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2014 (6) TMI 262 - HC - Income TaxCompensation for termination of lease agreement Amount received capital in nature or not u/s 55(2)(a) of the Act Held that:- The Mc Dowell & Co., had claimed revenue expenditure of ₹ 5.31 crores on account of lease foreclosure payment made to the assessee-company - the amount is a compensation towards the loss of source of income and also towards noncompetition fee to prevent the assessee from carrying on the similar business using the knowhow possessed by the assessee as a competitor, the amount of ₹ 5.31 crores paid was thus capital in nature - The amount is paid to prevent the assessee from carrying on a competitive business and also preventing the assessee to use the business apparatus or expertise - Accordingly the payment was a capital fee and thus it is only a capital receipt - There being no cost of acquisition, the capital gain was also not computable. Relying upon Guffic Chem (P) Ltd. & Mandalay Investment P. Ltd Versus Commissioner of Income-tax [2011 (3) TMI 6 - Supreme Court] - the compensation received for loss of agency is a revenue receipt whereas the compensation attributable to a negative/restrictive covenant is a capital in nature - the compensation has been paid for loss of source of income and also for non17 competitive fee and it is capital in nature - payment made as non-competition fee under the negative covenant is always treated as a capital receipt and not liable to pay any tax till the AY 2003-04 in view of the amendment to the Finance Act 2002 w.e.f. 1-4-2003 that the capital receipt is now made taxable u/s 28(va) - The amendment is not as the amount received by the assessee is a capital receipt - The Appellate Authority as well as the Appellate Tribunal after considering the matter in detail held that the amount received is a capital receipt and not liable to tax under Section 55(2)(a) of the Act there was no infirmity in the order Decided against Revenue.
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