2016 (5) TMI 923 - AT - Income Tax

Treatment of income arising out of EOU unit in Mumbai SEPZ - income from capital gains as against business income - Held that - From the facts of the case it is apparent that the assessee had only transferred his right to occupy / possession of the unit to the buyer and had dismantled the machinery, furniture fittings etc., and shifted the same to his place of work in Chennai. It is also obvious that the right over the unit can only be treated as right of owning a license. Therefore, the learned Commissioner of Income Tax (Appeals) is justified in holding that the consideration received for transfer of such right being a capital asset to be assessable under the head income from capital gains . Hence we do not find it necessary to interfere with his Order. Accordingly, we hereby confirm the order of the learned Commissioner of Income Tax (Appeals) on this issue. - Decided against revenue Debonding charges / Name transfer expenses - Held that - It is evident from the order of the CIT(Appeals) that he has examined the issue in detail and observed that the Debonding charges and name transfer expense were already excluded and only the balance amount of ₹ 2.38 crores was treated as capital gain of the assessee thereby any further disallowance would amount to double addition in the case of the assessee. For these reasons, the learned Commissioner of Income Tax (Appeals) had deleted the addition made on account of Debonding charges and name transfer expense. Therefore we do not find any infirmity in the order of the learned Commissioner of Income Tax (Appeals) on this issue. Hence we hereby confirm the order of the learned Commissioner of Income Tax (Appeals) on this issue also. - Decided against revenue

Summary

Issues involved:
1. Delay in filing appeal by the Revenue.
2. Treatment of income from EOU unit as 'income from capital gains' vs. 'business income'.
3. Disallowance of debonding charges and name transfer expenses as business expenditure.

Issue 1 - Delay in filing appeal:
The Revenue filed an appeal with a delay of 5 days, attributing it to a shortage of staff and year-end workload. The Tribunal, considering the reasons provided, condoned the delay and admitted the appeal for adjudication.

Issue 2 - Treatment of income from EOU unit:
The assessee, engaged in exporting video and audio cassettes from SEEPZ, Mumbai, declared income from the transfer of leasehold rights as 'income from capital gains'. However, the Assessing Officer treated it as 'income from business'. On appeal, the Commissioner held that the income derived from the transfer should be taxed under 'income from capital gains' as it involved the sale of a capital asset, not business receipts. The Tribunal upheld this decision, emphasizing that the right transferred was akin to a license, confirming the income as capital gains.

Issue 3 - Disallowance of debonding charges and name transfer expenses:
The Assessing Officer disallowed debonding charges and name transfer expenses as deductions, which the Commissioner reversed. The Commissioner noted that these expenses were already reflected in the profit and loss account, and any further disallowance would lead to double addition. The Tribunal agreed with the Commissioner's reasoning, confirming that the expenses were accounted for in the capital gains declared by the assessee. Therefore, the disallowance was deemed unnecessary, and the Commissioner's decision was upheld.

In conclusion, the Tribunal dismissed the Revenue's appeal, confirming the decisions of the Commissioner on both issues.