Income Tax Appellate Tribunal - Mumbai
Multiform Machinery (Bom) P.Ltd, ... vs Dcit 10(2), Mumbai on 8 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " B" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI MANOJ KUMAR AGGARWAL, AM
ITA No. 7410/Mum/2014
(A.Y:2010-11)
Multiform Machinery (BOM) Dy. Commissioner of
Pvt. Ltd. Income Tax 10(2), Mumbai
14/15, Oghadbhai, M.G. Road Aayakar Bhavan,
Vs.
Ghatkopar, Mumbai -400077 Mumbai-20
P AN No. AAACM4747R
Appellant .. Respondent
Assessee by .. Shri Ajay Singh, AR
Revenue by .. Shri Suman Kumar, DR
Date of hearing .. 05-09-2017
Date of pronouncement .. 08-09-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-22 Mumbai, in appeal No. CIT(A) 22/DCIT-10(2)/IT-20/2013-14, dated 09-09- 2014. The Assessment was framed by DCIT Circle 10(2), Mumbai for the A.Y. 2010-11 vide order dated 05-03-2013 under section 143(3) of the Income Tax Act, 1961(hereinafter 'the Act').
2. The only issue in this appeal of assessee is against the order of CIT(A) in not admitting the additional claim made before AO in the revised computation of income during the course of assessment proceedings in regard to taxability of non-compete fee being capital receipt. For this assessee has raised following grounds: -
2 ITA No. 7410/Mum/2014Multiform Machinery (BOM) Pvt. Ltd. (A.Y:2010-11) "1. The Learned CIT(A) erred in not admitting the additional claim of the Appellant in regard to the taxability of Non Compete fee being capital receipt on undertaking not to engage in any competing business received by the Assessee Company, the said claim was also raised before the Assessing officer in the assessment proceedings. Hence, the Assessee prays that the said claim be considered.
1.2 Without prejudice to the above, the learned CIT(A) erred in not admitting and adjudicating the additional claim of Appellant by ignoring the Jurisdictional High Court decision in case of Pruthvi Brokers and Shareholders [349 ITR 336(Bom)] which was binding on him.
1.3 Without prejudice to the above, Appellant submits that the Ld. CIT(A) has erred in adjudicating on the merits of the case. Hence, Appellant prays that the order be set aside.
1.4 Without prejudice to the above, Appellant submits that the Ld. CIT(A) has erred in not taking into consideration taxing the Non-compete fees of Rs.1,30,00,000 under the head 'Profits & Gains from Business & Profession' instead of 'Capital Gains'.
1.5 Without prejudice to the above, Ld. CIT(A) has not taken into consideration that Non- compete fees was received for cessation of business which amounts to transfer of 'right to carry on business'.
1.6 Without prejudice to the above, the Ld. CIT(A) has failed to appreciate that Non compete fees received by the assessee was covered by the 3 ITA No. 7410/Mum/2014 Multiform Machinery (BOM) Pvt. Ltd. (A.Y:2010-11) proviso to section 28(va) which clearly provides that any sum received on account of transfer of 'right to carry on any business' shall not be chargeable under the head 'Profits & Gains from Business & Profession.
1.7 Appellant submits that the CIT(A) has not construed the provisions law and case laws on the subject, hence the said order passed is contrary to the provisions of law and therefore it should be set aside."
3. At the outset, the learned Counsel for the assessee stated the facts that Mr. Divyang D. Parekh and Mr. R.M. Dingar (Promoters) are qualified Engineers/ Technocrats who have promoted Multiform Machinery (Bom) Pvt. Ltd. since 6.6.1991. The assessee was engaged in the business of strip processing and Cold Rolling Mills since last 17 years. Tennova SPA an Italian Company (Tennova) engaged in the business of providing advance technology products and services and mining industries. They subscribed 51% of the share capital in Tennova Multiform Pvt. Ltd. (TMPL) by entering into Share Subscription and Shareholders Agreement (SSSA). Mr. D.D. Parekh and Mr. Ram Mohan Dingar subscribed 49% of the share capital in TMPL. Tennova was desirous of entering into the Indian market hence they invested in the share capital of the assessee company. Further it also acquired certain assets from MMPL through certain Asset Transfer Agreement (ATA) for agreed consideration. Acquisition of the above said asset was the condition precedent for subscription to the share capital by Tennovo in MMPL. As per ATA, MMPL agreed to transfer its continuing employees and also entered into Leave and License agreement with the assessee company on the date of consideration as a part of the post competition conveyance. MMPL has also agreed to transfer Workshop on Leave and License basis, Workshop 4 ITA No. 7410/Mum/2014 Multiform Machinery (BOM) Pvt. Ltd. (A.Y:2010-11) Employees, Plant and Machineries under a Lease Agreement with effect from 31-03-2010. It was also agreed that MMPL and its promoters will enter into non-compete agreement with the assessee company. Subsequently, by virtue of this agreement non compete fee of Euro 2,00,000/- was paid to MMPL during the relevant AY, Since MMPL and promoters do the sole exploration and knowledge and developed the manufacturing process, knowhow, cliental and product including its prices. The assessee offered this non compete fee of Rs. 1.30 crore as business income in the return of income but subsequently, during the course of assessment proceedings the assessee vide letter ref. No SHR/606/12-13 dated 28.02.2013 requested the AO to treat the non- compete fee receipt as Long Term Capital Gains arising out of Long Term Capital Asset. The AO has not considered the claim of the assessee made for non-compete fee amounting to Rs. 1.30 crore to be considered as capital gain. The CIT(A) also ignored the additional claim made before AO despite specific ground raised before CIT(A). Aggrieved, assessee is in second appeal before Tribunal.
4. The learned counsel for the assessee stated that let the additional claim be admitted and the matter be remanded back to the file of the AO for fresh adjudication after considering all the facts on merits. When a query was put to the learned Sr. DR, he fairly conceded the position. After hearing the rival contentions and going through the facts and circumstances of the case, we find that Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs CIT (2006) 284 ITR 323 SC held as under:
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"4. The decision in question is that the power of the Tribunal under section 254 of the Income Tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of 5 ITA No. 7410/Mum/2014 Multiform Machinery (BOM) Pvt. Ltd. (A.Y:2010-11) law can be raised before the Tribunal. The decision does not in any way relate to the power of the assessing officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income Tax Appellate Tribunal under section 254 of the Income Tax Act, 1961. There shall be no order as to costs."
5. In view of the above decision of the Hon'ble Supreme Court in the case of Goetz (India) Ltd. (supra), we admit that the additional claim of taxability of non-compete fee being capital receipt and remand the matter back to the file of the AO for fresh adjudication after taking evidences from the assessee and also providing reasonable opportunity of being heard to the assessee. The appeal of assessee is allowed for statistical purposes.
6. In the result, the appeal of assessee is allowed for statistical purposes.
Order pronounced in the open court on 08-09-2017.
Sd/- Sd/-
(MANOJ KUMAR AGGARWAL) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 08-09-2017
Sudip Sarkar /Sr.PS
6
ITA No. 7410/Mum/2014
Multiform Machinery (BOM) Pvt. Ltd. (A.Y:2010-11) Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. //True Copy// BY ORDER, Assistant Registrar ITAT, MUMBAI