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TMI Blog2011 (12) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... . Mao for the Appellant S.E. Dastur and Pankaj Toprani for the Respondent ORDER B.R. Mittal: The Department has filed this appeal for assessment year 1998-99 against order of Ld. CIT(A) dt. 16.12.2009. 2. The relevant facts giving rise to this appeal are that assessee is a Public Ltd. Company carrying on business of manufacturing of chemical products. Besides, said business, assessee was having Condom manufacturing plant located at MIDC Waluj, Aurangabad, which was set up in the year 1991. The assessee company decided to hive off its Condom division. Therefore a scheme of arrangement was formulated with J.K. Condoms Pvt. Ltd. (presently known as J.K. Ansell Ltd.), (hereinafter to be referred in short as JKAL). In this respect, a Joint Venture Agreement dt. 17.12.1996 was entered into between Pacific Dunlop Ltd., a company incorporated under the laws of Australia and having its registered office at Level 41, 101 Collins Street, Melbourne, Victoria 3000 (hereinafter referred to as 'Pacific Dunlop and Pacific Dunlop Holdings (Singapore) Pte, Ltd., a company incorporated under the laws of Singapore and having its registered office at 6, Loyang Wat 1, #02-02 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion became operative only thereafter. Since no legal right had accrued by assessee for non-complete fee before High Court approved the scheme and the actual transfer of business, AO considered said non compete amount of Rs. one crore as accrued and due to assessee in assessment year 1998-99 and charged to tax under the head capital gain. Being aggrieved, assessee filed appeal before First Appellate Authority. 3. It was contended that sale of said Condom Division and the capital gain on transfer thereof was offered to tax in the return for assessment year 1997-98. That non-compete allowance which was received by assessee was also shown in the return of assessment year 1997-98 as non taxable, being a capital receipt. It was also contended that Raymond Ltd. under the said noncompete agreement read with Joint Venture Agreement was to receive a sum of Rs. 60 lakhs and same was also shown in the return of Raymond filed for the year 1997-98. It was contended that AO has considered said amount of Rs. 1 crore as capital receipt in the assessment year under consideration merely because date of Court's order is after 31st March, 1997 but totally overlooked the fact that as per order of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment which was part of the JV Agreement was signed on 4.1.97. The effective date of transfer of all the assets was 1st July, 1996. The effective entries though made subsequently but relates from the period 1st July, 1996. Therefore, all the effective events on the basis of mercantile system of accounting were during the accounting year 1996- 97 i.e. relevant to A.Y. 97-98 and the non-complete allowance was also part of the Joint Venture Agreement. The AO could not assess the particular income on the basis of the same JV in the A.Y. 97-98 while part of the other income in A.Y. 98-99. It was rightly pointed out that when the capital gains charged to tax by AO in the A.Y. 97-98, noncompete allowance which was also part of the same deal could not be considered for A.Y. 98-99. It is also correctly stated that after receipt of the High Court order, the terms of agreement would relates back to the effective date which is stated in the order itself. There, 17.96 is the actual date of the transfer and not the date of the order and for all practical purposes, all the entries related to A.Y. 97-98. Since, all the events took place in the A.Y. 97-98 itself, the impugned sum relates to A.Y. 97- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kodre (HUF) vs ITO. The Ld. Departmental Representative submitted that assets and liabilities of Condom Division did not take place in assessment year 1997-98 and same had been transferred only after Hon'ble Bombay High Court approved the scheme vide its order dt. 31.7.1997. Therefore actual transfer of assets have to be considered in assessment year 1998-99 and consequently non compete amount of Rs. 1 crore received by assessee in assessment year 1998-99 has rightly been considered for tax as capital gain by AO. However, Ld. AR supported the order of Ld. CIT(A) to consider non compete amount of Rs. 1 crore received by assessee as capital receipt in assessment year 1997-98. Ld. AR submitted that this non compete amount of Rs. 1 crore relates to assessment year 1997-98 as Joint Venture Agreement was entered into on 17.12.1996 by which assessee agreed to transfer its Condom Division with assets and liabilities and all rights including Industrial and other licences, permits, trade names, copy rights, trade marks marketing and distribution net work to JKAL. The Ld. AR referred to Clause 14.4 of Joint Venture Agreement, a copy of which is placed at page 109 of Paper book and submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see even though scheme was approved in assessment year 1998-99, but effective date as approved by Hon'ble Bombay High Court is 1st July, 1996 and therefore all the rights and liabilities have to be considered to have crystallised as per the scheme in assessment year 1997-98. Ld. AR submitted that assessee filed return for assessment year 1997-98 on 28th November, 1997 and referred page-10 of return (copy filed separately) and submitted that in the said return, assessee stated that non compete allowance of Rs. 1 crore had accrued but it was claimed to be exempted from income tax. The Ld. AR submitted that in view of decision of Hon'ble Apex Court in the case of Marshall Sons and Co. (India) Ltd. vs ITO (supra) the right to receive non compete fee to assessee arose on 1st July, 1996 and therefore Ld. CIT(A) has rightly held that it is to be considered in assessment year 1997-98 and not in assessment year 1998-99. He submitted that date of payment is not relevant. Ld. AR also submitted that AO himself assessed the capital gain in respect of shares allotted to assessee by JKAL on transfer of Condom business in assessment year 1997-98, even though shares were actually allotted in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e register of companies later on. In view of decision of Hon'ble Apex Court (supra), we agree with Ld. AR that even if scheme is approved by Hon'ble High Court by its order dt. 31st July, 1997 but said scheme of transfer of assets and liabilities is effective from 1st July, 1996. Therefore all rights and liabilities have become effective under the said agreement as on 1st July, 1996. There is no dispute to the fact that profit in respect of Condom Division which have taken place after 1st July, 1996 have been shown in the name of JKAL on approval of scheme by Hon'ble High Court. There is also no dispute to the fact that shares which have been allotted to assessee-company as per Joint Venture Agreement, though allotted after the scheme was approved by Hon'ble High Court i.e. after 31.3.1997 and the capital gain which has arisen thereon on account of transfer/allotment of shares to assessee-company after 31.3.1997, but same has been assessed and considered by department in assessment year 1997-98. We also observe that assessee in the return filed for assessment year 1997-98 has shown in the return, non compete allowance/fees of Rs. 1 crore and claimed it to be exempted from income ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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