Tca/767/2018 Of Principal Commissioner Of Income Tax-1 v. Shri P. Subramanian

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED 01.06.2020 Principal Commissioner of Income Tax-163, Race Course Road, Coimbatore. ..Appellant/Appellant Prayer:-Tax Case Appeal filed under Section 260A of the IncomeTax Act 1961, against the order of the Income Tax AppellateTribunal, Madras, ''D'' Bench, dated 28.02.2018 inITA.No.1670/Chny/2017 against the order of the Commissioner ofIncome Tax (Appeals)1, Coimbatore dated 31.03.2017 made inAppeal No. 26/2016-2017 again the Deputy Commissioner of IncomeTax, Corporate Circle 2, Coimbatore dated 30.03.2016 made in PANNo. AMBPS893/K Assessment year 2013-2014. [Judgment of the Court was delivered by M.SATHYANARAYANAN, J.,] (1)The appellant is the Revenue and aggrieved by the order ofthe Commissioner of Income Tax [Appeals]-I, dated 31.03.2017relating to the Assessment Year 2013-14, filed an appeal beforethe Income Tax Appellate Tribunal, ''D'' Bench, Madras in ITANo.1670/Chny/2017 and the said appeal also came to dismissedvide impugned order dated 28.02.2018 and challenging thelegality of the said order, came forward to file the presentTax Case Appeal. (2)The appellant/Revenue has raised the following questions oflaw in this appeal:-law in this appeal:- 1.Whether the Appellate Tribunal is right inholding that the sale of equity sharesthrough Share Purchase Agreement having non-compete clause does not fall within the ambitholding that the sale of equity sharesthrough Share Purchase Agreement having non-compete clause does not fall within the ambit https://hcservices.ecourts.gov.in/hcservices/ of Section 28[va] of Income Tax Act despitethe express ''explanation'' added by thelegislature in the said section vide theFinance Act, 2012? 2.Whether the Appellate Tribunal is right inholding that amount given for take over ofbusiness including Non-Compete covenantcontained in the Sale Purchase Agreement wasonly share purchase agreement and notbusiness take over, where the valuation ispursuant to Regulations 3[1] and 4 of theSecurities and Exchange Board of India[Substantial Acquisition of Shares and Takeovers] Regulations 2011, which deal withvaluation of shares resulting in transfer ofbusiness? 3.Whether the Appellate Tribunal is correct inholding that the amount received by thePublic and the Managing Director is to beequally treated by ignoring the fact that theManaging Director is controlling the businessand has given up the business continuity andportion of his share has been retained by thepurchaser for future contingencies of the business whereas the public has no hold inthe business? (3)The facts leading to filing of this appeal, have beennarrated in detail and in extenso in the order of theCommissioner of Income Tax [Appeals]-I dated 31.03.2017 inAppeal No.26/16-17 and therefore, it is unnecessary to re-statethe facts once again.narrated in detail and in extenso in the order of theCommissioner of Income Tax [Appeals]-I dated 31.03.2017 inAppeal No.26/16-17 and therefore, it is unnecessary to re-statethe facts once again. business whereas the public has no hold inthe business? (3)The facts leading to filing of this appeal, have beennarrated in detail and in extenso in the order of theCommissioner of Income Tax [Appeals]-I dated 31.03.2017 inAppeal No.26/16-17 and therefore, it is unnecessary to re-statethe facts once again.narrated in detail and in extenso in the order of theCommissioner of Income Tax [Appeals]-I dated 31.03.2017 inAppeal No.26/16-17 and therefore, it is unnecessary to re-statethe facts once again. (4)The Deputy Commissioner of Income Tax, in the AssessmentOrder dated 30.03.2016 found that the provision of Section 28[va] of the Income Tax Act, 1961, will be applicable to theassessee and the excess amount of Rs.20.90 per share, receivedby him, over and above the market price of Rs.60.10 as on13.07.2012, is to be treated as business income of therespondent/assessee and accordingly, done the computation. Therespondent/assessee, aggrieved by the said order of Assessment,wherein the income from the transfer of business, partly ascapital gain and partly as income, has filed the appeal beforeCIT [Appeals].Order dated 30.03.2016 found that the provision of Section 28[va] of the Income Tax Act, 1961, will be applicable to theassessee and the excess amount of Rs.20.90 per share, receivedby him, over and above the market price of Rs.60.10 as on13.07.2012, is to be treated as business income of therespondent/assessee and accordingly, done the computation. Therespondent/assessee, aggrieved by the said order of Assessment,wherein the income from the transfer of business, partly ascapital gain and partly as income, has filed the appeal beforeCIT [Appeals]. (5)The Commissioner of Income Tax [Appeals], in paragraphs No.10to 13, had formulated the necessary issues and in paragraphNo.11, had recorded the finding that the assessee had only soldshares which wre held as investments ever since the inceptionto 13, had formulated the necessary issues and in paragraphNo.11, had recorded the finding that the assessee had only soldshares which wre held as investments ever since the inception of the company and therefore, the income arising from the sameshould be treated as capital gains and further recorded thefactual aspect that the Assessing Officer has also acceptedthat Rs.60/- per share is to be treated as capital gains andthe balance of Rs.21/- per share as business income and aclarificatory Circular of the Central Board of Direct Taxesbearing No.6/2016 dated 29.02.2016 would also come to the aidof the respondent/assessee and therefore, found that the amountreceived by the assessee towards sale of 2,82,50,291 shareswhich was held as investment to M/s.Tube Investments of Indiavide Agreement dated 13.07.2012 will have to be treated asCapital Gains and not as business income and as a result of thesaid finding, it also answered the question ''whether there isa non-compete fee embedded in the transfer?'' and found thatthe promoter as well as the public shareholders have paid thesame price, i.e, Rs.81/- per share and the amount paid topublic shareholders cannot be, in any case, treated as havingnon compete fee embedded in them and also taken note ofparagraph No.7.5 of the Agreement and accordingly, allowed theappeal. (6)In the appeal filed by the Revenue, the Income Tax AppellateTribunal , ''D'' Bench, Chennai, had found in paragraphNo.7 that the market rate in the Stock Exchange on the date ofsale was Rs.71/- per share and therefore, the excess price ofRs.10/- per share received by the respondent/assessee wastreated as non-compete fee by the Assessing Officer and theAgreement also stipulates that no non-compete fee would be paidby the purchaser and on account of the fact that the assesseeselling a large amount of 2,82,50,291 equity shares to M/s.TubeInvestments of India to get control over the company and thatapart, same amount has been paid to third party general publicalso.Tribunal , ''D'' Bench, Chennai, had found in paragraphNo.7 that the market rate in the Stock Exchange on the date ofsale was Rs.71/- per share and therefore, the excess price ofRs.10/- per share received by the respondent/assessee wastreated as non-compete fee by the Assessing Officer and theAgreement also stipulates that no non-compete fee would be paidby the purchaser and on account of the fact that the assesseeselling a large amount of 2,82,50,291 equity shares to M/s.TubeInvestments of India to get control over the company and thatapart, same amount has been paid to third party general publicalso. (7)It is also brought to the knowledge of this Court by thelearned counsel for the respondent/assessee that the rate ofRs.81/- per share was offered to all shareholders videRegulations 3[1] and 4 of the Securities and Exchange Board ofIndia [Substantial Acquisition of Shares and Take overs]Regulations, 2011.learned counsel for the respondent/assessee that the rate ofRs.81/- per share was offered to all shareholders videRegulations 3[1] and 4 of the Securities and Exchange Board ofIndia [Substantial Acquisition of Shares and Take overs]Regulations, 2011. (8)In the considered opinion of the Court, CIT [Appeals] aswell as ITAT, ''D'' Bench, Chennai, had exhaustively dealtwith those issues and arrived at a categorical finding decidingthose issues/questions in favour of the respondent/assessee. well as ITAT, ''D'' Bench, Chennai, had exhaustively dealtwith those issues and arrived at a categorical finding decidingthose issues/questions in favour of the respondent/assessee. (9)The substantial questions of law raised in this appeal havealready been answered by CIT [Appeals] and ITAT, ''D'' Bench,Chennai in negative and therefore, there are no substantialquestions of law arise for consideration in this appeal.already been answered by CIT [Appeals] and ITAT, ''D'' Bench,Chennai in negative and therefore, there are no substantialquestions of law arise for consideration in this appeal. (10)In the result, the Tax Case Appeal stands dismissed. Nocosts. s/d- Assistant Registrar True Copy Sub-Assistant Registrar To1. Principal Commissioner of Income Tax-163,Race Course Road, Coimbatore.2.The Commissioner of Income Tax (Appeals)1Coimbatore3.The Deputy Commissioner of Income TaxCorporate Circle-2, CoimbatoreTCA.No.767/2018VGII(CO)SP(04/08/2020)