Itxa/1221/2012 Of Commissioner Of Income Tax - 18 v. Govindlal C. Mandhana (Huf)

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1221 OF 2012 WITHINCOME TAX APPEAL NO.1222 OF 2012 … Commissioner of Income Tax-18v/s.Govindlal C. Mandhana (HUF) ...Appellant ...Respondent … Mr.A.R.Malhotra with Mr.N.A.Kazi for the Appellant.Mr.Nishant Thakkar with Mr.Jas Sanghavi for the Respondent. ... CORAM : S.C.DHARMADHIKARI & A.A. SAYED, JJ. DATED : 14 NOVEMBER 2014 P.C. The Revenue is in appeal in these two matters to challenge the order passed by the Income Tax Appellate Tribunal at Mumbai. The order passed by the Tribunal and which is challenged in these Appeals is dated 15-02-2012. That order dealt with two Appeals, one by the Revenue and another by the Assessee. 2. The Revenue is aggrieved by that part of the Tribunal's order where it held that the Commissioner and the Assessing Officer could not have computed the sums under the component non-compete relying on the clause in the agreement. The Tribunal held that the amounts could not have been computed in the manner, which has been done by these authorities. 2/6 itxa-1221-12.doc 3.The return of income was filed and certain amount was declared as business income source. A substantial part was declared as Long Term Capital Gain. The Long Term Capital Gain, and which was the real matter for examination, indicated that there was a Private Limited Company and which was incorporated by Mandhana family on 10 September 1988. Subsequently, that company entered into a Joint Venture with Borememann, a German Company and issued fresh 8,00,000 shares and made the foreign company 50% partner. The name of the company underwent a change and it became Mandhana Bormemann Industries Ltd. in the year 1996. Thereafter, there was an arrangement as noted in the Tribunal's order, as between this company namely Mandhana Bormemann Industries Pvt.Ltd. and a Dutch company by name Paxar BV. In the relevant previous year all the shares of Mandhana family were acquired by this Paxar BV for a consideration of Rs.570 per share, which worked out to Rs.45.60 crores. There was agreement entered into with Paxar BV by the Mandhana family for the transfer of their shares. One of the clauses of the agreement also provided that the transferor shall not carry on or be interested in any business which competes with the business of Mandhana Boremann. 3/6 itxa-1221-12.doc 4.The Tribunal noted this factual material and then concluded that the Coordinate Bench's decisions in the case of Shashikant G. Mandhana, HUF in ITA No.3908/Mum/2010 and then in the case of Savita N. Mandhana in ITA No.3900/Mum/2010, would enable them to conclude that the Assessing Officer could not have determined the consideration in terms of the non-compete clause and section 28(va) of the Income Tax Act, 1961 at Rs.205/- nor could the Commissioner have brought it down to Rs.41/-. The Tribunal's ultimate reasoning is to be found in para 12. The Tribunal essentially applied the reasoning in the Coordinate Bench decisions. 5.Mr.Malhotra, appearing on behalf of the Revenue, submits that the Tribunal's findings and that of its Coordinate Bench, as indicated above, would raise the substantial question of law. Therefore, the Appeal be admitted. 6.We have, with the assistance of Mr.Malhotra, carefully perused the order passed by the Tribunal and relevant to this issue. We find that the Tribunal has appreciated the matter in the factual background and essentially. It is to support its reasoning on facts itxa-1221-12.doc 5.Mr.Malhotra, appearing on behalf of the Revenue, submits that the Tribunal's findings and that of its Coordinate Bench, as indicated above, would raise the substantial question of law. Therefore, the Appeal be admitted. 6.We have, with the assistance of Mr.Malhotra, carefully perused the order passed by the Tribunal and relevant to this issue. We find that the Tribunal has appreciated the matter in the factual background and essentially. It is to support its reasoning on facts itxa-1221-12.doc that it referred to its Coordinate Bench decisions. The Assessing Officer had bifurcated the amount, which was determined as the sale price per share. Thus Rs.570/- per share received by the Assessee was bifurcated and out of which Rs.205/- per share was determined by the Assessing Officer and brought to tax as business income under section 28(va). When the matter was carried to the Commissioner, he upheld this exercise of the Assessing Officer, but reworked the amount to Rs.41/- per share as being attributable towards non-compete fees. He differed from the decision of the Coordinate Bench in the case of Homi Apsi Balsara v.s. ACIT, 30 DTR 576. The Commissioner held that there is a specific non-compete obligation and therefore the law laid down in the Coordinate Bench decisions would be non-applicable. 7.What we find is, the Tribunal referred to the agreement under which the transfer took place together with the clauses therein. The Tribunal held that in the teeth of composite arrangement and of this nature it would not be possible to sustain the exercise of the Assessing Officer and the Commissioner. The Tribunal also referred to the basic facts, inasmuch as, the business of Mandhana Exports Pvt.Ltd., which was managed by Mandhana itxa-1221-12.doc family for number of years, was not thereafter managed in the same manner. In 1996, the Assessee-company entered into Joint Venture agreement with Bornemann and Bick GmbH, Germany, under which 50% of the Equity shares were allotted to this German company and the name of the company was changed to Mandhana Boremann Industries Pvt.Ltd.. This German company was acquired by a Dutch company by the name Paxar BV, that is how the shareholdings to the extent of that held by the German company came in the hands of this Dutch company. In the relevant previous year, the Dutch company acquired the remaining shareholdings of Mandhana family. That is how, it determined the composite or lump-sum price of Rs.570 per share. To enable it to pay the same and also to ensure that there is no business activities, competing with Mandhana Boremann, the agreement provided that the Assessee shall not carry on or be interested in, any business which competes with the business of Mandhana Boremann. It is this arrangement, which has been, relied upon by the Tribunal to conclude that this group of persons collectively, which were prevented from doing any competing business. It is in such circumstances and when there is no specific consideration paid as non-compete amount, that the exercise carried out by the Assessing Officer and upheld by the itxa-1221-12.docCommissioner to the above extent was interfered with. We are, therefore, of the opinion that such findings of the Tribunal in the essentially factual background do not raise any substantial question of law. It may be, as held by as above, that the Tribunal referred to its Coordinate Bench decisions to support this factual findings. Once they are referred to derive and gain support to the findings, then with appropriate clarification we can dispose of these Appeals. Looking at from the factual angle and peculiar to the Assessee, so also by clarifying that any wider or larger controversy is not being decided by us, that we dismiss these Appeals. The factual findings are not perverse or vitiated by any error of law apparent on the face of record either. We clarify that our order dismissing the Appeals shall not be construed as expressing an opinion that the exercise carried out by the Assessing Officer and upheld by the Commissioner, was totally impermissible, nor have we confirmed any of the Tribunal's judgments or that of its Coordinate Bench. All the contentions in that regard can be examined and in an appropriate case. 8.Appeals are dismissed. No costs. (A.A. SAYED, J.) (S.C.DHARMADHIKARI,J.)