ACIT, CHENNAI V. M/s Caterpillar Logistics Services India Private Limited, CHENNAI

ITA 965/CHNY/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57959 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 14-02-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 17-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JUNIOR; ANIRUDH RAI
• Assessee Lawyers: S SRIDHAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 965/MDS/2009 (ASSESSMENT YEAR : 2005-06) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3), CHENNAI - 600 034. (APPELLANT) V. M/S CATERPILLAR LOGISTICS SERVICES INDIA PRIVATE LIMITED, 6-B, GST ROAD, ST. THOMAS MOUNT, CHENNAI - 600 016. PAN : AACCC3949F (RESPONDENT) APPELLANT BY : SHRI ANIRUDH RAI, CIT DR & SHRI K.E.B. RENGARAJAN, JUNIOR STANDING COUNSEL RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 14.02.2012 DATE OF PRONOUNCEMENT : 17.02.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL OF THE REVENUE, ITS GRIEVANCE IS T HAT THE CIT(APPEALS) HELD THE ASSESSEE TO BE ENTITLED FOR D EDUCTION UNDER SECTION 10A OF INCOME-TAX ACT, 1961 (IN SHORT 'TH E ACT') CONSIDERING THE REMAND REPORT GIVEN BY THE ASSESSING OFFICER. AS PER THE I.T.A. NO. 965/MDS/09 2 REVENUE, LD. CIT(APPEALS) DID NOT CONSIDER THE OBSE RVATIONS OF THE ADDITIONAL COMMISSIONER OF INCOME TAX WHO HAD FORWA RDED THE REMAND REPORT AND AS PER THE OBSERVATIONS MADE THER EIN, TRANSFER OF UNDERTAKING WAS A COLOURABLE EXERCISE FOR EVADING T AX. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE, ENGAGED I N THE BUSINESS OF INFORMATION TECHNOLOGY RELATED SERVICES, HAD CLA IMED DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF ITS LOGI STICS SERVICE DIVISION. AS PER THE A.O., THE PLANT AND MACHINERY REQUIRED FOR ITS LOGISTICS BUSINESS WAS ACQUIRED BY THE ASSESSEE FRO M ITS GROUP COMPANY CALLED CATERPILLAR COMMERCIAL INDIA PRIVATE LIMITED (CCPL). ASSESSING OFFICER WAS OF THE OPINION THAT THE TRANS FER COULD BE CONSIDERED AS SPLITTING UP OF CATERPILLAR COMMERCIA L INDIA PRIVATE LIMITED AND PUT THE ASSESSEE ON NOTICE IN THIS REGA RD. REPLY WAS FURNISHED BY THE ASSESSEE STATING THAT IT WAS INCOR PORATED ON 19.3.2004 AND ENTIRE ASSETS AND LIABILITIES OF LOGI STICS DIVISION OF CCPL WERE TAKEN OVER AS A GOING CONCERN AND THERE W AS NO SPLITTING UP OF M/S CCPL. AS PER THE ASSESSEE, ASSETS PURCHA SED BY M/S CCPL EXCLUSIVELY FOR ITS LOGISTICS BUSINESS, WERE T RANSFERRED THE ASSESSEE AND THEREFORE, THE BENEFITS THAT WERE AVAI LABLE TO CATERPILLAR COMMERCIAL INDIA PRIVATE LIMITED OUGHT NOT HAVE BEE N DENIED TO THE I.T.A. NO. 965/MDS/09 3 ASSESSEE JUST BECAUSE OF THE CHANGE OF OWNERSHIP. HOWEVER, THE A.O. WAS NOT APPRECIATIVE OF THESE CONTENTIONS. AC CORDING TO HIM, ASSESSEE HAD NEITHER RECEIVED THE STPI STATUS, NOR STARTED ITS BUSINESS ACTIVITY NOR ACQUIRED ANY PLANT AND MACHIN ERY. AGAIN, AS PER THE A.O., THE BUSINESS UNIT WAS NOT ACQUIRED AS A GOING CONCERN AND THE ASSETS WERE PREVIOUSLY USED BY M/S CCPL. H E CAME