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TMI Blog2013 (5) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... not discharged. Also the receipt was a casual receipt in the nature of windfall arising out of one time event of affirmative voting on a resolution. It was not of repetitive character and was not likely to happen again, thus Hon'ble Bombay High Court being a superior court decision of the same should be respectfully followed & in the absence of any other contrary decision being cited by the Revenue the receipt of Rs.60,59,303/- was not in the nature of income in the hands of the assessee company - appeal of the assessee is allowed. - ITA No.568/Kol/2011 - - - Dated:- 3-5-2013 - Sri N. S. Saini AM And Sri Mahavir Singh, JM,JJ. For the Appellant : Shri D. S. Damle, FCA For the Respondent: Shri Dilip Kumar Rakshit, Sr. DR ORDER Per Shri N.S.Saini, AM. This is an appeal filed by the assessee against the order of ld. CIT(A)-VI, Kolkata dated 11.02.2011. 2. The sole issue involved in this appeal is that whether Rs.60,59,303/- received by the assessee under the agreement dated 30.03.2005 from M/s.Tyco Electronics Middle East FZE, Dubai was exempted income from Income Tax. 3. The brief facts of the case leading to this appeal are that the assessee is a non banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share holder and thus resulted in a settlement agreement dated 30.03.2005. In pursuance to the agreement dated 30.03.2005 the assessee was to take all actions within its control including exercise of it voting rights in order to ensure that RPG Raychem Ltd. did not engage or participate directly or indirectly in any business in India involving manufacturing, marketing and promotion of the industrial products set out in Schedule A under the agreement dated 30.03.2005. In consideration for the same Tyco Dubai agreed to pay a sum of US$400,000 in three equal annual instaments of US $133,333 each during the financial year 2006-07 relevant to A.Yr. 2007-08. The assessee received the first of such instalment of US$1,33,333/- equivalent to Indian Rs.60,59,303/-. In the return of income filed by the assessee as claimed this was a capital receipt and was not taxable as income. The AO was of the view that since the amount was received by the assessee in exercising its right to make M/s. RPG Raychem Ltd. relinquished its rights of manufacturing, marketing and promotion of certain products. The same was an income e of the assessee. Therefore, the AO added this amount of Rs.60,59,303/- to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aychem Ltd. Therefore the receipt of the said amount for ensuring that RPG Raychem Ltd. did not indulge in these activities did not amount to receipt of non-compete fees in the hands of the assessee. 4.3. The ld. CIT(A) held that he agreed with the arguments of the ld. AR. But here this receipt was not to be taxed as a non-compete fees in the hands of the assessee. but it was to be taxed in its hands as a receipt which has occurred to it on exercise of a right which has been earned by it on account of its investment in M/s. RPG Raychem Ltd. 4.4. Further the ld. AR of the assessee submitted before the ld. CIT(A) that to vote or not to vote in a particular manner was a shareholder's statutory right. In the instant case the assessee agreed to exercise its voting right in a particular manner. The same did not amount to earning of income by the assessee in the course of its business. The same also did not amount to any receipt from the company i.e. RPG Raychem Ltd. where assessee was a share holder. The shares of RPG Raychem Ltd. were not transferred, nor any rights of the assessee as a shareholder, were transferred or extinguished. The receipt from Tyco FZE therefore did not bear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the alternative it was the submission that the ld. AR that if this receipt was considered as income it should be treated as income under the head capital gain. The first submission of the ld.AR in this regard was that the assessee held shares in RPG Raychem Ltd. as its "long term investments" which was not in dispute. Being shareholder, the assessee also held rights therein as capital asset. The same therefore constituted "capital" asset within the meaning of section 2(14) of the I.T.Act. By virtue of its shareholding in RPG Raychem Ltd. the assesee enjoyed voting rights therein. Even assuming that by the exercise of its voting rights in RPG Raychem Ltd., the assessee had been able to ensure that M/s. RPG Raychem Ltd. could not under take manufacturing, marketing and promotion of certain products. The same would then mean that the assessee relinquished rights of manufacturing, marketing and promotion of certain products by RPG Raychem Ltd. The same could also be treated as extinguishment of a right in the capital asset, being a share holder in Raychem RPG Ltd. by the assessee. in either event the assessability of the receipt from Tyco would amount to "transfer" of a "capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of manufacture, marketing or promotion of any industrial products at any time. The assessee was only holding 1,50,000 shares of RPG Raychem Ltd. as long term investment. The income derived from such investment was in the form of dividend. Except holding 1,50,000 shares as Long term investment the assessee never participated in the business activities of RPG Raychem Ltd. but it only exercised and enjoyed the right as provided under the Companies Act 1956 as a share holder of RPG Raychem Ltd. According to the Companies Act, 1956 the assessee had statutory