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2015 (11) TMI 388 - HC - Income TaxNon-compete consideration received - whether is not liable to tax as capital gains even after the amendment to section 55(2)(a) of the Act with effect from April 1, 1998, which introduced the words 'or a right to manufacture, produce or process any article or thing' ? - Held that:- Section 55(2)(a) of the Act would have no application in the present circumstances, as it deals with the cost of acquisition in relation to a capital asset which includes a right to manufacture or carrying on busi ness. In the present case, the agreement prohibits the assessee inasmuch as it amounts to giving up its right to carry on business, i.e., a restrictive cov enant. It held that such restrictive covenant stands covered only with effect from April 1, 2003, on introduction of section 28(va) of the Act. In view of the above, the impugned order having merely followed the decision of the apex court in Guffic Chem. Pvt. Ltd. [2011 (3) TMI 6 - Supreme Court ] no substantial question of law arises for our consideration. Accordingly question No. 1 as proposed is not entertained.- Decided against revenue. Whether the Tribunal was correct in holding that the non-compete consider ation taken as reserves to the balance-sheet cannot be added to the book profit under section 115JA of the Act even in terms of clause (b) of the Explanation thereto ? - Held that:- Explanation to section 115JA of the Act to be invoked it is necessary that the amount which has been carried to the reserves should have necessarily been first debited to the profit and loss account resulting in a reduction in the profit declared by the respondent- assessee-company. This issue stands settled in view of National Hydroelectric Power Corpn. Ltd. v. CIT [2010 (1) TMI 281 - SUPREME COURT] wherein it has been held that to invoke clause (b) of the Explanation below section 115JB (identical to section 115JA) of the Act, two conditions must be satisfied cumulatively, viz., there must be a debit of the amount to the profit and loss account and the amount so debited must be carried to reserves. Admitted position in this case is that there is no debit to the profit and loss account of the amount of reserves. The impugned order has in view of the self-evident position taken a view that in the absence of the amount being debited to profit and loss account and taken directly to the reserve account in the balance-sheet, the book profits as declared under the profit and loss account cannot be tampered with. Thus the Explanation to section 115JA of the Act would not be triggered. Thus, question No. 2 raises no substantial question of law for consideration. - Decided against revenue.
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