9911796707
TMI Blog2009 (6) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order, that it was a receipt of deposit in terms of "retailing business agreement" dt. 18th Feb., 1999 which was for 'agreeing to forego the use of the premises' for the purposes for which it was used previously. It was also stated in the said letter that the premises which were let out to M/s Trent Ltd. were being used as a showroom/service centre before being let out and that was the main place from which the assessee was carrying on its business activity. It was further claimed that by allowing M/s Trent Ltd. to use this premises, the assessee had to that extent foregone its right to carry on business in that centrally located premises which property was being used by it all along for its business purposes. The assessee relied on certain decisions before the AO in support of the contention that it was a compensation received for the loss of a source of assessee's income and hence was a capital receipt. The AO, negativing this contention, observed that the retailing business agreement entered into by the assessee with M/s Trent Ltd. was a business agreement and the consideration from that was a business receipt. He further did not approve the view of the assessee that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in question was held to be capital receipt not liable to tax. It was contended that the instant amount was received only by virtue of the agreement with M/s Trent Ltd. for carrying on the business and was liable to be considered as business income. He strongly relied on the assessment order to contend that the assessee had received this sum for rendering of the services to M/s Trent Ltd. and hence it is a revenue receipt. Per contra, the learned Authorised Representative reiterated the submissions as advanced before the first appellate authority and on the basis of his reasoning urged that the impugned order be upheld. He stated that the sum of Rs. 50 lakhs received by the assessee had absolutely no connection with the rendering of any services to M/s Trent Ltd. He submitted that it was basically in lieu of giving up a source of income in the shape of premises from where the assessee was carrying on business of automobiles for long time. It was put forth that the amount was compensation for injury which was inflicted on the capital asset of the trade being the automobile business carried at this centrally located premises. He relied on the judgment rendered by the Hon'ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s activities of Trent shall be carried on at the said premises w.e.f. 1st March, 1999. Clause 2 of the agreement states that on the execution of these presents, Trent shall pay to United Motors an upfront non-refundable/non-accountable signing fee of Rs. 50,00,000. Clause 7 of the agreement provides that both the parties shall jointly work out marketing and sales strategy for successful and profitably running the business and both of them will adopt such advertisement/publicity programme and do such other acts as may be mutually agreed in the interest of the business. Further, the assessee shall render all such assistance to M/s Trent Ltd. as may be reasonably required for the successful running of the said retail business. Clause 7.4 reads as under: "Without affecting the generality of what is stated in the preceding sub-cl. 7.3, United Motors shall whenever required by Trent, provide advisory assistance to Trent in the following fields. (i) Personnel policies of the said retail business; (ii) Security arrangement, both inside and outside the said premises; (iii) Interaction and liaison with the Sterling Heritage Condominium in connection with seeking their permission/appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his section is general which states that 'the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year' shall be business income. Other clauses from (ii) to (vi) of s. 28 are specific items of income which have been included under this head. The AO has held this sum of Rs. 50 lakhs as business receipt and it is not his case that this amount falls under any of the specific clauses of s. 28. It implies that he intended to include it under cl. (i), which talks of profits and gains of any business carried on by the assessee. Going by the language of this clause, the carrying on of any business by the assessee is sine qua non in order a particular receipt may be included in the Chapter IV-D of the Act. Clause 2 of the agreement providing for the giving the amount of Rs. 50 lakhs to the assessee is successor of and next to cl. 1 which states that the retailing business shall be carried on by M/s Trent Ltd. at the said premises initially for a period of ten years further renewable with the mutual consent. This receipt is neither a consideration for the automobiles business which was earlier carried on by the assessee at this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked eye are that the automobile business which was hitherto carried on in the N.S. Patkar showroom was shifted from here in February, 1999 to some other rented premises. from where it was continued by the assessee upto the year 2002. It is further not disputed that M/s Trent Ltd. did not ever participate in the business of automobiles either before or after 18th Feb., 1999. Therefore, it is palpable that the automobile business which was carried on by the assessee from N.S. Patkar premises was shifted to another premises and this N.S. Patkar premises was made available to M/s Trent Ltd. for doing the retailing business. A great deal of emphasis has been laid by the learned Authorised Representative on the proposition that the capital asset of the assessee, being the business of automobile, which was continued from this showroom was sterilized and hence receipt towards giving up of the source of income be treated as capital receipt not chargeable to tax. We are unable to accept this contention for the obvious reason that the consideration of Rs. 50 lakhs paid by Trent Ltd. was not in lieu of the taking over of automobile business from the assessee but only for taking the possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and