DCIT, V. M/s AIGL Properties Ltd.,

ITA 238/BANG/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7474 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-08-2017
• Assessment Year: 2000-2001
• Appeal Filed On: 14-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G KAMALADHAR
• Assessee Lawyers: A SHANKAR
• Keywords: Capital asset; Question of law; Speculation loss; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO. 238 /BANG/201 4 ASSESSMENT YEAR : 200 0 - 0 1 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. VS. M/S. AIGL PROPERTIES LTD., [FORMERLY M/S ASIATIC INDUSTRIAL GASES LTD.] NO. 94, III MAIN, DEFENCE COLONY, INDIRANAGAR, BANGALORE. PAN: AABCA 2365E APPELLANT RESPONDENT APPELLANT BY : SHRI G. KAMALADHAR, STANDING COUNSEL RESPONDENT BY : SHRI A. SHANKAR, ADVOCATE DATE OF HEARING : 1 4 .0 8 .201 7 DATE OF PRONOUNCEMENT : 1 3.10. 2017 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS IS A REVENUES APPEAL DIRECTED AGAINST THE ORD ER OF LD. CIT(A)-I, BANGALORE DATED 25.10.2013 FOR ASSESSMENT YEAR 2000-01. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER. 1.THE ORDER OF THE LEARNED CIT (APPEALS) IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.THE CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE A SUM OF RS 1,98,60,648 FROM THE TOTAL INCOME IN THE ORDER G IVING EFFECT TO THE ORDER OF THE ITAT WITHOUT APPRECIATING THAT THE SUM OF RS 1,98,60,648 WAS NOT BROUGHT TO TAX BY THE AO CONSEQUENT TO THE ORDER OF THE ITAT BUT IT REPRESENTS THE INCOME FROM LONG TERM CAPITAL GAINS RETURNED BY THE ASSESSEE AGAINST THE AO TAXING IT AS A REVENUE RECEIPT. 3.THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THA T THE HIGH COURT HAD ONLY CONFIRMED THE ITAT ORDER THAT IT IS NOT A REVENUE RECEIPT AND THAT THE CONSIDERATION PAID IS FOR THE ASSETS, PROP ERTIES AND RIGHTS OF THE TRANSFEROR AND THUS THE TRANSFER OF SUCH ASSETS , PROPERTIES AND RIGHTS BECOME SUBJECT TO TAX UNDER THE HEAD CAPITAL GAINS. ITA NO.238/BANG/2014 PAGE 2 OF 4 4.FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGE D AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5.THE APPELLATE CRAVES LEAVE TO ADD, TO ALTER, TO A MEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARIN G OF THE APPEAL. 3. IT WAS SUBMITTED BY LD. DR OF REVENUE THAT GROUN D NOS. 1, 4 AND 5 ARE GENERAL AND IN REMAINING GROUND NOS. 2 AND 3, ONLY ONE ISSU E IS INVOLVED. HE HAS DRAWN OUR ATTENTION TO THE TRIBUNAL ORDER IN THE FIRST RO UND IN ASSESSEES OWN CASE IN ITA NOS. 1324 & 1369/BANG/2003 DATED 18.11.2005 COP Y AVAILABLE ON PAGES 51 TO 84 OF PAPER BOOK. HE POINTED OUT THAT AS PER PARA NO. 22 OF THIS TRIBUNAL ORDER, IT WAS HELD BY THE TRIBUNAL THAT THE AMOUNT OF RS. 202 LAKHS RECEIVED AS A CONSIDERATION FOR RESTRICTIVE COVENANT IN THE FOR M OF