Principal Commissioner of Income-tax-1, Coimbatore v. P. Subramanin
[Citation -2020-LL-0601-18]

Citation 2020-LL-0601-18
Appellant Name Principal Commissioner of Income-tax-1, Coimbatore
Respondent Name P. Subramanin
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 01/06/2020
Assessment Year 2013-14
Judgment View Judgment
Keyword Tags share purchase agreement • business income • non-compete fee • stock exchange • excess amount • market price • capital gain • market rate • sale of shares
Bot Summary: 767/2018 JUDGMENT Judgment of the Court was delivered by M.SATHYANARAYANAN, J.,The appellant is the Revenue and aggrieved by the order of the Commissioner of Income Tax Appeals-I, dated 31.03.2017 relating to the Assessment Year 2013-14, filed an appeal before the Income Tax Appellate Tribunal, ''D'' Bench, Madras in ITA No.1670/Chny/2017 and the said appeal also came to dismissed vide impugned order dated 28.02.2018 and challenging the legality of the said order, came forward to file the present Tax Case Appeal. Whether the Appellate Tribunal is right in holding that amount given for take over of business including Non-Compete covenant contained in the Sale Purchase Agreement was only share purchase agreement and not business take over, where the valuation is pursuant to Regulations 31 and 4 of the Securities and Exchange Board of India Substantial Acquisition of Shares and Take overs Regulations 2011, which deal with valuation of shares resulting in transfer of business 3. The Deputy Commissioner of Income Tax, in the Assessment Order dated 30.03.2016 found that the provision of Section 28va of the Income Tax Act, 1961, will be applicable to the assessee and the excess amount of Rs.20.90 per share, received by him, over and above the market price of Rs.60.10 as on 13.07.2012, is to be treated as business income of the respondent/assessee and accordingly, done the computation. The respondent/assessee, aggrieved by the said order of Assessment, wherein the income from the transfer of business, partly as capital gain and partly as income, has filed the appeal before CIT Appeals. 767/2018 respondent/assessee was treated as non-compete fee by the Assessing Officer and the Agreement also stipulates that no non-compete fee would be paid by the purchaser and on account of the fact that the assessee selling a large amount of 2,82,50,291 equity shares to M/s.Tube Investments of India to get control over the company and that apart, same amount has been paid to third party general public also. It is also brought to the knowledge of this Court by the learned counsel for the respondent/assessee that the rate of Rs.81/- per share was offered to all shareholders vide Regulations 31 and 4 of the Securities and Exchange Board of India Substantial Acquisition of Shares and Take overs Regulations, 2011.In the considered opinion of the Court, CIT Appeals as well as ITAT, ''D'' Bench, Chennai, had exhaustively dealt with those issues and arrived at a categorical finding deciding those issues/questions in favour of the respondent/assessee. In the result, the Tax Case Appeal stands dismissed.


TCA.No.767/2018 IN HIGH COURT OF JUDICATURE AT MADRAS DATED 01.06.2020 CORAM HONOURABLE MR. JUSTICE M.SATHYANARAYANAN AND HONOURABLE MR. JUSTICE ABDUL QUDDHOSE TCA.No.767/2018 Principal Commissioner of Income Tax-1 63, Race Course Road, Coimbatore. .. Appellant Versus Shir P.Subramanin .. Respondent Prayer:- Tax Case Appeal filed under Section 260A of Income Tax Act 1961, against order of Income Tax Appellate Tribunal, Madras, ''D'' Bench, dated 28.02.2018 in ITA.No.1670/Chny/2017. For Appellant : MR.T.R.Senthil Kumar For Respondent : Mr.A.S.Sriraman 1/8 http://www.judis.nic.in TCA.No.767/2018 JUDGMENT [Judgment of Court was delivered by M.SATHYANARAYANAN, J.,] (1)The appellant is Revenue and aggrieved by order of Commissioner of Income Tax [Appeals]-I, dated 31.03.2017 relating to Assessment Year 2013-14, filed appeal before Income Tax Appellate Tribunal, ''D'' Bench, Madras in ITA No.1670/Chny/2017 and said appeal also came to dismissed vide impugned order dated 28.02.2018 and challenging legality of said order, came forward to file present Tax Case Appeal. (2)The appellant/Revenue has raised following questions of law in this appeal:- 1. Whether Appellate Tribunal is right in holding that sale of equity shares through Share Purchase Agreement having non-compete clause does not fall within ambit of Section 28[va] of Income Tax Act despite express ''explanation'' added by legislature in said section vide Finance Act, 2012? 