Dr.K.Premraj, CHENNAI v. DCIT, CHENNAI

ITA 1270/CHNY/2013 | 2008-2009
Pronouncement Date: 30-10-2013 | Result: Allowed

Appeal Details

RSA Number 127021714 RSA 2013
Assessee PAN AFXPP5673G
Bench Chennai
Appeal Number ITA 1270/CHNY/2013
Duration Of Justice 4 month(s) 23 day(s)
Appellant Dr.K.Premraj, CHENNAI
Respondent DCIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-10-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 30-10-2013
Assessment Year 2008-2009
Appeal Filed On 07-06-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI BEFORE DR. O.K. NARAYANAN VICE PRESIDENT & SHRI VIKAS AWASTHY JUDICIAL MEMBER I.T.A. NO. 1270/MDS/2013 ASSESSMENT YEAR : 2008-09 DR. K. PREMRAJ NO. 15 OLD NO. 8 THIRD MAIN ROAD R.A. PURAM CHENNAI 28 [PAN: AFXPP 5673 G] (APPELLANT) VS DCIT CIRCLE-II 121 M.G. ROAD NUNGAMBAKKAM CHENNAI 34 (RESPONDENT) APPELLANT BY : SHRI B. RAMAKRISHNAN FCA RESPONDENT BY : SHRI T.N. BETGERI JCIT DATE OF HEARING : 24-09-2013 DATE OF PRONOUNCEMENT : 30-10-2013 O R D E R PER VIKAS AWASTHY JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE ASSESSEE ASSAILIN G THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-VI CHENNAI DATED 24-12-2012 RELEVANT TO THE ASSESSMENT YEAR (A Y) 2008-09. I.T.A. NO. 1270/MDS/2013 2 2. THE BRIEF FACTS OF THE CASE ARE: THE ASSESSEE I S AN OPHTHALMOLOGIST AND WAS RUNNING HIS CLINICS AND HOS PITAL UNDER THE NAME AND STYLE OF PREMS EYE CLINIC IN CHENNAI. HE ENTERED INTO A PROFESSIONAL COLLABORATION AGREEMENT (HEREIN AFTE R REFERRED TO AS PCA) ON 20-04-2007 WITH DR. A.M. ARUN CHAIRMAN M/S. VASAN EYE CARE HOSPITAL. AS PER THE PCA BOTH THE PARTIE S AGREED TO FORM A NEW ENTITY IN THE NAME AND STYLE OF VASAN E YE CARE HOSPITAL ASSOCIATE PARTNER OF PREMS EYE CLINIC. THE ASSESSEE TRANSFERRED HIS EXISTING CLIENTELE AND GOODWILL TO THE NEW ENTITY. IN LIEU OF ASSESSEE TRANSFERRING HIS GOODWILL DR. ARU N AGREED TO PAY A SUM OF ` 3 50 00 000/- TO THE ASSESSEE. ` 100 00 000/- WAS PAID TO THE ASSESSEE AT THE TIME OF SIGNING THE AGREEMENT A ND THE REMAINING BALANCE AMOUNT OF ` 2 50 00 000/- WAS TO BE PAID IN TWENTY EQUAL MONTHLY INSTALMENTS OF ` 12.50 LAKHS EACH COMMENCING FROM 1 ST MAY 2007. THE ASSESSEE CLAIMED THE LUMPSUM RECEIPTS AS CAPITAL RECEIPTS AND CREDITED T HE SAME TO CAPITAL ACCOUNT. THE ASSESSEE CLAIMED THE SAID AMO UNT AS EXEMPT FROM TAX. THE ASSESSEE ALSO INVESTED ` 50.00 LAKHS IN BONDS ON 31-10-2007 TO CLAIM EXEMPTION U/S.54EC. A S REGARDS OTHER ASSETS I.E. BUILDINGS MEDICAL EQUIPMENT EL ECTRICAL INSTALLATIONS FIXTURES ETC. OWNED BY THE ASSESSEE IN PREMS EYE I.T.A. NO. 1270/MDS/2013 3 CLINIC THE SAME WERE TAKEN ON LICENSE/LEASE ON A M ONTHLY RENTAL BASIS BY THE NEW ENTITY. 3. THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE AY. 2008-09 ON 30-01-2009 DECLARING HIS TOTAL INCOME AS ` 95 83 820/- AND AGRICULTURAL INCOME ` 8 00 850/-. NOTICE U/S. 143(2) OF THE INCOME TAX ACT 1961 (HEREIN AFTER REFERRED TO AS THE ACT ) WAS ISSUED TO THE ASSESSEE ON 23-09-2009. THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 27-12-2010 HELD THAT ALTHOUG H THE ASSESSEE IS A DOCTOR BY PROFESSION AND IS FILING IN COME TAX RETURN BY PREPARING INCOME AND EXPENDITURE ACCOUNT AND THE EXCESS OF INCOME OVER THE EXPENDITURE DECLARED AS PROFIT AND GAIN OF PROFESSION BUT THE REAL NATURE OF ACTIVITIES CARRIE D ON BY THE ASSESSEE ARE THAT OF BUSINESS. THE ASSESSING OFFIC ER TREATED THE LUMP SUM RECEIPTS AS CAPITAL RECEIPTS AND DETERMINE D LONG TERM CAPITAL GAIN AFTER GRANTING EXEMPTION U/S.54EC OF T HE ACT. AGGRIEVED AGAINST THE ASSESSMENT ORDER THE ASSESS EE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). THE C IT(APPEALS) HELD THAT THE MONEYS RECEIVED BY THE ASSESSEE ARE N OT FOR SALE OF PROFESSION OR GOODWILL AND HENCE ARE NOT IN THE NAT URE OF CAPITAL RECEIPTS BUT EXTINGUISHMENT OF RIGHTS TO CARRY OUT HIS PROFESSION IN I.T.A. NO. 1270/MDS/2013 4 THE NAME OF DR. PREMS EYE CLINIC. THE CIT(APPEA LS) HELD THAT THE SUM OF ` 2.25 CRORES RECEIVED DURING THE RELEVANT AY IS TO B E TREATED AS RECEIPTS U/S.28(VA). THE ASSESSEE HAS COME IN SECOND APPEAL BEFORE US IMPUGNING THE ORDER OF THE CIT(APPEALS). 4. SHRI B. RAMAKRISHNAN FCA APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE CIT(APPEALS) HAS ERRED IN COMING TO THE CONCLUSION THAT THE MONEYS RECEIVED BY THE ASSE SSEE ARE IN THE NATURE OF NON-COMPETE FEE AND NOT ON ACCOUNT OF SALE OF GOODWILL. THE AMOUNT RECEIVED ON SALE OF GOODWILL IS ALWAYS CAPITAL IN NATURE. THE LD. AR FURTHER SUBMITTED TH AT AS PER THE PROVISIONS OF SECTION 55(2) GOODWILL IS TAXABLE ON LY IN CASE OF BUSINESS. IN THE INSTANT CASE THE AMOUNT HAS BEEN RECEIVED ON ACCOUNT OF TRANSFER OF GOODWILL OF PROFESSION THER EFORE THE CAPITAL RECEIPTS ARE NOT TAXABLE. THE LD. AR CONTENDED THA T THE CIT(APPEALS) INSTEAD OF DELETING THE ADDITION MADE BY THE ASSESSING OFFICER HAS ENHANCED THE RATE OF TAX BY T REATING THE CAPITAL RECEIPTS AS NON-COMPETE FEE UNDER THE PROVI SIONS OF SECTION 28(VA). THE LD. AR PLACED ON RECORD A COPY OF PCA TO SHOW THAT THE MONEYS RECEIVED BY THE ASSESSEE ARE NOT IN THE NATURE OF NON- I.T.A. NO. 1270/MDS/2013 5 COMPETE FEE BUT ARE FOR TRANSFERRING OF REPUTATION AND GOODWILL. THE LD. AR IN ORDER TO SUPPORT HIS CONTENTIONS AND TO DISTINGUISH BUSINESS FROM PROFESSION RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF G.K.CHOKSI & CO VS. CIT REPORTED AS 295 ITR 376 (SC). 