IT-I: Where assessee sold its merchant banking business in form of employees, customer and client relationship and certain know-how related to said business, there being loss of enduring trading assets, amount received in respect of same was to be regarded as capital receipt not chargeable to tax
IT-II: Amount received by assessee as non-compete fee for not carrying on merchant banking activities for a period of three years was to be regarded as capital receipt and, thus, same was not liable to tax
IT-III: Amount written off on account of non-recovery of selling price of leased assets was to be allowed as business loss in hands of assessee
IT-IV: Where assessee had discontinued merchant banking business and had also sold off intangible assets pertaining to it, expenses incurred in respect of said business were rightly disallowed by revenue authorities
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[2013] 36 taxmann.com 241 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'I'
IGFT Ltd.
v.
Income-tax Officer -2(2) (1), Mumbai*
D. KARUNAKARA RAO, ACCOUNTANT MEMBER
AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER
AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER
IT APPEAL NO. 1284 (MUM.) OF 2010
[ASSESSMENT YEAR 2001-02]
[ASSESSMENT YEAR 2001-02]
MAY 13, 2013
I. Section 4 of the Income-tax Act, 1961 - Income - Chargeable as [Transfer of business undertaking] - Assessment year 2001-02 - Assessee-company received a sum of Rs. 25 crore from transfer of its intangible assets of merchant banking business - It claimed that amount so received was capital receipt - Assessing Officer treated said receipt as revenue in nature and taxed same as business income - It was noted from records that assessee had received sale consideration for transfer of its business of merchant banking in form of employees, contracts in form of customer and client relationship, a list of ten largest clients and certain know-how related to merchant banking business of assessee - Whether on facts, subject matter of transfer resulted in loss of enduring trading assets and, therefore, amount received in respect of same was to be treated as capital receipt not chargeable to tax - Held, yes [Para 2.4.1] [In favour of assessee]
II. Section 4 of the Income-tax Act, 1961 - Income - Chargeable as [Non-compete fee] - Assessment year 2001-02 - Whether amount received by assessee as non-compete fee for not carrying on merchant banking activities for a period of three years was to be regarded as capital receipt and, thus, same was not liable to tax - Held, yes [Para 3.3.1] [In favour of assessee]
III. Section 28(i) of the Income-tax Act, 1961 - Business loss/deductions - Allowable as [Bad debts] - Assessment year 2001-02 - Assessee gave plant and machinery to certain parties on lease - On expiry of lease term assessee sold plant and machinery to those parties - Since amount became irrecoverable, assessee had to write off same in books of account - Assessee's claim for deduction in respect of amount written off as business loss was rejected - Whether since debts in question were on sale of leased assets, i.e., in course of business, assessee's claim of business loss was to be allowed - Held, yes [Para 5.2] [In favour of assessee]
IV. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Business discontinued] - Assessment year 2001-02 - Assessee debited certain amount in its profit and loss account in respect of prepaid payment for SEBI fees, insurance, repairs and maintenance etc. - Assessing Officer disallowed said amount because business of assessee had already been transferred - Commissioner (Appeals) confirmed disallowance made by Assessing Officer - Whether since assessee had discontinued merchant banking business and had also sold off intangible assets pertaining to it, expenses incurred in respect of said business were rightly disallowed by revenue authorities - Held, yes [Para 7.3] [In favour of revenue]
FACTS-I
| ■ | The assessee-company received a sum of Rs. 25 crore from transfer of its intangible assets of merchant banking business. It claimed that amount so received was capital receipt. | |
| ■ | The Assessing Officer disallowed the claim of the assessee and made an addition of Rs. 25 crore treating the impugned receipt as revenue in nature. | |
| ■ | The Commissioner (Appeals) upheld the order of Assessing Officer. | |
| ■ | On second appeal: |
HELD-I
| ■ | The perusal of the order of the Commissioner (Appeals) raises various issues which are also to be decided for the sake of completeness. Firstly, whether the amount of Rs. 25 lakh is in the nature of compensation to the assessee received in the course of carrying on business activity and has resulted in no loss to capital structure. | |
| ■ | Considering the fact that the assessee has received Rs. 2.5 million (Rs. 25 lakhs) as consideration for transfer of the merchant banking business to the transferee and the assessee has discontinued its business, it is opined that the impugned receipt is capital in nature and not in the nature of compensation received during the course of business. | |
| ■ | Secondly, whether the entire exercise is a colourable device which defies all business prudence. It is relevant to point out that a transaction can be regarded as a sham or colourable when the document is not bona fide nor intended to be acted upon, but is only used as a cloak to conceal a different transaction or where it is intended to give to third parties the appearance of creating between the parties legal rights and obligations which are different from the actual legal rights and obligations which the parties intend to create. | |
| ■ | In the facts of the case, the revenue has not shown as to how the assessee has resorted to a 'device', which is otherwise 'colourable'. Thus, the findings of the Commissioner (Appeals) on this count is rejected. | |
| ■ | Thirdly, as to the observation of the Commissioner (Appeals) that there is no basis for arriving at the figure of Rs. 25 lakhs and Rs. 1 crore which appears to be completely arbitrary decision which again defies all and it is not understandable why the business was transferred for a negligible sum of Rs. 25 lakh while the non-compete fee was worked out at Rs. 1 crore, it may be pointed out that it is for the transferor and the transferee to fix the consideration for the subject matter of transfer. In facts and circumstances of the instant case, it is beyond the purview of the revenue to raise any issue on the adequacy of consideration. | |
| ■ | Fourthly, as to the applicability of the decision of Karnataka High Court in the case of CIT v. Tata Coffee Ltd. [2010] 326 ITR 214 relied on by the Commissioner (Appeals), the Karnataka High Court has treated the non-compete fees received by the vendor as a revenue receipt for the reason that the discontinuance of the unit has not resulted in the loss of enduring trading asset. Same is the position with the other cases relied by the Commissioner (Appeals). | |
| ■ | However, in the instant case, the perusal of the material on record clearly reveals that after discontinuing the merchant banking activities, assessee-company did not have any active source of income and its income consisted of income mainly from dividend from shares and mutual funds, profit on sale of shares, interest income and nominal consultancy charges. Hence, there is no substantial fall in profit earning of the assessee after entering into non-compete agreement. | |
| ■ | As per the relevant agreement, the assessee had received the impugned receipt for the transfer of its business of merchant banking in the form of employees, contracts in the form of customer and client relationship, a list of ten largest clients and certain know-how related to merchant banking business of the assessee, which necessarily qualify impugned receipt for the transfer of the said intangible assets in the category of 'capital nature' as the subject matter of transfer has resulted in the loss of enduring trading assets. | |
| ■ | Regarding the possibility of taxing the said impugned capital receipt under the head of capital gains, since no cost of acquisition is involved by the assessee for these assets, the same cannot be taxed under the head capital gains also. | |
| ■ | It is needless to emphasise that the nature of the transfer does not attract the provision of section 50B in relation to slump sale also as there is no transfer of an undertaking by the assessee. Accordingly, this ground is decided in favour of the assessee. [Para 2.4.1] |
FACTS-II
| ■ | The assessee also entered into a non-compete agreement whereby the assessee-company was restricted from carrying on the merchant banking activities for a period of three years for which it received a sum of Rs. 1 crore towards non-compete fees. | |
| ■ | In the assessment framed, the Assessing Officer treated the impugned receipt as revenue receipts and assessed the same under the head 'business income'. | |
| ■ | The Commissioner (Appeals) upheld the order of Assessing Officer. | |
| ■ | On second appeal: |
HELD-II
| ■ | The perusal of the material indicates that in the case of the assessee, the sole and main business or revenue earner i.e. merchant banking has been discontinued. The reasoning of the authorities below that since the agreement is only for a period of 3 years and not absolute is not a relevant factor to determine the receipt as revenue in nature as generally all the non-compete agreements are limited in point of time which prescribe the period of non-competition. | |
| ■ | In view of that matter, this ground is decided in favour of the assessee and the impugned addition is deleted. [Para 3.3.1] |
CASE REVIEW
CIT v. Anjani Kumar Co. Ltd. [2003] 259 ITR 114/[2002] 124 Taxman 429 (Raj.) (para 5.2) followed. CIT v. Mysore Sugar Co. Ltd. [1962] 46 ITR 649 (SC) (para 7.3) distinguished.
