ADITI DHANRAJ DIGHE, MUMBAI V. ACIT - 21(1), MUMBAI

ITA 5039/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0504 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 05-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Assessee Lawyers: RUCHIRA PARREKH
• Keywords: Business income; Salary income; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A , MUMBAI BEFORE S HRI B.R. BASKARAN (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 5039 /MUM/20 1 6 ASSESSMENT YEAR: 2012 - 2013 SMT. ADITI DHANRAJ DIGHE, 6, GOVIND SADAN, SHIVAJI PARK, ROAD NO. 4, DADAR, MUMBAI - 400028 PAN: AAHPD1035H VS. THE ASST. COMMISSIONER OF INCOME TAX 21(1), PIRAMAL CHAMBER, LALBAUG, PAREL, MUMBAI - 400012 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ARVIND SONDE, SHRI RAJESH S. ATHAVALE & MS. RUCHIRA PARREKH RESPONDEN T BY : SHRI RAJESH KUMAR YADAV DATE OF HEARING: 09 /05 /201 7 DATE OF PRONOUNCEMENT: 08 / 0 8 /201 7 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST ORDER DA TED 30/06/2016 PASSED BY LD. CIT (APPEALS ) - 33 , MUMBAI FOR THE A S S ESSMENT YEAR 2012 - 2013 , WHEREBY THE LD. CIT(A) HAS DISMISSED THE APPEAL FILED BY THE APPELLANT/ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT TH E ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED A RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 5,63,06,230/ - . THE RETURN WAS PROCESSED AND AFTER SCRUTINY 2 I TA NO. 5039 /MUM/2016 ASSESSMENT YEAR: 2012 - 2013 ASSESSMENT ORDER WAS PASSED U/S 14 3 (3) OF THE ACT DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 5,63,06,230/ - . THE ASSESSEE HAD SOLD RS. 5,00,000/ - EQUITY SHARES OF CAMLIN LTD. AT THE CONSIDERATION OF RS. 110 PER SHARE DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE MARKET PRICE OF THE SAID EQUITY SHARES WAS RS. 45.65 PER SHARE WAS RS. 45.65. THE AO TREATED THE DIFFERENCE BETWEEN THE SELLING PRICE AND MARKET PRICE OF THE SHARE I.E., RS. 64.35 PER SHARE UNDER THE HEAD INCOME FROM BUSINESS TREATING T HE SAME AS NON - COMPETE FEE PAID BY THE SAID COMPANY. ACCORDINGLY, THE AO COMPUTED THE INCOME OF THE ASSESSEE AS UNDER: - INCOME FROM SALARY 13,09,732 LONG TERMS CAPITAL GAINS 5,50,00,000 LESS: 3,21,75,000 2,18,66,350 SHORT TERM CAPITAL GAIN 9, 58,650 INCOME FROM BUSINESS 3,21,75,000 INCOME FROM OTHER SOURCES 1,01,386 GROSS TOTAL INCOME 5,64,11,118 LESS: DEDUCTION U/C VIA 1,04,888 TOTAL INCOME 5,63,06,230 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT (A) IN FIRST APPEAL. THE LD. CIT (A) AFTER HEARING THE ASSESSEE DISMISSED THE APPEAL AND UPHELD THE ACTION OF THE AO . 