5. ON THE OTHER HAND SHRI T.N. BETGERI APPEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF THE C IT(APPEALS) AND SUBMITTED THAT THE PAYMENTS RECEIVED BY THE ASS ESSEE ARE NOT CAPITAL RECEIPTS AS HELD BY ASSESSING OFFICER BUT A RE IN THE NATURE OF NON-COMPETE FEE UNDER THE PROVISIONS OF SECTION 28(VA). THE LD. DR SUBMITTED THAT A PERUSAL OF THE TERMS AND CONDIT IONS OF THE PCA WOULD SHOW THAT THE AMOUNT HAS BEEN PAID TO THE ASSESSEE IN LIEU OF SURRENDERING HIS COMMERCIAL RIGHTS OVER THE NAME PREMS EYE CLINIC WHICH IS INTRINSICALLY CONNECTED FOR CA RRYING HIS BUSINESS OR PROFESSION. THEREFORE THE AMOUNT PAID TO THE A SSESSEE FOR SURRENDERING HIS PROFESSION IS NOT TOWARDS THE GOOD WILL BUT NOT TO CARRY ON THE PROFESSION UNDER THE NAME PREMS EYE CLINIC. THE LD. DR STRONGLY PRAYED FOR THE DISMISSAL OF THE APP EAL OF THE ASSESSEE. I.T.A. NO. 1270/MDS/2013 6 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGMENT RELIE D ON BY THE LD.AR. THE ASSESSEE WHO IS AN OPHTHALMOLOGIST BY PR OFESSION WAS RUNNING HIS CLINIC AND EYE HOSPITAL UNDER THE NAME AND STYLE OF PREMS EYE CLINIC. HE ENTERED INTO PCA ON 20-04- 2007 WITH DR. A.M. ARUN CHAIRMAN M/S. VASAN EYE CARE HOSPIT AL. AS PER THE COVENANTS OF THE AGREEMENT THE ASSESSEE CEASE S TO CARRY ON HIS PROFESSION UNDER THE NAME AND STYLE OF PREMS EYE CLINIC AND FORM A NEW ENTITY BY THE NAME AND STYLE OF VASAN E YE CARE HOSPITAL ASSOCIATE PARTNER OF PREMS EYE CLINIC. THE ASSESSEE AGREED TO TRANSFER HIS EXISTING CLIENTAL TO THE NEW ENTITY. IN LIEU OF TRANSFERRING HIS REPUTATION AND GOODWILL DR. ARUN AGREED TO PAY A SUM OF ` 350 LAKHS TO THE ASSESSEE IN A SCHEDULED MANNER. T HE RELEVANT EXTRACT OF THE AGREEMENT WITH REGARD TO PU RCHASE OF GOODWILL AND REPUTATION IS REPRODUCED HEREIN BELOW: 3. PURCHASE OF GOODWILL IN CONSIDERATION OF DR. K. PREMRAJ TRANSFERRING HI S REPUTATION AND GOODWILL UNDER THIS AGREEMENT DR. A RUN WILL PAY A SUM OF ` 350 LAKHS (RUPEES THREE HUNDRED AND FIFTY LAKHS) TO DR. PREMRAJ AS PER THE FOLLOWING SCHEDULE I.T.A. NO. 1270/MDS/2013 7 A. AT THE TIME OF SIGNING THIS AGREEMENT ` 100 LAKHS (RUPEES ONE HUNDRED LAKHS) B. BALANCE ` 250 LAKHS (RUPEES TWO HUNDRED AND FIFTY LAKHS) IN 20 EQUATED MONTHLY INSTAMLLMENTS OF ` 12.50 LAKHS EACH PAYABLE ON FIRST OF EVERY MONTH COMMENCING FRO M 1 ST MAY 2007. AS REGARDS OTHER FACILITIES OF PREMS EYE CLINIC VIZ BUILDING MEDICAL EQUIPMENTS ELECTRICAL INSTALLATION FURNIT URE AND