M/S. ABB LTD.,,BANGALORE vs. THE ADDL. CIT, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE

BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER

ITA No.1281/Bang/2010 Assessment year : 1997-98

ABB Limited, Vs. The Additional Commissioner of Khanija Bhavan, Income Tax (LTU), Race Course Road, Bangalore. 2nd Floor, East Wing, Bangalore – 560 001. PAN: AAACA 3834B

APPELLANT RESPONDENT

Appellant by : Shri P.J. Pardiwalla, Sr. Advocate Respondent by : Shri K.V. Arvind, Sr. Counsel

Date of hearing : 08.05.2015 Date of Pronouncement : 14.05.2015

O R D E R Per N.V. Vasudevan, Judicial Member

This is an appeal by the Assessee against the order dated 30.09.2010 of CIT(A), LTU, relating to AY 1997-98.

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part of its business activities was also engaged, in several years in the past, in the business of manufacture and sale of and distribution of

machinery and components for electric locomotives, signalling systems and electrification for railways (the business for components for electric

locomotives, signalling systems and electrification for railways hereinafter

collectively referred to as “the transportation business/undertaking”). By an agreement dated 28.6.1996, the Assessee agreed to transfer and sell to

ABB Daimler Benz Transportation (India) Ltd., the transportation business/ undertaking for a sale consideration of Rs.53,10,00,000/-. The transfer

was with retrospective effect from 1.1.1996. The term “undertaking” was defined to mean the operations and activities of the transportation business

of the Assessee as a going concern on an as is where is basis and

included all plant, machinery, current assets, industrial and other licenses, all intangible assets, all benefits and obligations of all current and pending

contracts, technology for design manufacture, test, quality assurances and servicing for all railway equipment and parts/components thereof as

existing with the Assessee, all liabilities relating to pertaining to the

operations and activities of the Assessee’s transportation business.

with ABB Bahnbeteiligungen GmbH, hereinafter referred to as ‘DEBAB”, which effectively held all the shares of ABB Daimler Benz Transportation

(India) Ltd., to whom the transportation business undertaking of the

Assessee was sold, that neither the Assessee or its affiliates shall engage

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in any way directly or indirectly, in any industrial activity which competes in India with the activities of the business that is transferred. In respect of this covenant not to compete, the Assessee was paid a sum of Rs.30,00,00,00 by DEBAB.

“Notes: During the year vide an Agreement dated 28th June, 1996 1. the company had sold and transferred its entire undertaking relating to the transportation business as a going concern, at a lumpsum price of Rs.54,62,49,000 to ABB Daimler Benz Transportation (India) Limited on 1st August, 1996. The asset that was transferred was the undertaking as such and not individual assets of the undertaking. The cost of acquisition of the asset and the cost of improvement thereof cannot be ascertained. Accordingly no capital gains have been offered in respect of the sale of the undertaking as a going concern. As the undertaking has been transferred for a lump sum consideration, no part of consideration can be attributable to any individual assets which is comprised in the undertaking. Accordingly, no adjustment has been made in computing w.d.v. for the block of assets. 2. During the year company has received a sum of RS.33,21,00,000 under an agreement from M/S.ABB Bahnbetiligungen GmbH, Germany, for furnishing non-compete covenant in respect of transportation business. The amount received is on capital account and as there is no transfer of capital assets, the amount has not been offered for tax.”

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between the parties to the agreement. The variation is not very material for the present case. The variation in the consideration for transfer of

transportation business/undertaking is because of an agreement between

the Assessee and the transferee to the effect that though there is transfer of business with effect from 1.1.1996 the Assessee will continue to run the

business and the Assessee will also be entitled to profits of the business up to 31.7.96. The variation in the figure of non-compete fee is because of

payment of interest by DEBAB at 18% on the sum of Rs.30 crores which is the non-compete fee from 1.1.96 to 31.7.1996 which comes to

Rs.3,21,00,000/-.

business on a going concern basis where the lump sum price cannot be

attributed to individual assets or liabilities. The concept of Slump Sale got its recognition in the Act by the Finance Act, 1999 by insertion of Section 2

(42C) (which defines the term ‘slump sale’) and Section 50B, which lays down a special computing mechanism for computing the gains therefrom.

Gain from slump sale has been held by judicial decisions to be not taxable neither as business income u/s. 41 (2) nor as Capital gains u/s. 45 of the

Act. To attract section 41 (2), the subject matter should be depreciable

assets and the consideration received should be capable of allocation

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between various assets. In case of a slump sale, an undertaking is transferred including depreciable and non-depreciable assets and it is not

possible to allocate slump price to depreciable assets and therefore, the same cannot be taxed u/s. 41 (2). Taxing gain on slump sale as capital

gain is also not possible because the Apex Court following the decision in

CIT V. B. C. Srinivasa Setty (128 ITR 294) held that the charging

section and the computation sections are integrated code and if one fails

other fails. If the computation sections fail then even the charging section fails. In case of slump sale, there are bundle of assets (including intangible

assets like goodwill) that are transferred and in absence of any specific provision like Section 50B, it is not possible to determine the cost of the

said assets and thus, the computation mechanism fails and so does the charging section. Therefore, it was held that the gain from the transfer of a

bundle of asset on a slump basis is not chargeable to capital gain also.

Thus, slump sale was held to be not chargeable to tax prior to insertion of Section 50B. In the present case, we are concerned with AY 97-98 prior to

insertion of Sec.50-B of the Act.

compete fee was considered and decided by the Hon’ble ITAT Mumbai Benches (the Assessee was assessed at that point of time at Mumbai) in

ITA No. 2555/Mum/2003 order dated 5.4.2007.

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Particulars Net Block as on 31.12.1996

Plant and Machinery Rs. 1,08,31,000 Furniture and Fixtures Rs. 30,34,000 Tools & Moulds Rs. 17,95,000 Vehicles Rs. 3,58,000 Technical Know-how Rs.43,17,62,000 Building nil Inventories Rs. 3,09,000

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“96. We have heard both the parties. There are three distinct categories of assets which have been transferred under the Agreement and to which values have been assigned by the purchaser, namely, (i) value assigned to the inventory sold; (ii) value assigned to the depreciable assets sold; and (iii) value assigned to the other assets sold. We shall now deal with each of them.”

