Capital gains

This query is : Open

CA SMR (Querist)
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18 August 2011 Dear Experts,

A mine owned by an assessee was taken up by a third party for the purpose of mining. Since the mine was allotted by the government to the assesse, he cannot transfer his rights to a third party as per the agreement with the Government. Hence he joined the third party as a Director and against his rights to the mine, he was paid Rs 75 Lakhs as Goodwill ,which he invested in bonds.

The ITO has not recognised this transaction and they claim that RS 75 lakhs is the salary paid by the third party to the assesse since he is now a director of the Organisation and the amount is taxable.

In my view this transaction is covered u/s 54EA and is not taxable.

Please share your opinions and site case laws,if any.

Regards,

Sukanya

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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18 August 2011 The agreement to sale the right is not legally enforceable and as such it has become void. As such there is not a proper transfer of the capital asset. It can't thus be said legally that capital gains have arisen.
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The intention of the transferer remained to defy the law.

In my view, a bad will can not be named as goodwill.
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Deduction U/s 54EA can not be claimed after AY 1999-2000.
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The ITO is helping the assessee by just treating the income as salary income.

He could do more in this case by informing the mining department.
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CA SMR

CA SMR (Querist)
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22 August 2011 Thank you Parasji.I did not understand the last line.Please clarify.

Regards,
Sukanya

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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22 August 2011 Since the mine was allotted by the government to the assesse, he cannot transfer his rights to a third party as per the agreement with the Government

Here the work is carried out in a different and objectionable manner. The lease agreement can be cancelled by the Mining Department due to the breach of stipulated conditions.

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