4 . AGGRIEVED , THE ASSESSE E HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS: - 1. THE ASSESSMENT ORDER PASSED BY THE LEARNED AO IS ERRONEOUS, BAD IN LAW AND CONTRARY TO THE PROVISIONS OF THE INCOME TAX ACT AND THEREFORE, THE SAME OUGHT TO BE QUASHED. 3 I TA NO. 5039 /MUM/2016 ASSESSMENT YEAR: 2012 - 2013 2. THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTION OF TH E LEARNED ASSESSING OFFICER (AO ) IN BIFURCAT ING THE INCOME REALIZED ON SALE OF EQUITY SHARES OF CAMLIN LTD. INTO BUSINESS INCOME, LONG - TERM CAPITAL GAINS AND SHORT - TERM CAPITAL GAINS. 3. THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO IN ASSESSING THE DIFFERENCE BETWEEN THE SALE OF PRICE OF INR 110 AND MARKET PRICE OF INR 45.65 UNDER THE HEAD BUSINESS INCOME AS IT IS IN THE NATURE OF NON - COMPETE FEES. . WITHOUT PREJUDICE TO THE ABOVE , THE LEARNED CIT (A) ERRED IN NOT DIRECTING THE AO TO TAX THE DIFFERENCE BETWEEN THE SALE PRICE OF INR 11 0 PER EQUITY SHARES AND MARKET PRICE OF INR 85 PER EQUITY SHARE (AND NOT INR 45.65 PER EQUITY SHARE) AS BUSINESS INCOME AS PER THE SHOW CAUSE NOTICE ISSUED BY THE LEARNED AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 4. EACH ONE OF THE ABOVE GROUNDS OF AP PEAL IS WITHOUT PREJUDICE TO THE OTHER. 5. GROUND NO. 1 OF THE APPEAL IS GENERAL , THEREFORE THE SAME DO ES NOT REQUIRE SEPARATE ADJUDICATION. VIDE GROUND NO. 2&3 , THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT (A) IN CONFIRMING THE ACTION OF AO IN B IFURCATING THE INCOME REALIZED ON SALE OF EQUITY SHARES OF CAMLIN LTD. INTO BUSINESS INCOME AND CAPITAL GAIN AND FURTHER ASSESSING THE DIFFERENCE BETWEEN THE SALE PRICE OF INR 110 AND MARKET PRICE OF INR 45.65 UNDER THE HEAD BUSINESS INCOME , HOLDING THE SAME AS NON - COMPETE FEES. WITHOUT PREJUDICE TO THE SAID GROUNDS THE ASSESSEE HAS FURTHER URGED THAT THE LD. CIT(A) OUGHT TO HAVE DIRECTED THE AO TO TAX THE DIFFERENCE BETWEEN THE SALE PRICE OF INR 110 PER EQUITY SHARES AND MARKET PRICE OF INR 85 PER EQUITY SHARES AS BUSINESS INCOME. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT D URING THE PREVIOUS YEAR, THE APPELLANT/ASSESSEE SOLD 5 ,0 0,000 EQUITY SHARES OF 4 I TA NO. 5039 /MUM/2016 ASSESSMENT YEAR: 2012 - 2013 CAMLIN LTD. AT INR 110 PER EQUITY SHARE ON 13/10/2011 TO KOKUYO S&T COMP. LTD., JAPAN IN TERMS OF JOINT VENTURE AGREEMENT DATED 30/05/2011. THE CAPITAL GAIN REALIZED ON THE SALE OF ABOVE SHARES WAS OFFERED TO TAX AS LONG TERM CAPITAL GAIN BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO SUBMIT THE DETAILS OF THE ABOVE CAPITAL GAINS ALONG WITH THE RELEVANT DOCUMENTS. THE ASSESSEE FILED THE DETAILS DURING SCRUTINY . T HE ASSESSEE NOTICED THAT OUT