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“99. In view of our aforesaid direction modifying the order of the learned CIT(A) regarding the computation of capital gains u/s 50 in respect of depreciable assets only, a consequential issue arises as to what treatment should be given to the remaining amount of sale consideration, i.e., sale consideration not allocable to inventories and non-depreciable component of the assets transferred. It can be considered for taxation either as capital gains or as business profits depending upon whether it is in capital field or revenue field. If it is not in any of the aforesaid fields, it can still be considered for taxation as a casual or non- recurring receipt u/s 56 read with section 10(3). Learned Commissioner (DR) has pointedly submitted that the assessee has already claimed cost of acquisition/improvement/development of non-depreciable assets in its accounts and hence cannot again claim deduction on the same account. He has also submitted that the assessee has neither capitalized those expenses nor shown them as investment or as capital assets in its accounts nor claimed any depreciation thereon. According to him, it is the total amount of sale consideration not allocable to inventories and depreciable assets that should be brought to tax without any deduction towards cost of acquisition/improvement/development, as such cost already stood claimed by the assessee in its accounts and allowed by the Department. The assessee has not rebutted the

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aforesaid submission, i.e., that the expenses towards acquisition/improvement/development already stood claimed as revenue expenses in the accounts, made by the learned CIT-DR, in its submissions including the written submissions. We find that this aspect has not been looked into by the learned CIT(A) but adjudication on this issue of taxability of profits or gains arising on transfer of non-depreciable assets is a necessary consequence of our directions to the AO to split the sale consideration into three parts. 100. We find that the purchaser has allocated Rs.43.17 crores out of total sale consideration to technical know-how. The assessee has not purchased the technical know-how. It has developed the technical know-how in-house. It is unbelievable that the assessee could have developed the technical know how in-house without incurring any expenditure or cost. There is nothing before us to indicate that the assessee has capitalised the expenses towards acquisition/improvement/development of technical know-how in its accounts or claimed depreciation thereon. The only inference that can be drawn is that the expenses incurred towards acquisition/improvement/development of technical know-how have been claimed as revenue expenditure in which situation the entire receipt would also be taxable in revenue field. However, the position would be different if the assessee has capitalized the expenses/costs incurred towards acquisition/improvement/development of technical know-how in its accounts in which case the profit or gain arising on their transfer would be chargeable to tax as capital gains u/s 45 after allowing deduction for the costs of their acquisition / improvement/development. The assessee cannot argue, after claiming deduction towards the expenses/costs of their acquisition/improvement/development as revenue expenditure, that the gains arising there-from would not be exigible to capital gains tax as their cost of acquisition/improvement/ development are not available for deduction u/s 48 of the Income-tax Act. if the assessee has treated the cost/expenses relating to acquisition/improvement/development of intangible non- depreciable assets in the revenue field, the gains arising as a result of sale thereof will have to be necessarily treated in revenue field either u/s 28 or section 56 and not as capital gains. The provisions of section 56 read with section 10(3) are quite apposite. Entire sale consideration not allocable to inventories and non-depreciable assets can also be considered for taxation as

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a receipt of casual and non-recurring nature under section 56 of the I-T Act if the assessee is not in a position to establish that the income accruing to it on account of the impugned transfer is not exempt from tax or is not liable to be taxed u/s 28. However, neither the AO nor the learned CIT(A) has recorded any finding of fact in this behalf. Therefore, the issue regarding the taxability of the remaining amount of sale consideration is restored to the file of the AO with the direction to verify all the aforesaid aspects, apply his mind afresh and decide the taxability or non- taxability of the remaining amount of sale consideration in accordance with law, after giving a reasonable opportunity of hearing to the assessee.

“129. In view of the foregoing, we endorse the order of the Departmental authorities that the impugned amount received by the assessee is not in lieu of restrictive covenant and that the said covenant is a colourable device to pass off the impugned receipts as non-taxable. 130. Ld. CIT(A) has noted in Para 21.3 (page 26) of his order the decision of the Assessing Officer that the impugned receipts are taxable either u/s. 28 or u/s. 10(3) or, in the alternative, as attributable to transfer of goodwill. In other words, the Id. CIT(A) was well-aware of the fact that the Assessing Officer has taxed it firstly as revenue receipts u/s. 28 and then as income of casual and non-recurring nature under section 10(3)/56 of the l-T Act and it was only in the alternative that he recorded the finding that the impugned receipt is also liable to tax on account of transfer of goodwill. At Para 21.7 (page 28) of his order the ld. CIT(A) has held that the receipt does not have the character of income and hence cannot be taxed as such and thereafter proceeded to decide that the impugned receipt was taxable as long term capital gain on the ground that the impugned amount represented receipt on account of transfer of goodwill to the purchaser. The order of the ld. CIT(A) is quite cryptic in as much as he has not given a well- reasoned consideration to the relevant aspects of the issue. He has

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not recorded any finding as to how the impugned receipt failed to pass the test of being business profits or being the income of casual and non-recurring nature u/s 10(3)/56. He ought to have first examined the correctness of the decision of the Assessing Officer as to whether the impugned receipts were in the nature of business profits u/s 28 or income in the nature of casual and nonrecurring receipt u/s 10(3)/56 if so, whether they were taxable under the aforesaid provisions instead of summarily rejecting it and proceeding to tax it as long term capital gain on the basis that the assessee has transferred the goodwill. He seems to have lost sight of the fact that it was the goodwill of ABB Group which was common both to the assessee-company and the purchaser-company and hence the assessee could not possibly have its own goodwill independent of the ABB Group for transfer to the purchaser-company. In any case, the goodwill of ABB Group was equally available to the purchaser-company. Since the learned CIT(A) has failed to consider the relevant aspects of the case and pass a well-reasoned order in this behalf, it is considered appropriate to set aside his order. In normal course, we would have restored the matter to his file. However, we are not doing so because we have restored other issues to the file of the AO. We therefore restore the matter to the file of the Assessing Officer for a fresh decision in accordance with law keeping in view the observations made by us earlier in this order. Ground no. 11 thus stands restored to the file of the Assessing Officer. 15. The present appeal arises out of the order of the AO and CIT(A) on remand pursuant to the aforesaid order of the Tribunal.