NON-COMPETITION OBLIGATION WAS A CAPITAL RECEIPT AND HENCE, THE AO HAS INCORRE CTLY TREATED THE SAME FOR COMPUTING LONG TERM CAPITAL GAIN WHILE PASSING THE APPEAL EFFECT ORDER. THEREAFTER, HE SUBMITTED THAT THE JUDGMENT OF HON BLE KARNATAKA HIGH COURT IS AVAILABLE ON PAGES 111 TO 121 OF PAPER BOOK AND IN PARTICULAR, OUR ATTENTION WAS DRAWN TO PARA NO. 6 OF THE JUDGMENT AS PER WHIC H THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. HE SUBMITTED THAT AGAINST T HE ORDER PASSED BY THE AO, APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LD. CIT (A) WHICH WAS DISMISSED BY THE CIT(A) BY HOLDING THAT NO APPEAL CAN BE FILED A GAINST THE APPEAL EFFECT ORDER PASSED BY THE AO. AGAINST THIS ORDER OF CIT (A), T HE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL IN ITA NO. 1122/BANG/2009 DATED 16.04.2010 AND THE MATTER WAS RESTORED BACK TO THE FILE OF CIT (A) BY HOLDING THAT APPEAL AGAINST THE ORDER OF AO GIVING EFFECT WITH THE DIRECTION GIVEN BY THE TRIBUNAL IS MAINTAINABLE BY THE CIT (A). THE CIT(A) WAS DIRECTED TO ADMIT THE APPE AL AND PASS ORDERS ON MERIT AND THE IMPUGNED ORDER OF CIT(A) IS PASSED BY HIM A S PER THE DIRECTIONS OF THE TRIBUNAL IN WHICH THE CIT(A) HAS CONSIDERED THE JUD GMENT OF HONBLE KARNATAKA HIGH COURT ALSO BUT THIS ASPECT WAS NOT DECIDED BY CIT(A) AS TO WHETHER THE CAPITAL RECEIPT IS TO BE CONSIDERED FOR COMPUTING L ONG TERM CAPITAL GAINS. HE SUBMITTED THAT UNDER THESE FACTS, THE MATTER MAY BE RESTORED BACK TO THE FILE OF CIT (A) FOR FRESH DECISION ON THIS ASPECT. 4. THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER O F CIT (A). ITA NO.238/BANG/2014 PAGE 3 OF 4 5. BUT WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. T HE RELEVANT PARAS OF THE ORDER OF CIT(A) ARE PARA NO. 1.6 AND 3.1 TO 3.3. HENCE W E REPRODUCE THESE PARAS FROM THE ORDER OF CIT (A) FOR THE SAKE OF READY REF ERENCE. 1.6 MEANWHILE, THE DEPARTMENT HAD FILED FURTHER APP EAL BEFORE THE HON'BLE HIGH COURT OF KARNATAKA AGAINST THE COMMON ORDER OF THE HON'BLE ITAT MENTIONED ABOVE RELATING TO THE TREATM ENT OF THE AMOUNT OF RS.2,02,25,000/-. THE HON'BLE HIGH COURT HAS ON THIS ISSUE HELD AS UNDER: '6. THEREFORE, THE CONSIDERATION OF RS.2,02,25,000/ - IS NOT THE CONSIDERATION FOR TRANSFER OF ANY GOODWILL. THE SAI D CONSIDERATION IS PAID FOR SALE, TRANSFER AND ASSIGNING THE BUSINESS, THE NET WORK AND BENEFITS AND OBLIGATIONS OF PENDING CONTRACTS OF TH E BUSINESS ANDCOMMERCIAL RIGHTS ASSOCIATED WITH OR EMBEDDED TH EREIN. THESE ARE THE PROPERTIES OWNED BY AIGL. IT IS THAT PROPERTY WHICH IS TRANSFERRED FOR CONSIDERATION OF RS.2,02,25,000/-. IN THE AFORESAID CLAUSE HAVING SET OUT THE PARTICULARS OF THE PROPER TIES, THE RIGHTS WHICH ARE TRANSFERRED IN THE END AS A RESIDUARY, IT IS STATED THAT ALL THE GOODWILL PERTAINING THEREON. NOW