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TMI Blog2012 (2) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... AIK Germany due to which the Appellant could not implement the project, and since there was sterilization of the profit earning sources of the Appellant, such compensation or damages awarded for breach of contract fell in the category of a capital receipt not chargeable to income tax, as clearly held by a number of direct judicial pronouncements of the Hon ble Supreme Court and various High Court. (2) That the learned CIT(A) erred in law and on facts in confirming the disallowance of ₹ 46,040/- out of expenditure for gift and presentation articles. (3) That the learned CIT(A) erred in law and on facts in confirming the disallowance of ₹ 6,92,595/- out of Sales Commission paid by the Appellant. The learned CIT(A) further erred in not admitting additional evidence under Rule 46-A of the I.T. Rules, although the Appellant had explained the circumstances under which the same could not be produced before the A.O. The learned CIT(A) further erred in not even appreciating the Appellant s contention and prayer that out of ₹ 6,92,595/- while ₹ 3,16,629/- represented commission actually paid, the remaining amount of ₹ 3,72,966/- provided during A.Y. 1998-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A). 3.1 The relevant facts as per assessment order are that the assessee company was incorporated in 1974 with its primary object of manufacturing sea water desalting kit for the Indian Air Force and Indian Navy. In early 1980, it diversified its operation by entering into the manufacturing of non-toxic non-pollutant water treatment chemicals. The assessee has having 2 Divisions/Plants one at Bhosari and the other at Pirangude. The assessee company entered into an agreement dated 23.12.1989 with AIK Germany, for supply of technical knowhow for manufacture of fire retardant chemicals. The company was keen to expand its activity and thought that fire retardant chemical have a good market potential. The company decided to set up the project at Pirangude. It made out its expansion project and got it approved from SICOM and WMDC for project loan and sales-tax benefits of Government of Maharashtra. As per the agreement with AIK Germany, the assessee company paid first installment of technical know how fees and it received certain technical information and drawings from AIK. Since the information provided by AIK was not sufficient, the assessee could not start its manufacturing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was licensor and the assessee was referred as licence. As per this agreement, the contract work was meant and included the items described in Annexure 1, manufactured by licensor. As per the agreement, licensor granted to licensee the non-exclusive, non-transferrable right to reproduce contract products in its own manufacturing facilities in India by using documentation, and to use and sell. As per the clause (3) of the agreement, the licensor had to furnish to licence the documentation which was in licensor s possession on the effective date of the agreement within 3 months in the form of copies or blue prints. The Ld. A.R. submitted that the agreement was for the supply of knowhow to the assessee in the form of documentation defined in the agreement for the purpose of the assessee s reproduced contract products in India. The licensor AIK failed to provide knowhow to the assessee as agreed upon and thus the assessee was having no option but to invoke arbitration clause of the agreement for compensation of damages caused due to non-performance of contractual obligation by the licensor AIK. After considering the case of the parties, an award of ₹ 4,53,86,124/- was awarded t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Vs Bombay Burmah Trading Corporation, 161 ITR 386 (SC) 2) Senairam Doongarmall Vs CIT, 42 ITR 392 (SC) 3) CIT Vs. Barium Chemicals Ltd., 168 ITR 164 (A.P) 4) CIT Vs. Abbasbhoy A. Dehgamwalla and Others, 195 ITR 28 (Bom) 5) CIT Vs. J. Vajantizies and Others, 91 ITR 345 (Bom) 6) Spaco Carburetors (I) (P.) Ltd. Vs Additional CIT, 127 ITD 153 (Bom) 7) Ms. Payal Kapur Vs. Asst. CIT, 98 ITD 19 (Del) 8) Spaco Carburators (I) (P.) Ltd. Vs. Addl. CIT, 127 TTJ 637 (Mum.) 3.2.2. The Ld. A.R. further pointed out that 2 agreements were entered into, the one with assessee (75%) and other with Delhi party (25%) for marketing the product. He referred page No. 5, 289 to 294 of the paper book No. 2 i.e. copy of certificate and of agreement with M/s. A.R.K Industrial Product Pvt. Ltd. Delhi. He submitted that according to the said agreement M/s. A.R.K. Industrial Products Pvt. Ltd., Delhi were appointed as sole selling agent for fire product system. The assessee had made marketing arrangements with the said company of Delhi. The Ld. A.R. also referred page No. 295 of the paper book No. 2 i.e. approval from AIK Germany allowing to use brand name Flammadur . He submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signed to any other manufacturing facilities by the assessee. 3.3.1 The Ld. D.R. further pointed out that as per the clause 8.1.1, the licensee assessee was entitled and obliged to provide the containers of re-produced contract products, with the designation licensed by AIK , as approved by licensor and in any other language. The designation could also be used by the assessee in sales promotion activity etc. to claim that the contracted products were manufactured with technical support provided by AIK, Germany. 