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TMI Blog2004 (5) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... ade mark beverages of Coca-Cola company. M/s. Mansarovar Paper & Industries Ltd. suffered heavy losses and as per the BIFR order, certain business and assets of the said company mainly related to the bottling unit in the name of M/s. Mansarovar Bottling Co. were vested in HCC alongwith the specified taxes and liabilities. Subsequent to such vesting of business in HCC, all the four assessees agreed to desist from using the confidential information regarding the bottling and distribution of Coca-Cola trade mark beverages that was provided to them by Coca-Cola company during the course of bottling arrangement. An agreement to this effect was entered into between the HCC and the assessees and in consideration of a sum of Rs. 1,50,00,000 paid by HCC to each assessee, they agreed for the following obligations on their part: "(a) In consideration of the amount set forth below, the Covenantor covenants and agrees that, fur live (5) years from the date hereof (hereinafter referred to as the 'Commencement') the Covenantor shall not at any time after the Commencement disclose to any person for any purpose or use any know-how in any business or venture, either directly or indirectly through a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four cases came to be examined by the learned CIT. On such examination, he was of the opinion that the agreement dated 14-2-1998 executed between the assessees and HCC was covered within the meaning of section 2(47) read with the provisions of section 55(2)(a) as amended by the Finance Act, 1997 with effect from 1-4-1998 and the sum of Rs. 1.5 crores received each of the assessees was liable to be taxed as capital gain. He, accordingly, found the order of the Assessing Officer passed under section 143(3) excluding the said amount as capital receipt to be erroneous and prejudicial to the interest of the Revenue and issued notices to the assessees under section 263 requiring them to show cause as to why the assessment orders for the year under consideration passed by the Assessing Officer under section 143(3) should not be set aside/modified on the said issue. In response to the said notice, a written submission was made on behalf of the assessee before the learned CIT explaining that the order passed by the Assessing Officer accepting the sum of Rs. 1.5 crores received from HCC as capital receipt was in accordance with law and the same was not erroneous so as to call for revision un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvited our attention to a copy of agreement entered into by the assessees with HCC placed at page Nos. 25 to 30 of his paper book and pointed out that the assessees had only agreed to restrict themselves from parting with the know-how acquired during the course of bottling work of HCC done by M/s. Mansarovar Bottling Co. in the capacity of directors of the said company and such restriction was imposed by the said agreement only for a period of five years. He submitted that the assessees, therefore, had not given away any rights possessed by them and it was merely agreed to restrict use of the technical know-how possessed by them for limited period of five years. He contended that there was thus no transfer within the meaning of section 2(47) involved in the said transaction and the Assessing Officer was right in appreciating this position. He also submitted that there was neither extinguishment nor relinquishment of any right by the assessees in any capital asset and therefore the question of holding the amount of Rs. 1.5 crores each received by them liable to capital gain tax was not justified. He contended that even the amendment made in section 55(2)(a) by the Finance Act, 1997 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [1971] 80 ITR 575, even the transfer of right to manage own business being capital asset is covered by the said definition. He submitted that the know-how acquired by the assessees had given them a right to manufacture certain products and since such right was given up by them by way of an agreement for a period of five years, it was a clear case for relinquishment of such right which amounted to transfer within the meaning of section 2(47). He submitted that the agreement between the assessees and HCC thus gave rise to transfer of capital asset within the meaning of section 2(47) read with the provisions of section 55(2)(a) as amended with effect from 1-4-1998 and since the amount of Rs. 1.5 crores each received by the assessees was liable to capital gain lax as per the said provisions, the orders passed by the Assessing Officer treating the said amounts as capital receipt not liable to tax were erroneous as well as prejudicial to the interest of the Revenue. He contended that the learned CIT, therefore, was fully justified in revising the said orders on the issue under consideration and his impugned orders passed under section 263 deserve to be upheld. 6. We have considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were in accordance with law. A subsequent introduction of sub-clause (va) to section 28 by the Finance Act, 2002 making the receipt of an amount of the nature involved in the present case liable to tax as 'business income' with effect from 1-4-2003 further fortifies our conclusion because if such amount was already chargeable to capital gain tax as held by the learned CIT, there would have been no occasion/necessity to make the same liable again specifically as 'business income' by introducing the said provisions. We may also observe here for the sake of clarity that the case laws relied upon by the learned CIT in his impugned orders as well as cited by the learned DR before us involve different type of assets like mining lease, right to manage own business etc. which cannot be equated with the sort of rights possessed by the assessees in the present case and in any case, there being no transfer of the same as discussed hereinabove, the agreement between the assessees and HCC did not give rise to any capital gain liable to tax. As such, considering all the facts and circumstances of the case, we hold that the orders passed by the Assessing Officer under section 143(3) accepting th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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