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TMI Blog2015 (11) TMI 1299X X X X Extracts X X X X X X X X Extracts X X X X ..... etitive fees falling under Section 28(va) of the Act. The balance amount was for transfer of intangible assets and goodwill, therefore, treated by CIT(A) as capital receipt liable to tax under the head capital gains amounting to ₹ 50.23 crores, we do not find any infirmity in the decision arrived at by CIT(A), which is based on material on record, therefore, do not require any interference on our part. - I.T.A. Nos. 3245/Mum/2008 - - - Dated:- 9-10-2015 - SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER For The Assessee : Shri Hiro Rai and Shri Laxmikant Kothari For The Revenue : Shri Ajit Kumar Srivastava CIT DR ORDER PER R.C. SHARMA, A.M. : These are the cross appeals filed by the assessee and Revenue against the order passed by the ld. CIT(A) XIII, Mumbai for the assessment year 2004-05 in the matter of order passed u/s 143(3) of the Income Tax Act, 1961. 2. In these appeals, grievance of both assessee and Revenue pertains to treatment of amount received on account of non-compete fees whether chargeable as business income or capital gains. 4. Rival contentions have been heard and record perused. Facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and the AO and perused the material on record and the submission made by the Appellant. It is clear from the facts of the case that the Appellant has not transferred any tangible assets. But, it is not possible to accept a view that the appellant received something without transfer of anything. There has been a transfer. In this case, the transfer can be said to be intangible. 19. It is important to mention here that the Agreement to Sell dated May 24, 2003, vide Clause 8.1.1 clearly mandates that the name of the Appellant, which constitutes one of the component of goodwill of the Appellant, shall remain with the Appellant. However, the JV Company has been named as 'DHL Danzas Lemuir Pvt. Ltd.', which includes the name 'Lemuir', being the name of the Appellant. Further, in my view, the Appellant being in the service industry, the key components of the business are the clients, human resources and the market standing. All these components together with the name of the Appellant constituted 'Goodwill' of the Appellant and not rights. Further, the transferee company has debited the amount paid towards 'Goodwill' in its books of Accounts. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he balance 45 lakhs as capital receipt towards termination of business under that trademark, whereas, the AO considered the entire receipts towards transfer of capital asset and therefore chargeable to capital gains. However, on appeal, the Hon'ble Tribunal confirmed the order of the CIT(A), and held that consideration received was on account of (i) surrender of goodwill etc. and (ii) for giving up right to manufacture ice-cream in the brand name 'Kwality', and therefore entire receipt is a 'Capital Receipt'. However, the Tribunal considered it just and equitable to bifurcate the remuneration based on the facts of the case, and therefore apportioned ₹ 15 lakhs towards consideration for trademarks / trade name / goodwill and the balance amount towards surrender of right to manufacture. Therefore, drawing an analogy for the decision of Chandigardh Tribunal supra, and considering the fact that the appellant is a service industry where customer go by quality of services rendered. I am of the view that it would be logical for the transferee to enter into an non-compete for a period of one year, by which it would have established itself in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. DCIT [2011] 14 taxmann.com 155 (Mumbai) wherein it was held that amount received by the assessee under non-compete agreement was held to be liable to tax as business income u/s 28(va) of the Act. 7. On the other hand, Shri Hiro Rai, Ld. AR appearing on behalf of the assessee has contended that the assessee was engaged in the service industry in the form of custom house agent as well as air cargo agent. During the year the assessee has transferred air cargo business to a company wherein 51% stake was held by the partners of the assessee firm. The business was transferred for a sale consideration of ₹ 54.75 crores. The amount of consideration was received in for transfer of capital asset which means property of any kind‟, accordingly, when the item of transfer is a property, the gain arising there from were chargeable under the head capital gain‟. As per the ld. Counsel, the assessee offered the entire amount as a capital receipt which was wrongly treated by the A.O. as business income u/s 28(va) of the Act. As per the ld. Counsel, the transfer of business as a going concern is a capital asset. As per the ld. Counsel, the right to carry on business was tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as import consolidation and break bulk. For these activities, commission was received from air lines. During the year under consideration, in addition to the normal business income, the assessee had shown capital receipts amounting to ₹ 54.73 crores which was invested for exemption u/s 54EC of the Act and net capital gain of ₹ 15,000/- was offered for tax. It was submitted that during the year the assessee firm had transferred its business to M/s DHL Danzas Lemuir Pvt. Ltd. as a legal and beneficial owner of the business has assigned and transferred to the purchaser absolutely and free of any encumbrances business together with all contracts pertaining to the business at the price of ₹ 54.73 crores. As per the A.O., the amount of ₹ 54.75 crores was received by the assessee firm as a compensation for non-compete and the closure of the business. The A.O. observed that as per the Transfer of Property Act what can be transferred is something concrete or rights thereof. The A.O. further observed that the assessee has not transferred its staff, however, the staff was just given offer to join the new company and thus the staff who opted for it joined in the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the CIT(A) concluded that out of the total amount of ₹ 54.73 crores, a sum of ₹ 4.5 crores was attributable to non-compete fee falling u/s 28(va) of the Act whereas the balance of ₹ 50.23 crores was capital receipt. 9. After going through the entire material placed on record, we found that only on the basis of clause No.3.4 of the agreement dated 29-5-2003, the AO inferred that entire amount was received by assessee on account of non-compete clause. We found that this clause is merely consequent to the transfer of the business. Obviously, the vendor cannot carry on the business because it has already been transferred major part of its business. The assessee group held major shareholding of 51% in the transferee company and after the transfer of contract, employees, customers, licence of premises, market standing, goodwill, etc., there is very few possibility of competition. However, keeping in view the nature of assessee‟s business and the fact that assessee entered into a non-competitive agreement for a period of one year by which it would have established itself in the market and sort of production of the assessee would have ceased, the CIT(A) had ve ..... 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