3.3.2. The Ld. D.R. drew our attention to the contents of para no.7.8 at page 5, and para no. 10.2.9.5 at page 17 of the ICA award, a copy whereof has been made available in the paper book volume 1 dated 17.11.2005 filed by the assessee. With the assistance of these paragraphs, the Ld. D.R. submitted that the licensee assessee was also granted right to use AIK s brand name Flammadur under the contract agreement. Thus assessee not only was granted the right for documentation and designs to produce and the license to manufacture the contracted products but also to use the registered trade mark of Flammadur owned by AIK Germany. The assessee also had an agreement wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Blue Star Ltd Vs. CIT (1994) 217 ITR 514 (Bom) 11. CIT Vs Manoranjan Pictures Corpn. (1997) 228 ITR 202(Delhi) 12. CIT Vs Highway Construction Co. (P) Ltd. (1997) 223 ITR 32 (Gau) 13. Chemplast Engineers P Ltd Vs CIT (1998) 234 ITR 23 (Madras) 14. Parry Co. Ltd. Vs CIT (2004) 269 ITR 177 (Madras) 15. Elegant Chemicals Enterp. P Ltd Vs ACIT -2004-TIOL-131-ITAT-Hyd 16. IBM India Ltd Vs CIT (2007) 105 ITD 1 (Bangalore) 17. Ansal Properties Industries Ltd (2008) 19 SOT 391 (Delhi) 18. JCIT Vs Khana Vs Annadhanam, 2008-TIOL-377-ITAT-Delhi 19. Ansal Properties Industries Ltd. (2010)-TIOL-810-HC-Delhi 20. CIT Vs. H.S. Ramachandra Rao (2011) 330 ITR 322 (Karn) 21. B.Rachurama Prabhu Estate (2011), 239 CTR (Kar) 274- 22. Guffic Chem (P) Ltd. Vs CIT (2011) 332 ITR 602 (SC) 23. London and Thames Havel Oil Whatvers Ltd. (1968) 70 ITR 460 (CA)- 24. ION Exchange (I) Ltd. Vs. ITO, 52 DTR 411(Mum) 25. S. Kumar Tyres Manufacturing Co. Vs. CIT, 227 CTR (MP) 181. 3.3.5. On the basis of above decisions, the Ld. D.R. pointed out that following broad principles are emerging there-from : (i) It is immaterial as to whether the payment in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old set up of manufacturing of the distribution of the same products. It is on this fact, the Tribunal held the same to be revenue receipt. In the case of Ansal Properties and Industries Ltd. (Supra) relied upon by the Ld. D.R., the restrictive covenant was not intended to divest the assessee of its income earning apparatus, whereas in the case of present assessee it would deprive of source of income or that there was sterilization of source of income. He submitted further that in the case of S. Kumar s Tyre Manufacturing Company (Supra) relied upon by the Ld. D.R., the amount received by the assessee consequent upon termination of the agreement was not against any price for relinquishment of any right in the capital asset or parting with any asset of injuring nature. The Hon ble High Court came to the conclusion that the same paid was in ordinary course of business to adjust the relationship between the assessee and other party to the agreement. There is also finding that it did not create any right in favour of the assessee. On these facts, it was treated as revenue receipt. In the case of present assessee, the assessee was deprived of the source of the income by virtue of breac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2. The objection of the authorities below is that the compensation is not for suffering injury to the profits making apparatus. They have observed that the apparatus of the assessee was existing set up. The assessee is a pioneer in manufacture of dispersants and produces a wide range of formulations based on these chemicals. It was having established manufacturing division, factory, research development department and administrative establishments when it entered into an agreement for the know-how. It was further observed by them that the proposed making of fire retardants chemical was merely an extension of existing business. The submission of the Ld. A.R. in this regard remained that the agreements with AIK, Germany was entered into by the assessee company with a view to set up at Pirangut a fullfledged Indian manufacturing facilities of fire protection chemicals. It was a new line of business altogether, since, the assessee company was earlier engaged in the manufacturing of basic chemicals and facility chemicals. A new project of fire protection chemicals required a new infrastructure in itself. It was submitted that since the assessee could not commence its new line of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for possession and to continue for a period of 5 years. By a requisition order dated 25th April 1942, the Government of India requisitioned and directed of delivery of possession on priority to the government. The requisition was to continue during the period of the war and 6 months thereafter. In 1945, the assessee put in a claim for damages for not having been able to start the hotel business. His claim was finally settled and in 1947, he received a sum of ₹ 82,460/- from the government. On the question whether the same was assessable to income tax, it was held by the Hon ble High Court that the hotel business which the assessee intended to start could never be started because of the requisitioned order passed by the government, hence the compensation of ₹ 82,460/- was not related or concerned with any business or trading activity of the assessee. It was held that it was a solitium not carrying of business and hence not revenue receipt assessable to tax. This decision of Hon ble Bombay High Court fully covers the case of the present assessee as in case of the assessee also, , the assessee could not start its business due to non-supply of know-how by AIK as per the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness, if the assessee enters into an agreement with the supplier or with any person for an act beneficial to the business, the said action will fall under the category of in normal course of business carried on by the assessee. The agreement in the present case with AIK was entered into by the assessee for supplies of the know-how to enable the assessee for manufacturing of fire protection chemicals in new undertaking set up at Pirangut. Undisputedly in absence of supply of the said know-how, the assessee could not operate the project and the fire protection chemicals could not be manufactured to start the business of the assessee. Thus, in our view, the said agreement cannot be held as entered into in the normal course of the business, since the very business was yet to be carried on by the assessee with the assistance of the said know-how. We thus do not find substance in the finding of the authorities below that a compensation received in lieu of the non-supply of the said know-how was received in normal course of the business carried out by the assessee. In this regard, we find support from the decision of the Hon ble A.P. High Court in the case of CIT Vs. Barium Chemicals Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eached on February 22, 1967, whereby the English company agreed to pay certain sums aggregating to ₹ 56,87,402 if the assessee waived its claims against the English company. The assessee contended that this sum was a capital receipt. It also claimed deduction of the following amounts 1. ₹ 50,000 paid to A for conducting investigation into deficiencies of the various production units , and 2 ₹ 42,212 paid to C for advising the assessee regarding rectification of the defects. On appeal, the Appellate Assistant Commissioner held that only ₹ 47,20,939 should be treated as revenue receipt and the balance was capital receipt. The Tribunal held that the amount of ₹ 47,20,939 constituted a capital receipt, that it could not be assessed as capital gains and that the payments to A and C constituted capital expenditure. On a reference : Held, (i) that neither on the findings of the Tribunal, nor on an examination of the terms of the settlement dated February 22, 1967, could it be said that the amount in question represented loss of profits. The business the assessee carried on was in barium chemicals. The settlement dated February 22, 1967, concluded betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) is a capital receipt. We thus respectfully following the decision of the Hon ble Andhra Pradesh High Court in the case of Barium Chemicals Ltd. hold that receipt of compensation in question not being in the ordinary course of assessee s business, but awarded to compensate extinction or sterilization of a profit earning source is a capital receipt. Since the facts of the case of Barium Chemicals Ltd. (supra) as discussed above are almost similar to the facts of the present case, rather, the case of the present assessee is at better footing in a sense that in the present case production could not even start in absence of the agreed supply of know-how by the AIK. We thus do not agree with the contention of the Ld. D.R. that decision in the case of CIT Vs. Barium Chemicals Ltd. (Supra) relied upon by the Ld A.R. is having distinguishable facts and thus is not helpful to the assessee. The decisions relied upon by the Ld. D.R. in the cases of Ansal Properties Industries Ltd. (Supra) and in the case of Guffic Chem (P) Ltd. (Supra) etc., are of no help to the revenue as they are having different facts. In the case of Ansal Properties and Industries Ltd., admittedly the company carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arded the compensation under the arbitration clause of the agreement. The decision of Hon ble Bombay High Court in the case of CIT Vs. Boyantizies Others (Supra), discussed in Objection No. A hereinabove, support the case of the assessee wherein it has been held by the Hon ble High Court that when the assessee was prevented from the commencement of business, the damages or compensation received, even if they are worked out on the basis of loss of profit, which the assessee would have earned, had he carried on business, was only a capital receipt and not a revenue receipt liable to tax. Respectfully following this decision of Hon ble Bombay High Court in the case of Boyantizies Others, we do not find substance in the objection no. C raised by the authorities below. The decision of Hon ble Delhi High Court in the case of CIT Vs. Manoranjan Corporation (Supra) relied upon by. Ld. D.R. is not helpful to the revenue, as in that case the fact was that the venture was only for the purpose of carrying on the existing business by taking help of the another. Under that fact, the Hon ble Delhi High Court was pleased to hold that compensation received in such a venture would be a reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on chemicals at Pirangut plant has remained undisputed, hence we do not find substance in the objection of the authorities below that the receipt of compensation for loss suffered by the assessee was incidental to the business. Objection F 3.5.10. The further objection of the authorities below remained that the assessee had mainly acquired the right to use the technology and expenditure incurred has also been claimed as revenue expenditure, therefore, any receipt in lieu of such expenditure cannot be termed as capital receipt. The explanation of the assessee remained that in its Profit and Loss Account for the accounting period 1997-98, relevant to the A.Y. 1998-99, corresponding Rs. Equivalent of Dutch DM 1,60,000 which was earlier appeared as balance payable to AIK Germany was duly written back and credited under the head other income as reflected under Schedule 12 of the Profit Loss Account. Besides, we are also of the view that whatever claim assessessee makes i.e. either revenue or capital receipt, the duty of the A.O is to allow just and proper claim after examining the very nature of the claim as per the law. Under these circumstances, we are of the view tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the cases of Raghuwansi Mills Ltd. Vs. CIT and Travancore Rubber and Tea Co. Ltd. (Supra) are having distinguishable facts and issue, hence are not helpful to the revenue. In both these cases, the assessees were already in the business, whereas in the present case before us, the assessee could not start its business of manufacturing fire protection chemicals due to non-supply of know-how by the AIK, Germany. We thus do not find substance in the Objection No. G. We also find strength from the decision of Hon ble Supreme Court in the case of Senairam Doongarwell Vs. CIT, 42 ITR 392(SC). In that case the compensation was paid to the assessee for requisition of his factory by the military and the yardstick for determining the amount of compensation was the loss of future profits. In para nos. 6 and 7 of the decision, the facts are clearly stated. In that context the Hon ble Supreme Court held in para nos. 15 and 17 and thereafter that just because the compensation is determined with reference to the lost profits, it is not amounting to a revenue receipt. The basic condition is whether the proposed business is sterilized or could not take off. In this case before us, because of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low in this regard direct the A.O to treat the receipt of award in question as capital receipt for the purpose of the assessment. The ground No. 1 is accordingly allowed in favour of the assessee. Ground No. 2 4. The A.O disallowed ₹ 46,040/- out of expenditure for gift and presentation articles. 4.1. The relevant facts are that A.O noted from the details of office and general expenses that the assessee has incurred ₹ 4,60,307/- on gift and presentations worth above and below ₹ 1000/-. In reply, the assessee stated that details of gifts, articles are available and have been filed but the distribution record of the same are not maintained. Since the assessee could not explain as to whether all the gifts distributed are relevant for the purpose of business, the A.O keeping in mind the assessment order for A.Y. 1995-96 on the issue held 10% of ₹ 4,60,307/- as not incurred wholly and exclusively for the purpose of business which has resulted into disallowance of ₹ 46,030/- on this account. The Ld. CIT(A) has upheld the same. 4.2. Since the assessee could not improve its case before the Tribunal, we are not inclined to interfere with the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served for the commission paid. 5.3. Considering the above submission, we find that the assessee upon whom onus was lying to establish its claim could not improve its case before the Tribunal. The documents which were not allowed to be admitted as additional evidence by the ld. CIT(A) were merely Credit Notes raised by the assessee and not confirmation from the parties. The Ld. CIT(A) was thus justified in rejecting the request of the assessee for admitting those evidence. In result, we are of the view that the assessee failed to discharge its onus to establish the genuineness of the claim. The authorities below were thus justified in disallowing ₹ 6,92,595/- out of the claimed sales commission of ₹ 74,81,032/- in absence of the evidence in support to the extent of the said amount of ₹ 6,92,595/-. The disallowance is thus upheld. The ground No. 3 is accordingly rejected. Ground No.4 6. This ground is against the disallowance of ₹ 1,829/- out of telephone expenses. 6.1. Having gone through the orders of the authorities below, we find that out of ₹ 26,26,409/- under the head postage, telephone, telex a sum of ₹ 59,144/- was spent on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of acquisition of trade mark, the capital gains on transfer thereof are not chargeable to tax. 8.1. For proper identification we have marked these additional grounds as Additional ground nos. 1 and 2. 