INCOME TAX ACT, 1961

--Business incomeChargeability Voluntary payment by holding company to subsidiary connected with business of latter--Assessee-company was engaged in business of manufacture to pharmaceutical business and bulk drugs, BMIL got amalgamated with assessee in previous year. The effective date was 24-7-1997 AMIL had received a payment of 29.26 crores from BMP in November 1996, i.e., before amalgamation of BMIL with assessee. Aforesaid amount received from BMG by BMIL was claimed by assessee to be a capital receipt and as such not offer for taxation. It was payment made by BMG being a substantial shareholder in BMIL, to rectify erosion in the net worth of one of subsidiary assessing officer was however, of the view that payment in question though was an unconditional grant without any legal obligation on the part of BMG and without as legal right vesting with BMIL to receive the payment was not conclusive trust the same is not chargeable to tax. He thus treated the see payment as revenue receipt. Held: There was holding and subsidiary company relationship between BMIL and BMG besides business relationship. It is only because of such relationship and also in the light of the help rendered by BMIL in terms of protecting and promoting the interests of BMG in the wake of Comsat incident, the payment in question was made by BMG and was therefore a payment connected with the business of BMIL and was liable to be taxed under section 28(i).

Payment is in recognition of the services rendered by BMIL to BMG. Moreover business consideration did give way for making aforesaid payments. It is also a fact that the assessee had incurred expenses in connection with the effort it had taken to protect and enhance the goodwill and image of BMG in India and those have been claimed as deductible revenue expenditure. Thus the case of the assessee stands on totally different footing from all the cases relied upon by the counsel for the assessee. It is not a payment to enable BMIL to recoup its losses nor is it a payment which did not have business consideration for making such payments. The fact that it was voluntary or that it was an unconditional payment, will not make it a capital receipt not chargeable to tax. The stand of the assessee before the Revenue authorities that BMIL was in losses and the payment in question was made to recoup such losses is contrary to the material on record. There was holding and subsidiary company relationship between BMIL and BMG besides business relationship, viz., BMIL was using the brand image of BMG, making use of the technical know-how of the parent company and was also acting as the marketing agent for BMG for sale of diagnostic products, bio-chemicals and bio-catalysts. It is only because of such relationship and also in the light of the help rendered by BMIL in terms of protecting and promoting the interests of BMG in the wake of Comsat incident, the payment in question was made by BMG and was therefore a payment connected with the business of BMIL and was liable to be taxed under section 28(i) read with section 2(24) of the Act. We are of the view that the decision of the Hon'ble Supreme Court in the case of G.R. Karthikeyan would be clearly applicable in the present case. We are of the view that the Commissioner (Appeals) erred in coming to the conclusion that receipt was not in the nature of income. In fact the Commissioner (Appeals) has given contradictory finding. On the one hand the Commissioner (Appeals) says that the assessee was in the business of manufacture and sale of drugs and not in the business of public relation or image building. Thus it is an admitted position that the payment was made for protecting and enhancing the goodwill and image of BMG in India. The Commissioner (Appeals) contrary to the above finding has come to the conclusion that there was no quid pro quo for the payment. The Commissioner (Appeals) erred in reversing the order of the assessing officer. Therefore, the order of Commissioner (Appeals) is reversed and restore the order of the assessing officer in this regard. [Para 21]