THE issue before the Bench is - Whether when the assessee
transfers its running business and obtains Right of First Refusal to start a new
business, compensation received from the purchaser for breach of such a right is
in the nature of capital receipt. YES is the Tribunal's answer.
All the assessees (who are in appeal) are part of Parle Group owned by Mr. Prakash Chauhan and Mr. Ramesh Chauhan. The Parle Group of companies were engaged in the business of manufacturing, bottling and distribution of soft drinks and beverages under several popular brands viz., Thumbs Up, Limca, Gold Spot, Maaza, Citra, etc., and other popular brands. The Parle Group of companies entered into a “master agreement” with The Coca Cola Co. of U.S.A. (“TCCC”) on September 1993, for transfer of intellectual property rights in the nature of trade marks, knowhow, franchisee rights, etc., in respect of various brands of beverages / soft drinks owned by Parle Group.
The aforesaid parties along with Mr. Ramesh Chauhan and Mr. Prakash Chauhan, were referred to as “seller” in the master agreement and TCCC was the buyer along with Coca Cola South Asia Holding Inc., as a confirming party. After the transfer of trade-mark, etc., as per the master agreement, bottling of soft drink was continued by Mr. Ramesh Chauhan and Mr. Prakash Chauhan, through Parle Bottling Co. Ltd., having bottling rights in the territory of Pune while LFFL now known as “Aqua Bislery” having bottling rights in the territory of Bangalore respectively. The master agreement was in the nature of memorandum of understanding which provided the drafts and understanding of individual agreements for transfer of various trade marks, franchisee rights, non-compete covenants, letter of arrangement, etc. which was to be executed by the respective parties. In the said agreement, there was an Article-7.01(d) which contemplated execution of ROFR (right of first refusal) agreement for bottling rights in the territories of Bangalore and Pune.
For bottling rights in the territory of Bangalore, LFFL was assigned to become licensed bottler of TCCC in the city of Bangalore. It was also agreed upon by the parties in the master agreement itself, that a new company i.e., a Bangalore subsidiary was to be established for carrying out bottling operations in Bangalore. The Article-1 of the master agreement contained the definition of Bangalore subsidiary which, inter-alia, means that the company to be formed for the production, distribution and sale of products of TCCC for the city or nearby territories of the city of Bangalore. For this purpose, Exhibit-L of the master agreement provided the manner and the guideline on which this Bangalore subsidiary was to be established, which would be initially owned by Parle Group entities and the TCCC would later on invest up to 30% in the equity shares of Bangalore subsidiary under the terms of BIC shareholder agreement. The definition of Bangalore investment agreement and BIC shareholder agreement was also mentioned in the definition clause of Article-1.
In the wake of liberalization environment in India, TCCC took strategic policy decision to set-up its own bottling at Bangalore. This inherently led to breach of obligation by TCCC in respect of ROFR given to the Parle Group in the master agreement and led to dispute between the Parle Group and TCCC. This dispute was ultimately settled with TCCC agreeing to pay USD 4.5 million which in terms of INR was Rs. 16,05,82,500. Such a receipt of compensation which was in breach of ROFR was the subject matter of dispute whether it was a capital receipt or revenue receipt or casual income or to be taxed as long term capital gain or short term capital gain and also in whose hands it should be taxed.
In the case of Parle Soft Drinks Pvt. Ltd., in the return of income, for the AY 1998-99, the amount received from TCCC at Rs. 16,05,82,500, was treated as capital receipt not chargeable to income tax.
It was submitted that the amount received was not taxable u/s 10(3) as casual and non-recurring receipt because the said receipt cannot be characterised as income. Besides this, it was also pleaded that the receipt in question cannot be taxed as capital gains, because there was no cost of acquisition for the so called rights in question and, therefore, in view of the decision of the Supreme Court in CIT v/s B.C. Srinivasa Setty (2002-TIOL-587-SC-IT-LB), the same cannot be taxed.
