2012 (12) TMI 167 - HC - Income Tax

Right to carry on any business - Capital gain or Business Receipt - Assessee concern was taken over by ICT-SD Engineering Consultants Pvt. Ltd. and assessee received Rs.1,20,00,000/- in terms of MOA and by subsequent agreement 45% shareholding - held that - As decided by court in case of Commissioner of Income-tax Versus Mediworld Publications (P.) Ltd 2011 (4) TMI 503 - DELHI HIGH COURT that the right to carry on any business has been recognized by the Legislature as a capital asset, taxable u/s 55 (2)(a) of the Act and not taxable u/s 28(va) thereof - no infirmity in the appellate order of the Tribunal. No substantial question of law therefore arises.

Summary

Issues:
Interpretation of whether the amount received by the assessee under a memorandum of understanding constitutes capital gain or business receipt.

Analysis:
The case involved a dispute regarding the nature of the amount of Rs.1,20,00,000 received by the assessee pursuant to a memorandum of understanding with a newly inducted shareholder. The Revenue contended that the amount should be treated as business receipt, assessable under section 28(va) of the Income Tax Act, while the assessee claimed it to be a capital gain. The Tribunal analyzed the agreements and relevant facts, noting that the business itself was transferred as a going concern to a new company. It considered the intention of the parties, the nature of the transaction, and relevant case law, including the Supreme Court judgment in CIT Vs. Motor & General Stores (P) Ltd. The Tribunal also referred to CBDT Circular No.779 of 1999.

The Tribunal ultimately held that the assessee's business was indeed transferred as a going concern, and the right to carry on any business was recognized as a capital asset taxable under section 55(2)(a) of the Act, not under section 28(va). Citing the jurisdictional High Court's decision in "CIT v. Media World Publications Pvt. Ltd.," the Tribunal confirmed the order of the CIT(A) and rejected the Revenue's grievance. The High Court concurred with the Tribunal's findings, emphasizing that the transaction involved the transfer of the controlling interest in the business to the new company, with the assessee receiving shares in return. The Court found no error in the Tribunal's decision and concluded that no substantial question of law arose from the matter.

In summary, the judgment revolved around the characterization of the amount received by the assessee under a memorandum of understanding as either capital gain or business receipt. The Tribunal and subsequently the High Court determined that the transaction constituted the transfer of the business as a going concern, making the amount received a capital asset taxable under section 55(2)(a) of the Act. The decision was based on a thorough analysis of the agreements, the nature of the transaction, the intention of the parties, and relevant legal precedents.