2011 (3) TMI 6 - SUPREME COURT

Payment under an agreement not to compete (negative covenant agreement) - capital receipt or a revenue receipt? – Held that:- It is well settled that a liability cannot be created retrospectively. In the present case, compensation received under Non-Competition Agreement became taxable as a capital receipt and not as a revenue receipt by specific legislative mandate vide Section 28(va) and that too with effect from 1.4.2003.

The agreement entered into by the assessee with Ranbaxy led to loss of source of business; that payment was received under the negative covenant and therefore the receipt of Rs.50 lakhs by the assessee from Ranbaxy was in the nature of capital receipt - judgment of the Karnataka High Court dated 29.10.2009 set aside.