TAXABILITY OF CONSIDERATION RECEIVED ON TRANSFER OF TRANSPORTATION BUSINESS/UNDERTAKING:

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financials. He also held that such gain was long term capital gain because the business unit being sold was very old. The AO was of the view that the case of the Assessee fits most suitably with the decision in the case of CIT

Vs. Mangalore Ganesh Beedi Works 264 ITR 142 (Karn). In the

aforesaid decision, the Hon’ble Karnataka High Court took the view that trademark, trade name etc., are indistinguishable, inseparable and part of goodwill. He held that the cost of acquisition was nil and therefore brought the entire sum earmarked for technical how by the purchaser of the transportation business/undertaking in his books as long term capital gain.

Works (supra) equating trademark, trade name etc., as indistinguishable,

inseparable and part of goodwill, in as much as “Cost of Acquisition” in the case of self-generated assets like goodwill was amended by the Finance Act, 1987 w.e.f. 1.4.1989 by laying down that cost of acquisition of goodwill

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would be “nil”. By the Finance Act, 2002 w.e.f. 1-4-2003 “a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours”, were also included in Sec.55(2)(a) of the Act and the cost of acquisition of these assets were deemed to be nil. Therefore the legislature did not equate “Goodwill” with that of “a trade mark or brand name, or right to manufacture, produce or process any article”. Had the legislature thought the two things to be one and the same there was no necessity for the subsequent amendment to Sec.55(2)(a) of the Act by the Finance Act, 2002. The Assessee also invited the attention of the CIT(A) to CBDT Circular No.14 of 2001 dated 12.12.2001 252 ITR (St.) 65 which also clarifies that “Goodwill of a business is an asset separate and distinct from a “Trade mark that is used in the business. It was argued that technical knowhow was also to be regarded as an asset separate and distinct from goodwill. In the absence of any cost of acquisition being incurred for acquiring such Technical Knowhow, which fact was, according to the Assessee not disputed by the AO, the entire consideration could not be brought to tax having regard to

the principle enunciated by the Hon’ble Supreme Court in CIT Vs.

B.C.Srinivasa Setty 128 ITR 294 (SC). The Assessee reiterated that

“Technical Know How “ was a self-generated asset and the Assessee incurred no cost but developed in the course of conducting its business. It was also argued that if “Technical Know-how” is to be regarded as “right to

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manufacture an article or thing or a right to carry on business” even then the amendment to Sec.55(2)(a) of the Act deeming “Cost of Acquisition” of these assets as “nil” was effective only from 1.4.2003 and prior to that the capital gain on transfer of these assets was incapable of being determined and therefore the charging provisions of Sec.45 read with Sec.48 of the Act were not capable of being applied and the charge to tax would fail on the principle laid down by the Hon’ble Supreme Court in the case of B.C.Srinivasa Setty (supra).

the case of Indo Tech Electric Co. Vs. DCIT (2006) 282 ITR (A.T.) 197

(Chennai) wherein it was held, at the time of transferring the firm as a

going concern for a consideration, what was sold under the guise of technical now-how was nothing but goodwill with the sole intention of evading tax. In the absence of any evidence of what was the technical know-how transferred, the CIT(A) was of the view that what was transferred was in fact “Goodwill”. The CIT(A) also held that just because the

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department has accepted the allocation of consideration for transfer of business by the purchaser while coming to the conclusion that the transfer

of the business was not a “Slump Sale”, it cannot be said that the department cannot dispute the consideration allocated by the purchaser as

towards “Technical know-how” when considering the taxability of

consideration received towards transfer of “Technical know-how” under the head capital gain. According to the CIT(A) the consideration received by

the Assessee in the guise of transfer of “Technical Know-How” is nothing but a ruse to avoid tax liability that would clearly arise otherwise. The

CIT(A) therefore agreed with the order of the AO.

reiterating arguments as were put forth before the CIT(A), further submitted that the Tribunal while deciding the appeal never expressed any doubt as

to what was transferred was “Technical Know-how”. The Tribunal only

observed that if the costs incurred to develop technical know-how were already claimed as revenue expenses than the gains arising as a result of

sale thereof will have to be necessarily treated in revenue filed u/s.28 of the Act as “business Income” or Sec.56 of the Act read with Sec.10(3) of the

Act, as other income of a casual or non-recurring nature. If the expenditure on development of technical know-how had been capitalized by the

Assessee in the books of accounts, than the gain on their transfer would be

taxable as “Capital Gain” u/s.45 of the Act. The issue with regard to

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taxability of consideration received on transfer of Know-How was remanded to the AO only for the limited purpose set out above. According to him it was not open to the AO in the remand proceedings to hold that the consideration received for transfer of know-how was in fact for transfer of goodwill. It was pointed out by him that the AO, in the proceedings after the order of the Tribunal, came to the conclusion that the receipt needs to be treated as capital receipt subject to tax u/s.45 of the Act as capital receipt at the value given by the Purchaser. He pointed out that the AO in his order has attempted to give an impression that the Assessee has agreed to treat the receipt on transfer of technical know-how as goodwill. He pointed out that in the Assessee’s letter dated 7.12.2009, the contentions were made without prejudice and therefore the observations of the AO in this regard are not correct. It was submitted by him that there was no basis for the AO to come to a conclusion that It was pointed out by him “Technical Know-how” cannot be equated with “Goodwill”. It was also pointed out by him that the decision of the Hon’ble Karnataka High Court in

the case of Mangalore Ganesh Beedi Works (supra) has since been set

aside and remanded to the Hon’ble High Court for fresh consideration by

the Hon’ble Supreme Court as reported in 273 ITR 15 and 56(SC). It

was his submission that allocation of the consideration for transfer of business by the transferee/purchaser of the business cannot be disregarded and it has to be held that the consideration of Rs.43,16,62,000/- is towards transfer of “Technical Know-How”. He

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reiterated the argument that “Technical know-how” does not have a cost of acquisition and therefore computation of capital gain on such transfer is not possible prior to 1.4.2003 and therefore the charging provisions fail.

Court in the case of CIT Vs. Fernhill Laboratories and Industrial

Establishment 348 ITR 1 (Bom.). The Assessee in that case sold

trademark and designs for the considerations of Rs. 15 crores and Rs. 20 lakhs, but did not offer the same to tax in his return. The AO held that consideration received by assessee was chargeable to capital gain tax. The CIT(A) reversed the finding of AO. The Tribunal held that trademark was self- generated asset of assessee and cost of acquisition was nil, Section 48 is not applicable. The Tribunal further held that trademark became chargeable to tax w.e.f 1st April 2003 by virtue of amendment of section 55(2)(a). For the period prior to 1-4-2003 the sale of self-generated trademark was not liable to capital gain tax. It was only by amendment of section 55 (2)(a) words ‘trade mark or brand name associated with the business’ was introduced. The amendment does have prospective operation. The Hon’ble Bombay High Court upheld the view of the Tribunal.

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to develop technical know-how were already claimed as revenue expenses than the gains arising as a result of sale thereof will have to be necessarily treated in revenue filed u/s.28 of the Act as “business Income” or Sec.56 of the Act read with Sec.10(3) of the Act, as other income of a casual or non- recurring nature. If the expenditure on development of technical know-how had been capitalized by the Assessee in the books of accounts, than the gain on their transfer would be taxable as “Capital Gain” u/s.45 of the Act. According to him the AO has not carried out the directions of the Tribunal properly and therefore the issue should be remanded to the AO for fresh consideration to comply with the directions of the Tribunal. He relied on the

decision of the Hon’ble Supreme Court in the case of Kapurchand

Shrimal Vs. CIT 131 ITR 451 (SC) wherein the Hon’ble Supreme Court

held the appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by the statute. Without prejudice to the above submission, it was submitted by him that expenses on development technical know-how was not claimed by the Assessee as revenue expenditure. He pointed out that the Hon’ble ITAT while remanding the issue in para 99 & 100 of its order observed that the cost of “Technical Know-how” is ascertainable and therefore it was not possible to argue that there is no cost of acquisition of “Technical Know-how”.

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which values have been assigned by the purchaser, namely, (i) value assigned to the inventory sold; (ii) value assigned to the depreciable assets

sold; and (iii) value assigned to the other assets sold. The Tribunal dealt with the mode of computation of profits/gains arising on transfer of other

assets. In para-100 of its order the Tribunal clearly expressed its opinion

that the profits or gains arising on transfer of other assets (which comprises only of the asset “Technical Know-how”) has to be computed and that the

technical know-how was developed in-house by the Assessee and that it was not purchased. The Tribunal while deciding the appeal never

expressed any doubt as to what was transferred was “Technical Know- how”. The Tribunal only observed that if the costs incurred to develop

technical know-how were already claimed as revenue expenses than the

gains arising as a result of sale thereof will have to be necessarily treated in revenue filed u/s.28 of the Act as “business Income” or Sec.56 of the Act

read with Sec.10(3) of the Act, as other income of a casual or non-recurring nature. If the expenditure on development of technical know-how had been

capitalized by the Assessee in the books of accounts, than the gain on their

transfer would be taxable as “Capital Gain” u/s.45 of the Act. The issue with regard to taxability of consideration received on transfer of Know-How

was remanded to the AO only for the limited purpose set out above. As rightly contended by the learned counsel for the Assessee it was not open

to the AO in the remand proceedings to hold that the consideration received for transfer of know-how was in fact for transfer of goodwill. The

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revenue in coming to the conclusion that sale of the Transportation business/undertaking by the Assessee was not a slump sale had placed

strong reliance on the classification and allocation of consideration as recorded in its books of accounts by the purchaser. However when it

comes to taxing the consideration allocated by the purchaser towards

“Technical Know-how”, the revenue claims that it was towards goodwill. As already stated at no point of time in the original proceedings did the

authorities take a stand that the consideration allocated towards “Technical know-how” was in fact not for transfer of “Technical know-how” but towards

“Goodwill”. The CIT(A) in the proceedings after the order of the Tribunal sustained the order of the AO on the basis that the Assessee failed to

produce any details/information called for to substantiate the expenses

incurred towards acquisition/improvement/development of “Technical know- how” or the fact of its existence. This cannot be the basis to conclude that

what the parties agreed to as Transfer of “Technical know-how” was in fact transfer of “Goodwill”. The Agreement dated 28.6.1996 in clause 1 (a)(vi)

gives an indication of what was transferred as “Technical know-how” and it

reads thus:-

“1. In this Agreement, the following expressions shall, unless the context otherwise requires, have the following meanings. (a) “undertaking” means the operations and activities of the transportation business of the Vendor as a going concern on as is where is basis and shall include, inter alia: (I)…….to (v)…….

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(vi) Technology for design, manufacture, test, quality assurance and servicing for all railway equipments and parts/components thereof as existing with the Vendor as on the date of the transfer whether purchased or self developed including all books, documents, drawings, designs, manuals, etc.”

Hon'ble Supreme Court in the case of in CIT v. B. C. Srinivasa Seetty

[1981] 128 ITR 294(SC) dealt with the question whether capital gain

accrue or arise when "Goodwill" of a business is transferred. The Hon'ble Supreme Court held that section 45 of the Act operates if there is a transfer of a (Assessment Year 2000-01) capital asset giving rise to a profit or gain. The Hon'ble Court held that the expression "capital asset" is defined in

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section 2(14) to mean "property of any kind held by an assessee" and therefore was of the widest amplitude, and apparently covers all kinds of

property and goodwill is not expressly excluded by the definition. The Hon'ble Court however held that the definitions in section 2 of the Act are

subject to an overall restrictive clause viz., "unless the context otherwise

requires". The Hon'ble Court therefore went into the question whether contextually section 45, in which the expression "capital asset" is used,

excludes goodwill. The Hon'ble Court after referring to Sec.48 which provides the mode of computation of capital gain viz., deducting from the

full value of the consideration received or accruing as a result of the transfer of the capital asset "the cost of acquisition of the capital asset ",

held that the asset contemplated in sec.45 of the Act is an asset which

possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. The Hon'ble Court held that

goodwill is something built up by the carrying on of a business or profession and cannot be acquired by just paying money. Therefore there

can be no cost of acquisition for goodwill which is a self - generated. The

Court held that Sec.45 which is the charging section and Sec.48 which is the computation provision together constitutes an integrated code. When

there is a case to which the computation provisions cannot apply at all, such a case was not intended to fall within the charging section. In such a

case, when the asset is sold and the consideration is brought to tax, what is charged is the capital value of the asset and not any profit or gain.

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To overcome the decision in the case of B.C.Srinivasa Shetty 25.