The AO, first of all, referred to the definition of “Income” as defined in section 2(24) and held that it was an inclusive definition and has a very vide meaning, which would include even those items which may have not been specifically mentioned in the definition but partake the character of income in its natural meaning. Thereafter, he held that in assessee’s case, there was no written agreement between the assessee and the TCCC for granting the rights to the assessee, because the ROFR agreement was between LFFL and TCCC. Further, there is no evidence that the LFFL has assigned ROFR rights to the assessee. No business activities were carried on by the assessee, except for the land and there was no business asset like building or plant and machinery which was held by the assessee. Thus, the amount paid by the TCCC to the assessee cannot be said to be for any breach of agreement or sacrificing the source of income, since there was no business activity carried on by the assessee company at all. There was no trading or profit making structure and, hence, the amount received cannot be said to be for loss of trading / profit making structure.
He, thus, held that when the assessee had no business venture, no plant and machinery for the running of business of bottling, the amount received as compensation was not for discontinuance of business or income generating asset. The amount which was received was actually receivable by LFFL but had been received by the assessee company. Lastly, he held that the receipt should be assessed under the head “Income From Other Sources”. Thus, he held that the amount received by the assessee company was nothing but a revenue receipt chargeable to tax. Alternate plea of the assessee regarding taxability as capital gain, he concluded that it was a short term capital gain. The sum and substance was that the right, as per the agreement which was available with the assessee was for a period of less than 36 months and, therefore, it had to be taxed only as short term capital gain.
The CIT(A) held that reasoning of the AO that the receipt in question cannot be accepted as capital receipt was correct. This receipt was nothing but had arisen on transfer of asset in the form of right, which had been envisaged in section 55(2) clause (a). He also accepted the assessee’s alternate plea that receipt in question had to be treated as capital gain but he disagreed with the assessee’s contention that there was no cost of acquisition, because section 55(2) was modified by the Finance Act, 1997, w.e.f. 1st April 1998, to include such kind of right and cost of acquisition had to be taken as “nil”. Lastly, whether it was a long term capital gain or short term capital gain, he analysed the sequence of event of these transaction and held it to be long term capital gain.
On further appeal, the ITAT held that,
++ the main dispute for our adjudication is, whether the sum of Rs. 16,05,82,500, which has been received by the assessee from The Coca Cola Co., on the breach of ROFR agreement, is a capital receipt not chargeable to tax or to be treated as revenue receipt or casual income or long term capital gain or short term capital gain and further in whose hands it should be taxed;
++ in the main agreement which has been referred as master agreement entered by the various sellers who are Parle Group of companies with The Coca Cola Co., there was a stipulation for assignment of bottling rights for the Bangalore territory and Pune territory. In order to give priority to the Parle Group of companies for the bottling rights, ROFR agreement was entered, which flows from Exhibit-J of the master agreement. The ROFR i.e., Right Of First Refusal, is a contractual right that gives its holder an option to enter into a business transaction with the owner of something, before the owner is entitled to enter into a transaction with a third party. In legal parlance, it is a right given to a person to be first allow to purchase a certain object if ever offered for sale. Here, The Coca Cola Co. gave this right to the Parle Group of companies for carrying out the bottling activities in the specified territories. Such a ROFR was breached by The Coca Cola Co. and after the dispute, compensation was settled among the parties which has been paid to these assessees;
++ as per the terms of master agreement in Exhibit-J, ROFR was vested with LFFL to carry out the bottling activities in the territory of the Bangalore. In the master agreement, there was a clear indication that there would be a formation of Bangalore subsidiary and there would be an investment agreement also between the parties for this purpose. The Exhibit-J provided the necessary guidelines as to how this Bangalore subsidiary will be formed. Further, the Exhibit-L also laid down various assignments of the bottling rights, only to such a newly formed company which was to be initially held and formed by Parle Group and later on the Coca Cola Co. will join in after subscribing 30% of the shares. It was to this subsidiary company that the bottling rights were to be given in the territory of the Bangalore. This subsidiary company was formed as “Parle Soft Drinks Pvt. Ltd.” i.e., the assessee and the manner and sequence in which this company was formed has already been discussed by us in the forgoing paragraphs. Thus, the assessee company was formed only for carrying out bottling activities in the territory of Bangalore. Hence, there can be no dispute or a question, that the assessee was entitled for receiving the compensation amount on the breach of ROFR from The Coca Cola Co. Thus, even though ROFR agreement was with LFFL but it was always agreed upon by the parties to the agreement that the same should be for a newly formed entity as Bangalore subsidiary company which is the assessee company only. The agreement as well as the ROFR provided that the rights were given to the assessee for carrying out the bottling activities for The Coca Cola Co. for the Bangalore territory. It is for the purpose of this intended business that the assessee company was formed in terms of ROFR as given in Exhibit-J and L. It was not necessary that the assessee should have instaled the entire plant and machinery for carrying out such business. Thus, the ROFR itself constituted a substantial right and foundation on which the assessee could have built its bottling business. If such right would have been assigned to the assessee that would have been the source of assessee’s income and profit making apparatus. The assessee had also submitted its business plans and various modes for carrying out the bottling business to The Coca Cola Co. There is no dispute that The Coca Cola Co. has breached the ROFR by not assigning these rights and it was on account of such a breach of the ROFR agreement, that the compensation amount was settled between the parties. Thus, in the case of the assessee, the very fundamental right for starting the bottling business was taken away as a result of breach of ROFR by The Coca Cola Co. That is the reason why The Coca Cola Co. has paid this amount to the assessee and not to the LFFL;
++ now, under these circumstances, it has to be examined whether this compensation amount of Rs. 16,05,82,500 is capital receipt or revenue receipt that is whether it is non-taxable or taxable receipt. All the receipts in the hand of the an assessee would not necessarily be income or deemed to be income for the purpose of income tax, because it will depend upon the nature of the receipt and the true scope and effect of the relevant taxing provisions. The Supreme Court in Kettlewel Bullen & Co. Ltd. have observed that where on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what is substance of his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade the receipt is revenue. However, where by the cancellation of an agency, the trading structure of the assessee itself is impaired or such cancellation results into loss of what may be regarded as the source of the assessee’s income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt;
++ this guiding principle of the Supreme Court has been followed time and again not only by the various Courts but also by the Supreme Court itself. In case of Oberoi Hotels Pvt. Ltd., the Supreme Court has reiterated this principle and opined that if the injury was inflicted on the capital asset of the assessee and for giving up the contractual right on the basis of principal agreement which had resulted into loss of source of assessee’s income the receipt in the hands of the assessee is a capital receipt;
++ if the said ratio and the law laid down by the Supreme Court in the present case is applied, then, what the assessee has lost, is the very source of his business and loss of a trading structure. If the right given by the ROFR would have continued, the assessee would have the source of income from the bottling business and this would have constituted its profit making apparatus. It is not a case that there was some breach of agreement during the course of carrying on the business or trading activity for which the assessee has received any kind of compensation. Here, even before the assessee’s actual business could start, there was a breach by the other party which ended up the said business itself. Thus, clearly this is a case of loss of source of income itself and hence, the compensation which was received by the assessee is on capital field i.e., capital receipt which cannot be taxed under the income laws. This conclusion of ours concludes the entire controversy on this score;
++ now we shall briefly deal, whether such a receipt could be taxed as casual and non recurring income u/s 10(3) as held by the CIT(A) in Parle Bottling Pvt. Ltd. If any receipt which is to be treated as casual and non recurring nature, first of all, the receipt has to be characterised as income. If it is not within the meaning of the term income, the same cannot be taxed u/s 10(33). This has been clearly explained by the CBDT vide circular no.158 dated 27th December 1974. In this case, the receipt cannot be said to be casual because it has not been incurred by chance or by fortuitous. Here, it is a case of breach of an agreement and the amount has been settled after a dispute among the parties. This receipt cannot be termed as neither casual nor non recurring. In any case, it has already been held as above that it is in the nature of capital receipt which cannot be taxed in the hands of the assessee. Hence, this issue becomes purely academic in this case;
++ such a receipt also cannot be taxed as capital gain, firstly, there was no transfer or extinguishment of any rights. The Coca Cola Co. has never passed on any kind of a right to the assessee for manufacture. The Coca Cola Co. has merely agreed upon, that the bottling business for the territory of Bangalore would be done by the assessee. In case, if The Coca Cola Co. does not fulfill the obligation for allowing the assessee to carry out the bottling business and assigns the same to the third party, then there would be a breach, for which the amount would be payable as compensation. The ROFR only provides the assessee can establish a bottling unit for the purpose of business with The Coca Cola Co. and such a ROFR is merely a prelude to grant such a right. By the grant of ROFR, the assessee does not get automatically the right to manufacture. It merely connotes preferential opportunity to prove its worthy of grant of full-fledged manufacturing right. There is neither any transfer of intangible asset like patent, trademark, knowhow, etc., nor any kind of asset. Thus, it cannot be a case of transfer of an asset and, hence, cannot be subject to taxation under the head capital gain also.
Facts of the
case
All the assessees (who are in appeal) are part of Parle Group owned by Mr. Prakash Chauhan and Mr. Ramesh Chauhan. The Parle Group of companies were engaged in the business of manufacturing, bottling and distribution of soft drinks and beverages under several popular brands viz., Thumbs Up, Limca, Gold Spot, Maaza, Citra, etc., and other popular brands. The Parle Group of companies entered into a “master agreement” with The Coca Cola Co. of U.S.A. (“TCCC”) on September 1993, for transfer of intellectual property rights in the nature of trade marks, knowhow, franchisee rights, etc., in respect of various brands of beverages / soft drinks owned by Parle Group.
The aforesaid parties along with Mr. Ramesh Chauhan and Mr. Prakash Chauhan, were referred to as “seller” in the master agreement and TCCC was the buyer along with Coca Cola South Asia Holding Inc., as a confirming party. After the transfer of trade-mark, etc., as per the master agreement, bottling of soft drink was continued by Mr. Ramesh Chauhan and Mr. Prakash Chauhan, through Parle Bottling Co. Ltd., having bottling rights in the territory of Pune while LFFL now known as “Aqua Bislery” having bottling rights in the territory of Bangalore respectively. The master agreement was in the nature of memorandum of understanding which provided the drafts and understanding of individual agreements for transfer of various trade marks, franchisee rights, non-compete covenants, letter of arrangement, etc. which was to be executed by the respective parties. In the said agreement, there was an Article-7.01(d) which contemplated execution of ROFR (right of first refusal) agreement for bottling rights in the territories of Bangalore and Pune.
For bottling rights in the territory of Bangalore, LFFL was assigned to become licensed bottler of TCCC in the city of Bangalore. It was also agreed upon by the parties in the master agreement itself, that a new company i.e., a Bangalore subsidiary was to be established for carrying out bottling operations in Bangalore. The Article-1 of the master agreement contained the definition of Bangalore subsidiary which, inter-alia, means that the company to be formed for the production, distribution and sale of products of TCCC for the city or nearby territories of the city of Bangalore. For this purpose, Exhibit-L of the master agreement provided the manner and the guideline on which this Bangalore subsidiary was to be established, which would be initially owned by Parle Group entities and the TCCC would later on invest up to 30% in the equity shares of Bangalore subsidiary under the terms of BIC shareholder agreement. The definition of Bangalore investment agreement and BIC shareholder agreement was also mentioned in the definition clause of Article-1.
In the wake of liberalization environment in India, TCCC took strategic policy decision to set-up its own bottling at Bangalore. This inherently led to breach of obligation by TCCC in respect of ROFR given to the Parle Group in the master agreement and led to dispute between the Parle Group and TCCC. This dispute was ultimately settled with TCCC agreeing to pay USD 4.5 million which in terms of INR was Rs. 16,05,82,500. Such a receipt of compensation which was in breach of ROFR was the subject matter of dispute whether it was a capital receipt or revenue receipt or casual income or to be taxed as long term capital gain or short term capital gain and also in whose hands it should be taxed.
In the case of Parle Soft Drinks Pvt. Ltd., in the return of income, for the AY 1998-99, the amount received from TCCC at Rs. 16,05,82,500, was treated as capital receipt not chargeable to income tax.
It was submitted that the amount received was not taxable u/s 10(3) as casual and non-recurring receipt because the said receipt cannot be characterised as income. Besides this, it was also pleaded that the receipt in question cannot be taxed as capital gains, because there was no cost of acquisition for the so called rights in question and, therefore, in view of the decision of the Supreme Court in CIT v/s B.C. Srinivasa Setty (2002-TIOL-587-SC-IT-LB), the same cannot be taxed.
The AO, first of all, referred to the definition of “Income” as defined in section 2(24) and held that it was an inclusive definition and has a very vide meaning, which would include even those items which may have not been specifically mentioned in the definition but partake the character of income in its natural meaning. Thereafter, he held that in assessee’s case, there was no written agreement between the assessee and the TCCC for granting the rights to the assessee, because the ROFR agreement was between LFFL and TCCC. Further, there is no evidence that the LFFL has assigned ROFR rights to the assessee. No business activities were carried on by the assessee, except for the land and there was no business asset like building or plant and machinery which was held by the assessee. Thus, the amount paid by the TCCC to the assessee cannot be said to be for any breach of agreement or sacrificing the source of income, since there was no business activity carried on by the assessee company at all. There was no trading or profit making structure and, hence, the amount received cannot be said to be for loss of trading / profit making structure.
He, thus, held that when the assessee had no business venture, no plant and machinery for the running of business of bottling, the amount received as compensation was not for discontinuance of business or income generating asset. The amount which was received was actually receivable by LFFL but had been received by the assessee company. Lastly, he held that the receipt should be assessed under the head “Income From Other Sources”. Thus, he held that the amount received by the assessee company was nothing but a revenue receipt chargeable to tax. Alternate plea of the assessee regarding taxability as capital gain, he concluded that it was a short term capital gain. The sum and substance was that the right, as per the agreement which was available with the assessee was for a period of less than 36 months and, therefore, it had to be taxed only as short term capital gain.
The CIT(A) held that reasoning of the AO that the receipt in question cannot be accepted as capital receipt was correct. This receipt was nothing but had arisen on transfer of asset in the form of right, which had been envisaged in section 55(2) clause (a). He also accepted the assessee’s alternate plea that receipt in question had to be treated as capital gain but he disagreed with the assessee’s contention that there was no cost of acquisition, because section 55(2) was modified by the Finance Act, 1997, w.e.f. 1st April 1998, to include such kind of right and cost of acquisition had to be taken as “nil”. Lastly, whether it was a long term capital gain or short term capital gain, he analysed the sequence of event of these transaction and held it to be long term capital gain.
On further appeal, the ITAT held that,
++ the main dispute for our adjudication is, whether the sum of Rs. 16,05,82,500, which has been received by the assessee from The Coca Cola Co., on the breach of ROFR agreement, is a capital receipt not chargeable to tax or to be treated as revenue receipt or casual income or long term capital gain or short term capital gain and further in whose hands it should be taxed;
++ in the main agreement which has been referred as master agreement entered by the various sellers who are Parle Group of companies with The Coca Cola Co., there was a stipulation for assignment of bottling rights for the Bangalore territory and Pune territory. In order to give priority to the Parle Group of companies for the bottling rights, ROFR agreement was entered, which flows from Exhibit-J of the master agreement. The ROFR i.e., Right Of First Refusal, is a contractual right that gives its holder an option to enter into a business transaction with the owner of something, before the owner is entitled to enter into a transaction with a third party. In legal parlance, it is a right given to a person to be first allow to purchase a certain object if ever offered for sale. Here, The Coca Cola Co. gave this right to the Parle Group of companies for carrying out the bottling activities in the specified territories. Such a ROFR was breached by The Coca Cola Co. and after the dispute, compensation was settled among the parties which has been paid to these assessees;
++ as per the terms of master agreement in Exhibit-J, ROFR was vested with LFFL to carry out the bottling activities in the territory of the Bangalore. In the master agreement, there was a clear indication that there would be a formation of Bangalore subsidiary and there would be an investment agreement also between the parties for this purpose. The Exhibit-J provided the necessary guidelines as to how this Bangalore subsidiary will be formed. Further, the Exhibit-L also laid down various assignments of the bottling rights, only to such a newly formed company which was to be initially held and formed by Parle Group and later on the Coca Cola Co. will join in after subscribing 30% of the shares. It was to this subsidiary company that the bottling rights were to be given in the territory of the Bangalore. This subsidiary company was formed as “Parle Soft Drinks Pvt. Ltd.” i.e., the assessee and the manner and sequence in which this company was formed has already been discussed by us in the forgoing paragraphs. Thus, the assessee company was formed only for carrying out bottling activities in the territory of Bangalore. Hence, there can be no dispute or a question, that the assessee was entitled for receiving the compensation amount on the breach of ROFR from The Coca Cola Co. Thus, even though ROFR agreement was with LFFL but it was always agreed upon by the parties to the agreement that the same should be for a newly formed entity as Bangalore subsidiary company which is the assessee company only. The agreement as well as the ROFR provided that the rights were given to the assessee for carrying out the bottling activities for The Coca Cola Co. for the Bangalore territory. It is for the purpose of this intended business that the assessee company was formed in terms of ROFR as given in Exhibit-J and L. It was not necessary that the assessee should have instaled the entire plant and machinery for carrying out such business. Thus, the ROFR itself constituted a substantial right and foundation on which the assessee could have built its bottling business. If such right would have been assigned to the assessee that would have been the source of assessee’s income and profit making apparatus. The assessee had also submitted its business plans and various modes for carrying out the bottling business to The Coca Cola Co. There is no dispute that The Coca Cola Co. has breached the ROFR by not assigning these rights and it was on account of such a breach of the ROFR agreement, that the compensation amount was settled between the parties. Thus, in the case of the assessee, the very fundamental right for starting the bottling business was taken away as a result of breach of ROFR by The Coca Cola Co. That is the reason why The Coca Cola Co. has paid this amount to the assessee and not to the LFFL;
++ now, under these circumstances, it has to be examined whether this compensation amount of Rs. 16,05,82,500 is capital receipt or revenue receipt that is whether it is non-taxable or taxable receipt. All the receipts in the hand of the an assessee would not necessarily be income or deemed to be income for the purpose of income tax, because it will depend upon the nature of the receipt and the true scope and effect of the relevant taxing provisions. The Supreme Court in Kettlewel Bullen & Co. Ltd. have observed that where on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what is substance of his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade the receipt is revenue. However, where by the cancellation of an agency, the trading structure of the assessee itself is impaired or such cancellation results into loss of what may be regarded as the source of the assessee’s income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt;
++ this guiding principle of the Supreme Court has been followed time and again not only by the various Courts but also by the Supreme Court itself. In case of Oberoi Hotels Pvt. Ltd., the Supreme Court has reiterated this principle and opined that if the injury was inflicted on the capital asset of the assessee and for giving up the contractual right on the basis of principal agreement which had resulted into loss of source of assessee’s income the receipt in the hands of the assessee is a capital receipt;
++ if the said ratio and the law laid down by the Supreme Court in the present case is applied, then, what the assessee has lost, is the very source of his business and loss of a trading structure. If the right given by the ROFR would have continued, the assessee would have the source of income from the bottling business and this would have constituted its profit making apparatus. It is not a case that there was some breach of agreement during the course of carrying on the business or trading activity for which the assessee has received any kind of compensation. Here, even before the assessee’s actual business could start, there was a breach by the other party which ended up the said business itself. Thus, clearly this is a case of loss of source of income itself and hence, the compensation which was received by the assessee is on capital field i.e., capital receipt which cannot be taxed under the income laws. This conclusion of ours concludes the entire controversy on this score;
++ now we shall briefly deal, whether such a receipt could be taxed as casual and non recurring income u/s 10(3) as held by the CIT(A) in Parle Bottling Pvt. Ltd. If any receipt which is to be treated as casual and non recurring nature, first of all, the receipt has to be characterised as income. If it is not within the meaning of the term income, the same cannot be taxed u/s 10(33). This has been clearly explained by the CBDT vide circular no.158 dated 27th December 1974. In this case, the receipt cannot be said to be casual because it has not been incurred by chance or by fortuitous. Here, it is a case of breach of an agreement and the amount has been settled after a dispute among the parties. This receipt cannot be termed as neither casual nor non recurring. In any case, it has already been held as above that it is in the nature of capital receipt which cannot be taxed in the hands of the assessee. Hence, this issue becomes purely academic in this case;
++ such a receipt also cannot be taxed as capital gain, firstly, there was no transfer or extinguishment of any rights. The Coca Cola Co. has never passed on any kind of a right to the assessee for manufacture. The Coca Cola Co. has merely agreed upon, that the bottling business for the territory of Bangalore would be done by the assessee. In case, if The Coca Cola Co. does not fulfill the obligation for allowing the assessee to carry out the bottling business and assigns the same to the third party, then there would be a breach, for which the amount would be payable as compensation. The ROFR only provides the assessee can establish a bottling unit for the purpose of business with The Coca Cola Co. and such a ROFR is merely a prelude to grant such a right. By the grant of ROFR, the assessee does not get automatically the right to manufacture. It merely connotes preferential opportunity to prove its worthy of grant of full-fledged manufacturing right. There is neither any transfer of intangible asset like patent, trademark, knowhow, etc., nor any kind of asset. Thus, it cannot be a case of transfer of an asset and, hence, cannot be subject to taxation under the head capital gain also.
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