8.2. On perusal of appeal preferred by the Revenue, we find that the revenue vide ground No. 1 of the appeal questioned the first appellate order on the ground that the ld CIT(A) has erred in directing to compute the consideration received on transfer of trade names, trade mark, marketing data base etc., under the head income from capital gain . Since the issue raised in Ground No. 1 of the appeal preferred by the revenue is connected to the issue raised in additional ground No.1, we for the sake of brevity preferred to adjudicate both these issues vide a consolidated order. 8.3. The relevant facts are that vide agreement for assignment of business dated 30th January 1998, the assessee company ACL assigned its business of Speciality Chemical Divisions for a consideration of ₹ 10 Crores to Houseman Ltd., U.K. 8.3.1. The question before the A.O was as to whether this amount of ₹ 10 Crores received for assigning the business of Speciality Chemical Division as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 970.00 Net of stamp duty of ₹ 30 Lacs borne by the Transferor, i.e. Aquapharm. 8.3.5. The assessee claimed that they have sold the entire business of Speciality Chemicals on a lumpsum price as per the agreement for assignment of business . The assessee submitted further that they have sold the manufacturing data, manufacturing rights, marketing data base, everything connected with this activity of HACL, who are the owners of this activity after they have purchased their business. If at all, the assessee is manufacturing these chemicals, only for them, and under their orders. The assessee does not manufacture and market the same products for any other party. The assessee has seized the business of this nature. 8.3.6. The A.O did not agree with the claim of the assessee. Basically, the A.O has denied the claim of the assessee with observation that technical know-how, technical specification, trademarks, trade names, if at all there is transaction for them, it is only for the use of these technical knowhow, technical specification, trademarks, trade names, the reason being the assessee is still manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Ld. A.R. on the other hand tried to justify the relief given by the ld CIT(A) and reiterated the submissions made before the Ld. CIT(A) on the issue raised in additional ground Nos. 1 2. 8.5. Considering the above submissions, we find that the A.O has denied the claim of the assessee that the receipt of ₹ 10 Crore as a consideration was against the selling of entire business of Speciality Chemicals as a slum sale on the following grounds : a) There is no slump sale or sale of business as a going concern. b) The consideration has not been received for the slump sale as there is no slump sale as a going concern. Hene it is not a capital receipt. c) The technical know-how, technical specifications, trademarks, trade names, if at all there is transaction for them, it is only for the USE of these technical know-how, technical specifications, trademarks, trade names, the reason being the assessee is still manufacturing products in relation to which the same trademarks, trade names, technical know-how and technical specifications have been stated to have been transferred. d) The consideration has been received in the normal course of business transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven by the assessee even in its letter dated 2nd Feb, 2001 and also as per depreciation chart attached to the return. For the intangible assets the cost of acquisition is to be taken at NIL as per section 55 amended w.e.f. 1.4.98 5) The sale consideration for different assets can be taken as per valuation report filed in the case of Houseman Aquapharm Chemicals Ltd, where the Directors are common 8.5.3. The Ld. CIT(A) has discussed the issue in detail. He has called upon the comments of the A.O on the submissions of the assessee and considering the same he has come to the following findings : 36. The submissions of both the sides have been considered. On the facts and circumstances of the case, I am not inclined to agree with the Assessing Officer that the receipt of ₹ 10 crore received by the appellant on Assignment of its Speciality chemical division to M/s. Houseman Aquapharm Chemicals ltd was a revenue receipt. There is nothing to show that whatever was transferred by the appellant such as sale of trademarks, trade names, technical specifications, marketing database was part of trading or business receipt of the appellant. The appellant was not in the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed by the Agreement for the Assignment of Business. This aspect is separately covered by the shareholders agreement dated 30th Jan. 1998. On the facts of the case I am inclined to hold that the receipt of ₹ 10 Crores on sale of speciality chemical division was not a trading/revenue receipt by the appellant. The AO has herself mentioned in the Assessment Order that in the alternative and without prejudice to her holding that it was a revenue receipt, the could be taxed as a Capital Gain based on the valuation Report filed in the case of M/s. HACCL, where the directors were common. The case of the appellant is also covered by the decision of the Hon ble Supreme Court in the case of Artex Manufacturing Company Vs. CIT 277 ITR 260(SC). On the facts of the case I am inclined to hold that the receipt of Assignment of Business of Speciality chemical Division was a capital receipt liable for tax. The appellant has also finally conceded that the sum of ₹ 10 Crores was liable to capital gain tax. As per the valuation report of the chartered