAT SAID NON-COMPETE FEE OF RS. 1 CRORE W AS RECEIVED BY ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. AFTER THE SCHEME WAS SANCTIONED BY HONBLE BOMBAY HIGH COURT BY ITS ORDE R DT. 31 ST JULY, 1997 BUT UNDISPUTEDLY THE SAID SCHEME IS EFFECTIVE FROM APPO INTED DATE WHICH IS 1 ST JULY, 1996 AS PER JOINT VENTURE AGREEMENT. THE HON BLE APEX COURT HAS HELD IN THE CASE OF MARSHALL SONS & CO. (INDIA) LTD.(SUP RA) THAT DATE OF SCHEME OF AMALGAMATION OF COMPANY IS THE DATE WITH EFFECT FRO M WHICH IT IS PROVIDED IN THE SCHEME IF THE SAME IS NOT ALTERED BY THE COMPA NY COURT SANCTIONING AMALGAMATION EVEN THOUGH AMALGAMATION IS SANCTIONED BY COMPANY COURT LATER ON AND THE AMALGAMATING COMPANY IS STRUCK OFF THE REGISTER OF COMPANIES LATER ON. IN VIEW OF DECISION OF HONBLE APEX COURT (SUPRA), WE AGREE WITH LD. AR THAT EVEN IF SCHEME IS APPROVED B Y HONBLE HIGH COURT BY ITS ORDER DT. 31 ST JULY, 1997 BUT SAID SCHEME OF TRANSFER OF ASSETS A ND LIABILITIES IS EFFECTIVE FROM 1 ST JULY, 1996. THEREFORE ALL RIGHTS AND LIABILITIES HAVE BECOME EFFECTIVE UNDER THE SAID AGREEMENT AS ON 1 ST JULY, 1996. THERE IS NO DISPUTE TO THE FACT THAT PROFIT IN RESPECT OF CONDO M DIVISION WHICH HAVE TAKEN PLACE AFTER 1 ST JULY, 1996 HAVE BEEN SHOWN IN THE NAME OF JKAL ON APPROVAL OF SCHEME BY HONBLE HIGH COURT. THERE IS ALSO NO DISPUTE TO THE FACT THAT SHARES WHICH HAVE BEEN ALLOTTED TO ASSESSEE-COMPANY AS PER JOINT VENTURE AGREEMENT, THOUGH ALLOTTED AFTER THE SCHEME WAS APP ROVED BY HONBLE HIGH COURT I.E. AFTER 31.3.1997 AND THE CAPITAL GAIN WHI CH HAS ARISEN THEREON ON ACCOUNT OF TRANSFER/ALLOTMENT OF SHARES TO ASSESSEE -COMPANY AFTER 31.3.1997, BUT SAME HAS BEEN ASSESSED AND CONSIDERED BY DEPART MENT IN ASSESSMENT YEAR 1997-98. WE ALSO OBSERVE THAT ASSESSEE IN THE RETURN FILED FOR ASSESSMENT YEAR 1997-98 HAS SHOWN IN THE RETURN, NO N COMPETE ALLOWANCE/FEES OF RS. 1 CRORE AND CLAIMED IT TO BE EXEMPTED FROM INCOME TAX. WE ARE OF THE CONSIDERED VIEW THAT THE RIGHT TO RE CEIVE THE SAID COMPETE FEE OF RS. 1 CRORE ACCRUED TO ASSESSEE IN ASSESSMENT YE AR 1997-98 EVEN THOUGH IT HAS BEEN RECEIVED BY ASSESSEE IN THE ASSESSMENT YEA R 1998-99 BECAUSE SAID ITA NO. 1671/M/2010 10 NON COMPETE FEE IS LINKED WITH TRANSFER OF BUSINESS OF CONDOM DIVISION BY ASSESSEE TO JKAL WHICH HAS TAKEN PLACE WITH EFFECT FROM 1.7.1996 I.E. RELEVANT TO ASSESSMENT YEAR 1997-98. NOT ONLY THIS , WE OBSERVE THAT SIMILAR AMOUNT RECEIVED BY RAYMOND LTD., FOR RS. 60 LAKHS U NDER SAME NON COMPETE AGREEMENT HAS BEEN BROUGHT TO TAX BY DEPARTMENT IN ASSESSMENT YEAR 1997- 98 AND NOT IN SUBSEQUENT YEAR. HENCE WE HOLD THAT L D. CIT(A) HAS RIGHTLY CONCLUDED THAT AMOUNT OF RS. 1 CRORE RECEIVED BY AS SESSEE AS PER NON COMPETE AGREEMENT DT. 4.1.1997 IS TO BE ASSESSED IN THE ASSESSMENT YEAR 1997-98 AND NOT IN ASSESSMENT YEAR 1998-99. 9. IN VIEW OF ABOVE, WE HOLD THAT THERE IS NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). HENCE WE UPHOLD HIS ORDER AND REJECT GROUND OF APPEAL TAKEN BY DEPARTMENT. 10. IN THE RESULT, APPEAL FILED BY DEPARTMENT IS DIS MISSED. ORDER PRONOUNCED ON THIS 16 TH DAY OF DECEMBER, 2011 SD/- SD/- ( PRAMOD KUMAR) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 16 TH DECEMBER,2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 1671/M/2010 11 DATE INITIALS 1. DRAFT DICTATED ON: 30.11.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 1.12.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: