ITO WD 20(3)(2), MUMBAI v. SKYLINE INTERNATIONAL, MUMBAI

ITA 4480/MUM/2009 | 2005-2006
Pronouncement Date: 03-12-2010 | Result: Dismissed

Appeal Details

RSA Number 448019914 RSA 2009
Assessee PAN AAAFS3370B
Bench Mumbai
Appeal Number ITA 4480/MUM/2009
Duration Of Justice 1 year(s) 4 month(s) 4 day(s)
Appellant ITO WD 20(3)(2), MUMBAI
Respondent SKYLINE INTERNATIONAL, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 03-12-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 03-12-2010
Date Of Final Hearing 16-11-2010
Next Hearing Date 16-11-2010
Assessment Year 2005-2006
Appeal Filed On 29-07-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI V. DURGA RAO JUDICIAL MEMBER. I.T.A. NO. 4480/MUM/2009. ASSESSMENT YEAR : 2005-06. THE INCOME-TAX OFFICER M/S SKYLINE INTERNATIONAL WARD-20(3)(2) VS. 17 ADARSH INDUSTRIAL ESTATE MUMBAI. SAHAR ROAD CHAKALA ANDHERI (EAST) MUMBAI 400 099. PAN AAAFS3370B APPELLANT. RESPONDENT. APPELLANT BY : SHRI D. SONGATE. RESPONDENT BY : SHRI KANCHAN KAUSHAL. SHRI DINESH BAFNA. MS. SHITAL BANDEK AR. O R D E R PER J. SUDHAKAR REDDY A.M. : THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AG AINST THE ORDER OF THE CIT(APPEALS)-XXXII MUMBAI DATED 15-04-2009. 2 2. FACTS IN BRIEF: THE ASSESSEE WAS A PARTNERSHIP FIRM WHICH IS ENG AGED IN THE BUSINESS OF CLEARING AND FORWARDING TIME SENSITIVE AIR CARGO P ACKAGES. THE ASSESSEE FIRM CONVERTED ITSELF INTO A PRIVATE LIMITED COMPANY UND ER THE NAME AND STYLE OF SKYLINE LOGESTIC PVT. LTD. ON 07-05-2004 UNDER PART IX OF THE COMPANIES ACT 1956. JUST BEFORE THE CONVERSION THE ASSESSEE CREATED IN ITS B OOKS OF ACCOUNT GOODWILL OF RS.34 LAKHS AND PROPORTIONATE SHARE OF GOODWILL WAS CREDITED TO EACH OF THE PARTNERS CAPITAL ACCOUNT. FOR THE YEAR UNDER CONSI DERATION THE ASSESSEE FILED ITS RETURN OF INCOME ON 11-08-2005 DECLARING TOTAL IN COME OF RS.9 70 500/- FOR THE PERIOD 01-04-2004 TO 06-05-2004 IN THE STATUS OF A FIRM. ON CONVERSION OF THE ASSESSEE FIRM INTO A COMPANY THE PARTNERS CAPITA L ACCOUNT AND CURRENT BALANCES IN THE ASSESSEES FIRM WERE CONVERTED INTO SHARE CAPI TAL AND UNSECURED LOANS RESPECTIVELY IN THE BOOKS OF ACCOUNT OF THE COMPAN Y AND ALL THE ASSETS AND LIABILITIES OF THE FIRM INCLUDING GOODWILL VESTED I N THE COMPANY. THE AO BY HIS ORDER U/S 143(3) DATED 12-10-2007 BROUGHT TO TAX T HE AMOUNT OF GOODWILL OF RS.34 LAKHS AS BUSINESS INCOME ON THE GROUND THAT THE AS SESSEE FIRM DISSOLVED WITH EFFECT FROM 06-05-2004. AT PAGE 2 OF THE ASSESSMENT ORDER HE HELD AS FOLLOWS : THE ASSESSEES SUBMISSIONS HAVE BEEN CONSIDERED. I DO NOT AGREE WITH THE ASSESSEE INASMUCH AS SECTION 55(2)(A) OF I.T. ACT D EALS WITH GOODWILL SO CREATED AND AFTER THE AMENDMENT TO I.T. ACT VIDE FI NANCE ACT 2001 AND THEREAFTER THE WORD GOODWILL OF A BUSINESS IS INS ERTED THE PROVISIONS OF THE SAID SECTION CLEARLY STATE THAT (A) IN RELATION TO A CAPITAL ASSET BEING GOODWILL OF A BUSINESS OR (A TRADE MARK OR BRAND NAME ASSOCIATED WITH A BUSINESS) 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 HOUR S:- 3 FOR THIS PURPOSE THE PROVISIONS OF SECTION 2(47) O F THE I.T. ACT DEAL WITH TRANSFER OF CAPITAL ASSET AND THE SAID SECTION 2(47 ) STATES THAT TRANSFER IN RELATION TO CAPITAL ASSET INCLUDES (IV) IN A CASE WHERE THE ASSET IS CONVERTED BY THE OWNER THEREOF INTO OR IS TREATED BY HIM AS STOCK-IN-TRADE OF A BUSINESS CAR RIED ON BY HIM SUCH CONVERSION OR TREATMENT; OR HE FURTHER HELD THAT SINCE THE GOODWILL IS CREDITED TO THE PARTNERS CAPITAL ACCOUNT IT CLEARLY ESTABLISHES BEYOND REASONABLE DOUBT THAT THE GOODWILL IS FULLY TAXABLE IN THE HANDS OF THE FIRM. AGGRIEVED THE ASSESSEE CARR IED THE MATTER IN APPEAL. 