accountant, filed in the case of HACCL, the value of ₹ 970 Lacs (Rs.1000 Lacs-30 :Lacs for Stamp duty) has been bifurcated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded at 230 Lacs. Therefore, while computing the capital gains the appellant s calculation shall be increased by ₹ 1.86 Lacs. It is held that appellant shall be liable for long term capital gains on ₹ 729.36 Lacs (Rs.727.50 Lacs + ₹ 1.86 Lacs) comprising of ₹ 421.95 Lakh on sale of technical know-how and ₹ 305.55 Lakh on Goodwill and the difference (excess) in value of Trademarks The appellant has also admitted its liability to pay tax on Long Term Capital Gain on ₹ 727.50 Lakhs. The addition of ₹ 10 Crores as business income is deleted however ₹ 729.36(net) shall be liable for Long Term Capital Gain Tax. On the sale value of operating asset of ₹ 19,40,000/- the appellant is however liable for tax u/s. 41(2) of the IT Act as business income. The appellant had submitted that the total cost of the operating asset was ₹ 50,37,040/- comprising of vehicle ₹ 10,23,449/-, tools and equipments ₹ 34,90,397/- and computers ₹ 5,23,194/- and depreciation claimed on these assets ₹ 32,7y6,246/-. The WDV was shown at ₹ 17,60,794/-. The income u/s 41(2) as per this calculation comes to ₹ 1,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her holding that it was a revenue receipt, the sum could be taxed as a capital gain based on the valuation report filed in the case of HACL, where the directors were common. Under these circumstances, we do not find infirmity in the finding of the Ld. CIT(A) that the receipt of assignment of business of speciality chemical division was a capital receipt liable for tax. 8.5.5. Before the ld. CIT(A), the assessee had also claimed that the value on trademark was not liable to capital gain tax in view of the decision in the case of B.C. Srinivasa Shetty, 128 ITR 294 (SC) and also for the reason that the trademarks had been covered u/s. 55(2)(a) only w.e.f. A.Y. 2002-03. The Ld. CIT(A) has accepted the same with this observation that the assessees shall not be liable for capital gains on trademark for the A.Y. under consideration since there was no cost of acquisition. Under these circumstances, we find that the first appellate order on the issue is reasoned one and does not need interference. The same is upheld. Ground No. 1 of the appeal preferred by the revenue questioning the action of Ld. CIT(A) in directing to compute the consideration received on transfer of trademark, trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late order for the same A.Y. Following the decision taken therein, this ground is rejected. Ground No. 2 9.2. The relevant facts are that during the year, the assessee had received ₹ 7,06,606/- towards capital subsidy from WMDC. Before the A.O, the assessee was asked to explain as to why this receipt should not be treated as revenue receipt and accordingly be added to the income returned. The explanation of the assessee remained that the assessee company is covered by package incentive scheme 1988 announced by the Government of Maharashtra Industrial Energy and Labour Department. It was submitted that the said scheme is implemented through the operating agency known as WMDC . The assessee explained that the preamble of the said scheme makes it clear that the object of putting such incentive scheme into the practice is to achieve dispersal of industries outside the Bombay, Thane, Pune belt and to attract them to the underdeveloped and developed areas of the said governments. This subsidy has been granted by the State Government with specific view to encourage the industries to go to backward areas and set up the industrial units thereon. It was further stated that ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult, ITA No. 626/PN/2002 preferred by the revenue is partly allowed. ITA Nos. 1386/PN/2005 1111/PN/2005 10. These are cross appeals against the first appellate order for the A.Y. 2001-02 wherein the assessment was framed u/s. 143(3) of the Act. There are another set of matters i.e. ITA No. 1193/PN/2007 (preferred by the Revenue) and C.O. No. 1/PN/2008 (Preferred by the assessee) for the same A.Y. 2001-02 against the first appellate order arising out of the assessment framed u/s. 147 read with 143(3) of the Act. Issues raised in these appeals are different, hence these matters require adjudication by the Tribunal. ITA No. 1111/PN/2005 11. The assessee has raised following grounds : 1. On facts and circumstances prevailing in the case and as per provisions of law, it be held that, disallowance out of repairs to Plant and Machinery of ₹ 20,904/- is resulting out of misapprehension of the fact on the part of Authorities below and the same is not in accordance with the provisions of the Act. The additions so retained on account of disallowance out of repairs to Plant and machinery and others be deleted. 