(supra) and with a view to ensure that computation provisions do not fail

when there is a transfer of goodwill, the provisions of Sec.55(2)(a) were introduced by the Finance Act, 1988 w.e.f 1-4-1989. These provisions read as follows:

“55. Meaning of "adjusted", "cost of improvement" and "cost of acquisition".-- (1) ............. (2) For the purposes of sections 48 and 49, "cost of acquisition",-- (a) in relation to a capital asset, being goodwill of a business,-- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and (ii) in any other case, shall be taken to be nil ;”

“(2) For the purposes of sections 48 and 49, "cost of acquisition",-- (a) in relation to a capital asset, being goodwill of a business, or a right to manufacture, produce or process any article or thing, tenancy rights, stage carriage permits or loom hours, -- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and (ii) in any other case not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49, shall be taken to be nil ;

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"30.1 Cost of acquisition and cost of improvement of certain capital assets 30.1 Up to the assessment year 1988-89, the gains arising on the transfer of goodwill were not liable to tax. This was on account of the judicial view approved by the Supreme Court in CIT v. B. C. Srinivasa Shetty [1981] 128 ITR 294. The rationale of the decision was that goodwill being a self-generated asset and not costing anything in terms of money, the gains could not be computed in accordance with the provisions of the Act. By the Finance Act, 1987, the method of computing the cost of acquisition as well as the cost of improvement of goodwill was provided for. Where goodwill is purchased by the transferor, the cost of acquisition is taken to be the purchase price and in all other cases it is taken to be nil. The cost of improvement in either case is taken to be nil. 30.2 Instances have come to light where rights to manufacture, produce or process any article or thing have been extinguished for a consideration and claimed to be not taxable. 30.3 The Act has, therefore, amended sections 55(1) and 55(2) of the Income-tax Act in order to bring extinguishment of such a right to manufacture, etc., within the ambit of capital gains tax. Capital gains tax would be leviable only where such an extinguishment of right to manufacture, etc., is for any consideration. Such receipts will be subjected to capital gains tax on the same basis as already adopted for taxing transfer of goodwill and tenancy rights. The cost of acquisition and cost of improvement will be determined in the same manner as for goodwill."

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“(2) For the purposes of sections 48 and 49, "cost of acquisition",-- (a) in relation to a capital asset, being goodwill of a business, or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours, -- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and(Assessment Year 2000-01) (ii) in any other case not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49, shall be taken to be nil ;”

"39. Amendment of section 55 of the Income-tax Act, 1961 39.1 Under section 45, any capital receipts arising out of transfer of any business or commercial rights are taxable under the head "Capital gains". The amount of "capital gains" is computed according to section 48 of the Income-tax Act, 1961. For this purpose, "cost of acquisition" and "cost of improvement" are defined under section 55. At present, in case of receipts for transfer of right to manufacture, produce or process any article or thing the "cost of acquisition" and "cost of improvement" are taken as "nil" under section 55."

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the reason why the AO preferred to call transfer of Technical know-how as transfer of goodwill. We are of the view that “Technical know-how” and “goodwill” cannot be equated. In fact the statutory amendments to sec.55(2)(a) clearly shows that the legislature has not equated “goodwill” with trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business. The attempt made by the AO to equate transfer of “Technical know-how” with trade mark, trade name, goodwill etc., in our view cannot be sustained. The AO in his order has attempted to give an impression that the Assessee has agreed to treat the receipt on transfer of technical know-how as goodwill. In this regard it is seen that in the Assessee’s letter dated 7.12.2009 to the AO, the contentions were made without prejudice and therefore the observations of the AO in this regard are not correct. The decision of the Hon’ble Karnataka High Court in the case of Mangalore Ganesh Beedi Works (supra) has since been set aside and

remanded to the Hon’ble High Court by the Hon’ble Supreme Court. As rightly contended by the learned counsel for the Assessee, technical knowhow has to be regarded as an asset separate and distinct from goodwill. In the absence of any cost of acquisition being incurred for acquiring such Technical Knowhow, which fact is not disputed by the AO/CIT(A), the entire consideration could not be brought to tax having regard to the principle enunciated by the Hon’ble Supreme Court in CIT

Vs. B.C.Srinivasa Setty 128 ITR 294 (SC). “Technical Know How “ is a

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self-generated asset and the Assessee incurred no cost but developed in the course of conducting its business. Even if “Technical Know-how” is to

be regarded as “right to manufacture an article or thing or a right to carry on business”, the amendment to Sec.55(2)(a) of the Act deeming “Cost of

Acquisition” of these assets as “nil” was effective only from 1.4.2003 and

prior to that the capital gain on transfer of these assets was incapable of being determined and therefore the charging provisions of Sec.45 read with

Sec.48 of the Act were not capable of being applied and the charge to tax would fail on the principle laid down by the Hon’ble Supreme Court in the

case of B.C.Srinivasa Setty (supra). We therefore hold that profit on sale

of “Technical Know-how” cannot be brought to tax as “Capital gain” u/s.45

of the Act.

AO in the remand proceedings has consciously taken a decision that the gain on sale of Technical know-how was capital receipt chargeable to tax

u/s.45 of the Act. By implication he was satisfied that it was not a revenue

receipt chargeable to tax either u/s.28 or u/s.56 or Sec.10(3) of the Act. If the revenue deems such conclusion are erroneous and prejudicial to the

interest of the revenue than it could have explored the other options available under the Act to rectify the error. Prayer for a remand to the AO,

in our view, would not be sustainable.

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TAXABILITY OF NON-COMPETE FEE 34. We have already seen that under an agreement dated 24.6.1996, the Assessee agreed with ABB Bahnbeteiligungen GmbH, hereinafter referred to as ‘DEBAB”, which effectively held all the shares of ABB

Daimler Benz Transportation (India) Ltd., to whom the transportation

business undertaking of the Assessee was sold, that neither the Assessee or its affiliates shall engage in any way directly or indirectly, in any industrial

activity which competes in India with the activities of the business that is transferred. In respect of this covenant not to compete, the Assessee was

paid a sum of Rs.30,00,00,00 by DEBAB. The Tribunal first held that the Assessee failed to demonstrate that it possessed a probable and viable

means of competition and that the NCA was economically real and

meaningful. Thereafter the Tribunal held that the AO had taxed the non- compete fee either u/s.28 or u/s.10 (3) or as attributable to transfer of

goodwill. The CIT(A) however held that non-compete fee was nothing but receipt on account of transfer of goodwill of the Assessee to the purchaser..

