I.T.O Wd - 12(3),kolkata., Kolkata V. M/s Fiesta Sales & Services Ltd., Kolkata

ITA 289/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4582 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 20-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2013
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACHARYA
• Keywords: Capital asset; Business income; Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C , KOLKATA [BEFORE HONBLE SHRI M.BALAGANESH, AM & SHRI S.S. VISWANETHRA RAVI, JM] ITA NO.289/KOL/2013 ASSESSMENT YEAR : 2009-10 I.T.O., WARD-12(3), -VERSUS- M/S. FIETA SALES & S ERVICES LTD. KOLKATA KOLKATA (PAN:AABCB 6204 H) ( APPELLANT ) (RESPONDENT) FOR THE APPELLANT : SHRI ARINDAM BHATTACHARYA, JCIT FOR THE RESPONDENT : SHRI RAVI TULSIYAN. FCA DATE OF HEARING : 20.06.2016. DATE OF PRONOUNCEMENT : 01.07.2016. ORDER PER SHRI M.BALAGANESH, AM THIS APPEAL OF THE REVENUE ARISES OUT OF TH E ORDER OF THE LEARNED CIT(A) IN APPEAL NO. 194/CC-VI/CIT(A)C-I/11-12 DATED 07.11.20 12 FOR THE ASST YEAR 2009-10 PASSED AGAINST THE ORDER OF ASSESSMENT FRAMED BY TH E LEARNED AO U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT). 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEA L IS AS TO WHETHER COMPENSATION RECEIVED BY THE ASSESSEE ON SALE OF RIGHT TO BUSINE SS IS TO BE TREATED AS LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN IN THE FAC TS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS APPEAL ARE THAT THE ASSESSEE COMPANY IN THE AY 2009-10 WAS INVOLVED IN THE BUSINESS OF INSURANCE AGENCY, F RANCHISE SERVICE AND LEASING. THE LEARNED AO ON PERUSAL OF THE DOCUMENTS SUBMITTED OB SERVED THAT THE APPELLANT COMPANY IN THE SUBJECT ASSESSMENT YEAR HAD SOLD ITS RIGHT TO BUSINESS WITH ICICI BANK LTD TO M/S MAGMA FINCORP LTD AT A CONSIDERATION OF RS.8 CRORES. THE SAID COMPENSATION RECEIVED WAS SHOWN BY THE ASSESSEE IN ITS PROFIT AND LOSS A/C AS 'COMPENSATION ON SALE OF BUSINESS'. FURTHER THE SAI D GAIN WAS TREATED AS 'LONG TERM CAPITAL GAINS' BY THE APPELLANT IN ITS RETURN OF IN COME. THE LEARNED AO SOUGHT ITA NO.289/KOL/2013 M/S. FIESTA SALES & SERVICES LTD. A.YR.2009-10 2 NECESSARY EXPLANATIONS FROM THE ASSESSEE AS TO WHY COMPENSATION RECEIVED OF RS.8 CRORES SHOULD NOT BE TREATED AS BUSINESS INCOME. IN RESPONSE THE ASSESSEE SUBMITTED THAT THE COMPANY ENTERED INTO AN AGREEMENT WITH ICI CI BANK IN THE FY 2005-06 EFFECTIVE FROM 1 ST JANUARY 2005 TO PROVIDE VARIOUS SERVICES TO ICICI BANK, THE TERMS AND CONDITIONS OF WHICH WAS ENUMERATED IN THE SAID AGREEMENT. THE ASSESSEE COMPANY UNDER THE SAID AGREEMENT WAS CARRYING ON THE ACTIVI TY OF SOURCING OF PERSONAL LOAN BUSINESS COMPRISING OF A HUGE SET UP EMPLOYING A L ARGE STRENGTH OF STAFF ALONG WITH THE ENTIRE REQUISITE INFRASTRUCTURE INCLUDING MANPO WER, CUSTOMER DATABASE, SOFTWARE ETC. IN AND