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TMI Blog2004 (9) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------ Goodwill 3.00 Technical know-how 5.00 Excise Refunds Export Incentives 50.00 Import Licence 35.00 ---------- 93.00 -------------------------------------------------------- 3. During the relevant previous year ending on 31-3-1990, the assessee-company received the following claims of Export Incentives filed by the predecessor in-business Mr. B.H. Teli: -------------------------------------------------------- Refund of Excise Duty Rs. 23,21,247 Excise Duty Drawback Rs. 3,14,279 Cash Assistance Rs. 18,21,510 ------------------ Rs. 44,57,036 -------------------------------------------------------- In the books of the Company, the above sums of Rs. 44,57,036 received by the Company in respect of sales executed by the proprietary concern were credited to the aforesaid duly apportioned assets account, i.e. Exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Delhi High Court in the case of CIT v. Minerals Metals Trading Corpn. of India Ltd. [1986] 157 ITR 371 and of the Allahabad Tribunal in the case of Trackpart of India Ltd. v. IAC[1983] 3 ITD 489. 9. As regards the applicability of section 28(iiib) and 28(iiic) of the Act, it was submitted that the sums in question (Duty Drawback Rs. 3.14 lakhs and CCS Rs. 18.21 lakhs) were received by the assessee-company only in the nature of realisation of assets of going concern taken over by the company. The above receipts were not in the nature of 'income' in the hands of the company and hence, do not fall within the provisions of section 28(iiib) and 28(iiic) of the Act. It was argued that the Assessing Officer had rejected this submission only on the ground that there was no apportionment of consideration at the time of acquisition and that apportionment was subsequent to acquisition. 10. It was further submitted before the CIT(A) that in terms of the Agreement to acquire the undertaking, the Company had acquired all its assets, including actionable claims and amounts in question were received as realisation of said assets. The fact that apportionment of consideration was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike goodwill, technical know-how and the actionable claims like Excise Refunds and Export Incentives was embedded in the above sale consideration. The learned counsel referred to the following Clauses of the Agreement for Transfer of Business which is enclosed as page Nos. 10 to 16 of the compilation: "1. The VENDOR has agreed to sell and the VENDEE has agreed to purchase the entire running business of HEC of manufacture and sale of import substitute Special Purpose Machine Tools etc. and more particularly described in Annexure 'A' (which business hereinafter is referred to as the "said business") with all its rights, privileges, benefits, actionable claims, loans, liabilities and obligations, pending orders, etc. w.e.f. 10 October 1989 (hereinafter referred to as the "Effective Date"). 3. It is agreed that the VENDEE shall on the Effective Date takeover the entire running business on going concern basis including all the assets of the said business whether shown in the statement of affairs or not and all the liabilities and obligations whether shown in the statement of affairs or not. It is specifically agreed that the VENDEE shall takeover all the pending orders/contracts, ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in reality in the nature of realisation of above current assets. 17. In support of his contentions, the learned counsel relied upon the following authorities: (i) CIT v. Minerals Metals Trading Corpn. of India Ltd. [1986] 157 ITR 371, (ii) Trackpart of India Ltd. v. IAC [1983] 3 ITD 489 (All.), (iii) New Cawnpore Flour Mills (P.) Ltd. v. ITO [1986] 19 ITD 360 (All.). 18. In response to the query raised by this Bench that nowhere in the Agreement the amount of Rs. 50 lakhs was mentioned towards Export Incentives and Excise Duty refunds, the ld. counsel submitted that the business was sold for lump-sum consideration and it was a slump sale and, therefore, no separate break up could be mentioned in the Agreement as such. He stated that the company (i.e., the transferee) was aware of the amounts receivable for Export Incentives and that the amount of Rs. 93 lakhs was fixed keeping in mind the Export Incentives Excise refunds receivable. 19. As regards the query of the Bench whether Mr. B.H. Teli was a shareholder holding atleast 25 per cent of stake in the assessee-company, the ld. counsel replied that B.H. Teli was a shareholder and his exact stake details were placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued the case for the Revenue. 