CASES REFERRED TO
CIT v. Siewart & Dholakia (P.) Ltd. [1974] 95 ITR 573 (Cal.) (para 2.4.1), CIT v. Tata Coffee Ltd. [2010] 326 ITR 214 (Kar.) (para 2.4.1),Guffic Chem (P.) Ltd. v. CIT [2011] 332 ITR 602/198 Taxman 78/10 taxmann.com 105 (SC) (para 3.3), CIT v. Anjani Kumar Co. Ltd. [2003] 259 ITR 114/[2002] 124 Taxman 429 (Raj.) (para 5.2), T.R.F. Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391 (SC) (para 5.2), CIT v. Mysore Sugar Co. Ltd. [1962] 46 ITR 649 (SC) (para 7.2), CIT v. Samtel Color Ltd. [2010] 326 ITR 425/[2009] 180 Taxman 82 (Delhi) (para 8.2), Otis Elevator Co. (India) Ltd. v. CIT [1992] 195 ITR 682/60 Taxman 215 (Bom.) (para 8.2), Asstt. CIT v. Jyoti Industries [IT Appeal No. 1567 (Mum.) of 1998] (para 8.2), Dy. CIT v. LN Engg. Works (P.) Ltd. [IT Appeal No. 1484 (Mum.) of 1999] (para 8.2), Gujarat State Export Corpn. Ltd. v. CIT [1994] 209 ITR 649/[1995] 80 Taxman 568 (Guj.) (para 8.3), Framatone Connector OEN Ltd. v. Dy. CIT [2007] 294 ITR 559/[2006] 157 Taxman 116 (Ker.) (para 8.3) and Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792/93 Taxman 5 (SC) (para 8.3).
Dr. K. Shivaram for the Appellant. Sanjay Agrawal for the Respondent.
ORDER
Dr. S.T.M. Pavalan, Judicial Member - This appeal filed by the assessee is directed against the order of the Ld. CIT(A)-5, Mumbai dated 29-12-2009 for the assessment year 2001-02.
2. Ground No. A relates to taxing of an amount of Rs. 25,00,000/- received on transfer of intangible assets of merchant banking business as revenue receipt.
2.1 Briefly stated, the assessee, a company engaged in the business of merchant banking while declaring a total income at a loss of Rs. 84,04,542 had shown an income in the form of consideration of Rs. 25,00,000/- for the transfer of its intangible assets of merchant banking business as capital receipts. However, in the assessment completed u/s 143(3), the AO had disallowed the claim of the assessee and made an addition of Rs. 25,00,000/- treating the impugned receipt as revenue in nature thereby taxed the same under the head business income. On appeal, the Ld. CIT(A) upheld the order of the AO. The relevant findings of the Ld. CIT(A) is extracted hereunder:
"6.I have carefully considered the above facts. It is evident that the business of the appellant was not hampered for ever but for a very limited period of three years. The amount of Rs. 25 lakh prima facie appears to be in the nature of compensation to the appellant received in the course of carrying on business activity. There is no loss of capital structure at all. Business of the appellant is going on as usual as evident from the annual accounts of subsequent years which are placed on record. The AO is fully justified in observing that the whole exercise was a colorable device. He has rightly pointed out that it defies all business prudence of the appellant to transfer its business of merchant banking earning more than Rs. 7.50 cr. for a negligible sum of Rs. 1.25 cr. There is absolutely no justification stated by the appellant for entering into such a business arrangement. Moreover, there is no basis stated either before the AO or before the undersigned for arriving at the figure of Rs. 25 lakh and Rs. 1 cr which appears to be completely arbitrary decision which again defies all logic it is not understandable why the business was transferred for a negligible sum of Rs. 25 lakh while the non-compete fee was worked out at Rs. 1 cr.
6.1 It may be stated here that in a recently reported decision hon'ble Karnataka High Court in the case of CIT v. Tata Coffee Ltd. (2009) 29 DTR 336 (AY 1995-96) on identical facts has held that compensation paid towards not carrying on the business activity of the assessee whereby it would be deprived of the revenue that may accrue from carrying on the business, is revenue receipt. Here also the assessee sold its assets etc. to one company and as per agreement, the assessee was restrained from manufacturing and selling time pieces for a period of ten years. It was found that the assessee was carrying on several businesses and had sold only one unit while continuing with others, there was no loss of income and therefore, non-compete fee was revenue in nature. In yet another case of Tam Tam Pedda Guruva Reddy v. Joint CIT [2007] 291 ITR 44 (Kar), involving construction business where restrictive covenant between the assessee and newly formed limited company was involved. The assessee had disclosed receipt of compensation for a restrictive covenant. It was held that the amount was rightly treated as revenue receipt. In a recent decision in the case of John D'suza v. CIT (2009) 29 DTR 321 (Bom) in which similar amount was received by the assessee for not carrying on fish farming in the pond which was being looked after by him earlier. The amount paid was held to be in the nature of compensation and was the income of the assessee taxable as business income. There was no question of any capital gains as the assessee was not the owner of any asset and there was no transfer of such alleged capital asset during the year. Similar decision was rendered in the case of Chemplast Engineers (P.) Ltd. v. CIT 234 ITR (Mad.) in which similar compensation received was held to be not for loss of capital structure but towards loss of income and hence revenue in nature.
