THE HONOURABLE SRI JUSTI CE P.SAM KOSHY AND THE HONOURABLE SRI JUSTI CE SUDDALA CHALAPATHI RAO I NCOME TAX TRI BUNAL APPEAL No.412 of 2010

JUDGMENT:

(per the Hon’ble Sri Justice P.Sam Koshy)

Heard Ms. Bokaro Sapna Reddy, learned Senior Standing Counsel for Income Tax Department for the appellant / Revenue;

and Ms. K.Mamata, learned counsel for the respondent / assessee.

2. The instant is an appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) preferred by the Revenue challenging the order dated 24.08.2007, in ITA.No.536/Hyd/2002, passed by the Income Tax Appellate Tribunal, Hyderabad Bench ‘B’, Hyderabad (for short, the ‘ITAT’) for the assessment year 1998-99. 3. Vide the impugned order, the ITAT dismissed the appeal of the Revenue holding that the entire receipts of the assessee is a capital receipts for a sale of undertaking as a going concern and it is a slump sale.

4. The facts of the case in brief is that the assessee had entered into an agreement dated 19.09.1997, to sell its entire bottling and marketing business to M/s. Bharat Coca Cola Bottling South East Private Limited for a total sale consideration of Rs.56.23 Crores. The net consideration after deducing the liabilities amounted to Rs.40.31 crores. However, the assessee is involved in obtaining concentrate or base from the Coca Cola Company, bottling the product, and selling it under the Coca Cola brand name through its own established marketing network. Over the course of its operations, the assessee had established significant infrastructure including plant and machinery for bottling operations and an extensive distribution network for marketing the products to retail sellers. The sale agreement encompassed the transfer of the entire business as a going concern, including all assets, the marketing network, goodwill, and included a non-compete clause that prevented the assessee from engaging in similar business activities in the future.

5. During the assessment proceedings, the Assessing Officer examined the nature of the transaction and the tax treatment applicable to the sale proceeds. Before the Assessing Officer the assessee contended that the entire transaction constituted a slump sale of the business as a going concern, wherein no individual values were assigned to separate assets and therefore the receipt should be treated as a capital receipt. However, the Assessing Officer did not accept this contention and proceeded to allocate specific portions of the sale consideration to different components including land, building, plant and machinery, goodwill and non- compete fees. The Assessing Officer treated portions of these proceeds as a short-term capital gains under Section 50(B) of the Act and long-term capital gains, while also examining whether certain amounts could be taxed as revenue receipts under Section

28(ii) of the Act.

6. Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)-I, Hyderabad. The Commissioner of Income Tax vide order dated 15.03.2002 partially allowed the assessee’s appeal. The Commissioner of Income Tax found that a sum of Rs.17.62 crores could be considered as having been paid towards other assets, goodwill, non-compete fees, and termination of agreement. Of this, Rs.4 crores was allocated towards goodwill. The Commissioner of Income Tax directed that the long-term capital gains should be computed on land and short-term capital gains under Section 50(B) of the Act on the buildings. However, the Commissioner of Income Tax held that the balance amount could not be apportioned to any particular asset and treated it as a capital receipt from a slump sale, finding that the provisions of Section 50(B) of the Act (introduced with effect from 01.04.2000) were not applicable for the assessment year under consideration and that Section 28(ii) of the Act was also not applicable as the principle of agency was not involved.

7. Dissatisfied with different aspects of the Co