OF 5 ,0 0,000 EQUITY SHARES , 21,000 SHARES ARE OF SHORT TERM NATURE THEREFORE, CAPITAL GAIN ARISING FROM SALE OF THESE S HARES, IS SHORT TERM CAPITAL GAIN. ACCORDINGLY, THE ASSESSEE ADMITTED THE ERROR AND SUBMITTED THAT THE SAME MAY BE TREATED AS SHORT TERM CAPITAL GAIN. THE AO ISSUED NOTICE TO THE ASSESSEE DIRECTING TO SHOW CAUSE AS TO WHY THE DIFFERENCE BETWEEN THE SALE PR ICE OF INR 110 PER EQUITY SHARES AND MARKET PRICE OF T H E SH ARES OF CAMLIN LTD. SHOULD NOT BE TREATED AS BUSINESS INCOME BEING NO N COMPETE FEES. IN REPLY THE ASSESSEE SUBMITTED THAT SELLING PRICE OF SHARES OF CAMLIN LTD. AT INR 110 PER SHARE WAS THE NEGOTIA TED PRICE AND WAS THE SAME FOR PROMOTERS AS WELL AS PUBLIC IN GENERAL. THE MARKET PRICE OF THE SAID SHARES ON THE DATE OF TRANSFER WAS 45.65/ - PER SHARE. THE SHARES WERE SOLD IN TERMS OF JOINT VENTURE AGREEMENT (JVA) BETWEEN M/S KOKUYO S&T LTD. JAPAN AND T HE ASSESSEE ALONG WITH OTHER PROMOTERS. AS PER THE LETTER OF OFFER NO COMPETE FEE S WAS TO BE PAID BY KOKUYO . T HE PREFERENTIAL ALLOTMENT OF SHARES TO KOKUYO AT INR 85 WAS DONE AS PER THE PREFERENTIA L ISSUE GUIDELINES GIVEN UNDER SECURITIES EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURES REQUIREMENTS) REGULATIONS , 2009. THEREFORE, QUESTION OF TREATING THE DIFFERENCE BETWEEN THE NEGOTIATED PRICE OF INR 110 AND MARKET PRICE INR 85 BUSINESS INCOME DOES NOT ARISE. THE LD. COUNSEL REL IED ON THE DECISIO N OF HONBLE MUMBAI HIGH COURT RENDERED IN THE CASE OF CIT VS. GOVINDLAL C.MANDHANA HUF (ITA NO 1221 - 1222 OF 5 I TA NO. 5039 /MUM/2016 ASSESSMENT YEAR: 2012 - 2013 2012 , ORDERS PASSED BY THE MUMBAI TRIBUNAL IN ACIT VS. SANJAY UMESH VAYAS (ITA NO 3963/MUM/2011), HAMI BALSARA VS. ACIT(2016)126 ITD100(MUM) AND AC IT VS. SAVITA MANDHANA(ITA NO 3900/MUM/2010 MUM) ORDER PASSED BY THE DELHI TRIBUNAL IN HULAS RAHUL GUPTA VS.CIT(2012)24 TAXMXNN.COM191(DELHI) TO SUBSTANTIATE THE CONTENTION OF THE ASSESSEE. 7. ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESENTATIVE (DR) REL YING ON THE ORDER PASSED BY THE LD. CIT(A) SUBMITTED THAT CLAUSE 9 OF THE JVA DEALS WITH NON - COMPETE AND NON SOLICITATION AND FROM THE CONTENTS IN THE SAID CLAUSE IT CAN BE INFERRED THAT THIS CLAUSE OF NON COMPETE IS NOT ONLY AN INCIDENTAL TO THE AGREEME NT BUT IS AN INTEGRAL PART OF THE AGREEMENT AND THE VALUATION OF THE SHARES HAS BEEN DONE AFTER TAKING INTO CONSIDERATION THE NON COMPETE OBLIGATIONS AS A PART OF THE VALUE ARRIVED AT BY BOTH THE PARTIES. THE PROVISIONS FOR PUTTING RESTRICTIONS ON THE SELL ERS FURTHER INDICATE THAT THE TRANSACTION IS MORE THAN THE SALE OF SHARES. HENCE, THERE IS NO INFIRMITY IN THE ORDER UNDER CHALLENGE TO INTERFERE WITH THE SAME. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL ON RECORD IN THE LIGHT OF THE CONTENTIONS OF THE PARTIES. THE ONLY ISSUE TO BE DETERMINED IN THIS APPEAL IS WHETHER THE DIFFERENCE BETWEEN THE SALE OF PRICE OF INR 110 AND MARKET PRICE OF INR 45.65 OF THE SHARES IN QUESTION IS BUSINESS INCOME BEING NON COMPETE FEES PAID BY THE B UYER COMPANY AS HELD BY THE AUTHORITIES BELOW OR THE TOTAL AMOUNT OF INR110 PER SHARE IS TO BE TREATED AS CAPITAL GAIN AS ALLEGED BY THE ASSESSEE . 9. ADMITTEDLY, THE SHARES IN QUESTION WERE SOLD TO KOKUIO CAMLIN LTD. IN TERMS OF JVA DATED 30/05 / 2011 AS PER WHICH THE COMPANY 6 I TA NO. 5039 /MUM/2016 ASSESSMENT YEAR: 2012 - 2013 AGREE TO PURCHASE FROM THE PROMOTERS 14044850 EQUITY SHARES OF CAMLIN LTD. ALONG WITH ALL RIGHTS , TITLE , INTEREST AND BENEFITS @ INR 11 0 PER EQUITY SHARE . C LAUSE 18 OF THE LETTER OF OFFER AT PAGE 224 OF THE PAPER BOOK READS AS UNDER: - 18 THE COMPLETION OF THE ACQUISITION WILL RESULT IN SUBSTANTIAL ACQUISITION OF SHARES AND VOTING RIGHTS IN THE TARGET COMPANY BY THE ACQUIRE ACCOMPANIED WITH A CHANGE IN CONTROL OF THE TARGET COMPANY. THE OFFER IS THEREFORE BEING MADE IN ACCORDANCE WITH RE GULATIONS 10 AND 12 OF THE REGULATIONS . 10. CLAUSE 96 OF THE LETTER OF OFFER, WHICH IS AT PAGE 255 OF THE PAPER BOOK , SAYS THAT THERE IS NO N ON - COMPETE FEE BEING PAID BY KOKUO S & T COMPANY IN THE AGREEMENT FOR ACQUISITION. HOWEVER, ARTICLE 9 CLAUSE 9.1. 1 OF THE JVA CONTAINS NON - COMPETE CLAUSE. SIMILARLY, CLAUSE 9.2.1 CONTAINS N ON - SOLICITATION CLAUSES . VIDE THESE CLAUSES THE COMPANY HAS PUT CERTAIN R ESTRICTIONS UPON THE SELLERS OF THE EQUITY SHARES. VIDE C LAUSE 97 OF THE LETTER OF OFFER, THE COMPANY HAS J USTIFIED THE OFFER PRICE OF INR 110 . IN TERMS OF JVA THE COMPANY OFFERED TO PURCHASE SHARES REPRESENTING 20.3% AT PRICE OF 110 PER SHARE FROM 32 PROMOTERS AND THE PRESENT ASSESSEE IS ONE OF THE AFORESAID 32 PROMOTERS. WE NOTICE THAT THE KOKUO S & T COMPANY HAD OFFERED TO PURCHASE THE SHARES IN QUESTION ON THE TERMS AND CONDITIONS CONTEMPLATED IN CLAUSE 9.1 AND 9.2 OF THE JVA, BUT AT THE SAME TIME IN CLAUSE 96 OF THE LETTER OF OFFER, IT HAS BEEN CLARIFIED THAT THE COMPANY SHALL NOT PAY ANY NON COMPETE FEE . THE CONTENTION OF THE ASSESSEE THAT THE PRICE OFFERED TO THE PROMOTERS IN THE OFF MARKET DEAL THROUGH JV A AND TO OTHER SHAREHOLDERS UNDER PUBLIC OFFER IS THE SAME AT RS. 110 PER SHARE. SINCE, NO NON - COMPETE FEE IS BEING PAID BY KOKUO S & T COMPANY CLAUSE 9 OF JVA WHICH DEALS WITH NON - COMPETE AND NON SOLICITATION IS ONLY AND INCIDENTAL TO THE JVA. THE ASSESSEE HAS NOT RECEIVED ANY AMOUNT FOR NON - COMPETE, THEREFORE, THE 7 I TA NO. 5039 /MUM/2016 ASSESSMENT YEAR: 2012 - 2013 FINAL PRICE OF RS. 110 PER SHARE CANNOT BE BIFURCATED SEPARATELY FOR NON - COMPETE. THEREFO RE, THE ENTIRE CONSIDERATION RECEIVED BY THE ASSESSEE SHOULD BE TREATED AS INCOME UNDER THE HEAD CAPITAL GAINS. 