2. On facts and circumstances prevailing in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/- other interest of ₹ 9,209/- be assessed as business income instead of the same being assessed under the head income from other Sources same be treated as forming part of the business income eligible for the purpose of computation of claim u/s. 80HHC. 8. Assuming without admitting that the interest on fixed deposit amounting to ₹ 15,10,562/- is to be treated as Income from other source then, it should have been netted off before it was considered for the purpose of exclusion of the same from the computation of eligible claim u/s. 80HHC. 9. It further be held that deduction of 90% be restricted within the meaning explanation (baa)(i) to the sec. 80HHC only to the net interest income not the gross interest income. Just proper relief be granted to the appellant in this office. Ground No. 1 12. The Ld. A.R. submitted that the assessee does not wish to press this ground. The ground is accordingly rejected as withdrawn. Ground No. 2 13. The assessee claimed expenses of ₹ 9,04,662/- consisting of ₹ 2464/- towards cake and biscuits, ₹ 5,13,204/- towards room expenses and ₹ 1,61,432/- towards staff welfare expenses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the organization, the assessee felt that existing software was not adequate and replace it to get the appropriate output from a new computer software system. It was submitted that the software obtained was related to all the areas of operations viz., accounts, purchase, sale and production operation of the company to streamline the same. Due to ever changing technology, the assessee requires to change the software in short span of time. For this reasons, by and large, any software becomes outdated very soon due to technological obsoleteness. It was contended that the advantage derived from some system, therefore, cannot be called as an expenditure giving enduring benefit. 18. Considering the above submission, the ld CIT(A) observed that the software relates to the areas of operation viz-a-viz accounts, purchases, sales and production operation of the company. He held that as far as the software relating to the account, purchases, sales is concerned, the same can be said to be of the revenue nature because it is not part of the profit earning apparatus, but it is a part of profit earning process. He accordingly relying upon the decisions cited by the assessee, held that expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acing system other products and impugned software is an Enterprises Resources Planning (ERP) package and hence its facilitates the assessee s trading operations or enabling the management to conduct the assessee s business more efficiently or more profitably but it is not in the nature of profit making apparatus. In our view, there is no doubt that software generally brings business advantages which consists of facilitating the assessee s business operations. Thus, even though , the software does not directly contribute to the profit earning process of an enterprise, it certainly necessary for the effective management and conduct of the business. Keeping in view the dynamics and uncertainty involved in obtaining enduring benefits from software, we are of the view that the expenditure of software does not partake the nature of capital expenditure. Under these circumstances, we are of the view that even on proper analysis of functioning, one would come to the conclusion that even if for arguments sake, it brings benefits of enduring nature, the same is in revenue field and not in capital field since it improves and helps the administration and day to day working of an organization. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with the dividend claimed as exempt. It was submitted that the most of the dividend has been earned from one time investment in mutual funds and there was no cost incurred either administrative or otherwise as is presumed without any evidence by the A.O. Considering this submission, the Ld CIT(A) has restricted the addition to ₹ 1000/-. 27. Similar arguments have been advanced by the Ld. A.R. before the Tribunal. We are of the view that the Ld CIT(A) has duly considered both the submissions and agreeing with it, he has already given sufficient relief by restricting the disallowance to ₹ 1000/- from ₹ 25000/- made by the A.O. The first appellate order on the issue is thus upheld. The ground No. 5 is accordingly rejected. Ground No. 6 28. The Ld. A.R. fairly withdrew this amount with this submission that the issue raised is covered against the assessee by the decision of Hon ble jurisdictional Bombay High Court in the case of Sudarshan Chemicals Ltd., 245 ITR 769 (Bom.). The ground is accordingly rejected. Ground Nos. 7 8 29. The grievance of the assessee in these grounds is that interest on Fixed Deposit amounting to ₹ 15,10,562/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Hon ble Bombay High Court, we also concur with the above observation of the ld CIT(A) that in that case before the Hon ble High Court, the interest income from customers, and sales tax set off have been computed and assessed by the A.O under the head profits and gains of business or profession as part of the operational income and not under the head income from other course . Under these circumstances, the issues have been decided by the Hon ble Bombay High Court in favour of the assessee. The Hon ble High Court has given reference of earlier decision of Bombay High Court in the case of Bangalore Clothing Co., 260 ITR 371(Bom.) holding that the A.O must ascertain the nature of receipt in each case independently. Interest income may or may not be out of the business activity. In the present case before us, we find that the A.O has examined the issue of interest on