Income Tax Appellate Tribunal - Kolkata
Sri Chandra Mohan Gupta, Kolkata vs I.T.O Wd - 30(2),Kolkata., Kolkata on 23 October, 2019
IN THE INCOME TAX ASSESSEE TRIBUNAL "B", BENCH KOLKATA BEFORE SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.1282/Kol/2013 ( नधारणवष / Assessment Year:2009-10) Shri Chandra Mohan Gupta Vs. ITO, Ward-30(2), Kolkata 3, Anil Roy Road, Kolkata थायीले खासं . /जीआइआरसं . /PAN/GIR No.: AECPG 0836 Q (Assessee) .. (Revenue) Assessee by : Shri AkkalDudhwewala, FCA Respondent by : Shri Sanjay Mukherjee, Addl. CIT सुनवाईक तार ख/ Date of Hearing : 11/09/2019 घोषणाक तार ख/Date of Pronouncement : 23/10/2019 आदे श / O R D E R Per Dr. A. L. Saini:
The captioned appeal filed by the assessee, pertaining to assessment year 2009-10, is directed against the order passed by the Commissioner of Income Tax (Appeal)-XIV, Kolkata, in appeal No.678/CIT(A)-XIV/Kol/11-12, dated 14.03.2013, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the 'Act') dated 25/10/2011.
2. Grounds of appeal raised by the assessee are as follows:
1) For that on the facts and in the circumstances of the case, the CIT(A) was not justified in upholding the AO's order of assessing Rs. 75 lacs as income chargeable under the head "other sources".
Shri Chandra Mohan Gupta I TA No .1 2 8 2 / Ko l /2 0 1 3 A s se s smen t Yea r: 2 0 0 9 - 1 0
2) For that on the facts and in the circumstances of the case, the authorities below ought to have held that the sum of Rs. 75 lacs was assessable as appellant's income chargeable under the head "Long Term Capital Gains"
and not under the head "other sources".
3) For that on the facts and in the circumstances of the case, the authorities below erred in not appreciating that Rs. 75 lacs was received by the assessee as a consideration for transfer of an intangible asset in favour of the company and therefore the said sum was chargeable under the head Long Term Capital Gain.
4) For that on the facts and in the circumstances of the case, the authorities below were also not justified in not allowing the appellant's claim for exemption u/s 54EC of the I.T Act since consideration was invested in specified capital asset.
5) For that the appellant craves leave to submit additional grounds and/ or amend or alter the grounds already taken either at the time of hearing of the appeal or before.
3. The facts of the case which can be stated quite shortly are as follows: The assessee filed return on income for assessment Year 2009-10 on 27.07.2009 declaring total income to the tune of Rs. 4,92,610/-. During the scrutiny proceedings, the AO noted that assessee has received an amount of Rs.75,00,000/-, from one company, named M/s. Good Earth Minmet Pvt. Ltd. having its office at Goolmohar, 60, Middleton Street, Kolkata- 71.It was explained by the assessee during the assessment proceedings that the aforesaid income of Rs. 75,00,000/-was received by him from one Company named M/s. Good Earth Minmet Pvt. Ltd. as the assessee was made a Director of the said company. After becoming Director of the above said company, the assessee received a sum of Rs. 75,00,000/- on 26/06/2008. The assessee treated the above cited receipt of Rs. 75,00,000/- as capital gain on sale of self-generated goodwill. The assessing officer took the view that the said sum was not a self-generated goodwill as the assessee had not shown any good will in his balance sheet. It was further noticed by the assessing officer that no existing business or the right to conduct the business had been transferred by the assessee to any person or any concern. It was also found by the A.O. that Sri. Chandra Mohan Gupta, the assessee, had no educational qualification in the field of mining. It was also found that none of the other Directors who were appointed during the same period, had been paid any goodwill. Thus, the assessing officer found that there had not been any transfer of any asset by the assessee. Accordingly, the receipt in the hands of the assessee is not assessable Pa g e | 2 Shri Chandra Mohan Gupta I TA No .1 2 8 2 / Ko l /2 0 1 3 A s se s smen t Yea r: 2 0 0 9 - 1 0 under the head "capital gain." But assessable under the head income from other sources.Therefore, the receipts of Rs.75,00,000/- was treated by AO in the nature of Revenue Receipt chargeable to tax and not in the nature of capital receipt.
4. Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the action of the Assessing Officer. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
5. The ld. Counsel for the assessee has relied on the submissions made before the authorities below. On the other hand, the ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity.
6. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. Ld Counsel submitted before us that the assessee is an individual who is engaged in the business of mining of bauxite and other minerals under the name and style of M/s Ceramic Materials Co. For the relevant year, the assessee had filed a return of income declaring total income of Rs. 4,92,610/-. In the computation furnished along with the return of income, the assessee had reported to have received sum of Rs. 75,00,000/- on sale of his self generated goodwill which was deposited in the CGDS Scheme. The assessee had therefore computed gross Long Term Capital Gain at Rs. 75,00,000/- and claimed deduction of the equivalent amount deposited in the CGDS Scheme u/s 54EC of the Act. In the course of assessment the AO had required the assessee to furnish the details in connection with the sale of goodwill. In response the assessee explained that the sale consideration was received from M/s Good Earth Minment Pvt. Ltd. (GEMPL). It was submitted that the said company paid Rs. 75,00,000/- towards assessee's self generated goodwill on account of his experience in operation of mining companies and his credential of mining bauxite and other minerals in the state of Jharkhand. The AO however was of the view that such receipt was not taxable by way of capital gain. According to the AO since the assessee did not discontinue his proprietorship business, his 'right to conduct business' had not been transferred and Pa g e | 3 Shri Chandra Mohan Gupta I TA No .1 2 8 2 / Ko l /2 0 1 3 A s se s smen t Yea r: 2 0 0 9 - 1 0 therefore there was no transfer of capital asset giving rise to capital gain. The AO further held that the payer company had not paid any sum towards goodwill to any other Director and therefore according to him this could not tantamount to sale of goodwill. The AO further observed that there was no employer employee relationship between the assessee and M/s GEMPL and therefore such payment could not be classified as profit in lieu of salary. The AO also held that since the payment was not in the nature of non-compete fees, it was not taxable under the head income from business or profession. The AO further observed that M/s GEMPL had claimed this payment by way of revenue expenditure and therefore, held that the receipt was revenue in nature in the hands of the assessee. The AO also concluded that since the receipts did not classify as income under any of the specified heads of income contained in Chapters IVA IVE of the Act. Accordingly AO assessed it under the residuary head i.e. income from other sources.
7. The Ld Counsel submits before us that the lower authorities grossly erred in not correctly appreciating the jurisdictional facts of the case and erroneously assessed the receipt of Rs. 75,00,000/- on transfer of goodwill to M/s GEMPL under the head Other Sources. Attention in this regard is invited to Pgs 1-9 of the Paper Book which contain the correspondence/ communication between the assessee and GEMPL regarding transfer of goodwill. On perusal of the same and having regard to the jurisdictional facts it is an admitted lact that the assessee was engaged in the business of mining of bauxite for more than 40 years in the state of Jharkhand. In the circumstances it cannot be denied that the assessee has not only developed credential required to bid for any tenders/rights for mining of minerals in that region but also gathered requisite experience and reputation in the business of mining in the state of Jharkhand.
We note that M/s GEMPL was a newly set up company with the object of carrying on mining activities. It is well understood that in order to bid for mining rights and obtain tenders from the government/local authorities to conduct mining, it is necessary for the bidder to have requisite credentials and past experience in the said field. Since M/s GEMPL was new in this field, it had approached the assessee to allow it to utilize his name, credentials and goodwill for its business of mining. The payer company had required the assessee to lend his name as also his credentials and therefore proposed that he be appointed as a Non-Executive Director with the sole purpose and intent to utilize his reputation and credentials for carrying out mining activities in the state of Jharkhand. After negotiations, the assessee had agreed to lend his name and permit it to utilize his credentials and therefore be appointed as a director on its Board for a lump-sum amount Pa g e | 4 Shri Chandra Mohan Gupta I TA No .1 2 8 2 / Ko l /2 0 1 3 A s se s smen t Yea r: 2 0 0 9 - 1 0 of Rs. 75,00,00/- towards his goodwill. On these facts it is therefore evidently clear that the payment in question was made by M/s GEMPL towards transfer of goodwill of Shri CM Gupta and nothing else.
