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2013 (5) TMI 525 - AT - Income TaxIncome u/s 2(24) - Amount received by the shareholders - Whether Rs.60,59,303/- received by the assessee under the agreement from M/s.Tyco Electronics Middle East FZE, Dubai was exempted income from Income Tax? - whether the amount received by the assessee in consideration of exercising its voting right in the meeting of RPG Raychem Ltd. was a wind fall receipt in the hands of the assessee? - Held that - Consideration was received by the assessee in lieu of its exercising of voting rights in a particular fashion. It is not in dispute that to exercise voting rights is not the business of the assessee. It is also not in dispute that similar receipt has never been received by the assessee either in the earlier years or in the subsequent years. The receipt was not of recurring in nature. The DR could not point out any distinguishable facts in the instant case from the facts which were in the case of CIT vs David Lopes Menezes (2010 (10) TMI 11 - BOMBAY HIGH COURT (GOA)) wherein held that the burden of proving that a receipt is of revenue character initially rests on the revenue which have not discharged. Also the receipt was a casual receipt in the nature of windfall arising out of one time event of affirmative voting on a resolution. It was not of repetitive character and was not likely to happen again, thus Hon ble Bombay High Court being a superior court decision of the same should be respectfully followed & in the absence of any other contrary decision being cited by the Revenue the receipt of Rs.60,59,303/- was not in the nature of income in the hands of the assessee company - appeal of the assessee is allowed.
Issues Involved:
1. Whether the sum of Rs. 60,59,303/- received by the assessee from Tyco Electronics Middle East FZE, Dubai, under an agreement dated 30.03.2005, was exempt from Income Tax. Issue-Wise Detailed Analysis: 1. Nature of the Receipt: The primary issue was whether the amount of Rs. 60,59,303/- received by the assessee was a capital receipt or taxable as income. The assessee, a non-banking financial company, held 50% equity in RPG Raychem Ltd. (RRL). Tyco USA, concerned about competition from RRL, negotiated a settlement resulting in the assessee agreeing to vote in a manner that ensured RRL did not engage in specified business activities. The assessee received the first installment of the agreed amount as per the settlement. 2. Assessing Officer's (AO) View: The AO considered the receipt as income, arguing that it was received for making RRL relinquish its rights to manufacture, market, and promote certain products. Consequently, the AO added the amount to the assessee's income. 3. CIT(A)'s Decision: On appeal, the CIT(A) held that the amount was not business income but should be taxed as "income from other sources." The CIT(A) reasoned that the receipt was related to the assessee's investment activities and not its primary business activities. The CIT(A) rejected the argument that the receipt was a non-compete fee or a capital receipt arising from the extinguishment of a right. 4. Assessee's Argument: The assessee argued that it was never engaged in manufacturing or marketing activities and that the receipt was a mere windfall, not an organized business activity. The assessee cited the Bombay High Court's decision in CIT vs. David Lopes Menezes, where a similar receipt was not considered income. The assessee maintained that the receipt was for exercising voting rights, a statutory right under the Companies Act, and not for relinquishing any business rights. 5. Tribunal's Decision: The Tribunal found that the facts of the case were similar to those in CIT vs. David Lopes Menezes. It noted that the receipt was not recurring and was not related to any business activity of the assessee. The Tribunal held that the receipt was not income within the meaning of Section 2(24) of the Income Tax Act and should be considered a windfall. Consequently, the Tribunal set aside the CIT(A)'s order and allowed the assessee's appeal, ruling that the amount was not taxable. Conclusion: The Tribunal concluded that the sum of Rs. 60,59,303/- received by the assessee was not taxable as income. It was a windfall receipt for exercising voting rights in a particular manner, not related to any business activity or organized effort by the assessee. The Tribunal's decision was based on the precedent set by the Bombay High Court in CIT vs. David Lopes Menezes. The appeal of the assessee was allowed, and the order was pronounced on 03.05.2013.
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