Case Law Details
M/s. J.C. Bhalla & Co. Vs Addl. CIT (ITAT Delhi)
Conclusion: Assessee-firm was entitled to claim deduction claim under Section 54EC as assessee had made an investment in the specified bonds and capital gain had arisen to the assessee from transfer of client relationship and goodwill which was long-term capital asset under section 2(14) chargeable to tax under the head capital gain and the cost of acquisition of the same was nil.
Held: Assessee- firm of chartered accountancy having a standing of almost 60 years, discontinued its business of internal audit and risk consulting practice by transferring it to an international firm Protivity. The buyer agreed to purchase the specified assets in terms of the above agreement and the assessee firm had agreed to transfer all rights/ interest entitled in the specified assets. Assessee firm was owner of the „purchased asset‟ which means collectively “client relationships and goodwill” agreed to sale, transfer aside and convey to the purchaser all the purchased assets. Purchase price of INR 29 Lacs for client relationship and goodwill to be paid subject to the terms of the agreement. During the year under consideration,AO denied the claim of long-term capital gain by assessee in respect of ‘client relationship’ and ‘Goodwill’ in respect of Internal Audit and Risk Consultancy practice and also denied the amount received against that was a capital gain entitled to the deduction under section 54EC. It was held this agreement itself showed that before buying the IARC practice of assessee, the buyer had made a complete due diligence of the practice hand and had purchased the ongoing contracts along with the client relationship for INR 2,900,000. Thus, client list, contracts were property of the assessee firm which was connected with the profession of assessee it fell into the definition of capital asset according to section 2 (14). It could not be said that the above sum received by assessee was a capital receipt which was not chargeable to tax. It could not be considered as a noncompete fees because in the agreement through which the assessee had received INR 29 Lacs did not talk about the noncompete conditions. For the same, assessee had entered into another agreement for which INR 1,600,000 had been paid by the buyer to assessee, which had been offered by them as a noncompete fees as business income. The above client list and contract relationship was built by assessee over past 30 years it could also not be held to be a short-term capital asset. According to the provisions of section 55 (2) (a) (ii) the cost of the acquisition of these essential be taken to be nil. Therefore INR 2,900,000 on by the assess was chargeable to tax under the head capital gain and the cost of acquisition being nil. As the assessee had made an investment in the specified bonds and capital gain had arisen to the assessee from transfer of a long-term capital asset, assessee was also eligible for exemption under section 54EC.
FULL TEXT OF THE ITAT JUDGEMENT
1. This is an appeal filed by the assessee against the order of the ld CIT(A)-XX, New Delhi dated 10.02.2015 for the Assessment Year 2011-12 raising following grounds of appeal :-
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