The ld Counsel submitted before us that the AO in his impugned order erroneously equated the payment towards goodwill with the right to conduct business and wrongly held that the fact that the assessee did not discontinue his proprietorship business meant that he did not transfer his goodwill. This proposition of the AO is inherently flawed and unjustified From the facts as narrated in the foregoing it is abundantly clear that the appellant had lent his name, reputation and credentials to GEMPL and not transferred his existing business. The name, reputation and credentials of the appellant constituted separate intangible right as opposed to the appellant's personal privilege and right to conduct his proprietorship business. Both these rights were independent and mutually exclusive and therefore cannot be considered to be one and the same. In the facts of the present case it is not the appellant's case that he had transferred his right to conduct business but instead he had transferred ( that is, allowed the company to use his name and reputation) his name and goodwill to M/s GEMPL which is a separate and independent capital asset in itself.
8. The ld Counsel also submits before us that the AO's conclusion that the payment in question was revenue and not capital in nature was erroneously influenced by the purported fact that M/s GEMPL had claimed it to be a revenue expenditure. It is by now well settled in law that the manner in which the payer records the payment in his books of account is inconsequential and indecisive to determine the nature and character of such receipts in the hands of the payee. If a wrong claim or wrong entry has been passed by the payer it will not result in an adverse inference in the hands of the payee. What is relevant is the nature and character of receipt in the payee's hands and not the treatment of such payment in the books of the payer. Undeniably, 'goodwill' is a recognized capital asset which can be self-generated and also transferred for valuable consideration. We note that the Hon'ble Supreme Court in the case of CIT v. Smifs Securities Ltd. (210 taxman
248) has held that goodwill is in the nature of an intangible capital asset and any gain arising on its transfer is taxable by way of capital gain. Section 55(2)(a) of the Income Tax Act. 1961, also recognizes the concept of self-generated goodwill by providing that the cost of acquisition of such self-generated goodwill shall be taken at NIL. On these facts therefore it is undeniably clear that goodwill is a valuable capital asset and the transfer of partial right thereof permitting the transferee to utilize the same is exigible to Pa g e | 5 Shri Chandra Mohan Gupta I TA No .1 2 8 2 / Ko l /2 0 1 3 A s se s smen t Yea r: 2 0 0 9 - 1 0 capital gains.
We note that the decision of the Coordinate Bench of ITAT Chennai in the case of ACIT vs S.P. Sambandam (15 taxmann.com 388) involving similar facts as involved in the present case. In the decided case, the assessee who was an individual received sum of Rs. 1.35 crores from a company for permitting it to use his name 'S' as a part of the name of the company. The assessee was one of the promoters of the company and such sum was received in lieu of usage of his name when he was no longer in active management of the company. The assessee claimed that such receipt was in the nature of capital receipt and the transfer of partial right in his goodwill to the company amounted to transfer of a capital asset as defined in Section 2(14) and therefore offered the income under the head capital gain. The AO however assessed the receipt as income under the head 'other sources'. On appeal the CIT(A) upheld the contention of the assessee. Before the Hon'ble Tribunal the Revenue argued that the personal name of the assessee was not patented and there was nothing on record to suggest that he had generated goodwill in the market and therefore contended that the provision of Section 45 was not applicable in the given facts of the present case. The Tribunal however found merit in the assessee's case that his personal name had assumed ominous importance in the commercial sense in as much as he had earned goodwill in the local market where under his name the cotton yarn would sell. The Hon'ble Tribunal therefore held that even if the assessee continued to use his name for his personal purposes but permitted the company to use his name as a part of the company, the transfer of such partial right amounted to transfer of goodwill and therefore it was held to be assessable by way of capital gains. The relevant findings recorded in the decision are as follows:
"3. We have heard rival submissions and have carefully perused the entire records. The vehement submission off he learned Departmental representative is that "Sambandam" is not a patent name and it has not been proved on record that this name has earned ''goodwill" in the market and much less there was no dispute between the parties and no court has given any such direction. It was further argued that what has been transferred by the assessee and the time when the same had been transferred were not evidenced in the record. Therefore, section 45 of the Act is not applicable.