3. THE FIRST APPELLATE AUTHORITY GRANTED RELIEF BY APPLYING THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF TEXSPIN E NGINEERING AND MANUFACTURING WORKS 263 ITR 345. AGGRIEVED THE REVENUE IS IN AP PEAL ON THE FOLLOWING GROUNDS : 1. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS.34 00 00 0/- MADE ON ACCOUNT OF GOODWILL CREATED BY THE ASSESSEE FIRM AFTER CONVERS ION INTO PVT. LIMITED COMPANY. 2. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN NOT APPRECIATING THAT THE PROVISIONS OF SEC. 47(XIII)(A)(B)(C) HAVE NOT BEEN FULLY COMPLIED BY THE ASSESSEE FIRM. 3. THE LEARNED CIT(A) ERRED IN NOT PROVIDING THE AS SESSING OFFICER TO EXAMINE THE ADDITIONAL EVIDENCE AND THUS CONTRAVENE D THE PROVISIONS OF RULE 46A OF THE I.T. RULES. 4. WE HAVE HEARD SHRI D. SONGATE THE LEARNED DR AN D SHRI KANCHAN KAUSHAL ALONG WITH SHRI DINESH BAFNA LEARNED COUNSELS FOR THE ASSESSEE. 4 5. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE AND A PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF T HE AUTHORITIES BELOW WE HOLD AS FOLLOWS. 6. THE UNDISPUTED FACT IN THIS CASE IS THAT THE CON VERSION OF FIRM INTO A COMPANY WAS UNDER PART IX OF THE COMPANIES ACT 195 6. THE AO SURPRISINGLY CHOOSES TO BRING TO TAX ONLY ONE ITEM I.E. GOODWILL AND DOES NOT CONSIDER ANY OTHER ASSET TRANSFERRED BY THE COMPANY. IF IT IS NOT PART IX CONVERSION THEN THE CONTENTION OF THE REVENUE SHOULD BE THAT ALL THE AS SETS TRANSFERRED SHOULD BE EXIGIBLE TO TAX EITHER U/S 45(4) OR U/S 45(1). 7. BE THAT AS IT MAY THE ISSUE IN QUESTION IS COV ERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TEXSPIN ENGINEERING AND MANUFACTURING WORKS 263 ITR 345 W HEREIN ON IDENTICAL SITUATION IT WAS HELD THAT THERE IS NO TRANSFER O F THE CAPITAL ASSET AS CONTEMPLATED BY SECTION 45(1)/45(4) OF THE ACT ON CONVERSION OF A FIRM INTO A COMPANY UNDER PART IX OF THE COMPANIES ACT 1956 AND HENCE NO CAP ITAL GAIN WOULD ARISE IN SUCH A CASE. BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. UNITY CARE & HEALTH SERVICES 103 ITD 53 (BANG.) ANALYZED THE INT RODUCTION OF SECTION 57(XIII) ON CONVERSION OF A FIRM INTO A COMPANY UNDER PART I X AND HELD THAT SECTION 47(XIII) APPLIES ONLY TO A CASE OF TRANSFER BY SALE BUT THE RE IS NO AUTHORITY FOR CAPITAL GAIN AT ALL IN THE ABSENCE OF A TRANSFER UNDER PART IX OF T HE COMPANIES ACT INASMUCH AS SUCH A CONVERSION DOES NOT FALL WITHIN THE DEFINITI ON OF TRANSFER U/S 2(47) OF THE ACT. 5 8. IN VIEW OF THE ABOVE DISCUSSION WE UPHOLD THE O RDER OF THE FIRST APPELLATE AUTHORITY AND DISMISS THE APPEAL OF THE REVENUE. 9. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD NOV. 2010. SD/- SD/- (V. DURGA RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCO UNTANT MEMBER MUMBAI DATED: 3 RD NOV. 2010. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR E-BENCH (TRUE COPY) BY ORDER ASSTT. REGISTRAR ITAT MUMBAI B ENCHES M UMBAI.