M/S. BIRLA GLOBAL FINANCE LTD., V. THE ACIT CC-1,

ITA 1802/MUM/2005

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3600 (ITAT-MUMBAI)
• Duration Of Justice: 11 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: F
• Next Hearing Date: 20-11-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 09-03-2005
• Court: TRIBUNAL
• Department Lawyers: A K DHANDIAL
• Assessee Lawyers: J D MISTRY
• Keywords: Capital asset; Business income; Rectification of order; Share purchase agreement; Bad and doubtful debts; Competent authority; Capital receipt
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE S/SHRI B.R. BASKARAN (AM) & PAWAN SINGH (JM) I.T.A. NO. 1802 /MUM/ 2005 (ASSESSMENT YEAR 2001 - 02 ) M/S. ADITYA BIRLA NUVO LTD . ( SUCCESSOR OF BIRLA GLOBAL FINANCE LTD . ) APPEJAY HOUSE 2 ND FLOOR, SHAHID BHAGAT SINGH ROAD MUMBAI - 400 001. VS. ACIT/DCIT CC - 1 9 TH FLOOR OLD CGO BUILDING ANNEXE M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) I.T.A. NO. 2046/MUM/2005 (ASSESSMENT YEAR 2001 - 02) ACIT/DCIT CC - 1 9 TH FLOOR OLD CGO BUILDING ANNEXE M .K. ROAD MUMBAI - 400 020. VS. M/S. ADITYA BIRLA NUVO LTD . (S UCCESSOR OF M/S BIRLA GLOBAL FINANCE LTD . ) APPEJAY HOUSE 2 ND FLOOR, SHAHID BHAGAT SINGH ROAD MUMBAI - 400 001. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAACB4314R ASSESSEE BY SHRI J.D. MISTRY DEPARTMENT BY SHRI A.K. DHANDIAL DATE OF HEARING 12 .2 . 201 6 DATE OF PRONOUNCEMENT 17 . 5 . 201 6 O R D E R PER B.R. BASKARAN, A M : - THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 07 - 01 - 2005 PASSED BY LD CIT(A), CENTRAL - I, MUMBAI FOR A SSESSMENT YEAR 2001 - 02. 2. THESE APPEALS WERE ORIGINALLY DISPOSED OF BY THE CO - ORDINATE BENCH ON 27 . 07 . 2009. AGGRIEVED BY THE ORDER PASSED BY THE TRIBUNAL, BOTH THE PARTIES M/S. ADITYA BIRLA NUVO LTD. (SUCCESSO R OF M/S BIRLA GLOBAL FINANCE LTD .) 2 FILED APPEALS BEFORE HONBLE HIGH COURT OF BOMBAY. IN THE MEAN TIME, THE ASS ESSEE ALSO FILED A M ISCELLANEOUS PETITION SEEKING RECTIFICATION OF MISTAKES FOUND BY IT IN THE ORDER PASSED BY THE TRIBUNAL . SINCE THE MISCELLANEOUS PETITION WAS DISMISSED BY THE TRIBUNAL, THE ASSESSEE FILED A WRIT PETITION CHALLENGI NG THE SAID ORDER. TH E LD A.R STATED THAT TH E APPEAL FILED BY THE ASSESSEE WA S NUMBERED AS INCOME TAX APPEAL NO.685 OF 2010 AND THE WRIT PETITION IS NUMBERED AS WRIT PETITION NO.1894 OF 2010 IN THE HONBLE HIGH COURT. THE APPEAL AND THE WRIT PETITION FILED BY THE ASSESSEE WER E DISPOSED OF BY THE HONBLE HIGH COURT BY A COMMON ORDER DATED 20 TH SEPTEMBER, 2010 WITH THE FOLLOWING OBSERVATIONS: - 2. HAVING HEARD BOTH THE ABOVE MATTERS FOR SOME TIME, MR. SAHADEVAN THE LEARNED COUNSEL FOR THE REVENUE STATED THAT THE IMPUGNED ORDE RS IN THE APPEAL AS WELL AS WRIT PETITION MAY BE SET ASIDE WITHOUT EXAMINING THE MERITS AND DEMERITS OF THE IMPUGNED ORDER AND ACTION AND DISPENSING WITH THE REASONS IN SUPPORT OF THIS ORDER. THE JOINT SUBMISSION