TO A CONCLUSION THAT LOGISTICS DIVISION OF M/S CCPL WAS BROKEN UP AND BOTH THE COMPANIES WERE HAVING COMMON HOLDING COMPA NY NAMELY, CATERPILLAR INCORPORATED USA. RELYING ON THE DECIS ION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. HINDUSTAN GE NERAL INDUSTRIES LTD. (137 ITR 851), THE A.O. CAME TO A CONCLUSION THAT ASSESSEE- COMPANY WAS FORMED BY SPLITTING UP THE BUSINESS OF M/S CCPL. ALTERNATIVELY, AS PER THE A.O., ASSESSEE WAS FORMED BY SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE A ND THE TRANSFER WAS ONLY A COLOURABLE EXERCISE AND COULD NOT BE ALL OWED IN VIEW OF MC DOWELL & COMPANY LTD. V. CTO (154 ITR 148). AL SO AS PER THE A.O., THE TRANSFER COULD NOT BE CONSIDERED AS ONE D ONE ON LUMP SUM BASIS BUT, WAS DONE AFTER VALUATION OF EACH AND EVE RY ITEM OF ASSET AND LIABILITY. THUS, HE DENIED THE CLAIM OF ASSESS EE UNDER SECTION 10A OF THE ACT. I.T.A. NO. 965/MDS/09 4 3. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ASSESSEE SUBMITTED VARIOUS DETAILS ON WHICH LD. CIT(APPEALS) REQUIRED A REMAND REPORT FROM THE ASSESSING OFFICER. THE REMAND REPORT SPEC IFICALLY REQUIRED CLARIFICATION ON TWO ISSUES AS TO WHETHER TRANSFER OF ASSET WAS AS A WHOLE OR TRANSFER WAS ONLY OF PLANT AND MACHINERY. BASED ON THE REMAND REPORT RECEIVED FROM THE A.O., HE CAME TO A CONCLUSION THAT THE CLAIM OF THE ASSESSEE UNDER SECTION 10A HAD TO BE ALLOWED. THOUGH THE ADDITIONAL CIT, WHILE FORWARDING THE REM AND REPORT OF THE A.O., HAD MENTIONED THAT ASSESSEE HAD ADOPTED COLOU RABLE DEVICE FOR AVAILING DEDUCTION UNDER SECTION 10A OF THE ACT , LD. CIT(APPEALS) WAS OF THE OPINION THAT THE OBSERVATIONS OF THE ADD ITIONAL CIT WERE NOT GERMANE TO THE FINDING OF THE ASSESSING OFFICER . HE, THEREFORE, ALLOWED THE APPEAL OF THE ASSESSEE AND DIRECTED THE A.O. TO GIVE IT DEDUCTION UNDER SECTION 10A OF THE ACT. 4. NOW BEFORE US, LEARNED D.R. PLACING A COPY OF LE TTER DATED 2 ND FEBRUARY, 2009 OF ADDITIONAL COMMISSIONER OF INCOME TAX, COMPANY RANGE-I FORWARDING THE REMAND REPORT OF THE A.O. TO THE LD. CIT(APPEALS), SUBMITTED THAT THE ADDITIONAL CIT HAD SPECIFICALLY MENTIONED TWO REASONS WHY THE REMAND REPORT SHOULD NOT BE CONSIDERED AS SUCH. ACCORDING TO HIM, ASSESSEE WAS NOT HAVING ANY I.T.A. NO. 965/MDS/09 5 STPI LICENSE BEFORE 15.7.2004 AND TRANSFER WAS NOTH ING BUT RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. FURTHER, AS PER THE LEARNED D.R., THE TRANSFER WAS ONLY A COLOURABLE E XERCISE AND WENT AGAINST THE INTENTION OF LEGISLATURE IN PROVIDING D EDUCTION UNDER SECTION 10A OF THE ACT WHICH WAS MEANT FOR INTRODUC TION OF FRESH CAPITAL. 5. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF LD. CIT(APPEALS) . 