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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI A.K. GARODIA & SHRI LALIET KUMAR
O R D E R
Per Shri A.K. Garodia, Accountant Member
This is a revenue’s appeal directed against the order of ld. CIT(A)-I, Bangalore dated 25.10.2013 for Assessment Year 2000-01.
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 giving 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 that 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, properties and rights of the transferor and thus the transfer of such assets, properties and rights become subject to tax under the head capital gains.
Page 2 of 4 4.For these and such other grounds that may be urged 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 amend or delete any of the grounds that may be urged at the time of hearing of the appeal.”
It was submitted by ld. DR of revenue that ground nos. 1, 4 and 5 are general and in remaining ground nos. 2 and 3, only one issue is involved. He has drawn our attention to the Tribunal order in the first round in assessee’s own case in & 1369/Bang/2003 dated 18.11.2005 copy 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 form of non-competition obligation was a capital receipt and hence, the AO has incorrectly 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 which the issue was decided in favour of the assessee. He submitted that against the 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 against the appeal effect order passed by the AO. Against this order of CIT (A), the 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 appeal and pass orders on merit and the impugned order of CIT(A) is passed by him as per the directions of the tribunal in which the CIT(A) has considered the judgment of Hon’ble 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 long 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.
The ld. AR of the assessee supported the order of CIT (A).
Page 3 of 4 5. But we have considered the rival submissions. The relevant paras of the order of CIT(A) are para no. 1.6 and 3.1 to 3.3. Hence we reproduce these paras from the order of CIT (A) for the sake of ready reference.
“1.6 Meanwhile, the Department had filed further appeal before the Hon'ble High Court of Karnataka against the common order of the Hon'ble ITAT mentioned above relating to the treatment 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 said consideration is paid for sale, transfer and assigning the business, the net work and benefits and obligations of pending contracts of the business andcommercial rights associated with or embedded therein. 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 properties, 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 paid is not for the goodwill but it is for the assets, properties and rights of the transferor. Consequently if that is so, for transfer of capital asset no tax is payable. This is what precisely the tribunal has held. 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 before the Hon'ble High Court of Karnataka again the order of the Hon'ble ITAT in dated 15/11/2005 raising following two questions of law :- (i) Whether a sum of Rs.2,20,25,000/- paid by M/s Praxair Limited for transfer of the assessee's business should 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.803 of 2006 dated 13/02/2012 both the issues are answered in favour of the appellant and against the revenue.However, dispute 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 decision and content of the decision reproduced in para 1.6 above. 3.3 Following the decision of the Hon'ble High Court of Karnataka, the AO is directed to exclude a sum of Rs.1,98,60,648/- from the total income.”
Page 4 of 4 6. We find that in para no. 1.6 of his order, the CIT (A) has reproduced para no. 6 of judgment of Hon’ble Karnataka High Court wherein a categorical finding has been given by the Hon’ble 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 being addition on account of goodwill treated as revenue receipts but held as capital receipt by the tribunal and therefore considered separately. Thereafter the AO has made addition of Rs. 19860648/- on this basis that it is long term capital gain on account of transfer of goodwill. In view of this decision of Hon’ble 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 income 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).
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on the date mentioned on the caption page.