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2015 (8) TMI 331 - AT - Income TaxSlump sale - non-taxability of consideration received on sale of transportation business /undertaking - Held that - The only way to bring to tax sale consideration received on transfer of Technical know-how is to call it goodwill and that is probably 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. Technical Know How is a 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. With regard to the argument of the learned DR praying for a remand of the issue to the AO for a fresh consideration, we are of the view that the 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. - Decided in favour of assessee. Taxability of Non-compete fee - Held that - In the present case the claim of the Assessee that the receipt of ₹ 30 crores is in respect of noncompete 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 ₹ 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 Knowhow . 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 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. (2003 (1) TMI 71 - BOMBAY High Court), relied upon by the learned counsel for the Assessee clearly supports the plea of the Assessee in this regard. 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., (2007 (5) TMI 596 - ITAT CHENNAI), 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 ₹ 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. We therefore hold that the sum of ₹ 30 crores cannot be brought to tax and delete the addition made in this regard and allow the relevant grounds of appeal of the Assessee as indicated above. - Decided in favour of assessee. Manner of treating the Interest under section 244A of the Act granted earlier, while computing the interest under section 220(2) - Held that - 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. In view of the above 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. - Decided in favour of assessee.
Issues Involved:
1. Taxability of consideration received on transfer of transportation business/undertaking. 2. Taxability of non-compete fee. 3. Computation of interest under Section 220(2) of the Income Tax Act. Detailed Analysis: 1. Taxability of Consideration Received on Transfer of Transportation Business/Undertaking: - The Assessee transferred its transportation business to ABB Daimler Benz Transportation (India) Ltd. for Rs. 53,10,00,000, effective from 1.1.1996. - The Assessee claimed that the transfer was a slump sale and not taxable. - The Tribunal previously held that it was not a slump sale but an itemized sale of assets and liabilities. - The AO computed long-term capital gain by reducing the value of fixed and current assets from the total consideration. - The CIT(A) modified this to short-term capital gain under Section 50. - The Tribunal remanded the matter to the AO to verify if the technical know-how transferred was developed in-house and if expenses were claimed as revenue expenditure. - The AO concluded that the consideration for technical know-how was capital receipt subject to capital gains tax under Section 45. - The CIT(A) upheld the AO's view, treating the technical know-how as goodwill. - The Tribunal held that technical know-how and goodwill are distinct assets and cannot be equated. Since technical know-how was self-generated with no ascertainable cost of acquisition, the entire consideration could not be taxed as capital gains. - The Tribunal concluded that profit on the sale of technical know-how cannot be taxed as capital gains under Section 45. 2. Taxability of Non-Compete Fee: - The Assessee received Rs. 30,00,00,000 from ABB Bahnbeteiligungen GmbH for not competing in the transportation business. - The AO initially taxed the non-compete fee as business income. - The CIT(A) treated it as consideration for the transfer of goodwill. - The Tribunal remanded the issue for fresh consideration, directing the AO to determine if it was taxable under Section 28 or Section 10(3) read with Section 56. - In the remand proceedings, the AO again treated it as business profits without providing reasons. - The CIT(A) upheld this view, relying on ITAT decisions in similar cases. - The Tribunal held that the receipt could not be considered business income or income from other sources without proper substantiation by the revenue. - The Tribunal concluded that the receipt was a capital receipt not chargeable to tax, as the revenue failed to establish it as income. 3. Computation of Interest Under Section 220(2): - The AO added interest granted under Section 244A to the principal tax amount while computing interest under Section 220(2). - The Assessee argued that interest granted under Section 244A should not be treated as principal tax, as it would result in double taxation. - The CIT(A) upheld the AO's computation. - The Tribunal, following its own decision in the Assessee's earlier cases, directed the AO to recompute interest under Section 220(2) by excluding the interest component granted under Section 244A from the principal tax amount. - The Tribunal emphasized that interest on interest is not permissible under the Income Tax Act. Conclusion: - The Assessee's appeal was allowed, holding that the consideration for technical know-how and non-compete fee are not taxable as capital gains or business income. - The Tribunal directed the AO to recompute interest under Section 220(2) excluding the interest component granted under Section 244A.
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