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TMI Blog2003 (9) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... far as they are prejudicial to the interests of the revenue. The Commissioners of Income-tax noted that both these assessee-companies were shareholder of Whirlpool of India Ltd. (formerly known as Kelvinator India Ltd.) incorporated under the provisions of Companies Act, 1956. The main person who, was managing the business of these companies, was one Shri Jamshed R. Desai (In short hereinafter referred as "JRD"), who himself and on behalf of family members and the management companies, including these two assessee companies, entered into an agreement with M/s. Whirlpool Corporation, a company incorporated under the laws of State of Delaware, USA. (In short hereinafter referred asWC,USA). Under the agreement it was stated that JRD on behalf of family members and other companies could carry out certain obligations which were stipulated in sub-paragraphs (a) to (i) of paragraph 1 of the agreement. Amounts of Rs. 2,89,26,267 and Rs. 96,15,552 were paid to these two companies respectively for agreeing to vote withWC,USAand Whirlpool Mauritius Ltd. in a particular manner, as stated in paragraph 3 of the agreement. The above stated amounts received by these two companies were claimed as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid amount cannot be brought to tax as a casual and non-recurring receipt under section 10(3) of the Act. It was also submitted that casual receipts are such receipts, which are received by chance and the receipts received by assessee are not received by chance. The reliance was also placed on various case laws mentioned in the written submissions filed before the Commissioners of Income-tax. Both CIT after considering the detailed submissions filed on behalf of these two assessees, opined that the orders of the Assessing Officer were erroneous, therefore, they are prejudicial to the interest of revenue. While holding so, the CIT in case of Steri Mould Pvt. Ltd. has observed in his order that the Assessing Officer has verbatim reproduced the arguments raised on behalf of the assessee and accepted the contention before looking into any other aspect of the case either on facts or in law. Therefore, it was held that the order of the Assessing Officer was erroneous, accordingly the order of the Assessing Officer in case of Steri Mould Pvt. Ltd. was cancelled. Similarly, the other CIT also cancelled the assessment order in case of Ranpharm Investments (P.) Ltd., the other assessee. Now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by assessee on account of exercising its voting right in favour ofWC,USAis a casual receipt which is liable to tax. In support of this contention, the learned DR stated that respective shares of these assessees and its group concerns are still intact and capital of the assessee in shape of shares has not exhausted or lost. Neither these assessees have lost their rights to receive dividends or any other benefits which otherwise they were entitled. Regarding the jurisdiction, it was stated that Commissioner of Income-tax has supervisory powers, therefore, it cannot be said that Commissioner of Income-tax has no jurisdiction in setting aside the order of the Assessing Officer. The reliance was placed on Vel1kata Krishna Rice Co. v. CIT [1987] 163 ITR 129 (Mad.); 88 ITR 526 (sic) and 88 ITR 101 (sic). 9. We have heard rival submissions and considered them carefully. We have also perused other material on which the attention of the Bench was drawn. We have also considered various case laws relied upon by both the parties. Though at the cost of repetition, but we would like to state the brief facts once again. 9.1 Both these assessees are private limited companies and they r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts as capital in nature, because in his view the assessee has lost its control over the management as well as some other bundle of rights. The findings of the CIT(Appeals) are given in his order in paragraphs 4.2 and 4.3 at pages 7 and 11, which are reproduced here as under:--..... "4.2 I have given careful thought to the matter, which undoubtedly throws up a most interesting issue. At first blush, the Assessing Officer's line of reasoning sounds most attractive. His case is basically that, courts have held that where an amount is received in lieu of destruction of an income producing asset there only it constitutes a capital receipt. In the present case, the shares of WIL held by the appellant were its profit making apparatus as it yielded income in the form of dividends. Further, by virtue of the agreement dated12-1-1998there was not an iota of immobilization/sterilization of the profit earning capacity of the shares, as the appellant continued to be owner and registered shareholder of WIL with full rights to enjoy dividend income and bonus shares by holding such shares. The Assessing Officer further called the whole transaction a collusive device as