IS THAT APPEAL AS WELL AS WRIT PETITION BE ALLOWED AND THE MATTERS MAY BE REMITTED BACK TO THE TRIBUNAL FOR AFRESH CONSIDERA T ION LEAVING ALL CONTENTIONS OPEN. 3. IN VIEW OF THE JOINT PRAYER MADE, THE IMPUGNED ORDERS IN THE APPEAL AS WELL AS WRIT PETITION ARE SET ASIDE BY CONSENT OF PARTIES D ISPENSING WITH REASONS IN SUPPORT OF OUR ORDER. THE PROCEEDINGS ARE REMITTED BACK TO THE TRIBUNAL FOR CONSIDERATION AFRESH WITH EXPEDITIOUS DISPATCH. NO ORDER AS TO COSTS. ALL CONTENTIONS KEPT OPEN. 3. TWO APPEALS FILED BY THE REVENUE HAVE BEEN NUM BERED AS INCOME TAX APPEAL NO.1449 OF 2010 AND INCOME TAX APPEAL NO.1454 OF 2010 IN THE HONBLE HIGH COURT. THEY WERE DISPOSED OF BY THE HONBLE HIGH COURT, VIDE ITS ORDER DATED 14/2/2011 AS UNDER: - 1. COUNSEL ON BOTH SIDES AGREE D THAT THE ORDER OF THE ITAT AGAINST WHICH THESE APPEALS HAVE BEEN FILED ALREADY HAVE BEEN SET ASIDE BY THIS COURT AND THE MATTE R IS REMANDED BACK TO THE ITAT FOR DE - NOVO CONSIDERATION IN INCOME TAX APPEAL NO.685 OF 2010 AND WRIT PETITION NO.1894 OF 2010 DECIDED ON 20 - 09 - 2010. HENCE BOTH THESE APPEALS HAVE BECOME INFRUCTUOUS AND ACCORDINGLY DISMISSED. M/S. ADITYA BIRLA NUVO LTD. (SUCCESSO R OF M/S BIRLA GLOBAL FINANCE LTD .) 3 THE LD A.R SUBMITTED THAT ONE OF THE APPEALS FILED BY THE REVENUE (REFERRED SUPRA) RELATES TO THE YEAR UNDER CONSIDERATION, SINCE THE HONBLE HIGH COURT HAS REFERRED TO THE INCOM E TAX APPEAL NO.685 OF 2010 FILED BY THE ASSESSEE. 4 . ACCORDINGLY, THE APPEAL OF THE ASSESSEE (ITA NO.297/M/2005) AND THE APPEAL OF THE REVENUE (ITA NO.2046/M/2005) FILED BEFORE THE TRIBUNAL WERE LISTED FOR FRESH HEARING CONSEQUENT TO THE ORDER S PAS SED BY HONBLE HIGH COURT OF BOMBAY. BEFORE US, THE LD COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT ISSUES THAT WERE CONTESTED BY THE REVENUE BEFORE THE HONBLE HIGH COURT OF BOMBAY HAVE BEEN DISMISSED AS INFRUCTUOUS AND ACCORDINGLY CONTENDED THAT THE APPEAL OF THE REVENUE HAS NOT BEEN RESTORED BACK. ACCORDINGLY HE CONTENDED THAT THE ORDER PASSED BY THE TRIBUNAL ON THE ISSUES CONTESTED BY THE REVENUE IN THE FIRST ROUND OF PROCEEDING HAS ATTAINED FINALITY AND HENCE THE TRIBUNAL IS REQUIRED TO RESTRICT ITSELF TO THE APPEAL OF THE ASSESSEE . HOWEVER, WE ARE UNABLE TO AGREE WITH THE SAID CONTENTIONS. A CAREFUL PERUSAL OF THE ORDER PASSED BY THE HONBLE HIGH COURT IN THE APPEAL FILED BY THE ASSESSEE WOULD SHOW THAT THE HIGH COURT HAS SET ASIDE THE ORDERS PA SSED BY THE TRIBUNAL IN THE APPEAL AS WELL AS IN THE MISCELLANEOUS PETITION, MEANING THEREBY, ALL THE ISSUES DISPOSED OF BY THE TRIBUNAL HAVE BEEN REVIVED. FURTHER THE HONBLE HIGH COURT HAS HELD THAT THE APPEALS OF THE REVENUE HAVE BECOME INFRUCTUOUS, SI NCE THE MATTERS HAVE BEEN RESTORED TO THE TRIBUNAL FOR DE - NOVA CONSIDERATION. THE REASONING GIVEN BY THE HONBLE HIGH COURT, IN OUR VIEW, SHOWS THAT IT HAS INTENDED TO RESTORE ALL THE ISSUES TO THE FILE OF THE TRIBUNAL. ACCORDINGLY, WE ARE OF THE VIEW TH AT THE ISSUES URGED BY THE ASSESSEE AS WELL AS BY THE REVENUE HAVE BEEN RESTORED TO THE FILE OF THE TRIBUNAL AND ACCORDINGLY THE REGISTRY HAS POSTED THE APPEALS FOR HEARING. M/S. ADITYA BIRLA NUVO LTD. (SUCCESSO R OF M/S BIRLA GLOBAL FINANCE LTD .) 