Merck Limited v. The assistant commissioner of Income-tax, Range 6(3), Mumbai
[Citation -2016-LL-0923-175]

Citation 2016-LL-0923-175
Appellant Name Merck Limited
Respondent Name The assistant commissioner of Income-tax, Range 6(3), Mumbai
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 23/09/2016
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags long-term capital gain • agreement for sale • technical know-how • valuation report • intangible asset • mistake apparent • recalling order • business profit • sister concern • purchase price • fresh evidence • apparent error • going concern
Bot Summary: The present MA is filed by assessee for seeking rectification of errors allegedly apparent in the Tribunal s order dated 2 August 2013. In the application the assessee inter alia pleaded that one of the issue arose in the appeal was whether the AO was justified in assessing the sum of Rs.65,50,00,000 - received by the assessee on the sale of its Analytics and Research Business as a going concern as a business profit under section 28 of the Act. 2.5 The ld AR of the assessee argued that during the year under consideration the assessee sold its AR business to its sister concern i.e MERCK Speciality Private Limited for a total consideration of Rs. 81.67 Crores. AR further argued that the Hon ble Tribunal in its order held that the assessee has not been able to place any material on record on the basis of which the assessee valued the intangible assets. The finding of the Tribunal is vitiated by an error apparent on record as much as it proceed on factually incorrect presumption that the consideration arrived on the basis of individual basis of assets which therefore, negated the assessee s contention that gain arise on the transfer of AR business has to be assessed as LTCG. Ld. The ld. In nutshell, the assessee and the Revenue have locked their horn, if the amount of Rs. 65.50 Crore realized by assessee is to be treated as business profit u s 28(iv) of the Act or as a LTCG. The relevant fact leading to the controversy was elaborately discussed in the order of Tribunal. The assessee, as explained, is feeling prejudiced by the observations of the Tribunal at para 21 of the order, which reads as under: considering the facts of the case, the reasons stated hereinabove that the assessee has not able to place any material on record on the basis of which the assessee has valued intangible asset and whether the amount of Rs. 65.50 Crore may be considered towards not compete the fee or for other consideration, we are of the considered view that the said issue be restored to AO to consider the nature of receipt in the light of fresh evidence.


1 M.A.No. 162 Mum 2015 IN INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH K , MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER M.A. No. 162 Mum 2015 In ITA No.8120 Mum 2011 Assessment Year: 2007-08 Merck Limited assistant commissioner of Income Tax, Range 6(3) Shiv Sagar Estate, Anenie Besant Vs. Aayakar Bhawan, M.K. Road, Road , Worli, Mumbai Mumbai PAN: AAACE 2616F (Appellant) (Respondent) Assessee by : Shri Parci Pardiwala (AR) Revenue by : Miss Nilu Jaggi (DR) Date of hearing : 01.07.2016 Date of Order : 23.09.2016 Order PER PAWAN SINGH, JUDICIAL MEMBER 1. present MA is filed by assessee for seeking rectification of errors allegedly apparent in Tribunal s order dated 2 August 2013. 2. In application assessee inter alia pleaded that one of issue arose in appeal was whether AO was justified in assessing sum of Rs.65,50,00,000 - received by assessee on sale of its Analytics and Research Business (A &R Business) as going concern as business profit under section 28 (iv) of Act. applicant further pleaded in application that during assessment proceedings it has taken stand that gain which arose on transfer of business was to be assessable as long-term capital gain (LTCG). revenue authorities were of view that transaction was not one of slump sale of business and, in doing so, had relied upon allocation of consideration in books of accounts of purchaser viz Merck Specialities Private Ltd and, accordingly, brought entire consideration to tax under section 28(iv) of Act. Further, during course of hearing before Tribunal assessee submitted documents which includes agreement for sale of A&R business, breakup of 2 M.A.No. 162 Mum 2015 consideration payable in term of agreement, valuation reports by M s Bansi S Mehta CAs, and Deloitte Haskins and Sells CAs, explanatory statement circulated among applicants shareholders pursuant to section 173 (2) of Companies Act. All above referred documents were referred during course of hearing. Tribunal, it is submitted, while accepting that provision of section 28 (iv) would have no application, held that assessing officer was entitled to consider nature of receipt and circumstances in which amount was received by assessee in terms of agreement. 2.2 assessee is specifically stated in page 2 of its application that observation of Tribunal that applicant has not been able to place any material on record on basis of which it is valued intangible assets. And further para 20 of order that applicant has bifurcated sum of Rs. 65,50,00000 - towards contract with Toll Manufacturer and earmarked Rs. 10,45,40,000 - towards its valuation without any basis . And further that in respect of valuation and earmarked by assessee for technical know-how of Rs. 3,75,90,000 -no documentary evidence is on record to establish that any secret formula for production process has been transferred by applicant to purchaser are factually erroneous. 2.3 It is further pleaded in application that assessee has earmarked consideration of Rs. 65,50,00,000 - amongst other various assets that correct factual position is that such allocation of consideration was done by purchaser because it was incumbent upon purchaser to allocation of consideration paid by it for acquiring business over by various assets that it acquired. assessee has not done any allocation has held by this Tribunal in para 20 of its order and that observation of court is mistake apparent from record which needs to be rectified. 