FITTINGS THEY WERE CONTINUED TO BE OWNED BY THE ASSESSEE BUT WERE TAKEN ON HIRE/LICENSE BY THE NEW ENTITY ON MONTHLY RENTAL BASIS ON MUTUALLY AGREED TERMS AND CONDITIONS. WE HAVE PERU SED THE ENTIRE PCA INCLUDING PARA 9 & 10 WHICH LIST OUTS TH E RESPONSIBILITIES OF DR. ARUN AND THE ASSESSEE RESPECTIVELY. NOWHERE FROM THE AGREEMENT WE ARE ABLE TO GATHER THAT THE AMOUNT PAI D TO THE ASSESSEE ARE IN LIEU OF HIS SURRENDERING PROFESSION OR NOT COMPETING WITH THE NEW ENTITY. NEITHER IN PARA NO. 10 OF THE PCA WHICH GIVES THE DETAILS OF RESPONSIBILITIES OF THE ASSESSEE NOR IN ANY OTHER PART OF THE PCA IT HAS BEEN MENTIONED THA T THE ASSESSEE CANNOT PRACTICE INDIVIDUALLY OR COMPETE WITH VASAN EYE CARE HOSPITAL ASSOCIATE PARTNER OF PREMS EYE CLINIC. THEREFORE THE CONTENTION OF THE DR THAT THE PAYMENTS MADE ARE IN THE NATURE OF NON-COMPETE FEE IS NOT TENABLE. WHILE DETERMINING THE NATURE OF I.T.A. NO. 1270/MDS/2013 8 AGREEMENT IT IS NECESSARY TO STICK TO THE TERMS AN D CONDITIONS AS SPELLED OUT IN THE DOCUMENT RATHER THAN TRAVELLING BEYOND AND DRAWING INFERENCES BY IMPORTING THE SENSE WHICH IT DOES NOT INTEND TO CONVEY. 7. THE ASSESSEE HAS ADMITTED THAT THE AMOUNT RECEIV ED IN LIEU OF GOODWILL IS A CAPITAL RECEIPT. THE ASSESSING OF FICER HAS ALSO HELD THE SAME TO BE CAPITAL IN NATURE. HOWEVER TH E POINT OF DIFFERENCE BETWEEN THE CONTENTION OF THE ASSESSEE A ND THE VIEW OF ASSESSING OFFICER IS; THE ASSESSEE IS TREATING THE CAPITAL RECEIPTS RECEIVED IN THE COURSE OF PROFESSION DIFFERENT FROM THE ONE RECEIVED DURING BUSINESS. WHEREAS THE ASSESSING OFFICER HAS HELD BUSINESS AND PROFESSION TO BE THE SAME AND THE CAPI TAL RECEIPTS ON THE SALE OF GOODWILL TO BE TAXABLE UNDER THE PROVIS IONS OF SECTION 55(2). THE LD. AR TO SUPPORT HIS CONTENTIONS HAS R ELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT OF INDIA IN T HE CASE OF G.K.CHOKSI & CO (SUPRA). THE HONBLE APEX COURT WHILE DEALING WITH THE SIMILAR ISSUE U/S.32(1) HAD DIFFERENTIATED THE TERMS BUSINESS AND PROFESSION. THE HONBLE COURT HAS HEL D AS UNDER: I.T.A. NO. 1270/MDS/2013 9 18. WE AGREE WITH THE SUBMISSIONS MADE BY THE COUN SEL FOR THE APPELLANT THAT IN VIEW OF THE SETTLED LAW IF T WO INTERPRETATIONS ARE POSSIBLE THEN THE ONE IN FAVOU R OF THE ASSESSEE SHOULD BE ADOPTED. BUT WE ARE OF THE VIE W THAT IN THE PRESENT CASE TWO INTERPRETATIONS ARE NOT POSSIB LE AS THE WORD BUSINESS OCCURRING IN CL.