4 5 . THE ASSESSEE IS A NON - BANKING FINANCIAL COMPANY. IT HAS SINCE BEEN AMALGA MATED WITH M/S ADITYA BIRLA NUVO LTD . W.E.F. 30 - 06 - 2006. SINCE THE APPELLATE ORDERS HAVE BEEN PASSED IN THE NAME OF BIRLA GLOBAL FINANCE LTD AND THE ASSESSEE IS ALSO PROSECUTING THE APPEALS IN THE OLD NAME ONLY. SINCE THE BIRLA GLOBAL FINANCE LTD HAS BEE N MERGED WITH THE ABOVE SAID COMPANY, THE PRESENT ORDERS ARE BEING PASSED IN THE NAME OF THE PRESENT COMPANY. THE FIRST ISSUE URGED IN THE APPEAL OF BOTH THE PARTIES RELATES TO THE TAXABILITY OF RS.12.92 CRORES RECEIVED BY THE ASSESSEE FROM M/S SUNLIFE AS SURANCE COMPANY OF CANADA. 6 . THE ASSESSEE TREATED THE ABOVE SAID AMOUNT AS A RECEIPT TOWARDS GOOD WILL AND ACCORDINGLY OFFERED THE SAME FOR TAXATION UNDER THE HEAD LONG TERM CAPITAL GAIN. HOWEVER, THE AO CONSIDERED THE SAME AS A BUSINESS RECEIPT AND ACCORDINGLY ASSESSED THE SAME UNDER THE HEAD INCOME FROM BUSINESS. THE LD CIT(A), HOWEVER, AGREED WITH THE CONTENTIONS OF THE ASSESSEE AND ACCORDINGLY DIRECTED THE AO TO ASSESS THE SAME AS LONG TERM CAPITAL GAINS. THE REVENUE IS CHALLENGING THE S AID DECISION OF LD CIT(A). BEFORE THE TRIBUNAL, T HE ASSESSEE HAS TAKEN A NEW STAND AND NOW IT CONTENDS THAT THE SAID RECEIPT I S A CAPITAL RECEIPT AND IT IS NOT IN THE NATURE OF GOOD WILL. ACCORDINGLY, IT IS BEING CONTENDED THAT THE SAME IS NOT TAXABLE U NDER THE INCOME TAX ACT. 7 . THE FACTS IN BRIEF ARE THAT T HE ASSESSEE ENTERED INTO A JOINT VENTURE AGREEMENT WITH M/S SUNLIFE ASSURANCE COMPANY OF CANADA ON 19 TH MAY 1999 AS PER WHICH, THE SUNLIFE HAS AGREED TO ACQUIRE A SIGNIFICANT PERCENTAGE OF THE TOTAL NUMBER OF ISSUED AND OUTSTANDING SHARES IN THE CAPITAL OF EACH OF THE BIRLA GROUP COMPANIES STATED IN THE AGREEMENT. THE AGREEMENT ALSO PROPOSED TO START AN INSURANCE COMPANY IN ACCORDANCE WITH THE TERMS AND CONDITIONS SPECIFIED THEREIN. AS PER AR TICLE 3 OF THE JOINT VENTURE AGREEMENT, M/S SUNLIFE M/S. ADITYA BIRLA NUVO LTD. (SUCCESSO R OF M/S BIRLA GLOBAL FINANCE LTD .) 5 AGREED TO PAY TO THE ASSESSEE A SUM OF CDN $7 MILLION AS PREMIUM IN CONSIDERATION OF ESTABLISHMENT OF THIS STRATEGIC RELATIONSHIP AND IN PARTICULAR WITH RESPECT TO THE JOINT VENTURE. THE ABOVE SAID PAY MENT IS SUBJECT TO TWO CONDITIONS, VIZ., (A) THE AGGREGATE AMOUNT OF ASSETS UNDER MANAGEMENT SHALL REACH ATLEAST RS.1600/ - CRORES (SUBJECT TO A CAP OF 15% IN RESPECT OF INVESTMENTS MADE BY THE ASSESSEE) AND (B) THE OPERATING LICENSE F OR RUNNING AN INSURANCE COMPANY SHOULD BE OBTAINED. IT IS FURTHER STATED THAT THE ABOVE SAID AMOUNT OF PREMIUM SHALL BE REDUCED BY THE AMOUNT, IF ANY, BY WHICH THE AGGREGATE AMOUNTS PAID TOWARDS ACQUISITION OF SHARES OF BIRLA GROUP COMPANIES SPECIFIED THE REIN (INCLUDING THE PAYMENTS ON ACCOUNT OF GOODWILL) EXCEEDS CDN$43 MILLION. 