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TMI Blog2011 (8) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the transferor company and there are no clauses to lead to the inference that with the transfer of the ongoing projects and projects awaiting agreements to be signed, the transferor company had transferred its entire business - Decided in favor of the assessee - 73 of 2005 - - - Dated:- 10-8-2011 - CHITRA VENKATARAMAN MRS., JAICHANDREN M., JJ. JUDGMENT Mrs. Chitra Venkataraman J.- 1. The tax case appeal is filed by the assessee against the order of the Income-tax Appellate Tribunal, Chennai "A" Bench in I. T. A. No. 2272 of 1997 dated August 31, 2004, relating to the assessment year 1993-94 raising the following substantial questions of law : "1. Whether in law the amount paid by the appellant engaged in the business of construction and sale of flats for acquiring unfinished civil works, work-in-progress and inventories is allowable as a revenue expenditure ? 2. Whether in law the appellant had obtained only an enduring advantage by taking over the unfinished civil work, work-in-progress and the inventories and whether such advantage is only in the revenue field ? 3. Whether in law the appellant had acquired any capital asset under the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration of Rs. 1,60,00,000 was to be adjusted against net liability, viz., the difference between the totals of schedules 1 and 2, which worked out to Rs. 4,17,55,932.80. Thus, adjusting Rs. 1,60,00,000, the balance of Rs. 2,57,55,932.80 was met by the assessee- company, one by way of advance on the space to be occupied as per clause 8 of the agreement to be adjusted by way of rental and the balance of Rs.1,57,55,932.80, met by the assessee. It is stated that the said amount of Rs. 1,57,55,932.80 was stated to have been repaid by the transferor com- pany to the assessee. Going by the understanding between the parties, the assessee arrived at the profit of Rs. 20,13,256. The assessee claimed the payment of Rs. 3,20,00,000 as revenue expenditure and arrived at a loss of Rs. 2,19,73,197. The assessee took the stand that as the assessee contem- plated transfer of the ongoing projects also, there was no permanent benefit in the project. Hence, the expenditure was only a revenue expendi- ture and that it was only stock-in-trade. 3. The assessing authority, however, viewed that the claim of the assessee could not be treated as business expenditure, since the assessee had acquired a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee had changed. The agreement also contemplated that the assessee acquired the right to use the logo of AFPL, which clearly pointed out that the assessee had carried on the enduring advantage. Since the assessee was permitted to use the office building of the transferor, it was clear that what was transferred was a capital asset. In the light of the above, the Tribunal held that the expend- iture incurred was a capital expenditure. Thus, the Revenue's appeal was allowed. Aggrieved by the same, the assessee has preferred the present tax case appeal. 6. Taking us through the various clauses of the agreement, learned counsel for the assessee submitted that there is hardly anything in the agreement, which supported the view of the Revenue that AFPL had transferred the entire business or divested its source of income earning apparatus. The parties entered into the agreement to transfer the ongoing projects, which are stock-in-trade as far as the transferor is concerned. The incidental fact that the assessee shared the rented premises with the transferor company and that the transferor company allowed the assessee to use its logo does not mean that the transferor compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n future, take up by itself, housing projects. Apart from those projects, the agreement also contemplated take over of all future projects/proposals, wherefor negotiations have been finalised but agreements/contracts remained to be entered into by the building division of AFPL. It is seen from the terms of the agreement that the transferor company promoted residential complexes, besides having business in power electronics, health care and education. The agreement stated the consideration as a sum of Rs.3.20 crores made up of cash payment to the tune of Rs. 1,60,00,000 and allotment of 16,00,000 fully paid equity shares of a sum of Rs. 1,60,00,000. Clause 2 of the agreement deals with the manner of payment of this Rs.3,20,00,000, which reads as follows : "2. AHL shall pay to AFPL the consideration for such transfer, By. A. Allotting 16,00,000 fully paid equity shares, of Rs. 10 each at par from its authorised unissued capital, value thereof amounting to Rs.1,60,00,000 (rupees one crore sixty lakhs only) and B. Cheque/cash Rs. 1,60,00,000 (rupees one crore sixty lakhs only) ; In all Rs.3,20,00,000 (rupees three crores twenty lakhs only) ; provided that any excess of current liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no clause therein, which brought a closure of the building divi- sion of the transferor company by the transfer agreement to contend that what had been transferred to the assessee was a capital asset. Given the fact that the agreement thus contains no such negative clause, it is difficult to hold that by the agreement, the transferor company's building division had come to a close. 11. We do not find any ground to uphold the order of the Tribunal holding that the assessee-company had received a business of enduring nature. A reading of the agreement shows that what was transferred to the company of the assessee was only the work-in-progress and the contract to be signed. Although learned standing counsel appearing for the Revenue stated that future projects were also transferred, a reading of the clause therein shows that what was contemplated as future projects was with reference to those projects in respect of which, negotiations had already been finalised, for which formal agreement was yet to be entered into. Thus, on a cumulative reading of the entire agreement, we have no hesi- tation in accepting the plea of the assessee that what was transferred under the agreement was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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