AROUND JULY 2008, THE ASSESSEE COMPANY WAS APPROACHED BY M/S MAGMA FINCORP LTD THAT THEY WERE IN NEED OF AN ORGANIZATI ON WHO WOULD WORK FOR THEM EXCLUSIVELY FOR A PERIOD OF 5 YEARS TO PROVIDE ALL THE LOGISTIC SUPPORT INCLUDING MANPOWER, CUSTOMER DATABASE, SOFTWARE ETC. SINCE TH E ASSESSEE COMPANY HAD ALL THESE FACILITIES READILY AVAILABLE THROUGHOUT THE COUNTRY , IT WAS AGREED THAT M/S MAGMA FINCORP LIMITED WILL ACQUIRE THE SAID RIGHT OF ASSE SSEES EXISTING BUSINESS WITH ICICI BANK FOR A TOTAL CONSIDERATION OF RS. 8 CRORES. THI S EXCLUSIVE RIGHT TO BUSINESS WITH ICICI BANK LIMITED WAS OF THE NATURE OF CAPITAL ASS ET, AND AS SUCH SURRENDER/TRANSFER OF SUCH VALUABLE RIGHT IN FAVOUR OF M/S MAGMA FINCO RP LIMITED FOR A CONSIDERATION OF RS. 8 CRORES WAS OF THE NATURE OF 'CAPITAL GAIN'. F URTHER, SINCE THE CAPITAL ASSET WAS IN THE HANDS OF THE APPELLANT FOR A PERIOD OF MORE THA N 36 MONTHS, CAPITAL GAINS ARISING THEREON ON THE TRANSFER OF SUCH RIGHT WAS THEREFORE IN THE NATURE OF 'LONG TERM CAPITAL GAINS'. DEPRECIATION WAS NOT CHARGED BY THE ASSESSE E COMPANY ON THE SAID RIGHT OF BUSINESS WITH ICICI BANK IN ANY OF THE YEARS. 3.1. IN THIS REGARD IT IS NOTED THAT THE LEARNED AO HAD NOT DISPUTED THE FACT THAT THE SAID RIGHT IS A CAPITAL ASSET AND CONSEQUENTLY GAIN ON ITS SALE IS NOT BUSINESS INCOME. HOWEVER, THE LEARNED AO WAS NOT FULLY SATISFIED WIT H THE EXPLANATIONS OFFERED BY THE APPELLANT COMPANY AND TREATED THE SAID GAIN OF RS.8 CRORES AS 'SHORT TERM CAPITAL GAINS' ON THE SOLE PRETEXT THAT SINCE THE PURCHASER , M/S MAGMA FINCORP LTD, HAD CLAIMED DEPRECIATION ON RIGHT TO CARRY ON BUSINESS, THE SAID RIGHT IS A DEPRECIABLE CAPITAL ASSET AND CONSEQUENTLY, THE GAIN ARISING ON SALE OF THE SAID RIGHT SHOULD BE TREATED AS 'SHORT TERM CAPITAL GAINS.' ITA NO.289/KOL/2013 M/S. FIESTA SALES & SERVICES LTD. A.YR.2009-10 3 3.2. BEFORE LD. CIT(A) IT WAS SUBMITTED THAT THAT THE TREATMENT OF THE SAID ASSET AS A DEPRECIABLE ASSET BY THE BUYER I.E. MAGMA FINCORP L IMITED DOES NOT ALTER THE FACT THAT IN THE HANDS OF THE ASSESSEE , DEPRECIATION WAS NE VER CLAIMED ON SUCH ASSET AND THE SAID RIGHT WAS A LONG TERM CAPITAL ASSET SINCE IT W AS HELD FOR MORE THAN 3 YEARS. FURTHER, AS PER SECTION 50 OF THE ACT IN ORDER TO C ATEGORISE A 'CAPITAL GAIN' AS 'SHORT TERM CAPITAL GAIN, IT IS NECESSARY THAT DEPRECIATIO N IS CHARGED ON THE CAPITAL ASSET. 3.3. THE LD. CIT(A) ALLOWED THE APPEAL OF ASSESSE E BY OBSERVING AS FOLLOWS :- 'I FIND MERIT AND SUBSTANCE IN THE CONTENTIONS RAIS ED BY THE APPELLANT. THE TREATMENT OF THE SAID RIGHT IN THE BOOKS OF THE PURCHASER CANNOT DETERMINE THE TREATMENT OF THE NATURE OF CAPITAL GAIN IN THE HANDS OF THE SELLER. FOR EXA MPLE, THE ASSESSEE CAN SELL ITS INVESTMENT IN SHARES AND CLAIM SHORT TERM CAPITAL G AIN OR LONG TERM CAPITAL GAIN WHEREAS THE PURCHASER