8 . IN THE IMMEDIATELY PRECEDING YEAR, I.E., IN THE YEAR RELEVANT TO AY 2000 - 01, THE ASSESSEE HA D RECEIVED PAYMENT TOWARDS GOOD WILL AND THE SAME WAS ASSESSED UNDER THE HE AD CAPITAL GAINS BY THE AO. HOWEVER, THE LD CIT REVISED THE ASSESSMENT ORDER U/S 263 OF THE ACT , AS HE WAS OF THE VIEW THAT THE SAME IS TAXABLE AS BUSINESS RECEIPTS AND THE ASSESSMENT ORDER HAS BEEN RENDERED ERRONEOUS FOR THE REASONS STATED IN THE ORDER . A CCORDINGLY , THE LD CIT(A) SET ASIDE THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO REDO THE ASSESSMENT. THE REVISION ORDER PASSED BY LD CIT WAS CHALLENGED BEFORE THE TRIBUNAL AND THE ITAT QUASHED THE REVISION ORDER PASSED BY THE LD CIT. THE OR DER PASSED BY THE TRIBUNAL HAS SINCE BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT, VIDE ITS ORDER DATED 17 - 06 - 2011 PASSED IN THE APPEAL FILED BY THE REVENUE IN INCOME TAX APPEAL NO.1099 OF 2007. M/S. ADITYA BIRLA NUVO LTD. (SUCCESSO R OF M/S BIRLA GLOBAL FINANCE LTD .) 6 9 . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECE IVED A SUM OF RS.12.92 CRORES AS PREMIUM TOWARDS STRATEGIC RELATIONSHIP ENTERED BY WAY OF JOINT VENTURE AGREEMENT. THE ASSESSEE OFFERED THE SAME AS LONG TERM CAPITAL GAIN, BUT THE AO ASSESSED THE SAME AS BUSINESS RECEIPTS. T HE LD CIT(A) ACCEPTED THE CONTE NTION OF THE ASSESSEE AND ACCORDINGLY HELD THAT THE SAME IS ASSESSABLE AS LONG TERM CAPITAL GAIN. THE REVENUE CHALLENGES THE SAID ORDER OF LD CIT(A). THE ASSESSEE HAS TAKEN A NEW STAND THAT THE SAME IS NOT TAXABLE AS LONG TERM CAPITAL GAIN ALSO, AS THERE IS NO TRANSFER OF ANY CAPITAL ASSET, WHICH IS A PRIMARY CONDITION FOR BRINGING A RECEIPT UNDER THE HEAD CAPITAL GAINS. ACCORDINGLY, IT IS BEING CONTENDED THAT THE AMOUNT OF RS.12.92 CRORES IS JUST A CAPITAL RECEIPT AND IT IS NOT TAXABLE AT ALL. 1 0 . THE LD D.R DREW OUR ATTENTION TO THE ORDER PASSED BY THE TRIBUNAL IN AY 2000 - 01 AGAINST THE REVISION ORDER PASSED BY LD CIT(A), WHEREIN THE ITAT HAS HELD THAT THE IDENTICAL PAYMENTS RECEIVED BY THE ASSESSEE AS GOOD WILL EXIGIBLE TO TAX AS LONG TERM CAPIT AL GAINS. HE SUBMITTED THAT THE ORDER PASSED BY THE ITAT WAS IN THE CONTEXT OF REVISION PROCEEDINGS U/S 263 OF THE ACT AND HENCE THE SAME CANNOT BE CONSIDERED TO BE BINDING DECISION. HE SUBMITTED THAT THE ASSESSEE HAS RECEIVED THIS AMOUNT IN THE COURSE O F CARRYING ON BUSINESS AND HENCE THE SAME IS ASSESSABLE AS BUSINESS RECEIPT ONLY. 1 1 . THE LD A.R, HOWEVER, SUBMITTED THAT THE NATURE OF PAYMENT RECEIVED IN AY 2000 - 01 IS DIFFERENT FROM THAT ONE RECEIVED DURING THE YEAR UNDER CONSIDERATION AND HENCE TH ERE IS NO PARITY OF FACTS . THE WRITTEN SUBMISSIONS GIVEN BY THE ASSESSEE IN THIS REGARD IS EXTRACTED BELOW: - FACTS IN AY 2000 - 01 THE APPELLANT COMPANY, PART OF ADITYA V BIRLA GROUP PROMOTED BIRLA MUTUAL FUND, STOCK BROKING BUSINESS AND DISTRIBUTION BUSI NESS IN JOINT VENTURE WITH CAPITAL INTERNATIONAL INC. OF USA. DURING THE RELEVANT M/S. ADITYA BIRLA NUVO LTD. (SUCCESSO R OF M/S BIRLA GLOBAL FINANCE LTD .) 