According to the Tribunal the order of CIT(A) was cryptic and had not

analysed as to whether the receipt in question could be taxed u/s.28 or u/s.10(3)/56 of the Act or as long term capital gain on transfer of goodwill.

The tribunal held that the payment cannot be on account of transfer of goodwill. The issue was therefore set aside to the AO for a fresh

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consideration to decide whether the receipt would be chargeable to tax either u/s.28 or u/s.10(3) read with Sec.56 of the Act.

decision of the Hon’ble Supreme Court in the case of Parimisetti

Seetharamamma Vs. CIT 57 ITR 532 (SC). It was argued that mere

rejection of the Assessee’s argument will not result in the receipt being of

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the character of income or in the nature of income from business or other sources. It was argued that there is no basis or material on the basis of which it could be concluded that the receipt in question was in the revenue field. It was submitted that that the receipt was capital receipt not chargeable to tax.

case of ACIT Vs. Helios & Matherson 2008-TIOL-200 ITAT-Mad

wherein it was held that non- compete fee was in fact a payment made to the Assessee sharing customer database and sharing of trained employees and was chargeable to tax. The CIT(A) also referred to another decision of ITAT Chennai in the case of Madras Carbons Pvt. Ltd., Vs. ACIT 2007-

TIOL-255-MAD wherein the Tribunal held the payment of non-compete

fee was in fact a payment made on account of goodwill and to avoid tax the same was camouflaged as non-compete fee. After referring to the aforesaid two decisions the CIT(A) concluded the receipt of Rs.30 Crores was in the nature of business income taxable u/s.28 of the Act.

ITA No.1281/Bang/2010 Page 32 of 45

CIT(A). He pointed out that the two decisions relied upon by the learned CIT(A) does not help the case of the revenue. In the case of M/S.Helios &

Matherson Information Technology Ltd. (supra), the finding of the

Tribunal was that the non-compete fee was in fact a payment for sharing customer database and sharing of trained employees and therefore chargeable to tax. He pointed out that the receipt in the case of the Assessee is not attributable to transfer of any asset or right and the mere fact that the receipt is not attributable to non-compete covenant it cannot be automatically concluded that the receipt was either from business or income of a casual or recurring nature. In the decision rendered in the case of Madras Carbon Brushes Pvt.Ltd., (supra), the finding of the

Tribunal was non-compete fee was in fact consideration for transfer of goodwill. He pointed out that in the present case the Tribunal has already held that the payment of Rs.30 crores is not towards goodwill. Therefore reliance placed by the learned CIT(A) on the aforesaid decision cannot in any way improve the case of the revenue. He reiterated that the revenue has failed to establish that the receipt in question is on revenue account and chargeable to tax either as business receipts or income of a casual or non-recurring nature. He drew our attention to the decision of the Hon’ble Supreme Court in the case of Partimisetti Seetharamamma (supra) and

explained the ratio laid down therein. Further reliance was placed by him on the decision of the Hon’ble Bombay High Court in the case of MEHBOOB PRODUCTIONS PRIVATE LTD. vs. COMMISSIONER OF

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INCOME TAX 106 ITR 758 (Bom) for the proposition that all receipts by an Assessee does not constitute its income. In the aforesaid decision, the Assessee was doing business in production of films. The assessee completed the production of a film titled “Mother India” and was given exemption from payment of entertainment duty. The Assessee contended that the receipt in the form of exemption from payment of entertainment duty was not a trading receipt and therefore not chargeable to tax as income and in the alternative claimed that if it is regarded as income it must be held to be exempt being income of a casual or non-recurring nature. The Hon’ble Bombay High Court held that the receipt was no in the nature of income and was not a trading receipt. The learned counsel highlighted the following observations of the Hon’ble Bombay High Court:-

“On the material before us there is nothing to show that the assessee-company had produced the said picture Mother India with the slightest expectation that the same would be exempt from entertainment duty and that the amounts collected by the exhibitors as and by way of such duty would be directed to be paid over to it as producers by the Government of Bombay. It is true that we may consider the two notifications of the Government (Annexures "A" and "A-1" to the statement of case) and the various letters or orders made pursuant to the later notification dated 25th October, 1957, as the definite source to which the receipts are attributable. The fact that the payments appear to be entirely at the discretion of the Government and that the exemption can be withdrawn by the Government even without any default on the part of the assessee (see cl. 4 of Annexure A-1) would not be sufficient to disentitle the receipts from being considered as income. It is true that the object of the subsidy was to assist the producers (as annexure "A" shows) and to encourage future production of films of sufficiently high

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quality and which served a high social purpose. Bearing the factual position in mind, which has been indicated earlier, in this judgment, I would hold that these receipts do not partake of the element of a return which is necessary for it to constitute income, and further that it was of the nature of a windfall—a windfall as to the factum and not a windfall as to mere quantum. On both the counts, therefore, the answer to the question whether these receipts constitute income of the assessee must be in the negative and in favour of the assessee, viz., that they did not constitute income.”

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taxable and those findings will support the conclusions of the AO in the order passed after remand by the Tribunal. Alternatively the learned DR

pleaded that the issue be remanded to the AO to explain as to how the

receipt in question is taxable as income. According to him the receipt is relatable to the sale of the “Transportation business/undertaking” and

therefore should be considered as having nexus with the transportation business and hence taxable u/s.28 of the Act. Alternatively it was argued

by him that the receipt in question can be brought to charge of tax u/s.28(iv) of the Act as value of any benefit or perquisite, whether

convertible into money or not, arising from business or the exercise of a

profession.

Sec.28(iv) of the Act will not apply to the facts of the present case as what

the Assessee received was monetary consideration. In this regard he relied on the decision of the Hon’ble Bombay High Court in the case of

Mahindra & Mahindra Ltd. Vs. CIT 261 ITR 501 (Bom) wherein the

question was as to whether waiver of loan to acquire a capital asset can be

regarded as receipt chargeable to tax u/s.28(iv) of the Act. The Hon’ble Bombay High Court held that the income which can be taxed under s.