6.2 It may also be stated here that both the non compete fee and the consideration of Rs. 25 lakh for transfer of employees etc. are part of the same agreement and not in isolation to each other. The appellant has not been able to give any satisfactory reply on various relevant issues which clearly show that entire exercise was done for the purpose of reducing the tax liability. The business expediency and prudence for such part transfer of human resources and some other assets have not been clearly brought out. Thus, by giving different nomenclature to the above tow sums, the appellant cannot alter the real nature of the income which is apparently revenue in character. The addition made is, therefore, upheld".
Aggrieved by the impugned order, the assessee has raised this ground in the appeal before us.
2.2 The relevant facts are that Arthur Andersen & Associates, a partnership firm wanted to invest as strategic investor in a company engaged in the business of merchant banking. The assessee M/s. Ind Global Financial Trust Ltd. (Transferor) and Mr. R. Sankaran incorporated a wholly owned subsidiary in the name and style of M/s. Ind Global Corporate Finance Pvt. Ltd. (Transferee) on 11/10/2000 to induct Arthur Andersen & Associates as strategic investor in the company. Arthur Andersen & Associates (AA) purchased the shares of the Transferee company from the sellers (Transferor and Mr. Sankaran, Managing Director of the Transferor) and to comply with the adequacy requirements to receive SEBI license, AA subscribed $50 million to the new shares issued by the Transferee Company. The Transferor surrendered its SEBI License on or before the effect date i.e. the date on which the transferee received the SEBI license for merchant banking business. The transferor surrendered its SEBI License for merchant banking on 4/12/2000 and the Transferee received its SEBI license for merchant banking on 29/12/2000 which is the "Effective Date". The Transferor has changed its name to IGFT Ltd from Ind Global Financial Trust Ltd and has ceased to use its trademark and transferred the same to the Transferee. For the transfer of the business, the assessee/transferor received the above amount from the Transferee. All above acts have been performed according to the terms and conditions set out in the Transfer of Business Agreement signed by Inc Global Financial Trust Ind (Transferor), Mr. R. Sankaran, Managing Director of the Transferor and Ind Global Corporate Finance Pvt. Ltd. (Transferee) & Arthur Andersen & Associates, a partnership firm. The said agreement has been signed on 7/12/2000.
2.3 Before us, the Ld.AR has advanced the arguments on the basis of a written submission filed before us and the relevant portion is extracted hereunder:
| "(1) | Vide clause 2 (Page 87 of paper book) the consideration of Rs. 25 lakhs was for transfer of business. | |
| (2) | Clause 1.3 (Page 84 of paper book) defines the term "business" to mean employees, customer and client relationships, customer and client lists and certain know-how related to the merchant banking business but does not include excluded assets (i.e. real estate and other tangible assets of the appellant; refer clause 1.8 on page 85 of paper book), creditors and liabilities. | |
| (3) | Agreement is with an unknown and unrelated party, which at the relevant point of time was a reputed international firm of chartered accountants, and has been acted upon by both sides. Hence, agreement cannot be considered to be sham. | |
| (4) | On the basis of the very same Transfer of Business Agreement and for the same period of 3 years, the hon'ble Tribunal has in the case of the Chairman Mr. Sankaran held that the non-compete fee was not liable to tax (Refer pages 357 to 361). Hence, the agreements in the present case which originate from the same Transfer of Business Agreement cannot be considered to be sham. | |
| (5) | On the basis of the very Transfer of Business Agreement, Ind Global Finance (P.) Ltd. had claimed depreciation considering the amount of Rs. 25 lakhs as technical know how, which has been rejected by hon'ble Tribunal in (2012) 19 ITR (Trib.) 483 (Mum.) holding that the payment of Rs. 25 lakhs was for transfer of business and contracts as mentioned in paragraph 2.2 (Refer page 497 of decision). | |
| (6) | The decisions relied on by the AO are not applicable to the facts of the appellant's case (Refer submissions before CIT(A) at pages 193 and 194 of paper book): |
| (a) | In CIT v. Dr. R.L. Bhargawa [2001] 256 ITR 42 (Delhi), in addition to use of technology, the assessee therein was also required to render certain services. As there was no absolute parting of technical know how, it was held that receipt was a revenue receipt. | |
| (b) | In CIT v. Raliwolf Ltd. 143 ITR 720 (Bom), the receipt of shares in consideration of drawings, designs and technical know-how supplied was held to be capital in nature. | |
| (c) | In CIT v. Ciba of India Ltd. 69 ITR 692 (SC) the reimbursement of expenses on research was held to be not allowable as a business expenditure as the assessee was not entitled to the patent rights of products manufactured out of the research efforts. | |
| (d) | In CIT v. Brithish India Corpn. Ltd. [1987] 165 ITR 51 (SC) , the issue was as to whether expenditure on technical know-how was revenue expenditure. |
| (7) | Decisions relied on by CIT(A) are not applicable to the facts of the appellant's case as in the said cases, only one of the business had been transferred and not the sole and main business. In the case of the appellant, the sole and main business or revenue earner i.e. merchant banking was discontinued. | |
| (8) | Decision of the hon'ble Supreme Court in the case of McDowel & Co. (supra) was considered by the hon'ble Supreme Court in the case ofUnion of India v. Azadi Bachao Andolan [2003] 263 ITR 706 and Vodafone International Holdings B.V. v. UOI [2012] 341 ITR, wherein the hon'ble Supreme Court has held that tax planning within the frame work of law is permitted. | |
| (9) | After discontinuing the merchant banking activities, appellant company did not have any active source of income and its income consisted of income mainly from dividend from shares and mutual funds, profit on sale of shares, interest income and nominal consultancy charges (Refer chart on page 362). Hence, there was a substantial fall in profit earning of the appellant after entering into non-compete agreement. | |
| (10) | As the sum of Rs. 25 lakhs was received on transfer of intangible assets having no cost of acquisition, following decision of hon'ble Supreme Court in the case of B. C. Srinivasa Setty128 ITR 294, the said sum is not liable to tax. | |
| (11) | Heads of income are mutually exclusive. If the income falls under one of the heads of income, the same cannot be taxed under any other head of income-CIT v. D.P. Sandu Bros. 273 ITR 1 (SC). | |
| (12) | Without prejudice to the above, the AO having accepted that the amount is on transfer of merchant banking division, the sum of Rs. 25 lakhs can only be taxed as a capital receipt and not as a revenue receipt. | |
| (13) | Amendment to section 55(2) is prospective and applies only from A.Y. 2002-03 (Refer Circular No. 14 of 2001; Charturvedi & Pithisaria Vol. 10; page 1360). | |
| (14) | Hence, the consideration of Rs. 25 lakhs received on transfer of intangible assets may be held to be a capital receipt. Further, as the said intangible assets were self generated, following decision of hon'ble Supreme Court in the case of B.C. Srinivasa Setty's Case (supra), the same may be held to be not liable to tax." |
On the other hand, the Ld. DR has relied on the orders of the AO and the Ld. CIT(A) in support of the Revenue's case.