shortly after execution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated earlier, Whirlpool group with a 51 % block could not have exercised certain rights with regard to management and control of the company, for which 7% of the voting power was necessary. In order to overcome this disability, WIL negotiated with JRD for exercise of vote of the latter groups bloc of share holding always in favour of Whirlpool. Thus, the amount received by the JRD group to vote always with Whirlpool was intrinsically linked with the bundle of rights going with the bloc of shares held by the JRD group. The effect of this receipt was that even though the appellant continued to hold the same number of shares and continued to earn dividend therefrom its rights exercisable in respect of its share holding got considerably constrained. In fact, in a way, the appellant's share holding lost value because apart from committing to voting with Whirlpool at all times, vide the shareholders agreement dated 9-7-1994, JRD group had also agreed not to dispose of its shares in Kelvinator without right of first refusal to Whirlpool, which stipulation however, did not apply to sale/transfer of these shares within the JRD group. Thus, the receipt was in lieu of curtailment of the bun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Instead of taking into account whole of the agreement, they have taken into consideration only clause (b) of paragraph 5.1 of the agreement. If whole of the agreement is taken into consideration, then a separate picture will emerge. 11.1 As stated above, JRD and his family members, along with associate companies where he was substantially interested, were having 59,47,978 equity shares out of total shares of 1,76,33,727 of Kelvinator India Ltd., now known as Whirlpool India Ltd. Out of 59,47,978 shares held by JRD Group, M/s. Steri Moult Pvt. Ltd. one of the associate company was having 10,75,033 shares and M/s. Ranpharm Investments Pvt. Ltd., another associate company, was having 3,57,494 shares.WC,USAentered into an agreement on 12th day of January, 1998 with JRD and under the agreement, the parties proposed to amend the shareholders agreement and certain other arrangements between them entered earlier. In execution of the agreement, JRD undertook on his own and on behalf of his family members and associates to vote withWC,USAand WhirlpoolMauritius. JRD also undertook on his own behalf and on behalf of his family members and associates to cooperate with and support all propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer and CIT (Appeals) the assessee has lost its bundle of rights etc., but they have not considered clauses (a) and (c),of paragraph 5.1 of the agreement. As per clauses (a) and (c), the assessee has received Rs. 20 crores and Rs. 4.42 crores respectively, which was paid to JRD company in consideration for non-competition and confidentiality obligations undertaken by JRD company and on account of termination of his veto right, amending the shareholders agreement and other arrangements, including terminating the consultancy arrangements as stated in the agreement dated 12-1-1998. These two receipts i.e. Rs. 20 crores and Rs. 4.42 crores neither has been taken into consideration by the Assessing Officer or the CIT (Appeals) while disposing the appeal in case of Expo Leasing Pvt. Ltd., nor the counsel of the assessee has given any clarification about these two receipts before the Assessing Officer or the CIT (Appeals). If these two amounts could have been taken into consideration by the Assessing Officer or by the CIT (Appeals) then, in our considered view, they would not have arrived at a conclusion that the consideration received in lieu of voting in favour of WC, USA is fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of voting in favour of WC, USA was nothing but was a sale' consideration of shares, which was received in advance. The reason for drawing this inference is that the shares were sold to JRD and the amount of consideration on account of sale of shares and on account of alleged voting in favour ofWC,USA, was received from JRD and not fromWC,USA. 11.6 There is one more reason for drawing this inference, and that is that one of the group concerns of JRD i.e., Gulmarg Holdings Pvt. Ltd., Dilkhush, 40, Ridge Road, Malabar Hills, Bombay-400006 have shown the consideration in lieu of voting in favour of WC, USA as sale consideration of its shares sold to JRD and have paid tax on account of capital gain on the entire amount i.e., sale consideration shown in lieu of sale of shares and consideration received in lieu of voting in favour of WC, USA. The different assessees of the same group have been taking different stands in regard to consideration received in lieu of voting in favour ofWC,USA. In fact, these two assessees have voted in favour ofWC,USAonly on the direction of JRD because JRD has purchased all the shares of these two companies. The agreement was entered on12-1-1998and as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer. The High Court confirmed the action of the CIT under section 263(1). On appeal the Hon'ble Supreme Court also confirmed the order of the High Court. 