7 ASSESSMENT YEAR, M/S SUN LIFE ASSURANCE COMPANY OF CANADA APPROACHED THE APPELLANT TO JOINT ITS HANDS AS A JV PARTNER TO CARRY ON BUSINESS AND SERVICES IN FINANCIAL SECTOR I N INDIA. PURSUANT TO WHICH, THE APPELLANT COMPANY ENTERED INTO SHARE PURCHASE AGREEMENT WITH SUN LIFE, CANADA. THE GOOD WILL WAS RECEIVED AS A CONSIDERATION TOWARDS REDUCTION IN CONTROLLING INTEREST IN THE FINANCIAL SERVICE COMPANIES (AS SPECIFIED IN THE ABOVE TABLE) AND SHARE WITH SUN LIFE COMPANY OF CANADA THE BENEFIT OF THE APPELLANTS GOODWILL IN THE FINANCIAL SERVICE BUSINESSES DIFFERENCE IN FACTS : - IN AY 2000 - 01, GOODWILL OF RS.4045.37 LACS RECEIVED TOWARDDS REDUCTION IN CONTROLLING INTEREST IN THE FINANCIAL SERVICE COMPANIES AND SHARE WITH SUN LIFE COMPANY OF CANADA THE BENEFIT OF THE APPELLANTS GOOD WILL IN THE FINANCIAL SERVICE BUSINESSES. IN AY 2001 - 02, THE APPELLANT HAS RECEIVED GOODWILL OF RS.1292.33 LACS IN CONSIDERATION OF THE ESTABLI SHMENT OF STRATEGIC RELATIONSHIP WITH SUNLIFE ASSURANCE COMPANY OF CANADA BY ENTERING INTO JV AGREEMENT. ACCORDINGLY, IT WAS CONTENDED BY THE ASSESSEE THAT THE IMPUGNED AMOUNT OF RS.12.92 CRORES IS NOT IN THE NATURE OF GOODWILL AS DESCRIBED IN THE ACCO UNTS, BUT IT IS A PAYMENT RECEIVED FOR ESTABLISHING STRATEGIC RELATIONSHIP. THE ASSESSEE HAS NOT TRANSFERRED ANY ASSETS AND HENCE THE SAID RECEIPT IS NOT CHARGEABLE AS CAPITAL GAINS. 12. WE HEARD THE PARTIES ON THIS ISSUE. ARTICLE 3 OF THE JOINT VENTUR E AGREEMENT DEALS WITH THE STRATEGIC RELATIONSHIP AS PER ARTICLE 3.1 , M/S SUNLIFE HAS AGREED TO PAY A SUM OF CDN$7 MILLION, TERMED AS PREMIUM IN CONSIDERATION OF ESTABLISHMENT OF STRATEGIC RELATIONSHIP AND JOINT VENTURE. THE PARTIES HAS PROVIDED A CA P IN RESPECT OF PAYMENTS MADE TOWARDS ACQUISITION OF SHARES AND GOOD WILL AND HENCE, THE AMOUNT PAID IN EXCESS, IF ANY, SHALL BE ADJUSTED AGAINST THE PREMIUM STATED ABOVE. THE DISPUTE IS WITH REGARD TO THE NATURE OR CHARACTER OF THIS PREMIUM AMOUNT. M/S. ADITYA BIRLA NUVO LTD. (SUCCESSO R OF M/S BIRLA GLOBAL FINANCE LTD .) 8 13. THE REVENUES VIEW IS THAT THE SAME IS A BUSINESS RECEIPT CHARGEABLE UNDER THE HEAD INCOME FROM BUSINESS. THE ASSESSEES CONTENTION IS THAT IT IS A CAPITAL RECEIPT NOT TAXABLE AT ALL, EVEN THOUGH IT INITIALLY OFFERED THE SAME AS GOODWILL CHARGEABLE UN DER THE HEAD CAPITAL GAINS. 