1. These are two appeals by two different assessees against the orders of CIT under Section 263 relating to assessment year 1998-99. The issue involved in these two appeals are similar, therefore, they are disposed off by this consolidated order.
2. The brief facts of these cases are that assessments in both of these cases were completed under Section 143(3).
2.1 In case of Steri Mould Pvt. Ltd., the return declaring loss of Rs. 60,12,160 was filed, against which the assessment under Section 143(3) was completed on an income of Rs. 2,13,085 on 3-11-1999.
2.2 In the case of Ranpharm Investment Pvt. Ltd., the return declaring a net loss of Rs. 1,15,25,320 was filed, against which the assessment under Section 143(3) was completed at a net loss of Rs. 40,707.
3. Having examined the assessment records in both of these cases, the respective CIT found that the orders passed by the Assessing Officer were erroneous insofar as they are prejudicial to the interests of the revenue. The Commissioners of Income-tax noted that both these assessee-companies were shareholder of Whirlpool of India Ltd. (formerly known as Kelvinator India Ltd.) incorporated under the provisions of Companies Act, 1956. The main person who, was managing the business of these companies, was one Shri Jamshed R. Desai (In short hereinafter referred as "JRD"), who himself and on behalf of family members and the management companies, including these two assessee companies, entered into an agreement with M/s. Whirlpool Corporation, a company incorporated under the laws of State of Delaware, USA. (In short hereinafter referred as WC, USA). Under the agreement it was slated that JRD on behalf of family members and other companies could carry out certain obligations which were stipulated in sub-paragraphs (a) to (i) of paragraph 1 of the agreement. Amounts of Rs. 2,89,26,267 and Rs. 96,15,552 were paid to these two companies respectively for agreeing to vote with WC, USA and Whirlpool Mauritius Ltd. in a particular manner, as stated in paragraph 3 of the agreement.
The above stated amounts received by these two companies were claimed as capital receipts and no tax whatsoever was paid on these amounts while filing their respective returns of income by these two assessees.
The respective Commissioners of Income-tax noted that the Assessing Officer who completed the assessments of these two companies, has accepted the contention of these assessees that they are capital receipts. In view of both of the Commissioners, these receipts were revenue in nature, therefore, they held that the orders of the Assessing Officer were erroneous insofar as they are prejudicial to the interests of revenue. Therefore, notices under Section 263 of the Income-tax Act were issued to these two assessees. Detailed replies were filed and reliance was placed on various case laws. Some of the cases on which the reliance was placed, are as under :- CIT v. Bombay Burmah Trading Corporation Ltd. [1986] 161 ITR 386 (SC).
4. It was further submitted that the Assessing Officer has discussed this issue at great length and after applying due mind and placing reliance on various case laws, then only it was held that the receipts received by both of these assessees for a consideration of voting right, are capital in nature. It was further submitted that in one of the group cases i.e., in the case of Expo Leasing Pvt. Ltd., the Assessing Officer disallowed the claim of the assessee by holding such as revenue receipts and assessee preferred appeal before the CIT(Appeals) and the CIT(Appeals) vide order dated 28-3-2001 in Appeal No. 106/2000-2001 has reversed the order of Assessing Officer, holding the amount received for giving up the voting right as business income and held the same to be capital receipt not liable to tax. A copy of the order of the CIT(Appeals) was also filed before the CIT and slated that a view has already been expressed, therefore, it is out of purview of proceedings under Section 263. The reliance was placed on this point on various case laws, including the decision of Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83.
5. It was further slated that the said amount cannot be brought to tax as a casual and non-recurring receipt under Section 10(3) of the Act.
It was also submitted that casual receipts are such receipts, which are received by chance and the receipts received by assessee are not received by chance. The reliance was also placed on various case laws mentioned in the written submissions filed before the Commissioners of Income-tax. Both CIT after considering the detailed submissions filed on behalf of these two assessees, opined that the orders of the Assessing Officer were erroneous, therefore, they are prejudicial to the interest of revenue. While holding so, the CIT in case of Steri Mould Pvt. Ltd. has observed in his order that the Assessing Officer has verbatim reproduced the arguments raised on behalf of the assessee and accepted the contention before looking into any oilier aspect of the case either on facts or in law. Therefore, it was held that the order of the Assessing Officer was erroneous, accordingly the order' of the Assessing Officer in case of Steri Mould Pvt. Ltd. was cancelled.
