INCOME TAX ACT, 1961

Section 153A

Search and seizure - Assessment under section 153A - -

During search certain documents relating to transfer of M/s. Empee Breweries Ltd. as a growing concern to M/s. McDowell Alcobev Ltd. and an asset purchase agreement drawn between empee distilleries Ltd., and Empee Breweries Ltd., for transferring plant and machineries of Empee Distilleries Ltd., to Empee Breweries Ltd. were found and seized. AO noticed that the assessee and his family members had controlling shares in Empee Distilleries Ltd., Empee Breweries Ltd., and Empee Sugars & Chemicals Ltd. Transfer of assets had taken place, as a result of an agreement between assessee and his family members with McDowell Alcobev Ltd. Assessee and his family agreed to sell 29 lakhs shares at an agreed price of Rs. 14.25 per share and these shares formed 51% of total shares floated by Empee Breweries Ltd. McDowell Alcobev Ltd., and Empee Distilleries Ltd., sold all their shares (49%) to Empee Sugars & Chemicals Ltd., at a price of Rs. 10 per share on 2-4-2002, and assessee and his family members, Empee Distilleries Ltd., Empee Breweries Ltd., and Empee Sugars & Chemicals Ltd., entered into an agreement with McDowell Alcobev Ltd. Empee Distilleries Ltd., sold their shares to Empee Sugars & Chemicals Ltd., for Rs. 10 and assessee and his family members sold the same shares to McDowell Alcobev Ltd., at Rs. 14.25 per share and Empee Sugars & Chemicals Ltd., sold the newly acquired shares to McDowell Alcobev Ltd., at Rs. 127.35 per share, i.e., at 12 times profit ratio. The assessee and Empee Distilleries Ltd., who had sold their shares at 12 times lower price, were granted a non-compete fee and assessee received Rs. 10 Crores as his share of non compete fee and Empee Distilleries Ltd., Rs. 7 Crores. Empee Distilleries Ltd., and assessee claimed that receipts were of capital in nature and hence, did not offer the same to tax. Held: Assessee and his family members sold their shares to McDowell Alcobev Ltd., at Rs. 14.25 paise per share, when remaining shares held by Empee Distilleries Ltd., were sold by McDowell Alcobev Ltd., at a price of 125.37 and assessee received Rs. 10 Crores as non compete fee which he had claimed was not taxable. Price of shares which was shown at a much higher price in the hands of Empee Sugars & Chemicals Ltd., was undoubtedly to benefit company which had huge accumulated losses and consequently, same could be set off against capital gains. The benefit which would accrue to assessee was by lowering and splitting up of consideration for shares and non compete fee thereby being a device employed to evade tax. Payment of non compete fee was a colourable device adopted by assessee to avoid tax. Accordingly, same was rightly taxed.

Supported by:McDowell & Co. Limited v. CTO (1985) 154 ITR 148 (SC) : 1985 TaxPub(DT) 1186 (SC) and Lachminarayan Madan Lal v. CIT (1972) 86 ITR 439 (SC) : 1972 TaxPub(DT) 430 (SC).

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2002-03

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