2.4 We have heard both the parties on this ground and perused the material on record. It is pertinent to mention that clause 2.2 of the Transfer of Business Agreement dated 7-12-2000 suggests that the assessee has received Rs. 2.5 million (Rs. 25 lakhs) as consideration for transfer of the business. Clause 1.3 of the definition clause in the said agreement reads 'business means the Employees (as set out in Schedule 4) and certain know-how related to the merchant banking business of the Transferor but does not include the Excluded assets, Creditors and Liabilities'. Clause 1.8 states that 'Excluded assets means, the real Estate of the transferor located at 91/92, Bajaj Bhawan, Nariman Point, Mumbai-400 021 and any other tangible assets of the transferor'. A combined reading of the said relevant clauses indicates that the receipt of Rs. 25 lakhs is for transfer of business and contracts. The same fact is strengthened by the decision of the Tribunal in ITA Nos. 1258 & 1656/M/08 wherein on the basis of the very Transfer of Business Agreement, Ind Global Finance Pvt. Ltd. (Transferee) has claimed depreciation considering the amount of Rs. 25 lakhs as technical know how, which has been rejected by hon'ble Tribunal holding that the payment of Rs. 25 lakhs was for transfer of business and contracts. The relevant findings of the Tribunal are extracted hereunder:
'We have carefully considered the various aspects of the matter. We find from perusal of the transfer of business agreement that the payment of Rs. 25 lakhs had been made for the sale and transfer of business and contracts as mentioned in para 2.2 of the agreement. The word "business" has been defined in para 1.3 to mean the employees, customer and client relationship, customer and client list, certain know-how related to merchant banking business of the transferor but did not include the excluded assets, the creditors and liabilities. It is thus, clear that the payment had been made for the transfer of business and contracts which included customer and client relationship. Though the definition of "business" referred to certain know-how but there is no material to show that any part of the payment was related to any know-how which can be considered as an intangible asset for the purpose of section 32(1)(ii). 5.6 The intangible asset for the purpose of depreciation has been mentioned in section 32(1)(ii) as know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial right of similar nature. The word "know-how" has been defined in the Explanation 4 to section 32(1) to mean any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil well or other sources of mineral deposits. There is nothing produced before us to show that the transferor had transferred any industrial information or technique developed by it which could assist in the manufacture or processing of goods. Moreover, the transferor was in the business of merchant banking which does not require any industrial information or technique useful in manufacture or processing of goods. CIT(A) has mentioned that the assessee during the proceedings before him had filed business know-how manual relating to merchant banking which was claimed to be know-how on which depreciation should be allowable. CIT(A) has given a finding that Manual contained only facts of regulations and procedures which are otherwise available in the market in the form of books and manual contained nothing other than what is available to anyone dealing in the line of merchant banking. He has, therefore, not considered the manual as know-how.
We do not see any infirmity in the conclusion drawn by the CIT(A). It has not been explained before us as to why assessee would pay for rules and regulations and procedures which are available in the market and, therefore, we have to conclude that the payment of Rs. 25 lakhs had been made for the transfer of business and contracts including clients and client relationship which cannot be considered as know-how. The ld. AR has also argued that even if the payment was considered as made for acquisition of goodwill, depreciation was allowable on goodwill in view of the decision of the Tribunal in the case of Kotak Forex Brokerage Ltd. (supra). CIT(A) has not accepted the finding of the AO that payment was for goodwill nor any material has been produced before us to show that any part of the payment related to acquisition of goodwill. As we have held earlier, the payment was for transfer of business and contracts including clients and client relationship which in our view is not an intangible asset as defined in section 32(1)(ii) on which depreciation can be allowed. Since we have held that payment was neither for know-how nor for goodwill, the various decisions relied upon by the assessee in paras 5.1 and 5.2 are not applicable. We, therefore, see no infirmity in the order of CIT(A) confirming the disallowance and the same is therefore, upheld'.
The aforementioned discussion clearly establishes that the assessee has received Rs. 2.5 million (Rs. 25 lakhs) as consideration for transfer of the business and contracts. In view of that matter, we do not find any justifiable reason on the part of the authorities below to consider the transaction as sham which involves colourable device.
2.4.1 The perusal of the order of the Ld. CIT(A) raises various issues which are also to be decided for the sake of completeness. Firstly, whether the amount of Rs. 25 lakh is in the nature of compensation to the assessee received in the course of carrying on business activity and has resulted in no loss of capital structure. It is pertinent to mention that according to the judgment of Calcutta High Court in CIT v. Siewart & Dholakia (P.) Ltd. [1974] 95 ITR 573, compensation to the assessee received in the course of carrying on business activity is a trading receipt only if it is received for injury to trade. If any amount is received as compensation for an injury which affects a capital asset of the assessee or the capital structure of the assessee's business, such amount may normally be considered to be a capital receipt. If, however, any amount is received by an assessee as compensation or damages for any wrong done which does not affect any capital asset or the capital structure of the assessee's business but causes injury to the assessee in its trade, such amount will normally constitute a trading receipt of the assessee. Considering the fact that the assessee has received Rs. 2.5 million (Rs. 25 lakhs) as consideration for transfer of the merchant baking business to the transferee and the assessee has discontinued its business, we are of the view that the impugned receipt is capital in nature and not in the nature of compensation received during the course of business as has been found by the Ld. CIT(A). Secondly, whether the entire exercise is a colourable device which defies all business prudence. It is relevant to point out that a transaction can be regarded as a sham or colourable when the document is not bona fide nor intended to be acted upon, but is only used as a cloak to conceal a different transaction or where it is intended to give to third parties the appearance of creating between the parties legal rights and obligations which are different from the actual legal rights and obligations which the parties intend to create. In the facts of the case, the Revenue has not shown as to how the assessee has resorted to a 'device', which is otherwise 'colourable'. Thus, we do not agree with the findings of the Ld. CIT(A) on this count. Thirdly, as to the observation of the Ld. CIT(A) that there is no basis for arriving at the figure of Rs. 25 lakhs and Rs. 1 Crore which appears to be completely arbitrary decision which again defies all and it is not understandable why the business was transferred for a negligible sum of Rs. 25 lakh while the non-compete fee was worked out at Rs. 1 cr. it may be pointed out that it is for the transferor and the transferee to fix the consideration for the subject matter of transfer. In facts and circumstances of the instant case, we are of the opinion that it is beyond the purview of the Revenue to raise any issue on the adequacy of consideration. Fourthly, as to the applicability of the decision of Karnataka High Court in the case of CIT v. TataCoffee Ltd [2010] 326 ITR 214 relied on by the Ld. CIT(A), the Karnataka High Court has treated the non-compete fees received by the vendor as a revenue receipt for the reason that the discontinuance of the unit has not resulted in the loss of enduring trading asset. Same is the position with the other cases relied by the Ld. CIT(A). However, in the instant case the perusal of the details available at page 362 of the paper book clearly reveals that after discontinuing the merchant banking activities, assessee company did not have any active source of income and its income consisted of income mainly from dividend from shares and mutual funds, profit on sale of shares, interest income and nominal consultancy charges. Hence, there is a substantial fall in profit earning of the assessee after entering into non-compete agreement. As per the relevant agreement, the assessee has received the impugned receipt for the transfer of its business of merchant banking in the form of employees, contracts in the form of customer and client relationship, a list of ten largest clients and certain know-how related to merchant banking business of the assessee, which in our view necessarily qualify impugned receipt for the transfer of the said intangible assets [though not in terms of section 32(1)(ii) is intangible] in the category of 'capital nature' as the subject matter of transfer has resulted in the loss of enduring trading assets. Regarding the possibility of taxing the said impugned capital receipt under the head of capital gains, we are of the considered opinion that since no cost of acquisition is involved by the assessee for these assets, the same cannot be taxed under the head capital gains also. It is needless to emphasis that the nature of the transfer does not attract the provision of section 50B of the Act in relation to slump sale also as there is no transfer of an undertaking by the assessee. Accordingly, we decide ground no. A in favour of the assessee.
3. Ground No. B relate to taxing an amount of Rs. 1,00,00,000/- received by the assessee as non-compete fees treating the same as revenue receipt.
3.1 Briefly stated, the assessee also entered into a non-compete agreement whereby the assessee company was restricted from carrying on the merchant banking activities for a period of three years for which it received a sum of Rs. 1 crore towards non-compete fees. In the assessment framed, the AO treated the impugned receipt as revenue receipts and assessed the tax under the head business income. On confirming the same by the Ld. CIT(A), the assessee has raised this ground in the appeal before us.
3.2 Before us the Ld. AR of the assessee has advanced the arguments on the basis of the written submission filed before us and contended that the impugned non-compete fees is to be treated as capital receipt not liable for tax. The relevant portion of the written submission is reproduced hereunder:
| "(1) | Agreement is with an unknown and unrelated party has been acted upon by both sides. Hence, agreement cannot be considered to be sham. | |
| (2) | On the basis of the very same Transfer of Business Agreement and for the same period of 3 years, the hon'ble Tribunal has in the case of the Chairman Mr. Sankaran held that the non-compete fee was not liable to tax (Refer pages 357 to 361). Hence, the agreements in the present case which originate from the same Transfer of Business Agreement cannot be considered to be sham. | |
| (3) | On the basis of the very same Transfer of Business Agreement, Ind Global Finance (P.) Ltd. had claimed depreciation considering the amount of Rs. 25 lakhs as technical know how, which has been rejected by hon'ble Tribunal in (2012) 19 ITR (Trib.) 483 (Mum.) holding that the payment of Rs. 25 lakhs was for transfer of business and contracts as mentioned in paragraph 2.2 (Refer page 497 of decision). | |
| (4) | Hon'ble Special Bench of the Tribunal has in the case of Asstt. CIT v. Dr. B.V. Raju [2012] 135 ITD (Hyd.) held that prior to amendment to section 55(2)(a) w.e.f. 1-4-2003, the amount received on transfer of right to carry on business could not be taxed u/s 45. | |
| (5) | The decisions relied on the AO are not applicable to the facts of the appellant's case (Refer submissions before CIT(A) at pages 193 and 194 of paper book): |
| (a) | In CIT v. Dr. R. L. Bhargawa [2001] 256 ITR 42 (Delhi), in addition to use of technology, the assessee therein was also required to render certain services. As there was no absolute parting of technical know how, it was held that receipt was a revenue receipt. | |
| (b) | In CIT v. Ralliwolf Ltd.. 143 ITR 720 (Bom.), the receipt of shares in consideration of drawings, designs and technical know-how supplied was held to be capital in nature. | |
| (c) | In CIT v. Ciba of India Ltd. 69 ITR 692 (SC), the reimbursement of expenses on research was held to be not allowable as a business expenditure as the assessee was not entitled to the patent rights of products manufactured out of the research efforts. | |
| (d) | In CIT v. British India Corpn. Ltd. 165 ITR 51 (SC), the issue was as to whether expenditure on technical know-how was revenue expenditure. |
| (6) | Decision of the hon'ble Supreme Court in the case of McDowell & Co. (supra) was considered by the hon'ble Supreme Court in the case ofUnion of India v. Azadi Bachao Andolan [2003] 263 ITR 706 and Vodafone International Holdings B.V. v. UOI [2012] 341 ITR 1, wherein the hon'ble Supreme Court has held that tax planning within the framework of law is permitted. | |
| (7) | Decisions relied on by CIT(A) are not applicable to the facts of the appellant's case as in the said cases, only one of the businesses had been transferred and not the sole and main business. In the case of the appellant, the sole and main business or revenue earner i.e. merchant banking was discontinued. | |
| (8) | After discontinuing the merchant banking activities, appellant company did not have any active source of income and its income consisted of income mainly from dividend from shares and mutual funds, profit on sale of shares, interest income and nominal consultancy charges (Refer chart on page 362). Hence, there was a substantial fall in profit earning of the appellant after entering into non-compete agreement. | |
| (9) | Hon'ble Supreme Court has in the case of Guffic Chem (P.) Ltd. v. CIT 332 ITR 602 held that non-compete fees received before 1-04-2003 was a capital receipt not liable to tax. | |
| (10) | Hon'ble Special Bench has in the case of Asstt. CIT v. Dr. B. V. Raju (supra) held that prior to amendment to section 28(va)(a) w.e.f. 1-4-2003, compensation received for not carrying on any activity in relation any business was also not liable to tax, being a capital receipt. | |
| (11) | Following the above decisions, amount of Rs. 1 crore received by appellant towards non-compete fees is not liable to tax. | |
| (12) | Without prejudice to the above, the AO having accepted that the amount in on transfer of merchant banking division, the sum of Rs. 100 lakhs can only be taxed as a capital receipt and not as a revenue receipt. | |
| (13) | The appellant therefore prays that the sum of Rs. 100 lakhs may be held to be a capital receipt not liable to tax." |
On the other hand, the Ld. DR has relied on the orders of the AO and the Ld. CIT in support of the Revenue's case.