28(iv) must not only be referable to a benefit or perquisite, but it must be arising from business. Secondly, s. 28(iv) does not apply to benefits in cash

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or money. According to him the Assessee received Rs.30 crores in the present case and therefore Sec.28(iv) of the Act will not apply. He also

placed reliance on the decision of the Hon’ble Supreme Court in the case

of Universal Radiator Vs. CIT 201 ITR 800 (SC). In the aforesaid case

the Assessee was carrying on the business of manufacturing radiators. It imported copper ingots from USA which were to be converted into strips at

Bombay and then sent to assessee for being used as raw material. The

ship carrying assessee's copper ingots were seized by Pakistan during war. The Assessee received claim from insurance company. Due to

devaluation of rupee, assessee got Rs. 3,43,556 as against payment of Rs. 2,00,164. The difference was not a revenue receipt as so far as the ingots

did not reach Bombay and got converted into strips, the connection it bore with assessee's business was remote. Ingots were not stock-in-trade of

assessee and even if assumed to be so, they got blocked and sterlised and

ceased to be so. It was held that any surplus received due to fluctuation in exchange rate was capital receipt only and not chargeable to tax. And that

the excess arose due to fortuitous circumstances of devaluation of currency but not due to business activity, therefore, not taxable

The facts go to show that the Assessee claimed to have received Rs.30 crores under an agreement that it will not carry on any business competing

with the business that it sold viz., “Transportation business/undertaking”. The tribunal has already held that there was no threat of any competition by

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the Assessee and therefore the receipt of Rs.30 crores cannot be said to be for agreeing to a covenant not to carry on a competing business.

According to the Tribunal the order of CIT(A) was cryptic and had not analysed as to whether the receipt in question could be taxed u/s.28 or

u/s.10(3)/56 of the Act or as long term capital gain on transfer of goodwill.

The tribunal held that the payment cannot be on account of transfer of goodwill. The issue was therefore set aside to the AO for a fresh

consideration to decide whether the receipt would be chargeable to tax either u/s.28 or u/s.10(3) read with Sec.56 of the Act. In the set aside

proceedings neither the AO nor the CIT(A) have given a finding as to whether the receipt in question is chargeable to tax either u/s.28 or

u/s.10(3) read with Sec.56 of the Act.

In the case of Parimisetti Seetharamamma (supra), the facts 44.

were that the Assessee carried on business at Nuzvid as a moneylender

and conducted a cinematograph theatre. In respect of income from property and business she submitted a return of her income for the asst. yr.

1947-48, and disclosed a statement dt. 26th Aug., 1949, that Sita Devi,

Maharani of Baroda, had between 10th Nov., 1945, and 11th Feb., 1948, "out of natural love and affection" given to her some jewellery and four

amounts of money which aggregated to Rs. 5,20,000. The ITO, Special Circle, Vijayawada, accepted the appellant's statement and did not treat the

money and jewellery received by her as taxable income. In the course of assessment proceedings for the year 1951-52, the ITO was inclined to treat

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the money and jewellery given to the appellant as remuneration for services rendered to Sita Devi as a maidservant. He accordingly issued a

notice under s. 34 of IT Act and called upon the appellant to submit an explanation adducing all documentary and other evidence in her

possession relating to the receipt of assets admitted by her in her

statement" dt. 26th Aug., 1949, and relating to other cash amounts and cheques received by her between 25th Aug., 1948, and 23rd Oct., 1952,

and to other assets possessed by the appellant and disclosed by her in her "wealth statement". By her statements dt. 27th Nov., 1953, the appellant

submitted a detailed explanation about the items referred to in the letter of the ITO and claimed that income received by her was earned with the aid

of property which Sita Devi and the Yuvarani of Pithapuram had given to

her out of love and affection from time to time. The Hon’ble High Court endorsed the view of the Tribunal that the Assessee did not substantiate

that the receipts from the Maharani were out of nature love and affection and not for services rendered by the Assessee. On further appeal the

Hon’ble Supreme Court held:-

“In so observing, the High Court in our judgment has committed an error of law. By ss. 3 and 4 the act imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision. Where however a receipt is of the nature of the income, the burden of providing that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee. The appellant admitted that she had

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received jewellery and diverse sums of money from Sita Devi and she claimed that these were gifts made out of love and affection. The case of the appellant was that the receipts did not fall within the taxing provision : it was not her case that being income the receipts were exempt from taxation because of a statutory provision. It was therefore for the Department to establish that these receipts were chargeable to tax.” (emphasis supplied)

squarely apply to the facts of the present case. In the present case the

claim of the Assessee that the receipt of Rs.30 crores is in respect of non- compete covenant was not believed by the Revenue. As to how it could be

regarded as revenue in nature or receipts from business has not been substantiated by the revenue. The receipt of Rs.30 crores by the Assessee

cannot therefore be regarded as income. It should regarded as capital receipt not chargeable to tax. The prayer for a remand of the issue to the

AO for fresh consideration as made by the learned DR before us cannot be

accepted for the reasons which we have given while dealing with the first issue of taxability of consideration received on transfer of “Technical Know-

how”. The argument of the learned DR that the reasons given by the AO in the original order of assessment should be regarded as reasons given in

the order passed by him after remand by the Tribunal, is not acceptable.

The original order of the AO has been set aside by the Tribunal and therefore the reasons given therein can no longer be looked into. It is not

the case of the AO in the order passed after remand by the Tribunal that the reasons given in the original order will continue to hold good. The

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receipt in question cannot also be regarded as falling within the ambit of Sec.28(iv) of the Act as the consideration was received in cash and therefore cannot be regarded as value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. The decision of the Hon’ble Bombay High Court in the case of Mahindra & Mahindra Ltd. (supra), relied upon by the learned counsel

for the Assessee clearly supports the plea of the Assessee in this regard. The two decisions relied upon by the learned CIT(A) does not help the case of the revenue. In the case of M/S.Helios & Matherson Information

Technology Ltd. (supra), the finding of the Tribunal was that the non-

compete fee was in fact a payment for sharing customer database and sharing of trained employees and therefore chargeable to tax. The receipt in the case of the Assessee is not attributable to transfer of any asset or right and the mere fact that the receipt is not attributable to non-compete covenant it cannot be automatically concluded that the receipt was either from business or income of a casual or recurring nature. In the decision rendered in the case of Madras Carbon Brushes Pvt.Ltd., (supra), the finding of the tribunal was non-compete fee was in fact consideration for transfer of goodwill. In the present case the Tribunal has already held that the payment of Rs.30 crores is not towards goodwill. Therefore reliance placed by the learned CIT(A) on the aforesaid decision cannot in any way improve the case of the revenue.

