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TMI Blog2012 (8) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... NO. 3857 (MUM.) OF 2009 - - - Dated:- 22-3-2012 - B.R. MITTAL, T.R. SOOD, JJ. C.G.K. Nair for the Appellant. Vijay Mehta for the Respondent. ORDER T.R. Sood, Accountant Member In this appeal, revenue has raised the following grounds: 1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the agreement between the assessee and Sharekhan as on principal to principal basis in spite of the fact that the assessee was only a sub broker of Sharekhan and hence was only an agent of Sharekhan." 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the amount of Rs. 1,11,00,000/- received by the assessee as capital receipts and allow exemption u/s. 54EC in spite of the fact that the receipts of Rs. 1,11,00,000/- were revenue in nature." 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not applying sec the revenue receipts of Rs. 1,11,00,000/- by the assessee as an agent of Sharekhan." 2. After hearing both the parties, we find that during the assessment proceedings AO noticed that assessee has declared long term capital gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was working on behalf of his clients for purchase and sale of shares and securities. Reference was made to the Indian Contract Act for the definition of Agency and it was pointed out that for holding an agency a person must be appointed by another person as a agent to represent the principal with the third parties. Since by becoming the sub broker assessee was not representing Sharekhan to the third parties because assessee could not bind the principal which was not permissible under the agreement of sub-brokership. The Ld. CIT(A) agreed with these submissions and decided the issue in favour of the assessee vide para 4.3 which is as under: 4.3 I have gone through the order of the A.O. and submission of the appellant. The appellant was a sub-broker of Sharekhan and the relationship between Sharekhan and appellant was on principal to principal basis and the termination of the agreement between Sharekhan and the appellant was termination of agreement of two principals. The relationship between a broker and sub-broker is not that of a principal or agent but the relationship is that of two principles. The sub-broker does not work on behalf of the broker but he solicits business from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly state that assessee was running his business under the name and style of 'Dev Investments' and had agreed to sell tangible as well as intangible assets for a consideration of Rs. 1.17 crores [consisting Rs. 6,00,000/- for tangibles and Rs. 1.11 crores for intangible assets]. He argued that AO has un-necessarily laid emphasis on the change of regulations by which assessee could no more act as a sub broker but only as a remisier. In fact, by change of regulation, the only change which was made was that from the effective date of change the sub brokers were restricted not to issue contracts in their names and contracts were to be issued by the main brokers and payments were also to be made and received by the main brokers and sub brokers were designated as the remisiers and they were still entitled to the brokerage in respect of the business conducted by such sub brokers on behalf of their clients. Therefore, by change of regulation the business has not changed. The assessee has simply sold his assets including the tangible assets and charged a sum of Rs. 1.17 crores for transferring the net worth of 1800 clients and, therefore, it was simply a case of sale of tangible assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot Less than six months a their respective addresses mentioned above. The above shall also be intimated to stock exchange and SEBI" The above clearly shows that both parties had right to terminate the sub-brokership agreement at will by giving a six months notice. 7. It is further noticed that assessee had transferred not only his intangible assets but also tangible assets which becomes clear from clauses (c) and (e) of the agreement which read as under: ( c ) The transferor carries the business of sub-broking from said Office Premises in the name and style of 'Day Investments' (hereinafter referred to as 'the said Undertaking'). In the course of its/his, the Transferor has developed a network of over 1,800 (One Thousand Eight Hundred) clients including, Inter alia, corporates, high networth individuals etc. ( e ) Pursuant to the discussions which have taken place between the parties hereto, the Transferor' has agreed to sell, assign and transfer to the Transferee, and the Transferee has agreed to purchase and acquire from the Transferor, certain tangible and Intangible assets of the said Undertaking more particularly listed out andscrlbedTn the SCHEDULE hereunder written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of share broker for Sharekhan and thus his agreement with Sharekhan dated 24-10-1997 terminated. The assessee had no other option but to link himself with some other member broker and re negotiate the terms and conditions for further conduct of the business in the same line, while on the other hand Sharekhan saw this an opportunity for development and expansion of its business as narrated earlier [in Sharekhan's own words]. Share Khan was parting with money to keep his flock together in the competitive environment. Therefore, Sharekhan with a view to compensate the assessee and use his services, compensated him with Rs. 1.11 Cr and also took Mr. Devang Kamdar, the assessee into its fold as its salaried employee along with 10 other personnel. In these circumstances, the said amount is a compensation for cessation of an agency agreement dated 24.10.1997. The Income Tax Act in its definition of profits gains of business/profession has included such compensation as one chargeable under the head "profits gains of business/profession". We find that when a person was allowed to act as sub broker, he was initially allowed to issue even a contract note to his clients. Moreover, su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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