2.4 In prayer clause of application assessee prayed to rectified order holding that gain arising on transfer of A&R business is to be assessed as long-term capital gains, by recalling order dated 2 August 2013 with regard to ground number 1.4 and re-fixed ground for adjudication or such other relief as nature and circumstances of case required. 2.5 ld AR of assessee argued that during year under consideration assessee sold its A&R business to its sister concern i.e MERCK Speciality Private Limited (MSPL) for total consideration of Rs. 81.67 Crores. And as per said agreement purchase price of Rs. 16,16,47,433 - represents value of assets and liabilities in books of account of assessee on 31 March 2006 and Rs. 65.65 crore being value of 3 M.A.No. 162 Mum 2015 intangibles relating to Analytical Research Business. assessee claimed sale of Rs.65.50 crore is profit and is as Long Term Gapital Gain and claimed exemptions under section 54 EC of act. To substantiate claim, assessee has filed on record agreement for sale of & R business, break up of consideration payable in terms of agreement dated 17.04.2016, valuation report of M s Bansi Mehta, C.A. & M s Deloitte Haskins and Sells, C.As. and copy of explanatory statement circulated amongst shore-holder of assessee-company in pursuance of section 173(2) of Companies Act. Ld. AR of assessee further argued that all these documents were referred and relied by him while making submission on 28.06.2013. ld. AR further argued that Hon ble Tribunal in its order held that assessee has not been able to place any material on record on basis of which assessee valued intangible assets. findings in paragraph 20 of Tribunal s order are factually erroneous. assessee has earmarked consideration of Rs. 65.50 Crore amongst various assets overall looking correct factual position in allocation of consideration paid by purchaser. finding of Tribunal is vitiated by error apparent on record as much as it proceed on factually incorrect presumption that consideration arrived on basis of individual basis of assets which therefore, negated assessee s contention that gain arise on transfer of A&R business has to be assessed as LTCG. Ld. ld. AR finally argued that finding on issue No.1.4 be rectified holding that gain arising on transfer of A&R business to be assessed as LTCG of in alternative order dated 02.08.2013 be recalled, so far as it relates to ground no. 1.4 of case may be re-fixed for de-novo adjudication. On other hand, Ld. DR for Revenue argued that there is no apparent error on face of record of order passed by Tribunal. Ld. DR for Revenue supported finding of Tribunal and further argued that ground no. 1.4 was restored to file of AO while deciding this ground by Tribunal. Though, there is no error in finding of Tribunal, if some minor discrepancy or omission, it may be considered for sake of argument, it will not affect decision on ground rendered by Tribunal. 3. We have considered rival contention of parties and perused material available on record. Tribunal considered ground no. 1.4 of appeal in paragraph no. 13 to 21 of order dated 02.08.2013. In nutshell, assessee and Revenue have locked their horn, if amount of Rs. 65.50 Crore realized by assessee is to be treated as business profit u s 28(iv) of Act or as LTCG. relevant fact leading to controversy was elaborately discussed in order of Tribunal. para 14 to 19 of 4 M.A.No. 162 Mum 2015 order deals with factual background brought before Tribunal, para 20 deals with observation and para 21 deals with conclusion arrived on basis of factual observation contained in para 14 to 19 of order and para 21 is conclusion of order . 4. In our view, Tribunal has not adjudicated whether receipt of Rs. 65.50 crore is business profit or capital gain. This ground of appeal was restored to file of AO to decide issue afresh with following direction Therefore, we restore to AO to decide issue afresh in light of above observation made by us here-in-above and considered such material as may be placed before him by reasoned order, hence, ground 1 is allowed for statistical purpose by restoring matter to AO for fresh consideration (refer para 21 of impugned order). assessee, as explained, is feeling prejudiced by observations of Tribunal at para 21 of order, which reads as under: considering facts of case, reasons stated hereinabove that assessee has not able to place any material on record on basis of which assessee has valued intangible asset and whether amount of Rs. 65.50 Crore may be considered towards not compete fee or for other consideration, we are of considered view that said issue be restored to AO to consider nature of receipt in light of fresh evidence . assessee has in this regard brought to our notice that two valuation reports as well as explanatory statement (to its shareholders) u s. 173(2) of Companies Act, 1956, were also adduced during hearing and form part of record of Tribunal. We find nothing in direction by Tribunal to AO, extracted above, that would operate to cause any prejudice to assessee in set-aside proceedings. same is only open set-aside. We may, however, if only allay any apprehension in this regard make it clear that no restriction has been placed by Tribunal on assessee with regard to material that it can rely upon in remand proceedings. AO shall adjudicate afresh after allowing adequate opportunity of hearing to assessee. We clarify accordingly. 5. In result, M.A filed by assessee is allowed in term stated above. Order pronounced in open court on this 23rd September, 2016. Sd - Sd - (SANJAY ARORA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 23 09 2016 5 M.A.No. 162 Mum 2015 S.K.PS Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. ( ) CIT(A), Mumbai. 4. CIT BY ORDER, 5. , , DR, ITAT, Mumbai 6. [ Guard file. True Copy (Asstt.Registrar) , ITAT, Mumbai Merck Limited v. assistant commissioner of Income-tax, Range 6(3), Mumbai
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