3.3 At the outset, it is relevant to point out that the Hon'ble Supreme Court in the case of Guffic Chem (P.) Ltd. v. CIT [2011] 332 ITR 602/198 Taxman 78/10 taxmann.com 105 has held as follows:
"Payment received as non-competition fee under a negative covenant was always treated as a capital receipt till the assessment year 2003-04. It is only vide Finance Act, 2002 with effect from 1-4-2003 that the said capital receipt is now made taxable [See : Section 28(va)]. The Finance Act, 2002 itself indicates that during the relevant assessment year compensation received by the assessee under non-competition agreement was a capital receipt, not taxable under the 1961 Act. It became taxable only with effect from 1-4-2003. It is well-settled that a liability cannot be created retrospectively. In the present case, compensation received under Non-Competition Agreement became taxable as a capital receipt and not as a revenue receipt by specific legislative mandate vide section 28(va) and that too with effect from 1-4-2003. Hence, the said section 28(va) is a mendatory and not clarificatory. Lastly, in CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 it was held by this Court that if a contract is entered into in the ordinary course of business, any compensation received for its termination (loss of agency) would be a revenue receipt. In the present case, both CIT(A) as well as the Tribunal, came to the conclusion that the agreement entered into by the assessee with Ranbaxy led to loss of source of business; that payment was received under the negative covenant and therefore the receipt of Rs. 50 lakhs by the assessee from Ranbaxy was in the nature of capital receipt. In fact, in order to put an end to the litigation, Parliament stepped into specifically tax such receipts under non-competition agreement with effect from 1-4-2003".
The above judgment of the Apex Court makes it clear that the fees received under non-competition agreement is a capital receipt as the amendment does not cover the relevant assessment year under consideration and hence not taxable under the Act. It is also pertinent to mention that on the basis of the very same Transfer of Business Agreement and for the same period of 3 years, the Tribunal has in the case of the Chairman Mr. Sankaran in ITA Nos. 4951 & 4952/m/2009 held that the non-compete fee was not liable to tax. The relevant findings of the ITAT are reproduced hereunder:
"We have heard the Ld. DR who placed reliance on the order of AO, perused the records and considered the matter carefully. The dispute is regarding taxability of amounts received by the assessee from the firm AA as a non-compete fees. The non-compete fees had been received for the restrictive covenant imposed on the assessee not the compete with AA. The assessee was not an existing employee of AA nor he was former employee of the AA. The assessee was Managing Director of IND Global Corporate Finance Pvt. Ltd. Which was a separate legal entity. The provisions of section 17(3)(i) are applicable only when the compensation is received from employer or former employer in connection with termination of employment or the modification of the terms and conditions relating thereto. In this case there is no employer employee relation between AA and the assessee and therefore we agree with the CIT(A) that the provisions of section 17(3)(i) are not applicable in this case. Moreover the amounts have been received as non-compete fees which is a capital receipt not taxable. Though no compete fees has been made taxable under section 28(va) but the said provisions is applicable only from assessment year 2003-04 and was not applicable in the relevant years. This view is supported by the decision of Amritsar Bench of Tribunal in case of T.S. Manocha (5 SOT 277) and several other decisions of Tribunal. We therefore see no infirmity in the order of CIT(A) deleting the additions made by the AO and the same are upheld".
3.3.1 We also find merits in the contention of the assessee that the decisions relied on by Ld. CIT(A) are not applicable to the facts of the assessee's case as in the said cases only one of the businesses had been transferred and not the sole and main business. The perusal of the materials indicate that in the case of the assessee, the sole and main business or revenue earner i.e. merchant banking has been discontinued. The reasoning that of the authorities below that since the agreement is only for a period of 3 years and not absolute is not a relevant factor to determine the receipt as revenue in nature as generally all the non-compete agreements are limited in point of time which prescribes the period of non-competition. In view of that matter, we decide this ground in favour of the assessee and delete the impugned addition. Accordingly, Ground No. B is allowed.
4. Ground No. C is alternate to Grounds No. A & B. In view of the fact that the said ground are decided in favour of the assessee, Ground No. C requires no adjudication.
5. Ground No. D relates to the disallowance of bad debts amounting to Rs. 23,89,313/-.
5.1 Briefly stated, during by the year under consideration, the assessee had written off bad debts amounting to Rs. 24,30,162/- in the books of account as on account of the following:
| Sr. No. | Name of the Party | Nature of Debt | Amount (Rs.) |
| 1. | Kalyani Steel Ltd. | Transfer of leased assets | 2,50,000/- |
| 2. | Singhal Swaroop Ispat Ltd. | Transfer of leased assets | 2,73,850/- |
| 3. | Expenses incurred on behalf of clients | Expenses incurred on behalf of clients | 2,59,167/- |
| 4. | Ind Global Asset Management | Expenses incurred on behalf of clients | 6,16,297/- |
| 5. | Ind Global Trusteeship Ltd. | Expenses incurred on behalf of clients | 1,12,691/- |
| 6. | Singhal Swaroop Ispat Ltd. | Outstanding interest | 5,08,960/- |
| 7. | Business India Publications Pvt. Ltd. | Advisory Fees | 2,85,000/- |
| 8. | Various employees | Loans to staff | 83,348/- |
| Total | 23,89,313/- |
However, in the assessment completed, the AO disallowed the claim as the assessee had not established that the debts under consideration were bad. On appeal the Ld. CIT(A) confirmed the order of the AO. Aggrieved by the impugned decision, the assessee has raised this ground in the appeal before us.