13. The facts of the case in hand, as already discussed above, that the assessee appended a note on the computation sheet of income, stating that the receipt received on account of voting in favour ofWC,USAis not taxable. The Assessing Officer required to file the explanation and assessee filed reply and relied upon various case laws. However, the Assessing Officer without applying his mind and without considering the full agreement entered into with JRD group andWC,USA, accepted the contention of the assessee and held that the receipts are not taxable. Neither the Assessing Officer has looked into aspect that all the shares held by these two companies have already been sold and once all the shares have already been sold during the year under consideration, then what bundle of rights have been lost by the assessee, is not understandable. Even on law, the Assessing Officer has not considered the ratio of the various case laws relied upon by assessee that whether the ratio of those decisions are applicable on the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. Similar view was expressed by the Supreme Court in the case of Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323. 15. Though in the present case the assessee was required to explain the nature of receipts and a reply was filed by the assessee, but the Assessing Officer has not given any independent finding as he merely accepted the submissions submitted on behalf of the assessee. Neither the Assessing Officer tried to go to find out the factual position, nor tried to understand the law that how the ratio of the decisions relied upon before him are applicable on the facts of the present cases. Therefore, in our considered view, the Commissioners of Income-tax were correct in holding that the orders of the Assessing Officer were erroneous and prejudicial to the interests of the revenue. 15.1 The contention of the counsel of the assessee that in one another case i.e., in the case of Steriplate (P.) Ltd., the Assessing Officer has not taxed the receipts as revenue. The reason for not taxing the receipt as revenue was that the Assessing Officer passed assessment order with the prior approval of CIT, Rohtak and that order is final. We have seen the copy of the order passed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss, total or partial, of a capital asset would be a capital receipt. 18.3 In the case of Prabhu Dayal it was held that compensation for termination of an income producing asset being a payment for destruction of a capital asset must be considered as a capital receipt. Similar view was expressed in the case of Kettlewell Bullen Co. Ltd. 18.4 TheMadrasHigh Court in the case of Seshasayee Bros. Ltd. held that surrender of licence obtained to start manufacture of vanaspati product for consideration was not assessable as a trading receipt as it was not one of the lines of business of the assessee to acquire and sell licenses. 18.5 The Hon'bleDelhiHigh Court in the case of A.S. Bhargava held that the amount received towards transfer of dealership rights in petrol was a capital receipt as there was no material on record to show that it was the business of the assessee to obtain and transfer such rights. 18.6 TheMadrasBench of the Tribunal in the case of Shrinivasa Raghava Iyengar v. ITO [1982] 13 TTJ 245 considering a case where the assessee firm filed a suit against a company for the injunction to use the name similar to that of firm by that company. There was compromise in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a capital receipt, as held by various courts. The persons or parties concerned, who received compensation in the above stated cases, were directly effected in respect of their business rights. Either they were deprived with the agency rights or they were restricted to use the name of a particular brand, which was used for the purpose of business or they lost their tenancy rights where they were doing their business activities. 20. We have also seen other cases and find that those are either in regard to surrender of tenancy rights or again in regard to compensation received in lieu of surrendering of commission agency etc. 21. In our considered view, the only aspect which remains to be taken into consideration is that whether the consideration received shown by these two assessees on account of voting in favour ofWC,USAis a business receipt or sale consideration of shares. The assessee is not dealing in trading of shares, therefore, in our considered view, these receipts cannot be held as business receipts. Undisputedly, the assessee has sold his shares. Therefore, in our considered view, the consideration shown by these two assessees that the same has been received in lieu of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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