22. We have carefully gone through the orders of the authorities below, contents of the paper book and the written submissions of the learned counsel as also documents filed by him on 4-10-2001 and also considered the arguments of both the Departmental Representatives. From the facts of the case and the plain perusal of clauses 1,3 and 5 of the Agreement dated 4-10-1989 reproduced supra in para 14, it is amply clear that the assessee had agreed to purchase the "entire running business with all the rights, privileges, benefits, actionable claims, loans, liabilities, pending orders etc. with effect from 10-10-1989". The receipts in question were received by the assessee in the process of realisation of assets, i.e. actionable claims and realisation of actionable claim is capital realisation and not revenue realisation. In CIT v. Minerals Metals Trading Corpn. of India, MMTC took over the business and trade in mineral ores, concentrated metals and allied commodities from 1-10-1983 which was formerly carried on by State Trading Corporation. MMTC paid a sum of Rs. 2 crores as consideration for transfer and there was a stipulation in the Scheme/Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... What is more important, and what is more pertinent, is to enquire whose income it is, which is sought to be taxed. Receipt by itself is not sufficient to attract tax, it is only receipt as income which can attract tax. If an income is assigned by a person to another, in respect of that income it is not the assignee, who is liable to pay tax but the assignor. The assignee receives the income not by reason of the fact that it is his income, but he receives it by virtue of the assignment. His title to the income arises, not by reason of the fact that he has earned it, but by reason of the fact that there is an assignment in his favour. This principle applies to the present case also. The assessee is a successor of the firm of New Cawnpore Flour Mills. It has received the refund of the sales-tax by virtue of the fact that it has taken over the business of the former and not because it is its own income. Section 20 cannot, therefore, be attracted to such an income. A similar view was taken by the Delhi High Court in a recent case of CIT v. Minerals and Metals Trading Corpn. of India Ltd. [1985] 23 Taxman 143. In this case, the decision of the Supreme Court in Hukumchand Mohan Lal's case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------------------------------- Goodwill 3.00 Technical know-how 5.00 Excise refunds and export incentive 50.00 Import License 35.00 ----------- 93.00 -------------------------------------------------------- The receipts of Rs. 44,57,036 in respect of the sales executed by the proprietary concern were credited to the apportioned assets account. 31. The assessee-company filed its return of income disclosing loss of Rs. 7,63,400 on 31-12-1989. The Assessing Officer vide order dated 4-3-1991 under section 143(3) determined the loss at Rs. 5,43,670 without disturbing the above claim of the assessee thus accepting the above claim and treatment give by the assessee. Later on, the CIT vide his order dated 30-3-1993 under section 263 set aside the entire assessment order and directed the Assessing Officer to pass a fresh assessment order and consider the taxability of excise duty refund of Rs. 23.21 lakhs as income under section 41(1) of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtionment and that apportionment was subsequent to acquisition. It was next submitted before the learned CIT(A) that in terms of the agreement to acquire the undertaking, the company had acquired all its assets, including actionable claims and amounts in question were received as realization of said assets. The fact that apportionment of consideration was subsequent does not alter the nature of receipt, viz Realization of assets. It was, therefore, submitted that the amounts of Rs. 3.14 lakhs and Rs. 18.21 lakhs received were not income of the company. 35. The learned CIT(A) accepted the contention of the assessee to the effect that the above receipts were not the result of any business activity carried on by the company and were really in the nature of realizations of assets taken over by the company. She also accepted the assessee's contention that section 28(iiib) and 28(iiic) were not applicable to the above receipts as the above receipts were in the nature of capital receipts. Further as the amount received was lesser than the amount apportioned by the assessee-company towards the above claims, hence, there was no taxable net surplus. 36. Aggrieved by this order of the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se Refunds and Export Incentives was embedded in the above sale consideration. The learned counsel referred to the following clauses of the Agreement for Transfer of Business, which is enclosed as page Nos. 10 to 16 of the compilation: "1. The VENDOR has agreed to sell and the VENDEE has agreed to purchase the entire running business of HEC of manufacture and sale of import substitute Special Purpose Machine Tools etc. and more particularly described in Annexure 'A' (which business hereinafter is referred to as the 'said business') with all its rights, privileges, benefits, actionable claims, loans, liabilities and obligations, pending orders, etc. w.e.f. 10-10-1989 (hereinafter referred to as the "Effective Date"). 