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TMI Blog2006 (3) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... ers at that point of time. In this context, M/s. Sunlife Assurance Company of Canada approached the assessee-company to join its hands as a joint venture partner to carry on business and services in financial sector in India under the brand name of both the companies, that of Sunlife as well as Birla. The assessee entered into agreement with Sunlife of Canada to make way for the latter to enter into Indian market through a programmed association with certain associate concerns of the assessee. In the scheme of these arrangements, the assessee-company continued to be a promoter of the financial services business in India. It has also agreed to reduce its controlling interest in its associate concerns making way for acquiring the shares by the Canadian company through subsidiaries. The assessee-company diluted its controlling shareholding in those concerns in favour of the subsidiaries of the Canadian company. 3. The scheme of this joint venture business has been made on the basis of agreements entered into between the group companies. All the agreements are uniform in nature. As per the agreements, Sunlife of Canada had to give payments to the assessee-company by way of "goodwill" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group concern of the assessee to Sunlife Group and as per third agreement, the assessee had no obligation. In all the three deals no long-term capital asset was ever transferred by the assessee. Therefore, the so-called goodwill cannot be taxed as long-term capital gains." 7. The assessee-company filed a detailed reply in compliance of the show-cause notice issued by the Commissioner. The reply was submitted through letter dated 13-8-2003. The assessee explained before the Commissioner that the payments were made in respect of goodwill and the payments were made on the basis of the agreements entered into between the parties. The assessee-company submitted that specific clauses are incorporated in the agreements in respect of payment of goodwill whereby Sunlife Assurance Co. of Canada has undertaken to pay goodwill to assessee-company in consideration of reducing the controlling interest in the group concerns and in sharing the goodwill of the assessee-company in the financial services business in India with the Canadian company. The assessee explained before the Commissioner that the expression "goodwill" has also been defined in the agreements whereby "goodwill" means : the bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e financial services business since 1986 and in particular, in the mutual fund business (MF) since 1994, in the distribution business since 1995 and in the securities broking business since 1996, the goodwill in relation to the financial service business is undoubtedly a long-term capital asset; l There is no broker in the transaction as alleged in the earlier notice dated July 29, 2003 and hence, the question of treating the goodwill price as brokerage does not arise; l The deal is between two large and well known business houses of international repute at an arm's length basis. The FIPB approval and the FIRC letter show these amounts were received towards goodwill. There is, therefore, no reason to believe that facts stated in the agreements and in the official records of the regulatory authorities are not real and the same was revenue receipt. l There is nothing with the department to prove that the impugned payments are in respect of brokerage alleged in the earlier notice; l The order has been passed by the Assessing Officer after making adequate enquiries and obtaining all necessary information; and l Therefore, the order passed by the Assessing Officer taking the goodwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the CIT is not based on any material on record but merely on conjecture and surmise and the appellant prays that the order passed under section 263 ought to be quashed." 13. We heard Shri Arvind Sonde, the learned counsel appearing for the assessee along with Shri Sampat Kabra, the learned Chartered Accountant. The contentions and arguments of the learned counsel appearing for the assessee-company are briefly stated as below : 1.The Commissioner of Income-tax has grossly erred in making a statement that the issue of the receipt of goodwill was not properly examined by the assessing authority in the course of assessment proceedings. The finding recorded by the Commissioner as above is against the facts of the case. 2.In the pre-assessment notice dated 16-8-2002 issued by the assessing authority to the assessee-company, the assessing authority had asked for the details of goodwill of Rs. 4,045 lakhs (copy of the letter is available at page 106 of the paper book). 3.In compliance to the query raised by the assessing authority, the assessee-company has explained as below, regarding the goodwill receipts, in its reply dated December 3, 2002. 4.During the year it has earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were called for by him through his pre-assessment notice dated 16-8-2002 to which the assessee had replied along with the copies of the agreements. 8.In the circumstances, it is against the facts of the case to make a finding that the assessing authority has not properly examined the question of goodwill declared by the assessee as long-term capital gains in its computation of taxable income. 9.The strategic alliance made by the assessee-company with Sunlife Assurance Co. of Canada was cleared by Government of India in the Ministry of Industry through the Foreign Collaboration Board. In the approval given by the Competent Authority for such a strategic alliance, specific approval has been given to the assessee-company to receive consideration on account of goodwill from the Canadian Company. In the approval letter of the Competent Authority dated March 15, 1999, paragraph 6 reads as below : "6. The approval is also conveyed for payment of Rs. 63.25 crores to the promoters, viz., M/s. Birla Global Finance Ltd./Birla Group Holdings Ltd. by M/s. Sunlife Assurance Co., Canada on account of goodwill, subject to the condition that this amount will not be repatriated (page 332 of pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxability and assessee have furnished all the necessary details before him. The particulars are already embedded in the accounts, statements and the computation of income filed by the assessing authority. In the light of all these speaking materials and especially, in the light of the pre-assessment notices issued by the assessing authority, it is not possible to come to a finding that the Assessing Officer has not examined the issue in detail. On this ground itself, the order of the Commissioner is bad in law. At the maximum what is expressed by the Commissioner is a different opinion held by him and not a mistake or error or omission in the order passed by the Assessing Officer. 