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2019 (6) TMI 159 - AT - Income TaxAddition towards non-compete agreement - there was an agreement for payment of Rs. 5, 00, 000/- per year for the period of 10 years with condition of termination and annual review - subsequently a supplementary non-competition agreement entered payment term was changed - HELD THAT - Admittedly the non-compete arrangement between the assessee and VSIN was originally for a period of 10 years for which an initial amount of Rs. 50, 00, 000/- was paid. Thereafter the Parties mutually decided that the said amount would not be subject to annual review although the non-compete agreement would hold good for the period of 10 years. Under the supplementary agreement dated 14.01.2002 the assessee and Vossloh agreed that the condition for annual option to terminate was removed with the result the amount lying in deposit of Rs. 35, 00, 000/- at the time became fully due to the assessee. JV itself was re-negotiated w.e.f. 08.08.2003 under which the Non-Competition Agreement along with all other documents were terminated and fresh agreements were put in place. Under the new arrangement the Parties did not negotiate a separate non-compete fee for the assessee. The reason for entering into a supplementary non-competition agreement on 14.01.2002 as noted by the Ld. CIT(A) was on account of the takeover of Vossloh Germany by Matsuhita Japan. That the supplementary non-competition agreement was executed on 14.01.2002 is also borne out by the fact that in the minutes of the meeting of the Board of Directors of VSIN held on 27.02.2002 the said supplementary non-competition agreement was approved. The above facts are not in dispute. The AO has made the addition of Rs. 5, 00, 000/- towards non-compete agreement because of insertion of sub-clause (va) to section 28 by the Finance Act 2002 w.e.f. 01.04.2003. As the reason given by the AO is not a plausible one as described above we dismiss the 1st ground of appeal. Correct head of income -Termination Fee and Severance payment received by the assessee pursuant to the Termination Agreement - Capital Gains Income from Other Sources or Salary receipt - HELD THAT - As the sum as termination fee and as severance fee have been received by the assessee towards termination of Joint Venture it has rightly treated the same as capital receipt and offered the entire amount as income from LTCG in the relevant assessment year. See KETTLEWELL BULLEN AND COMPANY LIMITED VERSUS COMMISSIONER OF INCOME-TAX CALCUTTA 1964 (5) TMI 4 - SUPREME COURT Accordingly the 2nd ground of appeal is dismissed.
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