The Assistant Commissioner of Income-tax, Circle-1, Nashik v. Rajan Bhalchandra Datar
[Citation -2019-LL-0917-16]

Citation 2019-LL-0917-16
Appellant Name The Assistant Commissioner of Income-tax, Circle-1, Nashik
Respondent Name Rajan Bhalchandra Datar
Court ITAT-Pune
Relevant Act Income-tax
Date of Order 17/09/2019
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags lump sum consideration • reasonable opportunity • transfer of technology • right to manufacture • cost of acquisition • technical know-how • capital receipt • previous owner • goodwill • long-term capital gain
Bot Summary: The Assessing Officer not satisfied with the explanation of the assessee, he therefore, issued a show cause notice dated 30.12.2009 directing the assessee to show cause why the aforesaid amount received by him from Larsen and Tourbo Ltd. for transfer of Knowhow Technology should not be taxed as capital gains u/s.55(2) of the Income Tax Act, 1961. From verification of the Agreement dated 12.09.2006, the Assessing Officer observed that the assessee had received Rs.11.48 Crores against transfer of 3 ITA No. 427/PUN/2011 A.Y.2007-08 Knowhow and Technology of PMRs and Rs.2 lakhs per month as a deferred consideration in addition to the lump sum consideration indicated above. Right to carry on business The Assessing Officer, thereafter, examined the Agreement dated 12.09.2006 entered into between the assessee and L T Ltd. As per Clause 6(b), the assessee shall hand over to the personnel designated by L T Ltd. the said Knowhow and technology, tangible and intangible, known and 4 ITA No. 427/PUN/2011 A.Y.2007-08 available with the assessee to design, manufacture, improve and exploit commercially PMRs for application in Earth Leakage circuit breakers and other industrial systems. Accordingly, Rs.10,65,74,000/- received by the assessee from L T Ltd. against transfer of Knowhow and Technology of PMRs was treated as capital receipts of the assessee and Long Term Capital Gain was calculated at Rs.10,65,74,000/-, as cost of acquisition of the asset is Nil. The assessee filed detailed written submission before the Ld. CIT(A) who after considering the submissions of the assessee along with assessment order, as per reasons recorded in his order, has given relief to the assessee on the issue and deleted the addition on Long Term Capital Gain. Thereafter, referring to the Clause 6(b) of the Agreement dated 12.09.2006, the Ld. DR submitted that the assessee in effect has handed over to the personnel designated by L T Ltd. the said Knowhow and technology, tangible and intangible, known and available with the assessee to design, manufacture, improve and exploit commercially PMRs. Meaning thereby, not only has the assessee transferred his technical know-how, he has also transferred his right to carry on his business based on the said technology. The contention of the Revenue is that by the Agreement dated 12.09.2006, the assessee not only transferred the technical know-how but also right to manufacture and in view of that consideration was received the Assessing Officer was justified in imposing the Long Term Capital Gain to tax.


IN INCOME TAX APPELLATE TRIBUNAL BENCH, PUNE BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI PARTHA SARATHI CHAUDHURY, JM ITA No. 427/PUN/2011 Assessment Year 2007-08 Assistant Commissioner of Income Tax, Circle-1, Nashik. Appellant V/s. Shri Rajan Bhalchandra Datar, Datar Farm, Near Someshwar Temple, Gangapur Road, Nashik-422 013. PAN: AATPD9088L Respondent Assessee by Shri Sanjay Dharde Revenue by Shri S.B. Prasad Date of Hearing 17.09.2019 Date of Pronouncement 17.09.2019 ORDER PER PARTHA SARATHI CHAUDHURY, JM This appeal preferred by Revenue emanates from order of Ld. CIT(Appeals)-I, Nashik dated 20.01.2011 for assessment year 2007-08 as per following grounds of appeal on record 1. Whether on facts and in circumstances of case, Ld. CIT(A)-I, Nashik was justified in deleting addition of Rs.10,65,74,000/- made by AO on account of Long Term Capital Gains? 2 ITA No. 427/PUN/2011 A.Y.2007-08 2. Whether on facts and in circumstances of case, Ld. CIT(A)-I, Nashik is justified in holding that amount received from L & T Limited is capital receipts and provisions of section 55(2) of Income Tax Act, 1961 are not applicable? 3. appellant prays order of Assessing Officer may be restored. 4. appellant prays to adduce such further evidence to substantiate his case. 5. appellant prays leave to add, alter, clarify, amend and or withdraw any grounds of appeal as and when occasion demands. 2. grievance of Revenue in this present appeal is with regard to deletion of addition of Rs.10,65,74,000/- on account of Long Term Capital Gain by Ld. CIT(A) which addition was made by Assessing Officer as per assessment order. 3. brief facts in this case are that assessee is individual having income from profession and income from agriculture. During course of examination of return Assessing Officer noticed that assessee has entered into Agreement dated 12.09.2006 with L & T Ltd. for transfer of Knowhow and Technology for total consideration of Rs.11,48,00,000/-. assessee claimed it as capital receipt. Assessing Officer, however, not satisfied with explanation of assessee, he therefore, issued show cause notice dated 30.12.2009 directing assessee to show cause why aforesaid amount received by him from Larsen and Tourbo Ltd. for transfer of Knowhow Technology should not be taxed as capital gains u/s.55(2) of Income Tax Act, 1961 (hereinafter referred to as Act ). assessee responded vide letter dated 30.12.2009 by stating that he entered into agreement with L & T Ltd. on 12.09.2006 for transfer of technology pertaining to electrical product called Permanent Magnet Relay (PMR). From verification of Agreement dated 12.09.2006, Assessing Officer observed that assessee had received Rs.11.48 Crores against transfer of 3 ITA No. 427/PUN/2011 A.Y.2007-08 Knowhow and Technology of PMRs and Rs.2 lakhs per month as deferred consideration in addition to lump sum consideration indicated above. 3.1 assessee had contended before Department that said consideration was received as capital receipt and not taxable. assessee relied before Assessing Officer judicial pronouncement of Hon ble Supreme Court of India in case of CIT Vs. B.C. Srinivas Shetty reported in AIR 1981 SC. It was noticed by Revenue Authority that Section 55 of Act was amended by Finance Act, 1987 with effect from 1.04.1988. said amendment has nullified decision of Hon ble Supreme Court in case of CIT Vs. B.C. Srinivas Shetty (supra.). cost of acquisition for goodwill has been clearly defined as Nil, if it is not purchased from other previous owner. Circular No.495 dated 22.09.1987, explains scope and effect of these amendments. 3.2 Section 55(2)(a) has been amended from time to time. If asset (defined in this section) has not been purchased from any previous owner then cost of acquisition has to be treated as Nil. Definition of such asset has been amended to include following: i. Goodwill (from assessment year 1988-89) ii. Tenancy rights, route permit and loom hours (from assessment year 1995-96) iii. Right to manufacture, produce or process any article or thing (from assessment year 1998-99) iv. Right to carry on business (from assessment year 2003-04) Assessing Officer, thereafter, examined Agreement dated 12.09.2006 entered into between assessee and L & T Ltd. As per Clause 6(b), assessee shall hand over to personnel designated by L & T Ltd. said Knowhow and technology, tangible and intangible, known and 4 ITA No. 427/PUN/2011 A.Y.2007-08 available with assessee to design, manufacture, improve and exploit commercially PMRs for application in Earth Leakage circuit breakers and other industrial systems. Assessing Officer observed that concern Agreement makes it crystal clear that assessee sold its right to manufacture, produce or process any article or thing. In view of these facts, Assessing Officer was of opinion that provisions of capital gains are applicable in assessee s case. Accordingly, Rs.10,65,74,000/- received by assessee from L & T Ltd. against transfer of Knowhow and Technology of PMRs was treated as capital receipts of assessee and Long Term Capital Gain was calculated at Rs.10,65,74,000/-, as cost of acquisition of asset is Nil. 4. Aggrieved by assessment order, assessee preferred appeal before Ld. CIT(A). assessee filed detailed written submission before Ld. CIT(A) who after considering submissions of assessee along with assessment order, as per reasons recorded in his order, has given relief to assessee on issue and deleted addition on Long Term Capital Gain. 5. At time of hearing before us, Ld. DR vehemently argued that premise on which Ld. CIT(A) has given relief to assessee does not arise from order of Assessing Officer. Ld. CIT(A) has gone into analyzing that technical Knowhow transferred by assessee for manufacturing of PMR does not fall within meaning of goodwill. In this background, Ld. CIT(A) held that in Section 55(2) of Act, there is no mention of word knowhow and therefore, Section 55(2) of Act cannot be invoked in this case. Consequently, knowhow transferred by assessee is capital receipt and not chargeable to tax. Ld. DR filed detailed written submissions before us. That therein, it was contended that Section 55(2)(a), 5 ITA No. 427/PUN/2011 A.Y.2007-08 cost of acquisition of following categories of assets is taken as Nil in which it includes right of manufacture, produce or process any article or thing. Thereafter, referring to Clause 6(b) of Agreement dated 12.09.2006, Ld. DR submitted that assessee in effect has handed over to personnel designated by L & T Ltd. said Knowhow and technology, tangible and intangible, known and available with assessee to design, manufacture, improve and exploit commercially PMRs. Meaning thereby, not only has assessee transferred his technical know-how, he has also transferred his right to carry on his business based on said technology. In such scenario, Assessing Officer was correct in charging Long Term Capital Gain to tax on assessee. 6. Per contra, Ld. AR of assessee filed affidavit and placed on record certain facts as contained therein. sum and substance of contents of said affidavit wherein at Para 4, it is stated as follows: 4. I say that I did not obtain any license or registration for manufacture of Relay in my individual capacity at any point of time in my lifetime and accordingly there is no question of my having any transferable right to manufacture . I respectfully say that my knowhow is distinct and separate concept from any right to manufacture . I respectfully submit that what was transferred under Transfer of Technology Agreement dated 12.09.2006 was transfer of knowhow to manufacture and not right to manufacture 7. We have perused case records and heard rival contentions. We have also analyzed facts and circumstances in this case. contention of Revenue is that by Agreement dated 12.09.2006, assessee not only transferred technical know-how but also right to manufacture and in view of that consideration was received, therefore, Assessing Officer was justified in imposing Long Term Capital Gain to tax. Whereas, assessee through sworn affidavit filed before us has contended that what was transferred, was knowhow to manufacture and not right to 6 ITA No. 427/PUN/2011 A.Y.2007-08 manufacture . These issues needs detailed factual verification and in view of matter, we set aside order of Ld. CIT(Appeals) and restore matter to file of Assessing Officer for detailed verification and adjudicate same after providing reasonable opportunity of hearing to assessee. 8. In result, appeal of Revenue is allowed for statistical purposes. Order pronounced on 17th day of September, 2019. Sd/- Sd/- D. KARUNAKARA RAO PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER Pune Dated 17th September, 2019. SB Copy of Order forwarded to 1. Appellant. 2. Respondent. 3. CIT(Appeals)-1, Nashik. 4. CIT-1, Nashik. 5. DR, ITAT, Bench, Pune. 6. Guard File. BY ORDER, Private Secretary , ITAT, Pune. 7 ITA No. 427/PUN/2011 A.Y.2007-08 Date 1 Draft dictated on 17.09.2019 Sr.PS/PS 2 Draft placed before author 17.09.2019 Sr.PS/PS 3 Draft proposed and placed JM/AM before second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which file goes to Head Clerk 10 Date on which file goes to A.R 11 Date of dispatch of order Assistant Commissioner of Income-tax, Circle-1, Nashik v. Rajan Bhalchandra Datar
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