Similarly, the other CIT also cancelled the assessment order in case of Ranpharm Investments (P.) Ltd., the other assessee. Now both these assessees are in appeal here before the Tribunal.
6. Submissions made before the respective Commissioners of Income-tax were reiterated here before the Tribunal. Attentions of the Bench were drawn on copies of written submissions filed before the Commissioners of Income-tax, which are placed on records at pages 31 to 65. The written synopsis were also filed by the counsel of the assessee in both of these cases. Further, detailed arguments were put forth and it was stated that both the Commissioners of Income-tax were not having jurisdiction because this is only a difference of opinion, as the Assessing Officer has accepted the receipts as capital in nature after due application of mind. It was also submitted that in another one of the group cases, the Commissioner of Income-tax (Appeals) has reversed the order of Assessing Officer, who held these receipts as revenue in nature. Therefore, it was pleaded that this is a difference of opinion and in case of difference of opinion, the order of an Assessing Officer cannot be made subject-matter of Section 263. On this proposition, the reliance was placed on various case laws mentioned at pages 2 to 4 of the written submissions.
7. It was further submitted that even on merit, the orders of the Assessing Officer were correct, as the nature of the receipts are capital receipts. In support of these contentions, the reliance was placed on various case laws mentioned at pages 5 and 6 of the written submissions. It was further submitted that these receipts are like those receipts as during election period, some political party gives gifts to the voter for soliciting votes in its favour, and such receipts cannot be held as revenue in nature. It was also argued that an extensive reply was filed before the respective Commissioners of Income-tax, but both the CITs have overlooked the reply while setting aside the orders of the Assessing Officer.
8. In reply, the learned DR firstly strongly supported both the orders of the CIT under Section 263 and it was submitted that the Assessing Officer has not applied his mind at all, as the written submissions filed by assessee before the Assessing Officer were reproduced as it is and then without . giving any reasoning held the receipts shown by assessee are capital in nature. It was further submitted that there is no transfer of any capital asset and the consideration received by assessee on account of exercising its voting right in favour of WC, USA is a casual receipt which is liable to tax. In support of this contention, the learned DR stated that respective shares of these assessees and its group concerns are still intact and capital of the assessee in shape of shares has not exhausted or lost. Neither these assessees have lost their rights to receive dividends or any other benefits which otherwise they were entitled. Regarding the jurisdiction, it was stated that Commissioner of Income-tax has supervisory powers, therefore, it cannot be said that Commissioner of Income-tax has no jurisdiction in setting aside the order of the Assessing Officer. The reliance was placed on Venkata Krishna Rice Co.
v. CIT[1987] 163 ITR 129 (Mad.); 88 ITR 526 (sic) and 88 ITR 101 (sic).
9. We have heard rival submissions and considered them carefully. We have also perused other, material on which the attention of the Bench was drawn. We have also considered various case laws relied upon by both the parties.
Though at the cost of repetition, but we would like to state the brief facts once again.
9.1 Both these assessees are private, limited companies and they received sums of Rs. 2,89,26,267 and Rs. 96,50,552 respectively from WC, USA for agreeing to vote in favour of Whirlpool India Ltd. and Whirlpool Mauritius (Whirlpool group). The said sums were credited in profit and loss account under the head 'compensation vote right'. In their respective returns of income, however, the assessee claimed the same as capital receipts not liable to tax. The assessee in case of Steri Mould Pvt. Ltd., appended the following note to the return of income at the time of filing :- The assessee has received consideration amounting to Rs. 2,89,26,267 from Whirlpool Corporation, USA for exercise of voting rights in respect of shares held by the assessee in Whirlpool of India Ltd., in accordance with the directions of Whirlpool Corporation, USA and Whirlpool Mauritius Ltd. The company is legally advised that the consideration so received for undertaking such an obligation is in the nature of capital receipt not liable to tax. The amount of Rs. 2,89,26,267 is, therefore, claimed exempt, being capital receipt not liable to tax.
9.2 Similar note was appended in the computation sheet of other assessee.
9.3 During the course of assessment proceedings, the Assessing Officer raised a query regarding the nature of the aforesaid receipts. The assessee through its letter submitted a detailed note giving justification as to why the sums received by these two companies cannot be regarded as taxable income in the hands of the respective assessee.