delayed receipt from the customers and sales tax refund, interest received on Fixed Deposit and others etc., and has come to the conclusion that these are income from other sources admissible for deduction u/s. 80 HHC of the Act. We are also of the view that the ld CIT(A0 has rightly upheld this action of the A.O beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business for the computation of deduction u/s. 80 HHC of the Act. 37. At the outset of hearing, the ld. A.R. pointed out that the issue raised in ground Nos. 1.1 and 1.2 regarding the exclusion of sales tax and excise duty from the total turnover for computation of deduction u/s. 80HHC is concerned, the same is fully covered by the decision of Hon ble Supreme Court in the case of CIT Vs. Laxmi Machine Works, 290 ITR 667. Having gone through the decision of Hon ble Supreme Court in the case of CIT Vs. Laxmi Machine Works (Supra), we find that the Hon ble Supreme Court on the issue has been pleased to hold that Excise Duty and Sales Tax cannot form part of turnover as they do not emanate from such turnover. In view of this settled position of law by the Hon ble Supreme Court, we do not find infirmity in the first appellate order on the issue whereby the ld CIT(A) has directed the A.O to exclude sales tax and excise duty from the total turnover for the purpose of computing deduction u/s. 80 HHC of the Act. The same is upheld. Ground Nos. 1.1 1.2 are thus rejected. 38. In ground 1.3, the revenue has questioned first appellate order in directing the A.O for removal of rent of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation of deduction u/s. 80 HHC of the Act. The same is upheld. The ground No. 1.3 is accordingly rejected. 41. In result ITA No. 1386/PN/2005 preferred by the Revenue is dismissed. C.O. No. 1/PN/2008 ITA No.1193/PN/2007 44. The assessee has objected the first appellate order whereby the ld CIT(A) has upheld the validity of re-opening of the assessment proceedings u/s. 147 by issuing notice u/s. 48 by the A.O. 45. The contention of the ld. A.R. is that the A.O had no jurisdiction to re-open the assessment proceedings u/s. 147 by issuing the notice u/s. 148, thus such notice as well as assessment framed in consequence of such notice is unwarranted and illegal. He submitted that all the necessary information regarding recovered labour charges and duty draw back were furnished before the A.O during the course of regular assessment proceedings and after considering the same, the assessment was framed u/s. 143(3) of the Act. Thus, A.O had initiated re-opening proceedings merely on the basis of change of opinion which is not permissible under the provisions of Sec. 147 of the Act. He submitted further that while the ld CIT(A) has upheld the validity of re-opening, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are of the view that at the stage of initiation of re-opening of the assessment, the requirement on the part of the A.O is to have a reasonable belief which a prudent person could have under similar circumstances of the case that chargeable income has escaped assessment. It is thus a prima facie belief of an A.O to initiate the reopening proceedings by recording such reasons to belief to issue notice u/s. 148 of the Act affording an opportunity to the assessee to show cause as to why re-opening proceedings should not be initiated against him on the basis of those reasons. After considering the cause show by the assessee, the AO, if he is not satisfied with the cause show by the assessee will proceed for re-assessment and frame the re-assessment on those issues which is a submitting matter of reasons to belief and any other income which he feels during the re-assessment proceedings, has escaped assessment. It is an established position of law that sufficiency of reason to believe can not be question in a Court of Law because it is only a prima facie belief of the A.O to initiate re-opening proceedings which is always subject to final conclusion, after hearing the assessee during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order in holding that the labour charges are squarely covered in charges or any other receipts of similar nature as mentioned in Explanation (baa) of sec. 80HHC(4C) and therefore 90% of the amount was to be reduced for determining the deduction under sec. 80HHC. 2. In allowing the above relief the CIT(A) has erred (a) in not considering the remand report sent in the matter and (b) in holding that the A.O has not sent the remand report when the same was duly sent through letter dated 18/5/07 of the A.O. and forwarding letter dated 22/5/07 of the Range Head. 51. Subsequent to escalation assessment u/s. 143(3) for the A.Y. 2000-01, the succeeding A.O issued notice u/s. 148 for re-opening the regular assessment and framed the assessment u/s. 147 r.w.s. 143(3) of the Act. The aggrieved assessee went in first appeal and got relief on the issue of labour charges whether to treat as part of the business. Relief given by the ld CIT(A) in this regard has been questioned by the revenue whereas in its cross objection, the assessee has questioned the validity of re-opening upheld by the Ld CIT(A). 52. The issue raised in the above grounds is as to whether Ld CIT(A0 was justified in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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