OF THE SAID SHARES MAY TREAT THE SAID SHARES AS ITS STOCK-IN-TRADE AND OFFER THE RESULTS AS BUSINESS INCOME. THIS WOULD NOT IMPL Y THAT THE CAPITAL GAIN IN THE HANDS OF THE SELLER IS ALSO TO BE ASSESSED AS BUSINESS INCOM E. THE VIEW ADOPTED BY THE AO THAT SINCE M/S MAGMA FINCORP LTD HAS CLAIMED DEPRECIATIO N ON THE RIGHT ACQUIRED BY IT, THEREFORE THE CAPITAL GAIN ARISING IN THE HANDS OF THE APPELLANT HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN IS NOT CORRECT. THE FACTS OF THE CASE CLEARLY SHOW THAT THE APPELLANT HAD NEVER TREATED THE SAID ASSET AS A DEPRECIABLE ASSET NOR HAD CLAIMED DEPRECIATION ON THE SAME. BY VIRTUE OF THE SAID AGREEMENT, THE APPELLAN T HAS ALSO GIVEN UP ITS RIGHT TO CARRY ON SUCH BUSINESS WITH ANY PARTY IN THE FAILURE. THE RE IS NO DISPUTE THAT THE SAID RIGHT HAD BEEN HELD BY THE APPELLANT FOR MORE THAN 36 MONTHS. IN THE FACTUAL BACKGROUND, I AM OF THE OPINION THAT THE APPELLANT HAS RIGHTLY DECLARED THE GAIN AS LONG TERM CAPITAL GAIN; AND THE AO IS DIRECTED TO ASSESS THE SAME ACCORDING LY. 3.4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE U S ON THE FOLLOWING GROUNDS :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DIRECTING THE A.O. TO TREAT THE AMOUNT OF RS. 8 CRO RES RECEIVED FROM M/S. MAGMA FINCORP LTD. FOR TRANSFER OF RIGHT TO CARRY ON BUSI NESS, AS LONG TERM CAPITAL GAIN INSTEAD OF SHORT TERM CAPITAL GAIN. 2. THE APPELLANT CRAVES FOR LEAVE TO ADD, ALTER, MODIFY OR DELETE ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 5. THE LD. DR RELIED ON THE ORDER OF AO. IN RESPO NSE TO THIS THE LD. AR VEHEMENTLY RELIED ON THE ORDER OF CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE FINDINGS GIVEN BY LD. CIT(A) HAVE NOT BEEN CONTROVERTED BY THE REVENUE BE FORE US. WE FIND THAT THE RIGHT TO BUSINESS WITH ICICI BANK LTD WAS A CAPITAL ASSET, H ELD FOR A PERIOD OF MORE THAN 3 ITA NO.289/KOL/2013 M/S. FIESTA SALES & SERVICES LTD. A.YR.2009-10 4 YEARS AND DEPRECIATION WAS NEVER CLAIMED ON SUCH AS SET BY THE ASSESSEE, THE CAPITAL GAINS ARISING ON TRANSFER ON THE SAID RIGHT WAS RIG HTLY TREATED BY THE ASSESSEE AS LONG TERM CAPITAL GAINS AND ACCORDINGLY SUSTAINED BY TH E LEARNED CIT(A). IN VIEW OF THE SAME WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASS ED BY THE LD. CIT(A) IN THIS REGARD. HENCE THE GROUNDS RAISED BY THE REVENUE ARE DISMISS ED. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE COURT ON 01.07.2016. SD/- SD/- [S.S.VISWANETHRA RAVI] [M.BALAGAN ESH] JUDICIAL MEMBER ACCOUNTANT MEMBE R DATE: 01.07.2016. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . M/S. FIETA SALES & SERVICES LTD., P-25, TARATALA RO AD, KOLKATA-700008. 2 THE I.T.O., WARD-12(3), KOLKATA. 3 . THE CIT-CENTRAL-I, KOLKATA, 4. THE CIT(A)-CENTRAL-I, KOLKATA. 5 . DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES