9911796707
TMI Blog2012 (7) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... d 29.6.2011 of the CIT(A)XXVI, New Delhi, contending that the ld. CIT(A) has erred in deleting the addition of Rs. 1,20,00,000/- received by the assessee as compensation, as business profit u/s 28(va) of the I.T. Act, since the assessee has been found to have received the said amount as compensation for not carrying on any business activity in relation to the business, which, as per the provisions of section 28(va), is chargeable as income under the head 'profits and gains of business'. 2. The assessee, individual, during the year, was engaged in providing consultancy in Civil Engineering under the name and proprietorship of M/s. S.D. Engineering Consultants. This concern was taken over by ICT-SD Engineering Consultants Pvt. Limited w.e.f. 31.10.2007. The assessee also received salary from M/s. ICT-SD Engineering Consultants Pvt. Ltd. in the capacity of Director, income from capital gain and other sources. 3. The AO observed that during the year, the assessee had received a compensation of Rs. 1,20,00,000/- against the discontinuance of her proprietary business. It was observed that as per the copy of Agreement dated 4.12.2007 between IST-SD Engineering Consultants Pvt. Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri K.K. Kapila, she would be adequately compensated, that she shall not carry out any activity or encourage, directly or indirectly in any other business directly or indirectly related to the business of ICT-SD Engineering Consultants Pvt. Ltd., and that however, she would be at liberty to do any business whatsoever after quitting or leaving ICT-SD Engineering Consultants Pvt. Ltd. From these contents of para 11 of the Agreement, the AO observed that it was evident that the compensation of Rs. 1,20,00,000/- was not a capital receipt liable for capital gains as claimed by the assessee, but a business receipt and that rather, the compensation was not for carrying out any activity in relation to the business of the Company; that as per section 28(va)(a) of the Act, any sum, whether received or receivable in cash or kind, under an agreement for not carrying out any activity in relation to any business shall be chargeable to Income Tax under the head 'profits and gains of business or profession'. 5. It was in this manner that the AO held the compensation of Rs. 1,20,00,000/- received by the assessee to be her business income and added it to the total income of the assessee under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal filed by the Department. 9. The learned counsel for the assessee, on the other hand, has strongly relied on the impugned order, contending that the assessee is an M.Tech (Structures) from IIT, Delhi; that her field of specialization is in designing of structures, Public Health Engineering and Fire Protection Services; that she has designed over 500 projects all over the world; that these projects are of all kinds, i.e., Metro Corridor, Railway Coach Factory, Hospitals, Schools, Fire Stations, Police Stations and commercial and residential projects for PWD, CPWD, DLF, Ansals, Jaypee and JMD, etc.; that she has an experience of over 25 years; that she and Shri K.K. Kapila, CMD, ICT Pvt. Ltd. formed a Company by the name of ICT-SD Engineering Consultants Pvt. Ltd., in the Agreement pertaining to which newly formed Company, it was agreed that the newly formed Company had taken over the assets and liabilities of SD Engineering Consultants as a going concern on the close of business as on 31.10.2007 for a total consideration of Rs. 1,20,00,000/-, inclusive of good-will, vide Memorandum of Understanding dated 30.10.2007, which was followed by the said Agreement dated 4.12.2007; t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (va), the same being taxable under the head "capital gains". Reliance has been placed on the following case laws:- 1. "ACIT v. B.V. Raju", 138 ITD 1 (Hyd)(SB) = 18 Taxmann.com, 188-(Hyd) - (Trib)(SB) (copy placed on record); and 2. "CIT v.Media World Publications Pvt. Ltd.", 337 ITR 178(Del) (copy placed on record). 11. We have heard both the parties and have perused the material on record. The assessee is a specialist in designing of structures, public health and fire protection services, having designed over 500 projects in India and abroad, including Public Health Engineering services for the Metro Corridor, Railway Coach Factory, Hospitals, Schools, Fire Stations, Police Stations and commercial and residential projects for PWD, CPWD, DLF, Ansals, Jaypee and JMD, etc., was the proprietor of SD-Engg.Consultants. She formed a Company with one Sh.K.K. Kapila, who was engaged in Project Management Consultancy for various projects in India and abroad. The Company is known as ICT-SD Engineering Consultants Pvt. Ltd. Vide a Memorandum of Understanding dated 30.10.2007, (copy placed at pages 35-36 of the APB), followed by an Agreement dated 4.12.2007 (copy at pages 30 to 34 of the AP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof, which runs as follows:- "6. That it is expressly agreed to between the parties hereto that the party of the first part has taken over all the assets and liabilities as a going concern, as described in the Schedule attached herewith and the party of the second part shall be personally responsible for all the liabilities and other obligations in respect of the business of M/s. SD Engineering Consultants of completed contracts/works till 31.10.2007, such liabilities to include without limitation all existing or future liabilities and all statutory dues relating to the business, completed contracts/works till 31.10.2007, but shall in no case include any liabilities whatsoever arising on account of unfinished/incomplete business carried on hitherto by the second party and taken over by the first party and executed/completed subsequent to 31.10.2007. It has been made clear that such liability is limited to only completed and finished contracts/works till 31.10.2007. Any liability in respect of unfinished/running/unexecuted works/contracts shall be the responsibility of the party of the first part who has taken over these contracts/works as a going concern with effect from 01.11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out any activity in relation to any business; or (b) Not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in manufacture or processing of goods or provision for services: Provided that sub-clause(a) shall not apply to - (i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on business, which is chargeable under the head "Capital gains." 19. Thus, according to the main provisions of section 28(va), as sought to be applied by the assessee to the present case, any sum received under an agreement for not carrying out any activity in relation to any business, is chargeable to income as "profits and gains of business". 20. It is, however, seen that herein, the sum received was not for carrying out any activity in relation to any business. Rather, it is patent on record, that the business itself was transferred by the assessee, for a lump-sum consideration, with effect from 31.10.2007, when the firm of the assessee ceased to operate conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale [(a)+(b)] Rs. 11,50,155/- (d) Value of liabilities relatable to the undertaking or Division as appearing in the books of account. Rs. 7,12,430/- (e) Net worth of the undertaking or division [(c) -(d)] Rs. 4,73,725/- 24. As per the Schedule of Fixed Assets of S.D. Engineering Consultants for the year ended 31.10.2007 (APB 25), the WDV of the concern has been shown at Rs. 9,70,122/-. 25. Then, as per the balance sheet of M/s. S.D. Engineering Consultants, as on 31.10.2007, the aggregate value of total assets has been shown at Rs. 11,50,154.97. 26. The above facts were all placed before the AO by the assessee and the AO never raised any dispute with regard to the veracity thereof. 27. The balance sheet of ICT-SD -Engineering Consultants Pvt. Ltd. as on 31.3.08, including all its annexures (copy at APB 38 to 46) was also placed before the AO beside the copy of sale deed of house property purchased by the assessee (APB 47 to 52), the ledger account of S.D. Engineering Consultants for the period from 1.4.07 to 31.10.07 (copy at APB 55 to 57), showing, inter alia, including loans and TDS payable (professional), copy of bank statement of Union Bank of India for the period from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assets and liabilities of the business M/s. SD Engineering Consultants as on the close of business as on 31.10.2007, subject to clause 6 of the Agreement, to the party of the first part (such assets being described in detail in Schedule attached herewith) at an agreed enterprise value of Rs. 1,20,00,000(rupees one crore and twenty lakhs only)." 32. Therefore, a reading of the Agreement (supra) makes it amply clear that the business of the assessee was taken over by ICT-SD-Engg. Consultants Pvt. Ltd. as a going concern, for a lump-sum consideration, and not "compensation", of Rs. 1,20,00,000/- 33. Then, in the third para on the second page of the assessment order, the AO has observed as follows:- "As per the copy of Agreement executed on the 4th day of December, 2007 between IST-SD Engineering Consultants Pvt. Ltd. and Mrs. Sangeeta Wij, proprietor of M/s. S.D. Engineering Consultants, the total enterprise value of the proprietary business of M/s. S.D. Engineering Consultants Pvt. Ltd. including good-will, empanelments, receivables, work in progress and all other rights and entitlements as per Schedule attached had been decided and determined at Rs. 1,20,00,000/- (rupees one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, as per the appointment letter issued to the assessee by ICT-SD-(copy at APB 37), on her appointment as Managing Director of ICT-SD Engineering, the assessee was to receive a Basic Pay of Rs. 1,20,00,000/-, House Rent Allowance of Rs. 60,000/-, Transport Allowance of Rs. 800/- and General Allowance of Rs. 19,200/-, total amounting to emoluments of Rs. 2,00,000/-. 38. It is thus evident that no material whatsoever was brought on record by the AO to the effect that the payment of Rs. 1,20,00,000/- was for the assessee not to engage in any business. Even so, the AO opined that the "compensation" of Rs.1,20,00,000/- was not a capital receipt liable to capital gains, but was a business receipt falling under "business income" and that rather, the "compensation" was for not carrying out any activity in relation to the business of the Company, which was taxable u/s 28(va) of the Act. This, despite the fact that the recitals in the Agreement (supra) are specific, clear and unambiguous and even the AO himself did not record a finding holding the Agreement either to be sham, or not acted upon the parties thereto. The contention of the ld. DR that the AO has "lifted the veil" over the Agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed has to be read as a whole and that effect should be given to all parts thereof. In "Belapur Company Ltd. v. Maharashtra State Farming Corporation", 1972 Bom L.R. 246 , dealing with the ambit of Proviso (6) to Section 92 of the Evidence Act, it was held that the fundamental Rule of Construction of a document is to ascertain the intention of the parties to it from the words used in the document, which are considered to be the written declaration of their minds. Meaning thereby, that the Agreement at hand could not have been tried to be rewritten, as has been done by the AO, nor could a new Agreement be sought to be made out for the parties. The intention of the parties to the Agreement is to be gathered from the form of the document and from its contents, taken in their entirety. In fact, in "CIT v. Motor & General Store Pvt. Ltd.", 66 ITR 692 (SC), it has been, inter alia, held that when the transaction is embodied in a document, the liability to tax depends upon the meaning and the context of the language used in the document, in accordance with the ordinary rules of construction. The Agreement could have either been rejected in totality or accepted in its entirety. There was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over the same as a going concern." (emphasis supplied) 43. Then, the factum of the assessee having claimed exemption u/s 54 F of the Act has nowhere been disputed by the AO. The investment by the assessee in a residential property, in order to claim exemption u/s 54F of the Act is patent on record and has nowhere been challenged. 44. Further, CBDT Circular No. 779 dated 14.9.99 explains the sale of business for a lump-sum consideration, without assigning value of individual assets and liabilities, to be a slump sale liable for capital gains u/s 50B. The relevant portion thereof reads as follows:- "56/4 (xx) A new section 50B has been inserted in the Income Tax Act containing special provision for computation of capital gains in the case of slump sale. It provides that the profits and gains arising from slump sale shall be chargeable to income tax as capital gains arising from transfer of long term capital assets in the previous year in which the transfer takes place. However, the profits and gains arising from such transfer of one or more undertakings held for less than 36 months shall be deemed to be short term capital gains. It is further provided that the net worth of the und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 46. The above entire conspectus of facts and law was duly taken into consideration by the ld. CIT(A) while deciding the matter in favour of the assessee and it was rightly held that the AO was not justified in changing the treatment of the income of the assessee from capital gain u/s 50B to income from business u/s 28(va) of the Act. Thus, correctly directing the AO to treat the amount of Rs. 1,15,26,275/- as long term capital gains of the assessee, the ld. CIT(A) rightly deleted the addition of Rs. 1,20,00,000/- wrongly made by the AO. 47. The assessee, in fact, is correct in contending that the case is covered by the Proviso (i) to section 28(va). The said Proviso stands reproduced hereinabove. This Proviso, it is seen, as applicable to the facts of the present case, provides that section 28(va)(a) shall not apply to any sum received on account of transfer of a right to carry on business, which is chargeable as capital gains. Herein, as discussed in the preceding paras, what was transferred was a right to carry on business and that being so, application of the main section 28(va)(a) is foreclosed and forbidden, by the use of the words "shall not" in the Proviso. 48. In " AC ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