5.2 We have heard the rival submissions on this ground and perused the material on record. (i) As regards the bad debt of Rs. 2,50,000/- & Rs. 2,73,850/- in relation to Kalyani Steel Ltd. and Singhal Swaroop Ispat Ltd. respectively, the assessee has given plant and machinery to the said parties on lease. On expiry of the lease term the assessee has sold the plant and machinery to the above parties for the said amount on 31-03-1999. Since the amount has become irrecoverable, the assessee has to written off the amount in the books of account. Since these debts are on sale of leased assets i.e. in the course of business the same should be allowed as a business loss in view of the decision of the Hon'ble Rajasthan High Court in the case of CIT v.Anjani Kumar Co. Ltd. [2003] 259 ITR 114/[2002] 124 Taxman 429 wherein it has been held that advance for acquiring land to set up factory being lost, is allowable as business loss. (ii) The assessee has claimed the expenses on behalf of clients to the tune of Rs. 2,59,167/- in the normal course of business. (iii) With respect to the bad debt pertaining to Ind Global Asset Management Fund Ltd.- & Ind Global Trusteeship Ltd.-Rs. 6,16,297/- & Rs. 1,12,691/- respectively, the assessee has incurred the above expenses for the companies promoted by it. These companies have been promoted as its subsidiaries to carry on the business incidental to the main business of the assessee. Since these companies have not started any activity and is in the process of winding up, the amount is claimed as bad debts. Thus, these expenses have been incurred in the normal course of business, in our view, the said expenses qualifies as a business loss under section 28 of the Act. (iv) Interest of Rs. 5,08,960/- has been charged from Singhal Swaroop Ispat Limited for default in the payment of lease rentals. The said income has been offered for tax in A.Y. 1997-98. As the interest could not be recovered from the party, the same is written off as bad debts. (v) Advisory services have been rendered to Business India Publication Private Limited for which an amount of Rs. 3,00,000/- was billed to the client as consultancy fees. The assessee is given a cheque of Rs. 2,85,000/- net of T.D.S. The assessee is informed that as necessary facilities are not available, the cheque could not be deposited. Assessee has shown the cheque on hand and has credited the income account. As the said party did not issue fresh cheque in spite of reminders the amount of Rs. 2,85,000/- is written off as bad debts. As the interest and advisory fees charged from the clients have been offered for tax in earlier years, we are of the view that the conditions of section 36(2) are fulfilled. As the debts have also been written off, the same should be allowed as a deduction u/s 36(1) in view of the decision of the Hon'ble Supreme Court in the case of T.R.F. Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391. (vi) The loans of Rs. 83,348/- given to staff has been written off since the same are irrecoverable in view of transfer of the merchant banking business. The said loans are not taken over by M/s. Arthur Anderson. All the employees had either been taken over or resigned. Since these expenses have been incurred in the normal course of business, in our view, the said expenses qualifies as a business loss under section 28 of the Act. In the abovesaid line of discussions, ground No D is decided accordingly.
6. Ground No. E is alternate ground to Ground No. D which requires no adjudication in view of the disposal of Ground No. D as aforementioned.
7. Ground No. F relates to the disallowance on account of pre-paid expenses to the tune of Rs. 5,52,877/-(Sic).
7.1 During the year under consideration, the assessee had debited membership & subscription account and credited prepaid expenses by Rs. 5,52,877/- being prepaid payment for SEBI fees, insurance, repairs and maintenance etc. The AO disallowed the amount since the business was transferred. The AO also noted that there is no provision in the Act to debit prepaid expenses. Out of the said amount, Rs. 1,66,667/-pertained to SEBI fees of current year and hence, the AO rectified his order to that effect and allowed relief of Rs. 1,66,667/-. Hence, the disallowance was restricted to Rs. 3,86,243/-. The break up of the said prepaid expenses amounting to Rs. 3,86,243/- is as follows:
| Insurance | Rs. 3,530 | |
| Repairs and Maintenance | Rs. 9.021 | |
| Membership and Subscription | Rs. 45,459 | |
| Office Upkeep | Rs. 1,800 | |
| SEBI Fees paid on 16/03/2000 | Rs. 5,00,000 | |
| Less: Claimed for year ending 31-03-2000 | Rs. 6,900 | |
| Less: Allowed by AO u/s. 154 | Rs. 1,66,667 | Rs. 3,26,433 |
| Total | Rs. 3,86,243 |
On appeal, the Ld. CIT(A) confirmed the disallowance made by the AO. Aggrieved by the impugned decision, assessee has raised this ground in the appeal before us.
7.2 Before us, the Ld.AR has stated that since the business has been transferred and sold off of the intangible assets pertaining to the business, the assessee could no more get the benefit of the expense in the subsequent years. Hence, the amount was allowable as loss in the current year. Since the amounts were incurred in the normal course of business and they ceased to render benefits in future assessment years, the said amount has become a loss of the current year and hence, was allowable u/s 28. Reliance has been placed on the decision in the case of CIT v. Mysore Sugar Co. Ltd. [1962] 46 ITR 649 (SC). On the other hand, the Ld. DR has relied on the orders of the AO and Ld. CIT(A) in support of the case of the Revenue.
7.3 We have heard both the parties and perused the material on record. It is an admitted fact that the assessee has discontinued the merchant banking business and has also sold off the intangible assets pertaining to the said business. Since these expenses are pertaining to the said business, the Ld. CIT(A) has correctly upheld the impugned addition as there is absolutely no basis for claim of deduction in respect of existing business of the assessee in the absence of any nexus with it. The said decision of the Apex Court relied by the Ld.AR is not applicable to the facts of the assessee. Accordingly, this Ground is dismissed. In view of this the alternate ground No. G is also dismissed.