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. IT IS NOT DISPUTED THAT LD. CIT(APPEALS) HAD OBTAI NED A REMAND REPORT FROM ASSESSING OFFICER. THE REMAND REPORT OF THE A SSESSING OFFICER IS SUMMARIZED BY LD. CIT(APPEALS) AT PARA 3.2 OF HI S ORDER, WHICH IS REPRODUCED HEREUNDER:- 3.2 THE REMAND REPORT DATED 15.01.2009 IS SUMMARIZE D AS UNDER:- (I) THE RECORDS PROVE THE CONTENTION OF THE COMPANY THA T IT IS NOT A MERE TRANSFER OF PLANT AND MACHINERY BUT THE LOGISTICS DIVISION OF M/S. CATERPILLAR COMMERCIAL P . LTD., HAS BEEN ACQUIRED BY THE ASSESSEE. (II) THIS IS EVIDENCED BY AGREEMENT DATED 26.07.2004 BET WEEN THE TWO PARTIES. (III) THE ASSESSEE COMPANY ACQUIRED THE LOGISTICS DIVISIO N ON A GOING CONCERN WITH EFFECT FROM 01.08.2004. I.T.A. NO. 965/MDS/09 6 (IV) THE NOTE NO.3 IN SCHEDULE 11 IN NOTES ON ACCOUNTS O F THE ASSESSEE COMPANY, GIVES TOTAL CONSIDERATION, DETAIL S OF ASSETS AND LIABILITIES TAKEN OVER BY THE COMPANY. (V) IT IS A SLUMP SALE AS PER PARA 2.1 AT PAGE 4 OF THE BUSINESS TRANSFER AGREEMENT. (VI) THE TRANSFEROR CCPL HAS ADMITTED CAPITAL GAINS ARIS ING FROM THE TRANSFER. THROUGH ABOVE REMAND REPORT, ASSESSING OFFICER HAS CLEARLY MADE A COMPLETE TURNAROUND FROM THE CONCLUSIONS THAT HE HA D REACHED IN HIS ASSESSMENT ORDER. HE AGREES THAT IT WAS NOT A TRAN SFER OF MERE PLANT AND MACHINERY, BUT ON THE OTHER HAND, THE WHOLE OF THE LOGISTICS DIVISION WAS ACQUIRED BY THE ASSESSEE. HE ALSO AGR EES THAT THE LOGISTICS DIVISION WAS ACQUIRED BY THE ASSESSEE AS A GOING CONCERN. HE FURTHER AGREES THAT IT WAS A SLUMP SALE AND NOT ITEM-WISE SALE. ONCE IT IS ACCEPTED THAT IT WAS ONLY A SLUMP SALE, THEN BASED ON THE DEFINITION OF SLUMP SALE AS GIVEN IN SECTION 2(42C) OF THE ACT, WE CANNOT SAY THAT THERE WAS ANY SPLITTING UP OF M/S C CPL. THE QUESTION WHETHER IT WAS A COLOURABLE EXERCISE, IN O UR OPINION, WOULD NOT ARISE SINCE THE A.O. HAD COME TO HIS CONCLUSION S IN THE REMAND REPORT BASED ON THE AGREEMENT DATED 26.7.2004 BETWE EN THE TWO PARTIES. AS LAID DOWN BY HONBLE APEX COURT IN ITS RECENT DECISION OF VODAFONE INTERNATIONAL HOLDINGS B.V. V. UNION OF IN DIA AND ANOTHER (341 ITR 1) WHAT IS REQUIRED IS TO LOOK AT THE AGRE EMENT AND NOT LOOK I.T.A. NO. 965/MDS/09 7 THROUGH THE AGREEMENT. SUFFICIENT EVIDENCE HAS NOT BEEN BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT THE TRANSFER OF LOGISTICS DIVISION AS A GOING CONCERN TO THE ASSESSEE BY M/S CCPL THRO UGH THE AGREEMENT DATED 15.7.2004 WAS A COLOURABLE EXERCISE AND ITS SOLE INTENTION WAS TO EVADE TAX. AS FOR THE COMMENTS OF ADDITIONAL COMMISSIONER OF INCOME TAX ON THE REMAND REPORT GIV EN BY THE ASSESSING OFFICER, WE ARE OF THE OPINION THAT LD. C IT(APPEALS) WAS ABSOLUTELY JUSTIFIED IN NOT CONSIDERING SUCH COMMEN TS BECAUSE THE ASSESSING OFFICER ALONE IS THE AUTHORIZED OFFICER T O GIVE A REMAND REPORT. LD. CIT(APPEALS) WAS PERFECTLY JUSTIFIED IN GIVING DIRECTIONS TO THE A.O. TO GRANT THE ASSESSEE DEDUCTION UNDER SECT ION 10A OF THE ACT. WE DO NOT FIND ANY REASON TO INTERFERE. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 17 TH FEBRUARY, 2012. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 17 TH FEBRUARY, 2012. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-VIII, CHENNAI -34/ CIT, CHENNAI-I, CHENNAI/D.R./GUARD FILE