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grounds of appeal of the Assessee as indicated above.

effect to the order of the ITAT. The AO passed the order giving effect to the directions of the Tribunal on 10.12.2009. In the said order after giving

effect to the directions of the Tribunal, the tax payable was arrived at by him at Rs.1,70,94,171. To the aforesaid sum the AO added a sum of

Rs.34,49,92,215 to arrive at the tax payable on which interest u/s.220(2) of

the Act was to be calculated. The Assessee was entitled to a refund in AY 96-97 which was a sum of Rs.34,49,92,215 and which was adjusted on

22.10.1999. The above refund included refund of tax of Rs.26,33,52,847 and interest on tax refund u/s.244A of the Act of a sum of Rs.8,16,39,368.

The Assessee had already offered to tax as income the sum of

Rs.8,16,39,368 in AY 2000-01. The plea of the Assessee was that only a sum of Rs.26,33,52,847 ought to be added to the sum of Rs.1,70,94,171

and not the sum of Rs.34,49,92,215. According to the Assessee interest u/s.244A of the Act grant under one order should not be considered as the

principal amount while passing a subsequent order for charging interest u/s.220(2) of the Act or granting interest u/s.244A of the Act. Otherwise it

would amount to tax on an amount which was earlier treated as interest

subsequently being treat as tax by revenue. The Assessee also pointed

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out that the interest u/s.244A of the Act has already been offered to tax by the Assessee in AY 2000-01 and therefore the calculation of interest u/s.220(2) of the Act as done by the AO is incorrect and that done by the Assessee which is at page- 18 of the Assessee’s paper book should be accepted as correct. The CIT(A) without understanding the above claim of the Assessee merely observed that charging of interest u/s.220(2) of the Act was mandatory.

“4.1 We have heard the learned Senior Counsel of the assessee in support of the grounds raised. It is contended by the learned Authorised Representative that the computation of interest adopted by the Assessing Officer is flawed and erroneous. It was submitted that interest under section 244A of the Act granted under one order should not be considered as the principal amount while passing a subsequent order for charging interest under section 220(2) of the Act or granting interest under section 244A of the Act. Otherwise, it would amount to tax on an amount which was earlier treated as interest subsequently being treated as

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tax by revenue. It is submitted that the interest amount granted under section 244A of the Act has been offered to tax by the assessee under the head income from other sources in the year of receipt and treating it as tax now would amount to double taxation. In view of this, the learned Authorised Representative assailed the principle upheld by the learned CIT (Appeals) that just as interest on interest under section 244A of the Act can be charged, on parity, of reasoning or reverse analogy interest on interest can be charged under section 220(2) of the Act. In support of the assessee’s stand and the arguments put forth, the learned Authorised Representative placed reliance on the following judicial decisions: i) Girnar Investments Ltd. V CIT (2012) 340 ITR 529 (Del) ii) CIT v. Fluoro Chemicals SLP (C) No.11406 of 2008 dt.18.9.2013. ITA Nos.437 & 439/Bang/12 4.2 Per contra, the learned Departmental Representative supported the orders of the authorities below and submitted that they ought to be upheld and consequently the assessee’s appeals for both years be dismissed. 4.3.1 We have heard the rival submissions and perused and carefully considered the material on record. The only issue for adjudication, before us, is the manner of treating the Interest under section 244A of the Act granted earlier, while computing the interest under section 220(2) of the Act. The assessee’s contention is that the entire amount of refund granted, which also includes interest under section 244A of the Act, should not be considered: but what should be considered is only the principal amount of tax. If the entire amount of refund granted earlier is considered, then that would amount to double taxation of the interest component as it has been offered as income for tax separately in the year of receipt. Per contra, the view of revenue, as emerges from the order of the CIT(Appeals), is that charging of interest on interest is correct and is allowed by the provisions of law as upheld by the Hon’ble Apex Court in its decision in Sandvik Asia (supra). 4.3.2 The decision of the Hon’ble Apex Court in Sandvik Asia (supra) has been explained by the Hon’ble Apex Court in the

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decision rendered in the case of CIT V Gujarat Fluoro Chemicals, SLP (C) No.11406 of 2008. The Hon’ble Apex Court, in the impugned case, has clarified that it is only interest provided for under the Statute which can be claimed by the assessee and no other interest on such statutory Interest. The Hon’ble Court had clarified that in the case of Sandvik Asia (supra), the Hon’ble Apex Court had directed Revenue to pay compensation for the under delay in issuing of refund and not interest on interest. Therefore, the settled legal position is that interest has to be granted only as per the provisions of the Act and that what has been granted in the case of Sandvik Asia (supra) is only a compensation for the undue delay in grant of refund. The decision cannot be read to mean that interest has to be granted on interest under section 244A of the Act, as the Income Tax Act, 1961 does not provide for the charging of interest on the interest granted under section 244A of the Act and therefore charging the same is not tenable. 4.3.3 Further, as in the case on hand, the question of undue delay in the case of Revenue does not arise. The interest under section 244A of the Act is granted by the department to the assessee for the delay in giving refund due to the assessee. On a subsequent date, if due to orders of assessment or appellate orders passed, the interest granted to the assessee under section 244A of the Act is to be withdrawn, the assessee cannot be held responsible for any undue delay, thereby requiring any compensation. Hence, the principle of compensatory interest for undue delay in grant of refund can be applicable to the assessee but not to the Department. 4.3.4 In view of the above discussion at para 4.3.1 to 4.3.3 (supra), we direct the Assessing Officer to recompute the interest chargeable under section 220(2) of the Act accordingly, by reducing only the principal amount of tax from the refund granted earlier and not to charge interest on the interest granted earlier under section 244A of the Act. It is ordered accordingly. Consequently, the assessees appeals for Assessment Years 199697 and 2003-04 on this issue are allowed.”

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Pronounced in the open court on this 14th day of May, 2015.

Sd/- Sd/-

( JASON P. BOAZ ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member

Bangalore, Dated, the 14th May, 2015.

/D S/

Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order

Assistant Registrar/ Senior Private Secretary ITAT, Bangalore.