8. Ground No. H relates to the disallowance of Rs. 5,53,000/- on account of membership and subscription fees.
8.1 Briefly stated, during the year under consideration, the assessee had claimed an amount of Rs. 5,00,000/- as business expenditure towards entrance fees of Madras Cricket Club and Rs. 33,000/- towards membership fees of Belverdere Club. The AO held that the same was not for the purpose of assessee's business. Moreover, since the business was transferred, the expense could not be allowed. The Ld. CIT(A) upheld the order of AO. Aggrieved by the impugned decision, the assessee has raised this ground in the appeal before us.
8.2 Before us, the Ld. AR has stated that the membership acquired by the assessee is in the nature of corporate membership. The membership has been acquired prior to transfer of merchant banking business. Hence, the membership acquisition does not have any relation to the transfer of business. Hon'ble Delhi High Court in the case of CIT v. Samtel Color Ltd. [2010] 326 ITR 425/[2009] 180 Taxman 82 has held that the expenditure on membership of clubs is allowable one. The Hon'ble Court has held that membership fees are not a capital expenditure and the same is for the purpose of business as well. Reliance has also been placed on the following decisions:
| a. | Otis Elevator Co. (India) Ltd. v. CIT [1992] 195 ITR 682/60 Taxman 215 (Bom.) | |
| b. | Asstt. CIT v. Jyoti Industries [IT Appeal No. 1567 (Mum) of 1998] | |
| c. | Dy. CIT v. LN Engg. Works (P.) Ltd. [IT Appeal No. 1484 (Mum) of 1999] |
On the other hand, the Ld. DR has relied on the orders of the AO and Ld. CIT(A).
8.3 We have heard both the parties on this ground and perused the material on record. In order to allow the expenditure, what is required to be seen is whether the expenditure has resulted into an advantage in the revenue field or in the capital field. In the case the expenditure has not resulted in creation of any capital asset or any new source of income and it has not been changed the capital structure of the company and had been incurred only for conduct of the business more efficiently and profitably then it will be revenue expenditure. The judgment of Hon'ble Bombay High Court in the case of Otis Elevator Co. (India) Ltd. (supra) has held that where the issue was with reference to the reimbursement of expenditure spent in the club and not the fee paid for obtaining the membership. However, there is a judgment of the Hon'ble Gujarat High Court in the case of Gujarat State Export Corpn. Ltd. v.CIT [1994] 209 ITR 649/[1995] 80 Taxman 568 in which the lump sum entrance fees paid towards membership of the club has been held to be revenue expenditure. Similar view has also been taken in the case of CIT v. Samtel Color Ltd. 180 Taxman 82 (Delhi) wherein the Hon'ble Delhi High Court has allowed the expenditure holding that the admission fee paid towards corporate membership was an expenditure incurred wholly and exclusively for the purpose of business and not towards capital account as it only facilitated smooth and efficient running of the business enterprise and did not add to profit earning apparatus of the business enterprise. However, the Hon'ble Kerala High Court in the case of Framatone Connector OEN Ltd. v. Dy. CIT[2007] 294 ITR 559/[2006] 157 Taxman 116 considered similar payment paid to Cochin Yatch Club towards institutional membership fee and held that the expenditure effected by the assessee was capital in nature. Once the assessee paid the amount to a club for membership it is a payment once and for all resulting in an enduring benefit to the institution. The mere fact that assessee's representative, like the Managing Director's participation in the club promoted the assessee's business did not change the character of the payment which was made once and for all. The Hon'ble Kerala High Court followed the principles established by the Apex Court in Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792/93 Taxman 5in arriving at the above decision. There is no jurisdictional High Court judgment on this issue though the judgment in the case of Otis Elevator Co. (India) Ltd. (supra) is in the contest of reimbursement of membership fees of the employees paid by the company. Even in the case of Hon'ble Delhi High Court judgment in the case of Samtel Color Ltd. (supra) the facts indicate that the assessee company nominated employees who would avail the benefit of corporate membership given to the assessee. In those circumstances the expenditure was allowed under section 37(1). Moreover neither the AO nor the Ld. CIT(A) has gone into the factual matrix of the case for disallowing the claim of the assessee. In view of that matter, we are of the opinion that the matter can be re-examined by the AO after obtaining the details and examining the justification in claiming the impugned expense as business expenditure. The matter is restored to the file of AO for considering accordingly. The ground is considered allowed for statistical purpose.
9. Ground No. J relates to disallowance of an amount of Rs. 61,984/- on account of depreciation on residential flats.
9.1 The assessee had given certain assets on lease to Singhal Swaroop Ispat Limited. As the said party defaulted in payment of lease rentals, the lessee transferred 3 flats at Mira Road and a motor car to the assessee in lieu of the lease rentals. The assessee had claimed that the said flats were used for purpose of the business and hence claimed depreciation on these flats. The AO disallowed the depreciation on these flats following the decision of his predecessor in A.Y. 1998-99. The AO in A.Y. 1998-99 had held that the flats were vacant and hence, depreciation was not allowable. The Ld. CIT(A) confirmed the order of the AO. Aggrieved by the said decision, the assessee has raised this ground in the appeal before us.
9.2 At the outset, it is observed that the issue is covered against the assessee in A.Y. 1998-99 by the order of the ITAT in ITA No. 2950/Mum/2004 in the assessee's own case where the claim of the assessee for depreciation has been rejected. As the assessee has not brought any material differentiating the facts in relation to the assessment year under consideration, we, following the decision of the co-ordinate bench, uphold the decision of the Ld. CIT(A) on this count. Accordingly, this ground is dismissed.
10. Ground No. K relates to the addition of Rs. 63,000/- on account of income from house property.
10.1 The assessee had given certain assets on lease to Singha Swaroop Ispat Limited. As the said party defaulted in payment of lease rentals, the lessee transferred 3 flats at Mira Road and a motor car to the appellant in lieu of the lease rentals. The AO while disallowing the depreciation had treated the same as deemed to be let out and assessed the income from house property at Rs. 63,000/-. The Ld. CIT(A) confirmed the order of the AO. Aggrieved by the impugned decision, the assessee has raised this ground in the appeal before us.
10.2 It is observed that this issue is also covered against the assessee in A.Y. 1998-99 by the order of the ITAT in ITA No. 2950/Mum/2004. As the assessee has not brought any material differentiating the facts in relation to the assessment year under consideration, we, following the decision of the co-ordinate bench, uphold the decision of the Ld. CIT(A) on this count. Accordingly, this ground is dismissed.
11. Ground No. L is general in nature which does not require any adjudication.
12. In the result, the appeal filed by the assessee is partly allowed.
Regards
Prarthana Jalan
__._,_.___
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