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TMI Blog2011 (3) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in India. It was understood that the joint venture company, Luxor Writing Instruments Ltd. (LWIL) shall be the vehicle through which they shall carry on the aforesaid business in India under "Luxor" and "Parker" trade marks. It was agreed amongst the parties that they will not sell, transfer etc. their interests in LWIL. However, in the year 2000, Gillette group decided to sell its world wide business of writing instruments including its shareholding in LWIL to Newell Rubbermaid Inc., USA (Newell). In pursuance of this decision, Gillette group, Newell and Jain group entered into a addenda to joint venture agreement whereby Newell agreed to acquire the shareholding of Gillette in LWIL i.e., it decided to step into the shoes of Gillette and honour all rights and obligations of Gillette arising on account of agreement dated 19.3.1996. In April, 2001, Newell sought permission from Government of India for purchase of shares of the Gillette, which was granted. However, Newell did not proceed with the transfer of shares from Gillette to itself. In November, 2001, the assessee was informed that Newell has decided not to go ahead with the acquisition of shares of LWIL and would not becom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that where compensation is received for loss of an enduring asset, it would be a capital receipt, but where it is received in the ordinary course of business it shall be a revenue receipt. Finally, it was held that no injury has been caused to the capital structure of the assessee, therefore, the receipt is revenue in nature. Accordingly, the amount was added to the total income, which was computed at Rs. 33,68,850/-. 3. In reply, the ld. counsel for the assessee referred to paragraph no. 4.4 of the impugned order. It is mentioned that the members of Jain family, the assessee and the GIPL were carrying on the business of manufacture and sale of writing instruments and stationery in India under the joint venture agreement dated 19.3.1996 by forming a company known as LWIL. This company has been regularly assessed to tax separately. In the year 2001, Gillette Company Inc., USA, the holding company of GIPL, sold its world wide business of writing instruments to Newell and as a part of this transaction, the shareholding in GIPL was also sought to be transferred to the Newell. In this connection, various agreements were executed on 17.1.2001, according to which an assignment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether pursuant to clause 20 below or otherwise); 19A 1.2 the parties mutually agree upon termination;" 3.2 It is also submitted that the joint venture continued up to the year 2000 when Gillette wanted to exit writing instruments business world wide by selling it to Newell. Consequently, assignment and assumption agreement dated 17.1.2001 was entered into between GIPL, Newell and the Jain group, under which Newell was to step into the shoes of the GIPL in India. 3.3 It is also submitted that Government of India permitted the Newell to acquire 50% share capital of LWIL, being 12,34,375 equity shares in numbers from GIPL. However, Newell showed inability to acquire the share. The Gillette Group however wanted to exit. After negotiations, master agreement was entered into amongst members of Jain family, the assessee, Gillette Company Inc., USA and the Newell, under which the assignment agreement was terminated. It was agreed to transfer the shares to Mr. D.K. Jain or his nominees for a consideration of Re. 1/-. Further, Newell agreed to pay compensation of US$ 10 million to the members of Jain family as per details previously notified by Mr. D.K. Jain. As menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mily and the assessee on the other held equal shares. The agreement was intended to last over a long period but it contains a specific article regarding termination of the agreement, which has already been mentioned by us. The Gillette group wanted to sell its writing instruments business world wide including in India to the Newell. In view thereof, an agreement of assignment was entered into on 17.1.2001 amongst GIPL, Newell and members of Jain family including the assessee. Under this agreement, it was intended that Newell will step into the shoes of the GIPL. Consequently, Newell obtained permission from the Government of India for getting the shares of Gillette group transferred to it or its nominees on 24.4.2001. This agreement was sought to be terminated on 4.3.2002 on certain terms, including transfer of shares of Gillette group to the Jain group at nominal value of Re. 1/- and payment of compensation by Newell and GIPL to various persons of Jain group. Subsequently, various agreements were entered into to give effect to this agreement. The assessee received a sum of Rs. 48,64,490/- under this agreement as per directions of Mr. D.K. Jain to Newell out of the consideration an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect profit making structure of the assessee-company nor it involved loss of enduring trading asset. Accordingly, it was held that the receipts were revenue in nature. 