11. THE LD. COUNSEL VE HEMENTLY CONTENDED THAT THE SAID OFFER WAS NOT RESTRICTED TO THE PROMOTERS BUT WAS FOR THE PUBLIC AT LARGE HOLDING THE SHARES OF THE SAID COMPANY. HOWEVER, WE NOTICE THAT NEITHER THE AO NOR THE CIT (A) HAS GIVEN ANY FINDING ON THE ISSUE AS WHETHER THE OFFER WAS FOR THE GENERAL PUBLIC OR WAS RESTRICTED TO THE 32 PROMOTERS MENTIONED IN THE LETTER OF OFFER OR IF IT WAS FOR T HE GENERAL PUBLIC WHETHER THE SHAREHOLDERS OTHER THAN THE AFORESAID PROMOTERS HAD ALSO SOLD THEIR SHARES AT THE RATE OF INR 110? THEREFORE, IN OUR CONSIDERED OPINION IT IS ESSENTIAL TO ASCERTAIN THE SAID FAC TS TO ARRIVE AT THE RIGHT CONCLUSION. IF THE SHAR ES WERE ALSO SOLD BY THE SHAREHOLDERS APART FROM THE PROMOTERS, TH E N THE QUESTION OF TREATING THE DIFFERENCE BETWEEN THE MARKE T PRICE AND SELLING PRICE AS BUSINESS INCOME OF THE ASSESSEE BEING NON - COMPETE DOES NOT AT ALL ARISE. IN OUR CONSIDERED VIEW T HE F ACTS OF THE CASES RELIED UPON BY THE ASSESSEE ARE NOT IDENTICAL TO THE FACTS OF THE PRESENT CASE. 12. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE AFORESAID FACTS ARE REQUIRED TO BE VERIFIED BY THE AO. WE, ACCORDINGLY, SET ASIDE T HE IMPUGNED ORDER AND RESTORE THE ISSUE TO THE FILE OF AO TO VERIFY THE FACTS REGARDING SALE OF EQUITY SHARE OF THE COMPANY BY THE SHAREHOLDERS OTHER THAN THE 32 PROMOTERS AS DISCUSSED IN THE PRECEDING PARA AND DECIDE THE ISSUE AFRESH AFTER AFFORDING A REA SONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE AO IS FURTHER DIRECTED TO DECIDE THE GROUND OF APPEAL RAISED WITHOUT PREJUDICE TO TAX THE DIFFERENCE BETWEEN THE SALE PRICE OF INR 110 PER EQUITY SHARE AND MARKET PRICE OF INR 85 PER EQUITY SHARE AS B USINESS INCOME, I N 8 I TA NO. 5039 /MUM/2016 ASSESSMENT YEAR: 2012 - 2013 CASE IT IS FOUND THAT ONLY THE 32 PROMOTERS INCLUDING THE PRESENT ASSESSEE HAD SOLD THEIR SHARES TO CAMLIN LTD. IN TERMS OF JVA AND LETTER OF OFFER ISSUE BY THE COMPANY. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2012 - 2013 IS ALLOWED FOR THE STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH AUGUST , 2017 . SD/ - SD/ - ( B.R. BASKARAN ) ( RAM LAL NEGI ) ACCOUNTANT MEM BER JUDICIAL MEMBER MUMBAI ; DATED: 08 / 0 8 / 2017 ALINDRA PS / COPY OF THE ORDER 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