Reliance was placed on various case laws through its written submissions. The Assessing Officer was agree with the submissions filed by assessee and, thus, held the receipts as capital in nature, not liable to lax. However, after examining the assessment records of both these assessees, as slated earlier, the respective Commissioners found that the orders of the Assessing Officer were erroneous and prejudicial to the interests of revenue. Therefore, notices under Section 263 were issued and after considering the submissions filed on behalf of both the assessees, both the orders of the Assessing Officers were set aside and the Assessing Officer was directed to treat these receipts as revenue in nature, liable to tax.
10. We have also seen the order of the Commissioner of Income-tax (Appeals)-I, New Delhi decided in the case of Expo Leasing Pvt. Ltd. and found that the CIT(Appeals) has considered these receipts as capital in nature, because in his view the assessee has lost its control over the management as well as some other bundle of rights. The findings of the CIT(Appeals) are given in his order in paragraphs 4.2 and 4.3 at pages 7 and 11, which are reproduced here as under :- 4.2 I have given careful thought to the matter, which undoubtedly throws up a most interesting issue. At first blush, the Assessing Officer's line of reasoning sounds most attractive. His case is basically that, courts have held that where an amount is received in lieu of destruction of an income producing asset there only it constitutes a capital receipt. In the present case, the shares of WIL held by the appellant were its profit making apparatus as it yielded income in the form of dividends. Further, by virtue of the agreement dated 12-1-1998 there was not an iota of immobilization/sterilization of the profit earning capacity of the shares, as the appellant continued to be owner and registered shareholder of WIL with full rights to enjoy dividend income and bonus shares by holding such shares. The Assessing Officer" further called the whole transaction a collusive device as shortly after execution of the agreement dated 12-1-1998, the appellant transferred its shares to JRD on 7-3-1998. According to the Assessing Officer, there was no necessity to resort to the agreement dated 12-1-1998 before transferring the said shares immediately to JRD. For all these reasons, the Assessing Officer held the amount received as a taxable revenue receipt.
4.3 I find that the Assessing Officer has followed general propositions of law and he has not given due weightage to the intent and purpose of the agreement dated 12-1-1998, which gave rise to this receipt. It must be understood that the amount was received by the appellant as a part of a group which was a substantial shareholder. It cannot be anyone's case that had the appellant been an ordinary shareholder, that is, not being a part of the JRD group which held 26 per cent of the equity in WIL, it would have received any amount for voting with Whirlpool. The only reason why WIL paid the amount to JRD group was to secure the vote of the group in the shareholders meeting to pass special resolutions to achieve fundamental changes in the constitution and the structure and working of the company because without the JRD group's voting rights, Whirlpool itself had only 51 per cent vote which was not adequate voting power for them to have carried out significant changes in the running of the company, as such actions require 75 per cent of the total shareholders vote. As staled by the appellant, Whirlpool was in the process of taking over complete control of WIL and the various agreements were stages in that process. Naturally each party jockeyed for maximum benefit. It is also pertinent to note that values of public limited companies are quoted on stock exchanges but, any value above the quoted prices have to do only with control or management of the company. When chunks of shares more they command a different value under the Companies Act as also under SEBI guidelines. Each share holding bloc yields certain rights thereby imparting a different value to the shares held. There are different thresholds for equities held as a bloc i.e., more than 10%, 25%, 51% and 75% of the total equity of the company. Each bloc commands a value in terms of voting power and management say, which is different from the valuation of each individual share of a company, because each bloc carries certain legal rights which command a higher value. As stated earlier, Whirlpool group with a 51% block could not have exercised certain rights with regard to management and control of the company, for which 7% of the voting power was necessary. In order to overcome this disability, WIL negotiated with JRD for exercise of vote of the latter groups bloc of share holding always in favour of Whirlpool. Thus, the amount received by the JRD group to vote always with Whirlpool was intrinsically linked with the bundle of rights going with the bloc of shares held by the JRD group. The effect of this receipt was that even though the appellant continued to hold the same number of shares and continued to earn dividend therefrom its rights exercisable in respect of its share holding got considerably constrained. In fact, in a way, the appellant's share holding lost value because apart from committing to voting with Whirlpool at all times, vide the shareholders agreement dated 9-7-1994, JRD group had also agreed not to dispose of its shares in Kelvinator without right of first refusal to Whirlpool, which stipulation however, did not apply to sale/transfer of these shares within the JRD group. Thus, the receipt was in lieu of curtailment of the bundle of rights exercisable by the appellant and the rest of the JRD group as a substantial shareholder in WIL. But for the necessity of the JRD groups vote for Whirlpool, the appellant would not have received any amount from WIL for voting with Whirlpool. The Assessing Officer's observation that this was a collusive transaction also to my mind, docs not carry weight. This is so because, Whirlpool group and JRD group were unrelated parties. Moreover, as stated earlier, vide agreement dated 9-7-1994 Whirlpool had the right of first refusal and hence, no JRD group member could sell any shares without the specific consent of Whirlpool. Therefore, if at all there could be any collusivity, then, that would relate to the sale of its holding by the appellant to JRD, which was an unrelated transaction with the issue under consideration. Again, if at all, this amount could be treated as a part of the final sale price of the entire JRD groups holding of WIL shares to the Whirlpool group, that would have no revenue impact, as the loss from WIL shares by JRD to Whirlpool group exceeded Rs. 5 crores. The amount of Rs. 2,26,24,401, which would only have gone to reduce the capital loss from sale of WIL shares. Further, I find that the amount received docs not fit into the definition of income under Section 2(24) of the IT. Act, 1961.
It also docs fit in as a casual and non-recurring receipt under Section 10(3) of the Income-tax Act, 1961, in view of the recent decision in Cadell Weaving Mills case and the ITAT Delhi's Bench order in the case of J.C. Chandiok, 69 ITD 75 (DC) (SB).
Accordingly, for the detailed arguments advanced by the appellant and the above discussion, I hold that the amount of Rs. 2,26,24,401 was not exigible to tax being a capital receipt.
11. After considering the orders of Assessing Officer, orders under Section 263 passed by the Commissioners and the order of CIT(Appeals) in the case of Expo Leasing Pvt. Ltd. (supra), we find that neither the Assessing Officer could understand the facts of the case nor the CIT(Appeals) while deciding the appeal in case of Expo Leasing Pvt.
Ltd. The Assessing Officer as well as CIT(Appeals) has gone either by the submissions made by the learned counsel on behalf of respective assessee or the amount of Rs. 16 crores which was received by JRD company in consideration for agreeing to vote with WC, USA. Instead of taking into account whole of the agreement, they have taken into consideration only Clause (b) of paragraph 5.1 of the agreement. If whole of the agreement is taken into consideration, then a separate picture will emerge.
11.1 As stated above, JRD and his family members, along with associate companies where he was substantially interested, were having 59,47,978 equity shares out of total shares of 1,76,33,727 of Kelvinator India Ltd., now known as Whirlpool India Ltd. Out of 59,47,978 shares held by JRD & Group, M/s. Steri Moult Pvt. Ltd. one of the associate company was having 10,75,033 shares and M/s. Ranpharm Investments Pvt. Ltd., another associate company, was having 3,57,494 shares. WC, USA entered into an agreement on 12th day of January, 1998 with JRD and under the agreement, the parties proposed to amend the shareholders agreement and certain other arrangements between them entered earlier. In execution of the agreement, JRD undertook on his own and on behalf of his family members and associates to vote with WC, USA and Whirlpool Mauritius.
JRD also undertook on his own behalf and on behalf of his family members and associates to cooperate with and support all proposals made by Whirlpool in respect of management and operation of Whirlpool India, including proposals of merger, rights issues, infusion of additional capital in any other firm or reduction of capital or other restructuring of capital or any other proposal to this end. JRD also undertook to execute such other agreements and documents as may be necessary to give effect to this agreement and also agrees to support any amendment to the articles of Whirlpool India. These clauses, as stated above, are part of para 3.1 of the agreement. In para 3.2, JRD further undertook to support any proposal or application made by WC, USA or Whirlpool Mauritius Ltd. to the bank and financial institutions, Indian Government, Reserve Bank of India, or any other regulatory authority in India in connection with merger or any other financial arrangements or for increasing the shareholding of WC of USA and Whirlpool Mauritius etc. In lieu of consideration for agreeing to terminate his veto rights and agreeing to amend the Shareholders Agreement, the articles and other arrangements with Whirlpool; to vote along with Whirlpool and to be bound by the non-competition obligations and other covenants and obligations, referred in the agreement, Whirlpool agrees to pay to Desai (JRD), a total aggregate consideration of Rs. 40.42 crores comprising of the following :- (a) an amount of Rs. 20 crores, in consideration for the noncompetition and confidentiality obligations undertaken by Desai.
(b) an amount of Rs. 16 crores in consideration for Desai, his family and associates agreeing to vote with Whirlpool and Whirlpool Mauritius Limited.
(c) an amount of Rs. 4.42 crores in consideration for agreeing to terminate his veto rights amending the Shareholders Agreement and other arrangements, including terminating the consultancy arrangements as aforesaid.
5.2 The payments referred to in Article 5.1 (a), (b) and (c) above shall be made by wire transfer to Desai's designated bank account in India upon execution of this agreement, which shall not be later than January 21, 1998.
5.3 Desai shall be responsible and liable for payment of income-tax, if any, in respect of the payments received by Desai from Whirlpool under Article 5.1 above.
11.2 As stated by us above that if whole of the agreement is taken into consideration, then a different picture will emerge, because as per Assessing Officer and CIT(Appeals) the assessee has lost its bundle of rights etc., but they have not considered Clauses (a) and (c) of paragraph 5.1 of the agreement. As per Clauses (a) and (c), the assessee has received Rs. 20 crores and Rs. 4.42 crores respectively, which was paid to JRD & company in consideration for non-competition and confidentiality obligations undertaken by JRD & company and on account of termination of his veto right, amending the shareholders agreement and other arrangements, including terminating the consultancy arrangements as staled in the agreement dated 12-1-1998. These two receipts i.e. Rs. 20 crores and Rs. 4.42 crores neither has been taken into consideration by the Assessing Officer or the CIT(Appeals) while disposing the appeal in case of Expo Leasing Pvt. Ltd., nor the counsel of the assessee has given any clarification about these two receipts before the Assessing Officer or the CIT(Appeals). If these two amounts could have been taken into consideration by the Assessing Officer or by the CIT(Appeals) then, in our considered view, they would not have arrived at a conclusion that the consideration received in lieu of voting in favour of WC, USA is for loosing of bundle of rights etc., therefore, not liable to tax, because the amount of Rs. 20 crores and Rs. 4.42 crores was, in fact, on account of termination of rights etc.
etc. as mentioned in Clauses (a) & (c) of para 5.1 of the above agreement.
11.3 During the course of hearing of appeals, the main argument raised by the learned DR was that assessee has not lost any assets, because all the shares held by these two companies are intact and these assessees are entitled to future dividend on the assets. It was also stated by the learned DR that neither any asset has been transferred nor any liability has been created against these two assessees.
However, at the time of dictation when the material placed on record was examined, it was seen that assessee has already transferred all the shares of Whirlpool India, as per balance-sheets the shareholding of these two assessees was Nil. For the purpose of clarification, the matter was re-fixed and information was brought to the knowledge of the learned DR, then he fairly conceded that of course, all the shares have already been transferred, but he staled that now the position is very clear when all the shares have already been transferred then question of loosing of bundle of rights docs not arise because these two assessees have no voting power or any other right in future. Therefore, the sale consideration either it is a business receipt or at least it is a profit on account of sale of shares. Therefore, both the Commissioners of Income-lax were right in setting aside the orders of the Assessing Officer.
11.4 The learned counsel was also allowed opportunity to reply and he has also fairly conceded that of course all the shares have already been transferred, but it was stated that the shares were sold after two months from the consideration received in lieu of voting in favour of WC, USA. Therefore, at that point of time, the assessee has lost his bundle of rights etc. and accordingly the receipt is a capital receipt not liable to tax. Some more case laws were relied upon in regard to that where two views are expressed, then jurisdiction under Section 263 cannot be assumed. Further briefly the arguments were repeated which were argued earlier.
11.5 From the above position, it is clearly emerges that both these assessees have already sold their shares and, in our considered view, the amount in consideration of voting in favour of WC, USA was nothing but was a sale consideration of shares, which was received in advance.
The reason for drawing this inference is that the shares were sold to JRD and the amount of consideration on account of sale of shares and on account of alleged voting in favour of WC, USA, was received from JRD and not from WC, USA.11.6 There is one more reason for drawing this inference, and that is that one of the group concerns of JRD i.e., Gulmarg Holdings Pvt. Ltd., Dilkhush, 40, Ridge Road, Malabar Hills, Bombay-400006 have shown the consideration in lieu of voting in favour of WC, USA as sale consideration of its shares sold to JRD and have paid tax on account of capital gain on the entire amount i.e., sale consideration shown in lieu of sale of shares and consideration received in lieu of voting in favour of WC, USA. The different assessees of the same group have been taking different stands in regard to consideration received in lieu of voting in favour of WC, USA. In fact, these two assessees have voted in favour of WC, USA only on the direction of JRD because JRD has purchased all the shares of these two companies. The agreement was entered on 12-1-1998 and as per clauses of the agreement, JRD signed the agreement on his own behalf and on behalf of all his group concerns, means thereby he has already agreed to purchase all the shares of his group concerns and then they voted in favour of WC, USA.12. We have gone through the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) and found that even the decision goes in favour of department on the facts of the present case.
The Supreme Court has observed that "the Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to Section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted". It is further observed by the Hon'ble Supreme Court that "an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind". It is also observed that "if due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue". In the case of Malabar Industrial Co. Ltd. (supra), the facts were that the Commissioner noted that the Income-tax Officer passed the order of Nil assessment without application of mind. In fact, the resolution passed by the Board of the appellant company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of account filed by the appellant in absence of any supporting material and without making any enquiry. On these facts the conclusion that the order of the Income-tax Officer was erroneous was irresistible. According the Commissioner invoked the provisions of Section 263(1) and set aside the order of the Assessing Officer. The High Court confirmed the action of the CIT under Section 263(1). On appeal the Hon'ble Supreme Court also confirmed the order of the High Court.
13. The facts of the case in hand, as already discussed above, that the assessee appended a note on the computation sheet of income, slating that the receipt received on account of voting in favour of WC, USA is not taxable. The Assessing Officer required to file the explanation and assessee filed reply and relied upon various case laws. However, the Assessing Officer without applying his mind and without considering the full agreement entered into with JRD group and WC, USA, accepted the contention of the assessee and held that the receipts are not taxable.
Neither the Assessing Officer has looked into aspect that all the shares held by these two companies have already been sold and once all the shares have already been sold during the year under consideration, then what bundle of rights have been lost by the assessee, is not understandable. Even on law, the Assessing Officer has not considered the ratio of the various case laws relied upon by assessee that whether the ratio of those decisions are applicable on the facts of the present case or not. Therefore, in our considered view, the Assessing Officer erred on both i.e., in considering the facts of the case and in understanding the law in proper perspective. There may be a reason for not considering the facts in proper way because the assessee may not have brought to the knowledge of the Assessing Officer that these assessee companies have sold all the shares held, as from the reply filed nowhere it is seen that assessee has informed about the sale of shares by these two companies. Therefore, in our considered view, the ratio of the decision of the Supreme Court (supra) goes in favour of the department and not in favour of assessee. The Supreme Court has also observed that if a possible view has been taken, then of course jurisdiction under Section 263 cannot be assumed. As stated above, in our considered view, no possible view has been taken by the Assessing Officer because the Assessing Officer has not considered the facts in proper perspective nor he could understand the law properly.
14. The Hon'ble Raj as than High Court in the case of CIT v. Trustees of Anitpam Charitable Trust [1987] 167 ITR 129, has held that if there is actually an error either of fact or of law, then jurisdiction assumed under Section 263(1) is correct.
14.1 In the case of CIT v. V.N.M.A. Rathinasabhapathy Ayyar [1995] 215 ITR 3092 the Hon'ble Madras High Court has held that if any order is passed in ignorance or in violation of any law as well as when it is passed without taking into consideration all the relevant facts or is affected by the present of any irrelevant facts into consideration, then the CIT was justified in invoking the provisions of Section 263.
14.2 The Hon'ble Gujarat High Court in the case of CIT v. M.M.Kharnbhatwala [1992] 198 ITR 144 has held that even the Commissioner of Income-tax is empowered to invoke provisions of Section 263, where the issue is debatable.
14.3 In the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84, the Hon'ble Supreme Court had held that the Commissioner may consider an order of the Assessing Officer to be erroneous not only if it contained some apparent error or reasoning or of law or of fact on the face of it, but also because it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries which are called for in the circumstances of the case. Similar view was expressed by the Supreme Court in the case of Smt. Turn Devi Aggarwal v. CIT [1973] 88 ITR 323.
15. Though in the present case the assessee was required to explain the nature of receipts and a reply was filed by the assessee, but the Assessing Officer has not given an)' independent finding as he merely accepted the submissions submitted on behalf of the assessee. Neither the Assessing Officer tried to go to find out the factual position, nor tried to understand the law that how the ratio of the decisions relied upon before him are applicable on the facts of the present cases.
Therefore, in our considered view, the Commissioners of Income-tax were correct in holding that the orders of the Assessing Officer were erroneous and prejudicial to the interests of the revenue.
15.1 The contention of the counsel of the assessee that in one another case i.e., in the case of Steriplale (P.) Ltd., the Assessing Officer has not taxed the receipts as revenue. The reason for not taxing the receipt as revenue was that the Assessing Officer passed assessment order with the prior approval of CIT, Rohtak and that order is final.
We have seen the copy of the order passed in the case of Steriplate (P.) Ltd., as the copy of the same is placed at pages 139 to 143 of the paper book, and find that the receipts received by assessee on account of voting right, have not been included in the total receipts, but no discussion has been made by the Assessing Officer in his order that why he is not adding the receipts received from WC, USA for voting right in respect of shares held by that company. Therefore, in no way it can be said that the Assessing Officer has applied his mind or the CIT has directed him not to include the receipt as taxable income. Neither any copy of instructions of Commissioner of Income-tax is placed on record nor any further material was brought on record before us. Therefore, it cannot be said that any opinion has been expressed regarding the receipts received by that assessee for casting vote in favour of WC, USA.16. Even on merit, we do not find any weight in the contention of the learned counsel that the receipts received by these two assessees on account of voting in favour of WC, USA is not liable to tax. Generally, soliciting of vote for consideration is against public policy. Seeking of vote for a consideration is not permitted under any provisions of law. Neither the counsel of the assessee has brought any provisions of law to our knowledge. The WC, USA paid amount of Rs. 16 crores for voting in their favour and payment made for voting for a consideration is clearly against public policy.
17. As discussed above, the main argument of the assessee is that assessee has lost bundle of rights, therefore, the receipts are not taxable. As we have already stated that all the shares have been sold out, therefore, we fail to understand that after selling the shares what rights remains with assessee, which they have lost.
18. We have also considered the various case laws relied upon by the learned counsel. The ratio of some of them are as under : 18.1 First decision, on which the reliance is placed, is in the case of Best & Co. (P.) Ltd. (supra). The Hon'ble Supreme Court has held that the compensation paid for restrictive covenant was a capital receipt.
While holding so the English case of House of Lords in Beak v. Robson [1942] 25 Tax Cases 33, was followed.
18.2 In the case of Bombay Burmah Trading Corporation Ltd. (supra), the Hon'ble Supreme Court has held that compensation received for immobilization, sterilization, destruction or loss, total or partial, of a capital asset would be a capital receipt.
18.3 In the case of Prabhu Dayal(supra) it was held that compensation for termination of an income producing asset being a payment for destruction of a capital asset must be considered as a capital receipt.
Similar view was expressed in the case of Kettlewell Bullen & Co. Ltd. (supra).
18.4 The Madras High Court, in the case of Seshasayee Bros. Ltd. (supra) held that surrender of licence obtained to start manufacture of vanaspati product for consideration was not assessable as a trading receipt as it was not one of the lines of business of the assessee to acquire and sell licenses.
18.5 The Hon'ble Delhi High Court in the ease of AS. Bhargava (supra) held that the amount received towards transfer of dealership rights in petrol was a capital receipt as there was no material on record to show that it was the business of the assessee to obtain and transfer such rights.
18.6 The Madras Bench of the Tribunal in the case of Shrinivasa Raghava Iyengar v. ITO [1982] 13 TTJ 245 considering a case where the assessee firm filed a suit against a company for the injunction to use the name similar to that of firm by that company. There was compromise in the suit and the assessee received Rs. 25,000 for permitting the company to continue to use the name. The Income-tax Officer treated this receipt as a revenue receipt. It was held by the Tribunal that the receipt was in lieu of surrender of the right of the use of the name and that it was of capital nature not liable to be included in the income.
18.7 In the case of Gillanders Arbuthnot & Co. Ltd. v. CIT [1964] 53 ITR 283 the Hon'ble Supreme Court has held that the compensation paid for agreeing to refrain from carrying on competitive business in the commodities in respect of the agency terminated or for loss of goodwill is prima facie of the nature of capital receipt.
18.8 In case of CIT v. Saraswathi Publicities [1981] 132 ITR 207, the Hon'ble Madras High Court applying the ratio of Hon'ble Supreme Court in the case of Best & Co. (P.) Ltd. (supra) held that as the receipt was referable to the restrictive covenant, it was capital receipt not liable to income-tax.
18.9 We have also considered the facts in case of J.C. Chandiok v. Dy.
CIT [1999] 69ITD 75 (Delhi) (SB), on which the CIT(Appeals) while deciding the appeal in case of Expo Leasing Pvt. Ltd. (supra) has placed reliance and found that facts in case of J.C. Chandiok (supra) are different from the facts here before us. In that case also tenancy rights were surrendered and the compensation in lieu of tenancy rights was held that the same could not be put within the ken of Section 10(3). In this case the decision in case of Cadell Wvg. Mill Co. (P.) Ltd. v. Asstt. CIT [1995] 55 ITD 137 (Bom.) (SB) relied upon by the CIT(Appeals) was also considered. In that case the tenancy rights were surrendered and it was held that the compensation in lieu of salary of tenancy rights is not taxable as per provisions of Section 10(3).
Therefore, the ratio of the decisions in case of Cadell Wvg. Mill Co.
(P.) Ltd. (supra) relied upon by the CIT(Appeals) in case of Export Leasing Pvt. Ltd. is also distinguishable on facts.
19. After perusing all the decisions, as stated above, we find that all these decisions are distinguishable on fact's of the present case. In all these cases either there was a surrender of agency in favour of other, or there was a restrictive covenant not to use the name or goodwill of agency for a particular period, or foregoing of right in an agency and compensation received in lieu of foregoing the right of an agency is a capital receipt, as held by various courts (supra). The persons or parties concerned, who received compensation in the above stated cases, were directly effected in respect of their business rights. Either they were deprived with the agency rights or they were restricted to use the name of a particular brand, which was used for the purpose of business or they lost their tenancy rights where they were doing their business activities.
20. We have also seen other cases and find that those are either in regard to surrender of tenancy rights or again in regard to compensation received in lieu of surrendering of commission agency etc.
21. In our considered view, the only aspect which remains to be taken into consideration is that whether the consideration received shown by these two assessees on account of voting in favour of WC, USA is a business receipt or sale consideration of shares. The assessee is not dealing in trading of shares, therefore, in our considered view, these receipts cannot be held as business receipts. Undisputedly, the assessee has sold his shares. Therefore, in our considered view, the consideration shown by these two assessees that the same has been received in lieu of voting in favour of WC, USA is nothing but the sale consideration of shares, as the amounts have been received by these two assessee companies from JRD to whom the sale of shares has been made.
As already stated that in one of the group case of JRD, i.e. in case of Gulmarg Holdings Pvt. Ltd. they have already shown similar receipt on account of sale consideration of shares and paid capital gain tax on the consideration received in lieu of voting in favour of WC, USA.Therefore, these receipts received by these two assessees have to be treated as receipts on account of sale of shares.
22. Therefore, in view of all these facts and circumstances, we uphold the orders of Commissioners of Income-tax under Section 263 in cancelling the assessments in both of these cases. However, we modify the order of Commissioners of Income-tax whereby it has been held that the receipts are casual in nature which are liable to tax. No doubt the receipts are liable to lax, but they are liable to capital gain, as we have held that the amount of receipt is on account of sale consideration of shares sold. Accordingly we direct the Assessing Officer to re-compute the income of both these assessees by treating the receipts as part of sale consideration of shares sold. We order accordingly.