Sec. 147 of Income Tax Act, 1961— Reassessment—Reassessment valid as it not based on mere change of opinion.

Facts: Issues in these four appeals revolves around taxability of gains arising from sale of share of the Company ‘Kris Srikkanth Sports Entertainment Private Limited’ held by assessee and his minor sons, to three entities belonging to Pentamedia Group of Concerns and the alleged claim of the assessee that it entered into non-compete agreement with these purchasing entities and an amount of Rs. 7.50 crores was received towards non-compete fee by assessee for not competing with these entities for a period of six years and the same could not be brought to tax for impugned ay:2001-02 as amendment in Section 28 wherein clause (va) was inserted by Finance Act, 2002 w.e.f. 01.04.2003.

Held, that shares in ‘ Kris Srikanth Sports Entertainment Private Limited’ to the tune of 99% were held by minor sons of the assessee. The shares of the minor stood transferred to Pentamedia Group Concerns and minors were divested of their shareholding in ‘Kris Srikanth Sports Entertainment Private Limited’. There are simultaneous agreement for sale of shares as well for non compete which were simultaneously entered by the assessee on his behalf as well on behalf of the minor, of which total value was Rs. 15 crores out of which Rs. 12 crores stood realised.Thus, it is to be held that the entire consideration of Rs. 7.50 crores towards sale of shares of minor in ‘Kris Srikanth Sports Entertainment Private Limited’ stood realized and to be brought to tax within provisions of the 1961 Act including provisions of Section 60-64 of the 1961 Act. It is admitted fact that no permission of Court for selling/divesting of shares of minor is brought on record. Under these circumstances, we are of the considered view that the assessee was duty bound to protect the interest of the minor sons. Thus, we hold that sale consideration of Rs. 7.50 crores towards sale of shares stood fully realized and it is required to be brought to tax by invoking provisions of the 1961 Act including clubbing provisions as are contained in Section 61 to 64 of the 1961 Act. So far as consideration of Rs. 7.50 crores towards non compete fee is concerned which is for non competing by assessee with ‘Kris Srikanth Sports Entertainment Private Limited’, we are of the considered view that the said amount is not chargeable to tax as in the impugned ay: 2001-02, the said amount was not chargeable to tax as amendment in Section 28 wherein clause (va) was inserted by Finance Act, 2002 w.e.f. 01.04.2003 and prior to that, it could not be brought to tax as it was held to be capital receipt. The ratio of decision of Hon’ble Supreme Court in the case of Guffic Chem Private Limited(cited supra) is applicable, as we are presently dealing with ay: 2001-02 which is prior to aforesaid amendment made by Finance Act, 2002 which is applicable from 01.04.2003. Thus,an amount of Rs. 7.50 crores which was purportedly towards non compete fee is not chargeable to tax within provisions of the 1961 Act as were applicable for ay: 2001-02. Under these circumstances once it is held that Rs. 7.50 crores which was towards non compete fee is exempt from tax in the instant case, it will not matter as to how this is applied by assessee as the income at source is held to be exempt from tax. Thus, even if an amount of Rs. 3 crore is not received, it will not matter as the income at source of Rs. 7.50 crores towards non compete fee is held to be exempt from incometax and at the same time even if Rs. 4.25 crores is paid to Indian Bank to clear the loan of ‘Aditya Leather Exports Private Limited’, then also it is an application of exempt income which will not have bearing on the taxability of assessee’s income. However for sake of completeness, it is held that the assessee has paid an amount of Rs. 4.25 crores to Indian Bank under a memo of compromise with said Bank and there was no garnishee attachment of the bank on said shares. The shares of ‘Kris Srikanth Sports Entertainment Private Limited’ were never subject matter of charge with Indian Bank. The shares were held by minor sons of the assessee in ‘Kris Srikanth Sports Entertainment Private Limited’ and minor sons were not the guarantor of the said loan availed by ‘Aditya Leather Exports Private Limited’ from Indian Bank which stood defaulted. The minor sons of the assessee also could not be made to pay for the default of the said Aditya Leather Exports Private Limited of which the assessee was Director/Guarantor not the minor sons. The assessee was the Director of the said company namely ‘Aditya Leather Exports Private Limited’ as well guarantor of the said loan, but the assessee had no right to transfer the proceeds of sale of shares held by his minor sons in ‘Kris Srikanth Sports Entertainment Private Limited’ to Indian Bank, except with permission of Courts. No such permission was obtained by assessee. The said act of claiming deduction for amount paid to Indian Bank out of sale proceed of shares held by minor sons is clearly an act of perversity/illegality as well an attempt made to evade taxes. The assessee also simultaneously received non compete fee to the tune of Rs. 4.50 crores out of total agreed non compete fee of Rs. 7.50 crores and the said proceed shall be deemed to have been applied for payment to Indian Bank. The said amount of Rs. 4.50 crores is already held by us to be exempt from tax and it will not matter even if the said sum was paid to discharge to loan of Indian Bank. Further, there was no charge held by Indian Bank on shares of ‘Kris Srikanth Sports Entertainment Private Limited’. In any case as discussed above, the shares were held by Minor sons of the assessee. The minor sons of the assessee were neither Director of Aditya Leather Exports Private Limited nor guarantors for the said loan granted by Indian Bank to Aditya Leather Exports Private Limited. The assessee being natural guardian of minor son has no right to use sale proceeds belonging to minor sons to discharge Indian Bank Loan without permission of the Court and then turn back and say that the said amount paid to Indian bank is to be allowed deduction on the ground of diversion of overriding tittle, which will lead to traversity of justice and illegality. The assessee has not come to Court with clean hand and we cannot be party to such illegal and perverse act of the assessee. Thus, we hold that the said amount of Rs. 4.25 crores was paid by assessee out of non compete fee received by assessee and further it is mere application of income and there is no diversion by overriding title as the shares were never part of the charge in favour of Indian Bank. The said amount of Rs. 4.25 crores was paid by assessee to Indian Bank to settle defaulted loan obligation of Aditya Leather Exports Private Limited. Further, the assessee has entered into simultaneous agreement for sale of shares as well for non compete fee and Indian Bank was also in a position to exercise restraint over non compete fee which belonged to assessee and even Indian Bank could not have exercised any extended lien over shareholding of minor sons in ‘Kris Srikanth Sports Entertainment Private Limited’ without permission of Court keeping in view laws prevailing in India relevant to minor and guardianship. No such permission was ever taken from Courts by Indian Bank or by assessee under the laws applicable to minor and guardianship and hence extended lien if at all it is available was over non compete fee which in any case is held to be an exempt income. Thus, the assessee will not get any deduction from taxable income of amount paid to Indian Bank to discharge liability of ‘Aditya Leather Exports Private Limited’ of the misconceived cannot be part of scheme of illegitimate tax evasion undertaken by assessee. Further, we also hold that payments made to Indian Bank by assessee to the tune of Rs. 4.25 crores was merely an application of income. Thus, reopening of concluded assessment by AO invoking provisions of Section 147 was upheld. - K. SRIKANTH V/s ASSTT. CIT - [2020] 80 ITR (TRIB) 272 (ITAT-CHENNAI)