M/s. COLOUR-CHEM LTD., MUMBAI v. DCIT - 1(1), MUMBAI

CO 30/MUM/2006 | 2001-2002
Pronouncement Date: 30-09-2010 | Result: Partly Allowed

Appeal Details

RSA Number 3019923 RSA 2006
Assessee PAN AAACC5602P
Bench Mumbai
Appeal Number CO 30/MUM/2006
Duration Of Justice 4 year(s) 7 month(s) 19 day(s)
Appellant M/s. COLOUR-CHEM LTD., MUMBAI
Respondent DCIT - 1(1), MUMBAI
Appeal Type Cross Objection
Pronouncement Date 30-09-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 30-09-2010
Date Of Final Hearing 22-09-2010
Next Hearing Date 22-09-2010
Assessment Year 2001-2002
Appeal Filed On 10-02-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI BEFORE SHRI R.S.SYAL AM AND SHRI R.S.PADVEKAR JM ITA NOS.169 2551 2499 & 6727/MUM/2005 ASST.YEARS 1998-99 1999-2000 2000-2001 & 2001-200 2 CO NO.30/MUM/2006 (ARISING OUT OF ITA NO.4362/MUM/2005 : ASST.YEAR 20 01-2002) M/S.COLOUR CHEM LIMITED RAVINDRA ANNEXE 94 CHURCHGATE RECLAMATION MUMBAI 400 020. PA NO.AAACC5602P. VS. THE ADDL.COMMISSIONER OF INCOME-TAX SPECIAL RANGE 28 MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MS.HEENA DOSHI RESPONDENT BY : SHRI AJIT KUMAR SINHA O R D E R PER R.S.SYAL AM : THIS BATCH OF FOUR APPEALS AND ONE CROSS OBJECTION BY THE ASSESSEE RELATE TO THE ASSESSMENT YEARS 1998-99 TO 2001-2002. WHEREAS THE APPEALS ARE FOR THE AFOREMENTIONED YEARS THE CROSS OBJECTION IS ONLY F OR THE ASSESSMENT YEAR 2001- 2002. SINCE SOME OF THE ISSUES RAISED IN THESE APPE ALS ARE COMMON WE ARE THEREFORE PROCEEDING TO DISPOSE THEM OFF BY THIS C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE HAS FILED CROSS OBJECTION FOR ASSES SMENT YEAR 2001-2002 IN ADDITION TO THE FILING OF REGULAR APPEAL. IT HAS BE EN INTIMATED THAT THE APPEAL FILED BY THE REVENUE FOR A.Y. 2001-02 ALREADY STANDS DISPOSE D OFF. THE APPEAL FILED BY THE ASSESSEE IS DELAYED BY 159 DAYS. AS THE ASSESSEE PR EFERRED TO FILE CROSS OBJECTION IN RESPECT OF THE SAME YEAR TAKING THE SAME GROUNDS I T DID NOT PRESS BEFORE US THE TIME BARRED APPEAL FILED BY IT. THEREFORE THE APPEAL FO R ASSESSMENT YEAR 2001-2002 IS DISMISSED AS NOT PRESSED. ITA NO.169/MUM/2005 & ORS. M/S.COLOUR CHEM LIMITED. 2 3. THE CROSS OBJECTION OF THE ASSESSEE IS ALSO TIME BARRED BY 5 DAYS. THE LEARNED A.R. EXPLAINED THE REASONS FOR THE LATE FILING OF C ROSS OBJECTION BY FIVE DAYS. WE ARE SATISFIED WITH SUCH REASONS AND ACCORDINGLY CON DONE THE DELAY AND ADMIT THE CROSS OBJECTION FOR DISPOSAL ON MERITS. 4 FIRST ISSUE RAISED IN THESE APPEALS AS APPEAR ING IN A.Y. 1998-99 TO 2001-02 IS AGAINST THE CONFIRMATION OF AD HOC DISALLOWANCE IN RESPECT OF GENERAL STAFF AND WELFARE EXPENSES. IN THE A.Y. 1998-99 DISALLOWAN CE OF EXPENSES HAS BEEN SUSTAINED AT RS.3 50 000. AT THE VERY OUTSET THE L EARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT SIMILAR DISALLOWANCE WAS MADE IN ASS ESSMENT YEAR 1993-1994 AS WELL AND WHEN THE MATTER CAME UP BEFORE THE TRIBUNA L VIDE ORDER DATED 22.12.1997 IN ITA NO.1306/MUM/2006 THE TRIBUNAL HAS HELD THAT THE ADDITION SHOULD BE SUSTAINED AT 25% OF THE TOTAL DISALLOWANCE MADE BY THE A.O. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE HAVING BEEN BROUGHT TO OUR N OTICE WE HOLD ACCORDINGLY AND ORDER FOR THE SUSTENANCE OF ADDITION AT 25% OF THE DISALLOWANCE MADE BY THE A.O. SIMILAR DISALLOWANCE BE SUSTAINED IN OTHER THREE Y EARS IN WHICH SUCH ISSUE IS RAISED. 5. NEXT ISSUE IN APPEALS FOR A.YS. 1998-99 TO 2001- 02 IS AGAINST THE CONFIRMATION OF DISALLOWANCE U/S.14A OF THE ACT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE QUESTION OF MAKING DIS ALLOWANCE U/S 14A IS NO MORE RES INTEGRA IN VIEW OF THE RECENT JUDGMENT DATED 12.08.2010 OF THE HONBLE BOMBAY HIGH COURT IN GODREJ& BOYCE LIMITED VS. ACIT HOLDING THAT THE PROVISIONS OF SECTION 14A ARE APPLICABLE IN SUCH CIRCUMSTANCES AN D THE DISALLOWANCE HAS TO BE WORKED OUT BY THE AO ON SOME REASONABLE BASIS AND N OT RULE 8D. UNDER SUCH CIRCUMSTANCES WE SET ASIDE THE IMPUGNED ORDERS ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE QUANT UM OF DISALLOWANCE AS PER THE ITA NO.169/MUM/2005 & ORS. M/S.COLOUR CHEM LIMITED. 3 AFORENOTED JUDGMENT AFTER ALLOWING A REASONABLE OP PORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. NEXT ISSUE IN A.Y. 1998-99 THROUGH GROUND NOS. 4 AND 5 IS AGAINST THE SUSTENANCE OF ADDITION AS BUSINESS INCOME INSTEAD O F LONG TERM CAPITAL GAIN. BRIEFLY STATED THE FACTS OF THESE GROUNDS ARE THAT THE ASSE SSEE INCLUDED COMPENSATION FOR ASSIGNMENT OF TEXTILE DYES BUSINESS IN OTHER INCOM E. WHILE COMPUTING THE TOTAL INCOME THE ASSESSEE REDUCED THE AMOUNT OF RS.29.50 CRORES BEING THE COMPENSATION FOR ASSIGNMENT OF TEXTILE DYES BUSINES S AND INCLUDED IT UNDER THE HEAD LONG TERM CAPITAL GAIN AND SEPARATELY OFFERED A SUM OF RS.13.64 CRORES AS TAXABLE UNDER THE HEAD LONG TERM CAPITAL GAIN AND R S.7.69 CRORES ON ACCOUNT OF GOODWILL. FURTHER NON-COMPETE COMPENSATION AMOUNTIN G TO RS.816.93 LAKHS WAS CLAIMED AS CAPITAL RECEIPT. NOT CONVINCED WITH THE ASSESSEES SUBMISSION THE ASSESSING OFFICER CAME TO HOLD THAT NON-COMPETE COM PENSATION OF RS.8.16 CRORES WAS LIABLE TO BE TREATED AS BUSINESS INCOME AND AC CORDINGLY BROUGHT IT TO TAX. FURTHER THE ENTIRE COMPENSATION AMOUNT OF RS.29.50 CRORES WAS HELD TO BE TAXABLE AS BUSINESS INCOME AS AGAINST CLAIMED BY THE ASSESS EE AS LONG TERM CAPITAL GAIN. THE LEARNED CIT(A) UPHELD THE ACTION OF THE A.O. IN TAXING THE AMOUNT UNDER THE HEAD BUSINESS INCOME AS CAPITAL GAIN CLAIMED BY THE ASSESSEE. FURTHER THE AMOUNT CLAIMED BY THE ASSESSEE AS CAPITAL RECEIPT ON ACCOU NT OF NON-COMPETE FEE WAS ALSO HELD TO BE RIGHTLY TAXED BY THE ASSESSING OFFICER A S REVENUE RECEIPT. THE ASSESSEE IS IN APPEAL AGAINST THESE FINDINGS OF THE LEARNED CIT (A). 8. AT THE VERY OUTSET THE LEARNED COUNSEL FOR THE A SSESSEE PLACED ON RECORD A COPY OF THE ORDER PASSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN BASF INDIA LTD. VS. ADDL.CIT [(2009) 119 ITD 337 (MUM.)] IN WHICH IT HAS BEEN HELD THAT NON- COMPETE FEES IS NOT LIABLE TO TAX AND FURTHER THE A MOUNT FROM TRANSFER OF BUSINESS IS TO BE TAXED UNDER THE HEAD CAPITAL GAIN. THE LEARNE D DEPARTMENTAL REPRESENTATIVE ON THE PERUSAL OF THIS ORDER FAIRLY CONCEDED THAT THE FACTS AND CIRCUMSTANCES OF