THE FINDING BY THE ASSESSING OFFICER IS THERE IS NO GOODWILL. THEREFORE CONSIDERATION PA ID IS NOT FOR THE GOODWILL BUT IT IS FOR THE ASSETS, PROPERTIES AND R IGHTS OF THE TRANSFEROR. CONSEQUENTLY IF THAT IS SO, FOR TRANSFER OF CAPITAL ASSET NO TAX IS PAYABLE. THIS IS WHAT PRECISELY THE TRIBUNAL HAS HE LD. IN THAT VIEW OF THE MATTER THE SAID SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE.' 3.1 MEANWHILE, THE DEPARTMENT HAS FILED APPEAL BEFO RE THE HON'BLE HIGH COURT OF KARNATAKA AGAIN THE ORDER OF THE HON' BLE ITAT IN ITA NO.1324/BANG/2003 DATED 15/11/2005 RAISING FOLLOWIN G TWO QUESTIONS OF LAW :- (I) WHETHER A SUM OF RS.2,20,25,000/- PAID BY M/S P RAXAIR LIMITED FOR TRANSFER OF THE ASSESSEE'S BUSINESS SHO ULD BE TREATED AS CAPITAL RECEIPTS. (II) WHETHER LOSS INCURRED IN THE SALE OF SHARE OF RS.8,85,485/- CANNOT BE TREATED AS SPECULATIVE LOSS IN ACCORDANCE WITH EXPLANATION TO SECTION 73 OF THE ACT. 3.2 THE HON'BLE HIGH COURT OF KARNATAKA IN ITA NO.8 03 OF 2006 DATED 13/02/2012 BOTH THE ISSUES ARE ANSWERED IN FAVOUR OF THE APPELLANT AND AGAINST THE REVENUE.HOWEVER, DISP UTE ISSUE UNDER APPEAL IS IN REGARD TO THE CONSIDERATION OF RS.2,02 ,25,000/- AND THIS ISSUE HAS BEEN DISCUSSED IN PARA OF THE SAID DECISI ON AND CONTENT OF THE DECISION REPRODUCED IN PARA 1.6 ABOVE. 3.3 FOLLOWING THE DECISION OF THE HON'BLE HIGH COUR T OF KARNATAKA, THE AO IS DIRECTED TO EXCLUDE A SUM OF RS.1,98,60,6 48/- FROM THE TOTAL INCOME. ITA NO.238/BANG/2014 PAGE 4 OF 4 6. WE FIND THAT IN PARA NO. 1.6 OF HIS ORDER, THE C IT (A) HAS REPRODUCED PARA NO. 6 OF JUDGMENT OF HONBLE KARNATAKA HIGH COURT WHEREIN A CATEGORICAL FINDING HAS BEEN GIVEN BY THE HONBLE KARNATAKA HIGH COURT THAT THE CONSIDERATION OF RS. 202.25 LAKHS IS NOT THE CONSIDERATION FOR TRANSFER OF ANY GOODWILL. AS PER THE APPEAL EFFECT ORDER PASSED BY THE AO ON 27.06.2006, THE AO EXCLUDED THE AMOUNT OF RS. 202.25 LAKHS FROM THE TOTAL INCOME OF THE ASSESSEE ON THIS BASIS THAT THIS IS THE RELIEF GRANTED BY THE TRIBUNAL BEI NG ADDITION ON ACCOUNT OF GOODWILL TREATED AS REVENUE RECEIPTS BUT HELD AS CA PITAL RECEIPT BY THE TRIBUNAL AND THEREFORE CONSIDERED SEPARATELY. THEREAFTER TH E AO HAS MADE ADDITION OF RS. 19860648/- ON THIS BASIS THAT IT IS LONG TERM C APITAL GAIN ON ACCOUNT OF TRANSFER OF GOODWILL. IN VIEW OF THIS DECISION OF HONBLE KARNATAKA HIGH COURT THAT THE IMPUGNED RECEIPT IS NOT THE CONSIDERATION FOR TRANSFER OF ANY GOODWILL, THE ADDITION MADE BY THE AO OF RS. 19860648/- AS IN COME FROM LONG TERM CAPITAL GAIN ON ACCOUNT OF TRANSFER OF GOODWILL IS NOT SUSTAINABLE AND IN THIS VIEW OF THE MATTER, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A). 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATE: 13.10.2017. /MS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.