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2019 (2) TMI 734 - HC - Income TaxNature of receipt - Transfer of business as a going concern for consideration - as per AO non-compete clause in the agreement, the receipt could be the assessee's income in terms of Section 28(va) - capital receipt OR business income - Held that:- No perversity is pointed out in this approach of the Commissioner of Income Tax (Appeals). What however, the Revenue argued is that the entire amount was attributable to the non-compete agreement which is clearly an incorrect proposition. The assessee which was engaged in highly specialized business, transferred the entire business for valuable consideration. Non-compete clause in such agreement was merely a part of the understanding between the parties. What purchaser received under such agreement was entire business of the assessee along with non-compete assurance. We notice that Clause (va) of Section 28 pertains to any sum whether received or receivable, in cash or kind, under an agreement, inter alia for not carrying out any activity in relation to any business or profession. A non-compete agreement would therefore fall in this clause. Proviso to said clause (va), however, provides that the said clause would not apply, to any sum whether received or receivable, in cash or kind, on account of transfer of right to manufacture, produce or process any article or thing or right to carry on any business or profession which is chargeable under the head “Capital Gains”. The assessee's receipt attributable to the transfer of business was correctly taxed by the CIT (Appeals) as confirmed by the Tribunal as giving rise to capital gain. It was only residual element of receipt relatable to the non-compete agreement which was brought within fold of Clause (va) of Section 28 of the Act.- Decided against revenue.
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