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2005 (8) TMI 581 - AT - Income TaxReceipt of non-compete fee - Nature of receipt "Capital or Revenue" - Taxable under u/s 28(ii)(a) - Business income - protective assessment - compensation received under the agreement - HELD THAT:- We find that the Assessing Officer considering all the three agreements was of the view that the compensation received by the assessee through agreement dated 25-2-1999 not a non-compete fee which was essentially a part of the cost price paid by M/s. Hindustan Coca Cola Pvt. Ltd. for the purchase of business and other rights of M/s. Jammu Bottling Co. The Assessing Officer was also of the view that it should be added in the hands of the company M/s. Jammu Bottling Co. as it was a part of the sale consideration of the business by the said company. The Assessing Officer was also of the view that the amount paid by way of non-compete fee was, in fact, the sale consideration and was paid in the guise of this method to accommodate profits of the company. The Assessing Officer also tried to move before the CIT(A) in the case of M/s. Jammu Bottling Co. to prove that the aforesaid amount has, in fact, belong to the company. The Assessing Officer, however, observed that the CIT(A) vide order dated 9-1-2001 did not make addition of the amount of Rs. 1 crore, i.e., the amount received by the directors in the hands of the assessee-company. The findings of the CIT(A) were confirmed by the ITAT, Chandigarh Bench vide order dated 16-7-2004. Therefore, the whole case of the Assessing Officer is demolished. The facts above clearly show that the view of the Assessing Officer was erroneous and as such it was not accepted in the case of M/s. Jammu Bottling Co. The facts in this case clearly show that the assessee has restricted himself from doing business or profession nature because of the experience as explained above in the business of M/s. Jammu Bottling Co., therefore, it was independent restrictive covenant for a specific period. The assessee in lieu of restrictive covenant was paid a sum of Rs. 1 crore and as such the compensation which was attributable to the restrictive covenant was a capital receipt and hence was not taxable. The compensation in the case of the assessee is very specific from his independent agreement. The very object of the agreement was to avoid competition in all matters between the assessee and M/s. Hindustan Coca Cola (buyers). Therefore, the assessee lost earning assets for specified period. The decision of the Hon’ble Supreme Court in the case of Best & Co. (P.) Ltd.[1965 (11) TMI 23 - SUPREME COURT] is, therefore, directly applicable to the above case alongwith other decisions referred to above in this order. In the present case, the authorities below took the view that the amount of Rs. 1 crore was part of the sale proceeds of on going concern M/s. Jammu Bottling Co. In that garb it was observed that because of execution of the agreement for sale of business concern and goodwill, M/s. Jammu Bottling Co. had nothing to sale further. The authorities below, therefore, were of the view that the amounts should be taxed in the hands of M/s. Jammu Bottling Co. However, the findings of the authorities below were not approved by the CIT(A) and the Appellate Tribunal in the case of M/s. Jammu Bottling Co. The authorities below as such even on giving adverse finding against the assessee could not find out other meaning of the agreement against the assessee. Thus, following rule of consistency, we are of the view that the authorities below have failed to prove that it was a case of collusive transaction. The receipt in the hands of the assessee is treated as capital receipt and as such the findings of the authorities below are set-aside, addition is deleted. As a result, the appeal of the assessee is accordingly allowed.
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