4 . On the other hand, the learned authorized representative has heavily relied on the assessee finding and further submitted that the name "Sambandam" has assumed ominous importance in the commercial sense as the correspondence between the parties which has been referred to the above clearly shows that this name has assumed the status of an "intangible asset". According to the learned authorised representative, if one customer goes into market and asks the shopkeeper that he wants "Sambandam". he would immediately understand he Pa g e | 6 Shri Chandra Mohan Gupta I TA No .1 2 8 2 / Ko l /2 0 1 3 A s se s smen t Yea r: 2 0 0 9 - 1 0 wants yarn with the name "Sambandam". Thus, in a way, this has become a trade name and has assumed greater importance in commercial sense. This being intangible asset and when the assessee allowed to retain the name in the name of the company, the very same day this had been stood transferred when the consideration of Rs. 1,35,45,000 was received by the assessee. So, only capital gain has arisen which is taxable and the assessee has already offered the same to tax. We have gone through the correspondence which has been referred to in the facts and are placed in the paper book of the assessee. The correspondence between the company and the assessee as well as the requirement of no objection from the assessee from the Registrar's office to register the company's name shows that this word "Sambandam" had assumed colossal, commercial importance in the local market. The brand name is always treated as capital asset as defined in section 2(14) of the Act. The words used in section 55(2)(a) were "the cost of acquisition in relation to a capital asset, being goodwill of a business or a trade mark or a brand name associated with a business". That definition makes this word "Sambandam" a brand name associated with business of the company and this brand name has been transferred from the individual to the company during the year. Even if the assessee continues to use his name for his personal purposes hut allow use of the name in the company as per the correspondence between them, although there is a rider the assessee can withdraw this benefit when, in future, in our opinion, the transfer of partial right is exigible to capita! gains. Thus, the consideration was received in respect of right transferred that too on the basis of valuation. Therefore, we do not find any infirmity in the assessee order and confirm the same.
5. In the result, the appeal filed by the Revenue stands dismissed "
9. We are of the view that the facts involved in the above decision of Coordinate Bench, are squarely applicable to the facts involved in the assessee's case. In the present case also the assessee is an individual who was engaged in the business of mining in the state of Jharkhand for over 40 years. The assessee had therefore garnered substantial experience, reputation and credentials in the business of mining which was a valuable intangible asset. M/s GEMPL had sought to use the name and credentials of the assessee to pursue its object of conducting mining activities in Jharkhand. Although, the assessee continued to use his name in his personal business but he had transferred partial right to GEMPL permitting them to use his name and credentials as a part the company. In the circumstances the receipt of Rs. 75,00,000/- was towards transfer of goodwill which is a capital asset within the meaning of Section 2(14) of the Act and therefore transfer of such capital asset was rightly offered to tax u/s 45 of the Income Tax Act by the assessee.
Considering the above facts and circumstances of the case and the case law relied upon we are of the view that the amount received by the assessee on account of goodwill at Rs. 75 lakhs is a capital asset and liable to tax under the head capital gain. Therefore, we Pa g e | 7 Shri Chandra Mohan Gupta I TA No .1 2 8 2 / Ko l /2 0 1 3 A s se s smen t Yea r: 2 0 0 9 - 1 0 direct the Assessing Officer to assess the goodwill at Rs. 75 lakhs under the head capital gain.
10. In the result, appeal filed by the assessee is allowed.
Order pronounced in the Court on 23.10.2019
Sd/- Sd/-
(S.S.GODARA) (A.L.SAINI)
या यकसद य / JUDICIAL MEMBER लेखासद य / ACCOUNTANT MEMBER
दनांक/ Date: 23/10/2019
(SB, Sr.PS)
Copy of the order forwarded to:
1. Shri Chandra Mohan Gupta
2. ITO, Ward-30(2), Kolkata
3. C.I.T(A)- 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
6. Guard File.
True copy
By Order
Assistant Registrar
ITAT, Kolkata Benches
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