4.2 In the case of CIT vs. Best and Company Pvt. Ltd., (1966) 60 ITR 11, the aforesaid case was followed and it was held that compensation received towards loss of agency was a revenue receipt as the loss of agency was a normal trading loss. 4.3 In the case of CIT vs. J. Dalmia, (1984) 149 ITR 215, the facts are that a property was under construction of which M/s Satish Kumar Sood and Sons were the owners. They entered into an agreement to sell the property to Shri Krishan Prasad on 29.11.1966 at a consideration of Rs. 4,95,000/-. A sum of Rs. 20,000/- was received in cash as earnest money. The construction was completed in accordance with certain specifications, which were annexed to the agreement to sell. Shri Krishan Prasad could get the property conveyed in his name or in the name(s) of his nominee(s). The purchaser was entitled to specific performance of the contract through court of law at the cost of the seller who would also be liable to pay damages in accordance with prevalent market price. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t whether the arrangement constituted an apparatus to earn profit, whether the arrangement was one in the course of business activity and whether what was received constituted a part of the circulating capital or was a part of the fixed asset. We have considered the submissions of learned counsel for the appellant but are not in a position to accept the same. There is hardly any scope for doubt that the benefit of section 10(2)(vi) of the Act would be admissible only where the assessee is the owner of the property. It too is not admissible in respect of a fractional claim. Similarly, we are of the view, in agreement with the High Court, that the amount which the assessee received under the compromise or by an amicable arrangement was in the nature of profits to be received by the assessee for the interest held in the business and, therefore, constituted taxable income. No other point was canvassed before us. This appeal has to fail and is hereby dismissed. Parties are directed to bear their own costs throughout." 4.5 The facts in the case of Payal Kapoor (supra) were that Jain group of assessees had show an aggregate receipt of Rs. 69.5 crore as capital receipt from Gillett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation on which the joint business was to be built and carried on. The agreement could not be treated as business. It was a capital asset invested in the business but not the business itself. There is no material on the basis of which it could be said that no loss was caused to the assessee. According to the revenue, it did not make any difference whether Gillette was the partner or Newell was the partner. This could not be accepted. Gillette was a world known group with renowned trade marks and trade brands. They had their own management and culture which was made available to the assessee. Therefore, it cannot be said that no loss occurred to the structure by dint of departure of Gillette group. There is no indication on record that the payment was made for future losses to be suffered by the assessee. The payment was made to the assessee by Gillette group and not by Newell. Since the compensation was paid for making changes in the joint venture agreement, such changes were in respect of capital assets. Therefore, it was held that the amount received was capital in nature. 4.6 The facts in the case of Gillanders Arbuthnot andCo. Ltd. (supra) are distinguishable. In that ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x brothers were partners in a firm, each having equal shares. Two brothers leased out their respective shares to the assessee but the leases were cancelled. These brothers undertook to pay the assessee certain amounts for five years. It is obvious that on cancellation of lease, all the brothers remained partners with equal shares. Thus, two partners paid certain amounts for five years and the amount was held to be taxable. In this case, there is no question of leasing any property. The payment has been received because after initially agreeing to step into the shoes of the Gillette, Newell did not want to fulfill this obligation. According to us, the facts of the case of Payal Kapoor (supra) are also distinguishable. In that case, Jain group and Gillette group were actually acting on the joint venture agreement, which was to subsist for a long period of seven years. The exit of Gillette group caused damage to the joint venture agreement. Therefore, it was held that the payment was to compensate the assessee for impairment of capital structure i.e., joint venture agreement. In this case, Newell was to step into the shoes of Gillette group who had already conducted business from the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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