right to attend share holder's meeting and vote on every resolution placed before the General Meeting of share holders. Besides, such voting right the assessee had right to participate in the deliberations in the meeting of the share holders and received dividend when declared by the share holders. As per the Companies Act, 1956 the Public Limited company was required to obtain the permission of the share holders to commence any new business or dispose of existing undertaking of a public company. RPG Raychem Ltd. was carrying on business of manufacturing, marketing of industrial products. As a result the RRL had experience a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing right can be exercised in his own right in any manner as he considered fit. Accordingly the assessee RRL's share holder was free to exercise voting rights in any manner which is according to the agreement dated 30.03.2005. The assessee however, agreed to exercise its voting rights in a particular manner and for this Tyco Middle East agreed to make the said payment. But by agreeing to vote in the share holders meeting of RRL in a particular manner was not an organized business activity of the assessee. Hence it was submitted that the amount received by the assessee from Tyco Middle East was in the nature of a mere wind fall which did not bear the character of "income" as defined in section 2(24) of the IT Act. The agreement in accordance with which the assessee received the impugned amount was not a recurring event which was likely to occur regularly. Therefore it was submitted by the ld. AR of the assessee that the amount in question received by the assessee as per the agreement dated 30.03.2005 was not chargeable to tax as "income". In support of this contention the ld. AR relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs David Lopes Menezes 195 Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L. As a share holder the assessee had numerous rights which he could exercise. Just the assessee has the right to vote in the meeting of the share holders and the assessee had right to receive the dividend. When the assessee receives the dividend the said amount has character of an income. In the circumstances any other amount which the assessee received or earned from or any relation to exercise of its rights of a share holder such receipts also had character of income and therefore was chargeable to tax unless specifically excluded or exempted under the provisions of Income Tax Act. The ld. DR therefore, strongly supported the orders of the lower authorities and submitted that since the assessee had received the amounts in question in terms of a specific contract between the parties for exercising voting rights in a particular manner at the General Meeting of RRL the amounts so received was a revenue receipt liable to be taxed as income of the assessee. He therefore pleaded that the order of the ld. CIT(A) should be confirmed. 7. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The undisputed facts of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rketing and promotion of certain products the same was business income of the assessee and hence added the same to the income of the assessee. 7.1. On appeal the ld. CIT(A) accepted that the amount in question was not the business income of the assessee. However, the ld. CIT(A) was of the opinion that the amount received by the assessee for exercising of voting rights emanating from the shares held as investment by the assessee was assessable as income in the hands of the assessee under the head "income from other sources". 7.2. Being aggrieved of this order of the ld. CIT(A) the assesse is in appeal before us. 7.3. The main argument of the assessee was that the amount received by the assessee in consideration of exercising its voting right in the meeting of RPG Raychem Ltd. was a wind fall receipt in the hands of the assessee, was not in the nature of income u/s 2(24) of the IT Act. For the above submission reliance was placed on the decision of the Hon'ble Bombay High Court in the case of CIT vs David Lopes Menezes (supra). 7.4. On the other hand, the ld. DR fully supported the order of the ld. CIT(A). 7.5. We find that the Hon'ble Bombay High Court in the case of CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e period of more than 25 years (between 1967-1993) Colfax had not only used the trade mark 'Old Spice' in India, but had developed the market for that brand. PGI wanted to use that brand and trade mark 'Old Spice' after 1-1-1994. It wanted to take an advantage of the goodwill built up by Colfax over several years of time. A possibility of a litigation between Colfax and PGI regarding the future use of brand 'Old Spice' could not be ruled out. PGI wanted to buy peace and to avoid any litigation as that could have harmed the brand itself. Any injunction from any Court operating even for a period of time howsoever small would have discontinued the usage of that brand and could have harmed the brand itself. Marketing experts believe that the consumer memory is short and people easily change the brand loyalty especially if it is not available on demand. If a particular product is not available even for a short time and the consumer buys similar product of another brand, and the possibility of such consumer shifting to the alternative brand at the time of next purchase cannot be ruled out. Therefore, PGI must be wanting to avoid litigation and any interruption in the use of Old Spice bra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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