15. Without prejudice to the above factual contention, even on merit, the Commissioner has no materials before him to hold that the payments received by the assessee-company from Sunlife Assurance Co. of Canada were payments other than for goodwill. The business legacy of the assessee-company is beyond question as far as Indian financial business is concerned. The Birla group as such is a synonym of Indian industry. The assessee-company started its operations right from 1986. In the financial sector it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee regarding the consideration for receiving the goodwill payment is against the facts of the case. 2.The Assessing Officer has made only a superfluous examination of the issue as is evident from the assessment order itself. Even though the Assessing Officer has issued a pre-assessment notice in which details were called for in respect of goodwill payments, he has not made any useful discussion in the assessment order regarding that important issue. 3.The non-deliberation by the Assessing Officer in the assessment order regarding the issue and the finding of the Commissioner regarding the shareholding pattern, when read together make out a clear case that the payments received by the assessee-company from the Canadian company could not be easily labelled as payments towards goodwill without conducting further effective enquiries. 4.If the Commissioner could make such a finding as stated above, the said finding is quite sufficient to hold that the assessment order is erroneous and prejudicial to the interest of the revenue. 5.Therefore, the Commissioner has set aside the assessment order to do justice to the facts of the case and there is no error or infirmity in the revision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re made by the Canadian company. 22. There is substantial difference between a fact being not considered and a fact being considered. In the present case, it is almost impossible to say that the Assessing Officer has not considered the question of goodwill payments while completing the assessment. There cannot be a case at all that the Assessing Officer has not applied his mind on the issue of long-term capital gains claimed by the assessee in its return of income. As the Assessing Officer has considered this aspect, the position is entirely different from a case where the relevant fact has not at all been consi-dered by the assessing authority. Distinction must always be borne in mind while appreciating the credibility of an assessment order especially in the light of a revision order passed under section 263. 23. Once it is found that the relevant issue has been considered by the assessing authority, next attempt is to find out whether the issue was properly/sufficiently considered by the assessing authority and whether the assessing authority has considered all relevant aspects of the issue. A judgment on this is always qualitative and commonly subjective. One Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils and after doing so, he has accepted the contention of long-term capital gains. 24. In the above facts and circumstances of the case we are of the considered view that it is not factually correct to say that the Assessing Officer has not considered the issue in his assessment order or the Assessing Officer has not applied his mind properly before accepting the version of the assessee-company that the goodwill payments amounted to long-term capital gains. Accordingly, we find that the first limb of the finding of the Commissioner is unfounded. 25. As far as the merit of the issue is concerned, it is to be seen first that the entire scheme of joint venture association between the assessee-company and the Canadian company was made in the light of the policy declaration made by the Government of India in the wake of economic reforms brought in the financial sector in India. The assessee-company has associated with the Canadian company for the purpose of entering into Financial Service business in India on the basis of the above policy declaration which were subject to various approvals by the Competent Authorities formed by the Government in the Ministry of Industry. As already re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no basis for the Canadian company to pay goodwill to the assessee-company. The privilege obtained by the Canadian company to enter into the financial market with the brand name "Birla" is a sufficient consideration for making payments towards goodwill. 28. In addition to sharing of this intangible asset owned by the assessee, the shareholdings in its associate concerns operating in financial sector have been diluted in favour of the subsidiaries formed by the Canadian company, which helped the Canadian company to consolidate its investment in India. The various discussions made by the Commissioner of Income-tax regarding the pattern of shareholding does not speak the whole truth as such. The Commissioner's conclusion that there was no substantial dilution in the long-term holdings of the assessee-company was premature based on randomly selected statistics. Nowhere in his order, the Commissioner has made out a clear case that the subsidiary companies formed by the Canadian company have acquired shares otherwise than through the medium of assessee and its associate concerns. The Commissioner has not made out any case that the shares were acquired by the Canadian subsidiaries at ..... X X X X Extracts X X X X X X X X Extracts X X X X
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