continued as such at the same premises or different premises by M/s Trent Ltd. instead of the assessee. In that situation the composite payment would have assumed the character of capital receipt, as has been held in the cases discussed infra. On the contrary we are dealing with a case in which M/s Trent Ltd. started an altogether different line of business. being the sale of garments which has absolutely no connection with the automobile business that was earlier carried on by the assessee at that premises. The assessee has shifted its automobile business (source of income) to some other rented premises. In our considered opinion the learned CIT(A) erred in coming to the conclusion that "the appellant company foregone its right to carry out its main business in that centrally located premises and hence it was a capital receipt". He misdirected himself by considering the premises as source of income in that sense. 9. We will now examine the case law relied on by the learned Authorised Representative first is the judgment of the Hon'ble Supreme Court in the case of Oberoi Hotel (P) Ltd. In that case the appellant company was operating, managing and administering many hotels be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred or let out to other persons. It is not for settlement of rights under a trading contract, but the injury was inflicted on the capital asset of the assessee and giving up the contractual right on the basis of the principal agreement has resulted in loss of source of income. The Tribunal was, therefore, correct in law in confirming the decision of the CIT(A) that the receipt of Rs. 29,47,500 by the assessee from the receiver of the hotel was a capital receipt." 10. On going through the facts of the above noted case it is clearly borne out that there is no similarity, worth the name, with the facts in question. In that case the assessee was earning income from the operation of hotel. In view of the sale of hotel by the receiver, the assessee was debarred from earning the income for the remaining period of the agreement for which it was given compensation. That compensation was for the loss of source of income, being the business of hotel. On the contrary we are confronted with the facts in which the automobiles business of the assessee company continued to be carried on by the assessee itself even after the agreement, albeit at some different place. There is no impairment t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same was capital receipt for termination of monopoly rights of the assessee and advantage of an enduring nature. Here again we find that these facts are mismatch. 13. On going through the above cases it is evident that there is a clear line of demarcation between the facts of all the cases relied on behalf of the assessee and those of the instant case. In these cases the parties were having source of business income which was dented due to the termination or the agreement and as a result of such cancellation of agreements, a certain amount was received in cash or in kind which was held to be not taxable as a compensation for loss of source of business income. Here again it is pertinent to mention that the ratio decidendi of some of the judgments on this line of reasoning, providing for the compensation for termination of managing agency etc. as not taxable being towards the source of income, has been set to naught in the 1961 Act by insertion of cl. (ii) to s. 28. This provision states that any compensation or other payment due to or received by any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company or the affai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A), is any body's guess. We are dealing with a case where there is no loss of source of income. The assessee did not agree with M/s. Trent Ltd. for not carrying on any business activity for a particular period or at a particular place. There is no restrictive covenant. The business of automobile which was carried on in the said premises continued to be carried on at another place. Even at the cost of repetition we deem it fit to mention that there would have been loss of source of income if the automobile business had been taken over by M/s Trent Ltd. for the stated compensation of Rs. 50 lakhs. By entering into retailing agreement the assessee had not forbidden itself from carrying out any particular business. Making the premises available to another for use by the latter's business is vastly different from agreeing to not carry out any activity in relation to any business. In sharp contrast to this provision, the assessee continued its business as such at some other place and further there is no stipulation in the agreement prohibiting the assessee from doing any particular business at a particular place or for a particular period of time. The case of the assessee ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in lieu thereof. 18. Sec. 2(14) defines 'capital asset' in an inclusive manner as "property of any kind held by an assessee whether or not connected with the business or profession but does not include.........". As per this definition any kind of 'property' held by an assessee would come in the definition of 'capital asset.' subject to the exceptions mentioned in the definition clause itself. Further, the use of the word 'held' is clear indicator of the intention of the legislature that not only the ownership but also non-ownership rights in property also fall within the domain of capital asset. Thus as per this definition, any kind of property held by an assessee would come within the definition of capital asset. The word 'property' includes inter alia, the interest of a lessor and even goes to the extent of including the interest of a person in possession without title. In the present case the assessee is the lessee of the land of Municipal Corporation of Greater Mumbai, on which it constructed the premises. Thus the exclusive right to the possession and enjoyment of this property is a 'property' of the assessee. It is a fairly settled position that the right conferred on a l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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