14. WE NOTICE FROM THE ORDER PASSED BY THE TRIBUNAL IN AY 2000 - 01 AGAINST THE REVISION ORDER PASSED BY LD CIT THAT THE PARTIES HAVE OBTAINED APPROVAL OF COMPETENT AUTHORITY FOR ESTABLISHING STRATEGIC RELATIONSHIP. THE COMPE TENT AUTHORITY HAS ALSO ACCORDED ITS APPROVAL FOR PAYMENT OF RS.63.25 CRORES TO THE BIRLA GROUP BY M/S SUNLIFE CANADA AS GOODWILL, SUBJECT TO THE CONDITION THAT THIS AMOUNT WILL NOT BE REPATRIATED. HOWEVER, IT IS NOT CLEAR AS TO WHETHER THE IMPUGNED REC EIPT OF RS.12.92 CRORES IS PART OF RS.63.25 CRORES OR NOT. 15. BE THAT AS IT MAY, A PERUSAL OF THE JOINT VENTURE AGREEMENT SHOWS THAT THE AGREEMENT PROVIDES FOR RESPECTIVE ROLES AND RESPONSIBILITIES, AS PER WHICH THE SPECIFIC ROLE OF THE ASSESSEE IS SP ECIFIED AS UNDER: - (III) BGFL SHALL PROVIDE TO THE JOINT VENTURE ITS EXTENSIVE BUSINESS EXPERTISE IN THE INDIAN MARKET AND ITS UNDERSTANDING AND KNOWLEDGE OF LOCAL MARKET CONDITIONS, REGULATORY REQUIREMENTS AND BUSINESS PRACTICES. A CAREFUL READING OF THE ABOVE SAID CLAUSE WOULD SHOW THAT THE ASSESSEE HEREIN IS REQUIRED TO PROVIDE ALL ITS BUSINESS EXPERTISE TO THE JOINT VENTURE, SINCE M/S SUNLIFE IS A NEW COMPANY ENTERING THE INDIAN MARKETS. IN OUR VIEW, THE BUSINESS EXPERTISE DESCRIBED IN THE ABOV E SAID CLAUSE ARE INTANGIBLE ASSETS OWNED BY THE ASSESSEE AND THE SAME WOULD GIVE AN EDGE AND POPULARITY TO THE JOINT VENTURE, WHICH M/S SUNLIFE WOULD NOT HAVE GOT HAD IT ENTERED INTO THE INDIAN MARKETS ALONE. HENCE IT IS UNDERSTOOD BY THE PARTIES THAT TH E JOINT M/S. ADITYA BIRLA NUVO LTD. (SUCCESSO R OF M/S BIRLA GLOBAL FINANCE LTD .) 9 VENTURE WOULD GIVE BENEFITS TO THE NEW COMPANY DUE TO THE LARGE SCALE PRESENCE OF BIRLA GROUP IN THE INDIAN MARKETS , SINCE T HE BIRLA GROUP IS ALSO WELL VERSED WITH THE NUANCES OF THE INDIAN MARKETS. HENCE, IN OUR VIEW, THE IMPUGNED PREMIUM AMOUNT OF RS.12.92 CRORES IS NOTHING BUT A PAYMENT GIVEN BY M/S SUNLIFE IN EXPLOIT THE BUSINESS EXPERTISE HELD BY M/S BIRLA GROUP, WHICH IS NOTHING BUT A PAYMENT TOWARDS GOOD WILL ONLY. WE HAVE TAKEN THIS VIEW ON ACCOUNT OF ONE MORE REASONING, I.E., IN THE CAS E OF JOINT VENTURE AGREEMENTS, NORMALLY THE PARTIES TO THE AGREEMENT SHARE THE RESPONSIBILITIES IN PROPORTION TO THEIR RESPECTIVE SHARE. THE RESPONSIBILITIES SHARED WOULD DEPEND UPON THE CORE EXPERTISE OF EACH OF THE PARTIES AND THE DIFFERENCE, IF ANY, IS USUALLY COMPENSATED THROUGH THE VARIATION IN THE PROFIT SHARING RATIO. UNDER THIS PRINCIPLE OF BUSINESS, A PRUDENT BUSINESSMAN WOULD NOT AGREE TO GIVE AN Y AMOUNT TO A NOVICE ON ACCOUNT OF STRATEGIC RELATIONSHIP. IN FACT, THE ALL JOINT VENTURE AGREEMENT S ARE VARIOUS TYPES OF STRATEGIC RELATIONSHIP ONLY AND THEY ARE NORMALLY ENTERED FOR CARRY ING A N ACTIVITY JOINTLY BY USING EXPERTISE OF EACH OF THE PARTIES. 16. M/S SUNLIFE CANADA IS AWARE OF THE STRENGTHS OF M/S BIRLA GROUP AND HENCE THE IMPUGNED AMO UNT HAS BEEN GIVEN BY IT AS PREMIUM FOR ESTABLISHING STRATEGIC RELATIONSHIP. THE UNDISPUTED FACT REMAINS THAT M/S SUNLIFE CANADA IS A NEW ENTRANT IN THE INDIAN MARKETS AND IT WOULD TAKE CONSIDERABLE TIME FOR IT TO UNDER THE COMPLEXITIES OF THE INDIAN MARKE T . ON THE CONTRARY, M/S BIRLA GROUP IS AN ESTABLISHED PLAYER WITH INTERESTS IN VARIOUS TYPES OF FINANCIAL MARKETS AND OTHER FIELD. FURTHER, IT HAS GOT BRANCHES ALL OVER THE INDIA AND HENCE IT IS SPECIFICALLY PROVIDED IN THE JOINT VENTURE AGREEMENT THAT T HE BUSINESS EXPERTISE IN ALL THE FIELDS SHALL BE CONTRIBUTED BY THE BIRLA GROUP TO THE JOINT VENTURE. HENCE, THE BIRLA GROUP WAS CONSIDERED TO HAVE AN EDGE OVER M/S SUNLIFE, CANADA. THE BUSINESS EXPERTISE, EXPERIENCE OR EDGE, IN OUR VIEW, IS CONSIDERED A S GOOD WILL. M/S. ADITYA BIRLA NUVO LTD. (SUCCESSO R OF M/S BIRLA GLOBAL FINANCE LTD .) 