(IV) OF S.32(1) BY NO STRETCH OF IMAGINATION CAN BE SAID TO INCLUDE PROFESSION AS WELL. IF THE EXPRESSION BUSINESS IS INTERPRETED AS INCLUDING W ITHIN ITS SCOPE PROFESSION IT WOULD NOT MEAN THAT THE LACUN A HAS BEEN MADE GOOD BY GIVING A WIDER INTERPRETATION TO THE W ORD BUSINESS. THERE IS NOTHING IN S.32(1)(IV) WHICH EN VISAGES THE SCOPE OF WORD BUSINESS TO INCLUDE IN IT PROFESSI ON AS WELL. IF THE EXPRESSION BUSINESS IS INTERPRETED TO INCLUDE WITHIN ITS SCOPE PROFESSION AS WELL IT WOULD BE DOING VIOLE NCE TO THE PROVISIONS OF THE ACT. SUCH INTERPRETATION WOULD A MOUNT TO FIRST CREATING AN IMAGINATIVE LACUNA AND THEN FILLI NG IT UP WHICH IS NOT PERMISSIBLE IN LAW. THE CONTENTION OF THE C OUNSEL FOR THE APPELLANT THAT S. 32(1)(IV) SHOULD BE GIVEN PURPOSI VE INTERPRETATION TO INCLUDE PROFESSION HAS THUS TO BE REJECTED. THUS FROM THE ABOVE IT CAN BE SAFELY CONSTRUED TH AT BUSINESS AND PROFESSION ARE TWO DIFFERENT STREAMS AND TREATMENT HAS TO BE GIVEN DIFFERENTLY IN CASE THE STATUE PROVIDES FOR TAXING ANY INCOME UNDER THE HEAD BUSINESS ONLY. A PERUSAL OF SECTION 55( 2)(A) WHICH IS RE- PRODUCED HEREIN BELOW WOULD SHOW THAT THE TERM USED IN THE ACT IS BUSINESS. I.T.A. NO. 1270/MDS/2013 10 55(2) FOR THE PURPOSE OF SECTIONS 48 AND 49 COST OF ACQUISITION (A) IN RELATION TO A CAPITAL ASSET BEING GOODWILL OF A BUSINESS [OR A RIGHT TO MANUFACTURE PRODUCE OR PROCESS ANY ARTICL E OR THING] [OR A RIGHT TO MANUFACTURE PRODUCE OR PROCESS ANY ARTICLE OR THING] [OR RIGHT TO CARRY ON ANY BUSINESS] TENANCY RIGHTS STAGE CARRIAGE PERMITS OR LOOM HOURS - (I) IN THE CASE OF ACQUISITION OF SUCH ASSET BY THE ASSESSEE BY PURCHASE FROM A PREVIOUS OWNER MEANS THE AMOUNT OF THE PURCHASE PRICE; AND (II) IN ANY OTHER CASE [NOT BEING A CASE FALLING UN DER SUB- CLAUSES (I) TO (IV) OF SUB-SECTION (1) OF SECTION 4 9] SHALL BE TAKEN TO BE NIL; BE THAT AS IT MAY THE INCOME ARISING OUT OF SALE O F GOODWILL IN CASE OF PROFESSION RELATES TO THE PERSONAL COMPETENCE OF THE PROFESSIONAL. IN PROFESSION GOODWILL IS GAINED BY AN INDIVIDUAL FROM HIS PERSONAL SKILL AND EXPERIENCE WHICH HE GAI NS OVER THE PERIOD OF TIME. THE SALE OF GOODWILL IN THE PRES ENT CASE RESULTS IN GENERATION OF CAPITAL RECEIPTS IN THE HANDS OF THE ASSESSEE OUT OF HIS PROFESSION AND AS SUCH DO NOT COME WITHIN THE A MBIT OF THE PROVISIONS OF SECTION 55(2)(A). THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE IMPUGNED ORDER IS SET ASIDE. ASSES SING OFFICER IS I.T.A. NO. 1270/MDS/2013 11 DIRECTED TO DELETE THE ADDITION MADE ON ACCOUNT OF LONG TERM CAPITAL GAINS FROM GOODWILL. ORDER PRONOUNCED ON WEDNESDAY THE 30 TH OCTOBER 2013 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VIK AS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 30 TH OCTOBER 2013 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR