1/6 itxa-1221-12.doc IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1221 OF 2012 WITH INCOME TAX APPEAL NO.1222 OF 2012 Commissioner of Income Tax-18 ...Appellant v/s. Govindlal C. Mandhana (HUF) ...Respondent Mr.A.R.Malhotra with Mr.N.A.Kazi for Appellant. Mr.Nishant Thakkar with Mr.Jas Sanghavi for Respondent. ... CORAM : S.C.DHARMADHIKARI & A.A. SAYED, JJ. DATED : 14 NOVEMBER 2014 P.C. Revenue is in appeal in these two matters to challenge order passed by Income Tax Appellate Tribunal at Mumbai. order passed by Tribunal and which is challenged in these Appeals is dated 15-02-2012. That order dealt with two Appeals, one by Revenue and another by Assessee. 2. Revenue is aggrieved by that part of Tribunal's order where it held that Commissioner and Assessing Officer could not have computed sums under component non- compete relying on clause in agreement. Tribunal held that amounts could not have been computed in manner, which has been done by these authorities. Uday Kambli 1/6 ::: Uploaded on - 20/11/2014 ::: Downloaded on - 11/04/2020 11:53:59 ::: 2/6 itxa-1221-12.doc 3. return of income was filed and certain amount was declared as business income source. substantial part was declared as Long Term Capital Gain. Long Term Capital Gain, and which was real matter for examination, indicated that there was Private Limited Company and which was incorporated by Mandhana family on 10 September 1988. Subsequently, that company entered into Joint Venture with Borememann, German Company and issued fresh 8,00,000 shares and made foreign company 50% partner. name of company underwent change and it became Mandhana Bormemann Industries Ltd. in year 1996. Thereafter, there was arrangement as noted in Tribunal's order, as between this company namely Mandhana Bormemann Industries Pvt.Ltd. and Dutch company by name Paxar BV. In relevant previous year all shares of Mandhana family were acquired by this Paxar BV for consideration of Rs.570 per share, which worked out to Rs.45.60 crores. There was agreement entered into with Paxar BV by Mandhana family for transfer of their shares. One of clauses of agreement also provided that transferor shall not carry on or be interested in any business which competes with business of Mandhana Boremann. Uday Kambli 2/6 ::: Uploaded on - 20/11/2014 ::: Downloaded on - 11/04/2020 11:53:59 ::: 3/6 itxa-1221-12.doc 4. Tribunal noted this factual material and then concluded that Coordinate Bench's decisions in case of Shashikant G. Mandhana, HUF in ITA No.3908/Mum/2010 and then in case of Savita N. Mandhana in ITA No.3900/Mum/2010, would enable them to conclude that Assessing Officer could not have determined consideration in terms of non-compete clause and section 28(va) of Income Tax Act, 1961 at Rs.205/- nor could Commissioner have brought it down to Rs.41/-. Tribunal's ultimate reasoning is to be found in para 12. Tribunal essentially applied reasoning in Coordinate Bench decisions. 5. Mr.Malhotra, appearing on behalf of Revenue, submits that Tribunal's findings and that of its Coordinate Bench, as indicated above, would raise substantial question of law. Therefore, Appeal be admitted. 6. We have, with assistance of Mr.Malhotra, carefully perused order passed by Tribunal and relevant to this issue. We find that Tribunal has appreciated matter in factual background and essentially. It is to support its reasoning on facts Uday Kambli 3/6 ::: Uploaded on - 20/11/2014 ::: Downloaded on - 11/04/2020 11:53:59 ::: 4/6 itxa-1221-12.doc that it referred to its Coordinate Bench decisions. Assessing Officer had bifurcated amount, which was determined as sale price per share. Thus Rs.570/- per share received by Assessee was bifurcated and out of which Rs.205/- per share was determined by Assessing Officer and brought to tax as business income under section 28(va). When matter was carried to Commissioner, he upheld this exercise of Assessing Officer, but reworked amount to Rs.41/- per share as being attributable towards non-compete fees. He differed from decision of Coordinate Bench in case of Homi Apsi Balsara v.s. ACIT, 30 DTR 576. Commissioner held that there is specific non- compete obligation and therefore law laid down in Coordinate Bench decisions would be non-applicable. 7. What we find is, Tribunal referred to agreement under which transfer took place together with clauses therein. Tribunal held that in teeth of composite arrangement and of this nature it would not be possible to sustain exercise of Assessing Officer and Commissioner. Tribunal also referred to basic facts, inasmuch as, business of Mandhana Exports Pvt.Ltd., which was managed by Mandhana Uday Kambli 4/6 ::: Uploaded on - 20/11/2014 ::: Downloaded on - 11/04/2020 11:53:59 ::: 5/6 itxa-1221-12.doc family for number of years, was not thereafter managed in same manner. In 1996, Assessee-company entered into Joint Venture agreement with Bornemann and Bick GmbH, Germany, under which 50% of Equity shares were allotted to this German company and name of company was changed to Mandhana Boremann Industries Pvt.Ltd.. This German company was acquired by Dutch company by name Paxar BV, that is how shareholdings to extent of that held by German company came in hands of this Dutch company. In relevant previous year, Dutch company acquired remaining shareholdings of Mandhana family. That is how, it determined composite or lump-sum price of Rs.570 per share. To enable it to pay same and also to ensure that there is no business activities, competing with Mandhana Boremann, agreement provided that Assessee shall not carry on or be interested in, any business which competes with business of Mandhana Boremann. It is this arrangement, which has been, relied upon by 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 exercise carried out by Assessing Officer and upheld by Uday Kambli 5/6 ::: Uploaded on - 20/11/2014 ::: Downloaded on - 11/04/2020 11:53:59 ::: 6/6 itxa-1221-12.doc Commissioner to above extent was interfered with. We are, therefore, of opinion that such findings of Tribunal in essentially factual background do not raise any substantial question of law. It may be, as held by as above, that Tribunal referred to its Coordinate Bench decisions to support this factual findings. Once they are referred to derive and gain support to findings, then with appropriate clarification we can dispose of these Appeals. Looking at from factual angle and peculiar to Assessee, so also by clarifying that any wider or larger controversy is not being decided by us, that we dismiss these Appeals. factual findings are not perverse or vitiated by any error of law apparent on face of record either. We clarify that our order dismissing Appeals shall not be construed as expressing opinion that exercise carried out by Assessing Officer and upheld by Commissioner, was totally impermissible, nor have we confirmed any of Tribunal's judgments or that of its Coordinate Bench. All contentions in that regard can be examined and in appropriate case. 8. Appeals are dismissed. No costs. (A.A. SAYED, J.) (S.C.DHARMADHIKARI,J.) Uday Kambli 6/6 ::: Uploaded on - 20/11/2014 ::: Downloaded on - 11/04/2020 11:53:59 ::: Commissioner of Income-tax-18 v. Govindlal C. Mandhana (HUF)