10 ACCORDINGLY, WE ARE OF THE VIEW THAT THE IMPUGNED PAYMENT OF RS.12.92 CRORES RECEIVED BY THE ASSESSEE IS IN THE NATURE OF GOODWILL ONLY AND HENCE WE UPHOLD THE DECISION RENDERED BY LD CIT(A) ON THIS ISSUE. 17 . THE NEXT ISSUE CONTESTED BY BOTH THE PARTIES RELATES TO THE DISALLOWANCE OF BAD DEBTS CLAIMED BY THE ASSESSEE. THE FOLLOWING AMOUNTS CLAIMED AS BAD DEBTS BY THE ASSESSEE WERE DISALLOWED BY THE AO: - INVESTMENT IN GOVT. SECURITIES 22,43,625 INVESTMENT IN SHARES 15,88,988 TDS RECEIVABLE 25,00,000 THE LD CIT(A) ALLOWED THE CLAIM OF RS.22,43,625/ - AND CONFIRMED THE DISALLOWANCE OF THE CLAIM OF RS.15,88,988/ - REFERRED ABOVE. IN RESPECT OF CLAIM OF RS.25.00 LAKHS, THE LD CIT(A) HELD THAT THE REMEDY LIES BEFORE LD CIT U/S 264 OF THE ACT. ACCORDINGLY HE CONFIRMED THE DISALLOWANCE OF RS.25.00 LAKHS REFERRED ABOVE. 18 . THE REVENUE IS CONTESTING THE ALLOWANCE OF RS.22.43 LAKHS REFERRED ABOVE. THE FACTS RELATING THERETO ARE THAT THE ASSESSEE HAD PURCHASED GOVERNMENT SECU RITIES THROUGH M/S MAFATLAL SECURITIES LTD. WHEN THE CERTIFICATES WERE SENT FOR TRANSFERRING THE NAME, SOME OF THE SECURITIES WERE RETURNED BACK AS BAD. THE ASSESSEE WROTE OFF A SUM OF RS.22.43 LAKHS, SINCE IT COULD NOT RECOVER THE CERTIFICATES OR AMOUNT . THE AO DISALLOWED THE CLAIM. THE LD CIT(A) HELD THAT THE ASSESSEE HAS PURCHASED THE SECURITIES IN THE COURSE OF CARRYING ON ITS BUSINESS OF FINANCE COMPANY AND HENCE THE SAME IS A NORMAL BUSINESS LOSS. ACCORDINGLY HE ALLOWED THE CLAIM. IN THE FIRST R OUND OF PROCEEDINGS, THE TRIBUNAL NOTED THAT THE ASSESSEE HAD RECOVERED THIS AMOUNT SUBSEQUENTLY AND OFFERED M/S. ADITYA BIRLA NUVO LTD. (SUCCESSO R OF M/S BIRLA GLOBAL FINANCE LTD .) 11 THE SAME AS INCOME IN AY 2007 - 08 . ACCORDINGLY THE TRIBUNAL CONFIRMED THE ORDER OF LD CIT(A) ON THIS ISSUE. 19. WE HAVE HEARD THE PARTIES ON THI S ISSUE. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAS PURCHASED THE SECURITIES IN THE COURSE OF CARRYING ON THE BUSINESS OF FINANCE COMPANY. FURTHER IT IS STATED THAT THE ASSESSEE HAS RECOVERED THE AMOUNT SUBSEQUENTLY AND OFFERED THE SAME AS INCOME IN AY 2007 - 08. ACCORDINGLY WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN ALLOWING THIS CLAIM. 20. IN THE APPEAL OF THE ASSESSEE, IT IS CONTESTING THE CONFIRMATION OF DISALLOWANCE OF RS.15.88 LAKHS WRITTEN OFF FROM DEBTORS BALANCE AS UNRECOVERABLE. THESE AMOUNTS WERE ALSO CLAIMED TO HAVE BEEN GIVEN TO VARIOUS PARTIES TOWARDS PURCHASE OF SECURITIES. THE AO AS WELL AS LD CIT(A) TOOK THE VIEW THAT THIS CLAIM IS NOT ALLOWABLE AS THE ASSESSEE HAS NOT DISCLOSED THE SAME AS INCOME IN ANY OF THE YEARS. IN THE FIRST ROUND OF PROCEEDING, THE ITAT HAS TAKEN THE VIEW THAT THE FACTS RELATING TO THIS CLAIM ARE IDENTICAL WITH THE CLAIM RELATING TO MAFATLAL SECURITIES LTD AND ACCORDINGLY ALLOWED THE CLAIM. WE NOTICE THAT THE ASSESSEE HAS GIVEN THE ADVANCE TO VARI OUS PARTIES FOR PURCHASE OF SECURITIES IN THE COURSE OF CARRYING ON BUSINESS OF NON - BANKING FINANCE COMPANY. ACCORDINGLY, WE ARE OF THE VIEW THAT THIS CLAIM IS ALLOWABLE AS TRADING LOSS, IF NOT AS BAD DEBTS. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A ) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE CLAIM. 21. THE NEXT ISSUE CONTESTED BY THE ASSESSEE PERTAINS TO THE DISALLOWANCE OF CLAIM RELATING TO TDS CERTIFICATES. THE AO DISALLOWED THIS CLAIM AND THE LD CIT(A) TOOK THE VIEW THAT THE ASSESSEE SHOUL D SEEK REMEDY U/S 264 OF THE ACT. THE LD A.R SUBMITTED THAT THE TAX HAS BEEN DEDUCTED BY THE CLIENTS FROM OUT OF M/S. ADITYA BIRLA NUVO LTD. (SUCCESSO R OF M/S BIRLA GLOBAL FINANCE LTD .) 12 BUSINESS RECEIPTS AND DUE TO MISMATCH OR OTHER UNAVOIDABLE REASONS, THE CLAIM OF TDS TO THE EXTENT OF RS.25.00 LAKHS WAS NOT ALLOWED. SINCE T HE ASSESSEE COULD NOT CLAIM ITS RIGHT FOR CREDIT OF TDS AMOUNT FOR THE REASONS BEYOND ITS CONTROL, IT CHOSE TO WRITE OFF THE SAME AS UNRECOVERABLE. THE LD A. R SUBMITTED THAT IDENTICAL ISSUE WAS CONSIDERED IN THE FOLLOWING CASES AND THE SAME WAS ALLOWED IN FAVOUR OF THE ASSESSEE: - A. ACIT VS. KELLY SERVICES INDIA P LTD (ITA NO.5435/DEL/2011 DT. 31.10.12)(DELHI TRIB.) B. CIT VS. M/S SHREYANS INDUSTRIES LTD (ITA NO.277 OF 2004 DATED 15.11.2013)(P & H) IN BOTH THE CASES, IT HAS BEEN HELD THAT THE NON - ALLOWANCE OF TDS CREDIT FOR WANT OF TDS CERTIFICATES CAN BE CLAIMED AS NORMAL BUSINESS LOSS. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THIS CLAIM ALSO. 22. THE ASSESSEE IS ALSO CONTEST ING THE DECISION OF LD CIT(A) IN CONFIRMING THE DISALLOWANCE OF SHARE ISSUE EXPENSES CLAIMED U/S 35D OF THE ACT. WE NOTICE THAT THIS DISALLOWANCE WAS CONFIRMED BY THE TRIBUNAL IN ITA NO.5795/MUM/2000 RELATING TO AY 1994 - 95 AND ALSO IN ITA NO.5796/MUM/2000 RELATING TO AY 1995 - 96 ON THE REASONING THAT THE PROVISIONS OF SEC. 35D ARE NOT APPLICABLE TO A FINANCE COMPANY AND FURTHER THE SAME IS CAPITAL IN NATURE IN VIEW OF THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF BROOKE BOND INDIA LTD (225 I TR 798). CONSISTENT WITH THE VIEW TAKEN IN THE ABOVE CITED ORDERS, WE UPHOLD THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. M/S. ADITYA BIRLA NUVO LTD. (SUCCESSO R OF M/S BIRLA GLOBAL FINANCE LTD .) 13 23. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER HAS BEEN PRONOU NCED IN THE OPEN COURT ON 17 .5 .2016 . SD/ - SD/ - (PAWAN SINGH ) (B.R.BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 17 / 5 /20 1 6 COPY OF THE ORDE R FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS