M&A Critique
Case Law : Triune Energy Services Vs.  DCIT

Case Law : Triune Energy Services Vs. DCIT

LEGAL CORNER – February 2016 – CASE LAW:


Goodwill value cannot be challenged where slump sale includes the sale of goodwill & such agreement is beyond any doubt.

Facts of the Case:

  • The Assessee Company (formerly known as “Saijem Triune Energy Pvt. Ltd.) was incorporated during the financial year 2006-07. Fifty percent (50%) of the issued and subscribed share capital of the are held by M/s Saipem, Italy and a balance 50% are held by one Mr. Binoy Jacob.
  • Mr. Binoy Jacob was also, at the material time, one of the principal shareholders/promoters of the company Triune Projects Pvt. Ltd. (TPPL) and held 76.42% of the issued and subscribed share capital of TPPL. TPPL was also a company, inter alia, engaged in same business.
  • On 22nd September 2006, the Assessee entered into a “slump sale/business transfer agreement” in terms of which TPPL sold its business, as a going concern to the Assessee for a consideration of Rs.45,85,00,000/-. The assessee had taken over the block of fixed assets at a depreciated value of Rs.2,56,24,470.60/- and net current assets at Rs.2,71,00,000/-. The balance consideration paid to TPPL, Rs.40,58,75,529.40/-, was capitalized as goodwill.

Both Assessing Officer and CIT (A) held that:

  • The slump sale agreement was a colourable device to minimise the tax liability in the hands of TPPL and to maximise the claim of depreciation in the hands of the Assessee.
  • The consideration paid by the Assessee was excessive and on the said basis made an addition of  s.30,44,06,647/- under Section 40A.
  • They did not accept the valuation report whereby the value of goodwill had been bifurcated into different components.

Appeal was made by Assessee to ITAT

Decision of ITAT:

  1. It was held that the addition of Rs.30,44,06,647/- made by the CIT(A) to the income of the Assessee was not sustainable as the same was not claimed as an allowance or a deduction and, therefore, any addition under Section 40A was not sustainable.
  2. The conclusion of CIT(A) and the AO that the scheme of slump sale (i.e. the Agreement) was a colourable device was also unsustainable. Accordingly, the ITAT set aside the said conclusion.
  3. The AO and CIT(A) were justified in holding that the Assessee was not entitled to depreciation on technical know-how, valuation of the business and non-compete fee mentioned in the report.

The appeal was made by Assessee to High Court.

Decision of High Court:

In view of Accounting Standard 10 as issued by the Institute of Chartered Accountants of India, they accept the contention advanced on behalf of the Assessee that the consideration paid by the Assessee in excess of its value of tangible assets was rightly classified as goodwill.

The view that the slump sale agreement was a colourable device was rejected.

 Accordingly, appeal of the assessee allowed.


M & A Critique