3. It is agreed that the Vendee shall on the Effective Date take over the entire running business on going concern basis including all the assets of the said business whether shown in the statement of affairs or not and all the liabilities and obligations whether shown in the statement of affairs or not. It is specifically agreed that the VENDEE shall takeover all the pending orders/contracts, actionable claims of the tangible and intangible assets, movable and immo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assets 41. In support of his contentions, the learned counsel relied upon the following authorities: (i) CIT v. Minerals Metals Trading Corpn. of India Ltd. [1986] 157 ITR 371 (ii) Trackpart of India Ltd. v. IAC[1983] 3 ITD 489 (All.) (iii) New Cawnpore Flour Mills (P.) Ltd. v. ITO [1986] 19 ITD 360 (All.) 42. Both the parties have been heard and orders of the authorities below as well as documentary evidence to which attention of the Bench was drawn, have been perused and the case law as relied upon has also been considered. 43. After careful consideration of arguments of both sides, the orders of the authorities below, the relevant provisions of laws and the documentary evidence, I find that one Mr. B.H. Teli who was earlier sole proprietor of the concern known as "HYT Engineering Corporation" sold the same to the assessee-company M/s. HYT Engineering Co. (P.) Ltd. vide agreement dated 4-10-1989 with effect from 10-10-1989 for a lumpsum consideration of Rs. 93.00 lakhs and that the said sole proprietorship business of Mr. B.H. Teli was discontinued and came to an end. The assessee-company, which is an independent taxable entity and is a juristic person, after buyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, all the other partners of the said firm retired and the assessee-company became the sole proprietor of the business. The assessee took over the partnership business as a running concern on 1-1-1976. The ITO included in the income of the assessee-company a sum of Rs. 8,43,460 being the provision for excise duty in respect of which a demand had been raised by the Excise Authorities against the predecessor firm. Deduction was claimed and allowed in respect thereof in the computation of its income of the relevant assessment year. This liability became unenforceable against the assessee-company during the calendar year 1976 relevant to the assessment year by virtue of a decision of the High Court rendered during the said year. The High Court held that all the conditions of section 41(1) were fulfilled and the assessee-company obtained a benefit in respect of a trading liability by way of cessation of the same. The value of such benefit so accruing to him, therefrom has to be deemed to be profits and gains of the assessee and chargeable to income tax as his income of the assessment year under consideration. Section 176(3A) provides that any sum received after discontinuance of a bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was passed by the arbitrator on 20-4-1977 and the assessee became entitled to: Rs. 3,00,556 withheld by the department Rs. 36,066 by way of interest from 1-6-1974 to 29-5-1976 Rs. 12,000 for work done for which bill was pending Rs. 2,866 future interest at the rate of 6% p.a. Amounts of interest were received by the assessee during the accounting period relevant to assessment year 1979-80. These amounts were brought to tax by the ITOs as revenue receipts. The assessee had loan facility from the Federal Bank for carrying out the contract work. Even after the termination of the contract work, the assessee was paying interest on the amount due to the bank, and such interest was disallowed by the ITO. The High Court held that the assessee discontinued his business in 1974. He received the amount from the Public Works Department after the said discontinuance. The amounts so received should be deemed to be the income of the assessee. It is to be charged to tax as income in the year of receipt. It is to be so assessed if the sum received by the assessee would have been included in the total income had such sum been received before the discontinuance. The statutory provision in subsect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee in the instant case discontinued his business in 1974. He received the amount, with which we are concerned in these references, after the said discontinuance. The amounts so received should be deemed to be the income of the assessee. It is to be charged to tax as income in the year of receipt. It is to be so assessed if the sum received by the assessee would have been included in the total income had such sum been received before the discontinuance. Section 176(3A) therefore, lays down that where any business is discontinued in any year any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt. Any sum received after the discontinuance of the profession shall be deemed to be the income of the recipient. Will it be the income of the recipient arising out of business? The statutory provision in sub-section (3A) is clear that the income so received should be charged to tax accordingly in the year of receipt. The words "charged to tax accordingly", according to us, are indicate of the head of income under which the receipt is to be charged to tax. In other words, the income should be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relief to the assessee. Therefore, while reversing the order of the learned CIT(A), I restore the order of the Assessing Officer. 