2/8 http://www.judis.nic.in TCA.No.767/2018 2. Whether Appellate Tribunal is right in holding that amount given for take over of business including Non-Compete covenant contained in Sale Purchase Agreement was only share purchase agreement and not business take over, where valuation is pursuant to Regulations 3[1] and 4 of Securities and Exchange Board of India [Substantial Acquisition of Shares and Take overs] Regulations 2011, which deal with valuation of shares resulting in transfer of business? 3. Whether Appellate Tribunal is correct in holding that amount received by Public and Managing Director is to be equally treated by ignoring fact that Managing Director is controlling business and has given up business continuity and portion of his share has been retained by purchaser for future contingencies of business whereas public has no hold in business? (3)The facts leading to filing of this appeal, have been narrated in detail and in extenso in order of Commissioner of Income Tax [Appeals]-I dated 31.03.2017 in Appeal No.26/16-17 and therefore, it is unnecessary 3/8 http://www.judis.nic.in TCA.No.767/2018 to re-state facts once again. (4)The Deputy Commissioner of Income Tax, in Assessment Order dated 30.03.2016 found that provision of Section 28[va] of Income Tax Act, 1961, will be applicable to assessee and excess amount of Rs.20.90 per share, received by him, over and above market price of Rs.60.10 as on 13.07.2012, is to be treated as business income of respondent/assessee and accordingly, done computation. respondent/assessee, aggrieved by said order of Assessment, wherein income from transfer of business, partly as capital gain and partly as income, has filed appeal before CIT [Appeals]. (5)The Commissioner of Income Tax [Appeals], in paragraphs No.10 to 13, had formulated necessary issues and in paragraph No.11, had recorded finding that assessee had only sold shares which wre held as investments ever since inception of company and therefore, income arising from same should be treated as capital gains and further recorded factual aspect that Assessing Officer has also accepted that Rs.60/- per share is to be treated as capital gains 4/8 http://www.judis.nic.in TCA.No.767/2018 and balance of Rs.21/- per share as business income and clarificatory Circular of Central Board of Direct Taxes bearing No.6/2016 dated 29.02.2016 would also come to aid of respondent/assessee and therefore, found that amount received by assessee towards sale of 2,82,50,291 shares which was held as investment to M/s.Tube Investments of India vide Agreement dated 13.07.2012 will have to be treated as Capital Gains and not as business income and as result of said finding, it also answered question ''whether there is non-compete fee embedded in transfer?'' and found that promoter as well as public shareholders have paid same price, i.e, Rs.81/- per share and amount paid to public shareholders cannot be, in any case, treated as having non compete fee embedded in them and also taken note of paragraph No.7.5 of Agreement and accordingly, allowed appeal. (6)In appeal filed by Revenue, Income Tax Appellate Tribunal [ITAT], ''D'' Bench, Chennai, had found in paragraph No.7 that market rate in Stock Exchange on date of sale was Rs.71/- per share and therefore, excess price of Rs.10/- per share received by 5/8 http://www.judis.nic.in TCA.No.767/2018 respondent/assessee was treated as non-compete fee by Assessing Officer and Agreement also stipulates that no non-compete fee would be paid by purchaser and on account of fact that assessee selling large amount of 2,82,50,291 equity shares to M/s.Tube Investments of India to get control over company and that apart, same amount has been paid to third party general public also. (7)It is also brought to knowledge of this Court by learned counsel for respondent/assessee that rate of Rs.81/- per share was offered to all shareholders vide Regulations 3[1] and 4 of Securities and Exchange Board of India [Substantial Acquisition of Shares and Take overs] Regulations, 2011. (8)In considered opinion of Court, CIT [Appeals] as well as ITAT, ''D'' Bench, Chennai, had exhaustively dealt with those issues and arrived at categorical finding deciding those issues/questions in favour of respondent/assessee. (9)The substantial questions of law arise in this appeal have already been answered by CIT [Appeals] and ITAT, ''D'' Bench, Chennai in negative and therefore, there are no substantial questions of law arise for 6/8 http://www.judis.nic.in TCA.No.767/2018 consideration in this appeal. (10)In result, Tax Case Appeal stands dismissed. No costs. [M.S.N.,J.] [A.Q., J.] 01.06.2020 AP Internet : Yes To Principal Commissioner of Income Tax-1 63, Race Course Road, Coimbatore. 7/8 http://www.judis.nic.in TCA.No.767/2018 M.SATHYANARAYANAN, J., AND ABDUL QUDDHOSE, J., AP TCA.No.767/2018 01.06.2020 8/8 http://www.judis.nic.in Principal Commissioner of Income-tax-1, Coimbatore v. P. Subramanin
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