2010 (2) TMI 622 - HC - Income Tax

Capital gain Short-term capital loss Renunciation of right to subscribe to right shares Renunciation in favor of general Public - assessee had a right to acquire 61,26,394 rights shares at Rs. 40 per share (Rs. 10 Rs. 30) and 28,19,500 equity shares at Rs. 55 per share as promoters contribution at the terms to be issued to public Transaction did not amount to transfer notional loss Not deductible Appeal Income or capital Non-competing fess Chargeability of amount not properly analysed and considered Appeal is allowed partly

Issues Involved:
1. Accretion to bottle deposits.
2. Treatment of beer bottles as plant.
3. Capital loss due to diminution in the value of shares.
4. Taxability of non-competition fee.
5. Jurisdiction of the Tribunal in adjudicating the taxability of compensation.
6. Classification of non-competition fee as capital asset or revenue receipt.

Detailed Analysis:

Re: Substantial Questions of Law (iv), (v), and (vi):

The primary issue revolves around the taxability of the non-competition fee of Rs. 4.30 crores received by the assessee. Initially, the Assessing Officer treated this amount as a revenue receipt. The Commissioner of Income-tax (Appeals) remanded the matter for fresh adjudication, confirming the revenue receipt status. However, the Assessing Officer later considered it as capital in nature, leading to its deletion as capital gains. The Tribunal, relying on this subsequent assessment, deemed the amount non-taxable. The High Court found that the Tribunal failed to consider the original assessment order and remanded the matter back to the Tribunal for fresh consideration of the taxability of the non-competition fee.

Re: Substantial Question of Law No. (i):

The issue pertains to the accretion to bottle deposits. The Assessing Officer added Rs. 266.65 lakhs to the assessee's income, finding that the bottle deposit was not reflected as a liability in the books of the wholesalers. The Tribunal deleted this addition. The High Court upheld the addition of Rs. 31,30,840, finding that the assessee did not cross-examine the witness and did not prove the accretion was real. Thus, the Tribunal's deletion was partly overturned.

Re: Substantial Question of Law No. (ii):

The issue is whether beer bottles can be treated as plant. The Tribunal accepted the assessee's claim, and this position was upheld by the High Court, referencing earlier decisions in favor of the assessee, including a dismissal by the Supreme Court. Therefore, the question was answered in favor of the assessee.

Re: Substantial Question of Law No. (iii):

This issue concerns the capital loss claimed by the assessee due to the diminution in the value of shares of M/s. McDowell and Company Limited. The Tribunal allowed the capital loss, applying the Supreme Court decision in Miss Dhun Dadabhoy Kapadia's case. The High Court disagreed, finding that the loss was notional and there was no actual transfer of shares for nil consideration. The High Court concluded that the Tribunal erred in allowing the capital loss and overturned this part of the Tribunal's decision.

Conclusion:

1. Accretion to Bottle Deposits: Partly negative; the addition of Rs. 31,30,840 by the Assessing Officer is upheld.
2. Beer Bottles as Plant: Answered in favor of the assessee.
3. Capital Loss on Shares: The Tribunal erred; the capital loss of Rs. 5,10,53,280 is not allowed.
4. Taxability of Non-Competition Fee: The Tribunal's decision is set aside and remanded for fresh consideration.
5. Jurisdiction of Tribunal on Compensation: Affirmative; the Tribunal must reassess the chargeability of the non-competition fee.
6. Non-Competition Fee as Capital Asset or Revenue Receipt: The matter is remanded to the Tribunal for fresh adjudication.

The appeal is allowed in part, with the questions of law answered as stated, and each party is to bear its own costs.

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