51. As regards the case law as relied on by the assessee's counsel viz. Trackpart of India Ltd. v. IAC [1983] 3 ITD 489 (All.) CIT v. Minerals Metals Trading Corpn. Of India Ltd. [l986] 157 ITR 371(Delhi) and New Cawnpore Flour Mills (P.) Ltd. v. ITO[1986] 19 ITD 360 (All.), it is found that said cases do not relate to section 176(3A), section 28(iiib) and/or 28(iiic) but they are all relatable to either section 41(1) or period prior to assessment year 1976-77 when sub-section (3A) of section 176 was not on the statute book. Apart from this, in view of the ratio laid down by jurisdictional High Court on the point at issue, as discussed above, these cases cannot be said to be relevant for the proposition in hand so far as this assessee's case is concerned. 52. As a result, the appeal of the revenue is allowed. Order under section 255(4) of the Income-tax Act, 1961 Per Chhibber, A.M. - As there is a difference of opinion between the Accountant Member and the Judicial Member, the matter is being referred to the President of the Income-tax Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made to the valuer, M/s. R.M. Khadilkar Company, Chartered Accountants to apportion the consideration over the various assets taken over. The valuer submitted its report on 20-12-1989. The consideration was apportioned as under in the books of the company: - -------------------------------------------------------- Rs. In lakhs -------------------------------------------------------- Goodwill 3.00 Technical know-how 5.00 Excise Refunds and Export Incentive 50.00 Import Licences 35.00 -------- Total 93.00 -------------------------------------------------------- 3. Indisputably, at the time of assignment of the business, specific price to specific asset was not being allotted. Now the slump sale is defined under section 2(42C) of the Income-tax Act, 1961 (hereinafter called the Act) as under: - "2(42C) "slump sale" means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partnership does not necessarily bring into existence a new assessable unit or a distinct assessable entity and in such a case there is no devaluation of the business as a whole. In the case of CIT v. Merwanji Kola Co. [1968] 68 ITR 66: (Bom.) it was held that the requirement for granting relief under sub section (3) of section 25 of the Indian Income-tax Act, 1922, is that the business should be discontinued and not that the proprietor of the business or the proprietary body which owns the business must b discontinued. 8. It is palpable from the perusal of the records that the proprietor of the firm did offer the entire amount for capital gains. Clauses 1 and 3 of the agreement refers to actionable claims and incentive claims for which the assessee did pay consideration. It appears that the learned Judicial Member assumed that the business was discontinued by the proprietor, while factual and legal position is that the business was not discontinued. It was taken by the assessee-company as a going concern only. There was only change of partnership. 9. There is no dispute on the point that the transaction in question was not a collusive transaction or a subterfuge and coloura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtains any amount in respect of such loss or expenditure or any benefit in respect of trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him was deemed to be the profits and gains of business or profession. However, it was held in the case of Saraswati Industrial Syndicate Ltd., that such an amount or benefit can be charged to tax only if the assessee who receives the amount or benefit is the same person who was allowed the deduction earlier: - 12. With a view to ensuring that there is no loss of revenue and undue enrichment, sub-section (1) of section 41 was substituted by the Finance Act, 1922, so as to bring to tax the amount or benefit, as the case may be. 13. In this case I find that there is no undue enrichment to the assessee. The person who sold the business did pay capital gains tax. Besides, the year in question is governed by the law laid down by the Apex Court and this amendment is not applicable to the facts of the present case. My attention was also invited on the decision of the Hon'ble Gujarat High Court rendered in the case of CIT v. Saurashtra Packaging (P.) Ltd. [2003] 259 ITR 520. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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