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2021 (10) TMI 1008 - AT - Income TaxCharacterization of income - non-compete fee on account of executing of negative covenant - whether consideration received by the assessee as non-compete fee was capital receipt not liable to tax - HELD THAT:- As evident from the aforesaid clauses of Sale and Purchase Agreement, the assessee was paid sum that assessee will not for a period of two years from the closing date, directly or indirectly or otherwise carry out any business or activity in any manner similar to the business which was transferred. Thus, there was a clear cut negative covenant for which assessee had received non-compete fee. Since the payment of non-compete fee has been made in assessment year 1998-99, therefore, same is prior to the amendment brought to section 28 (va). Hon’ble Supreme Court in the case of Shiv Raj Gupta vs. CIT [2020 (7) TMI 544 - SUPREME COURT] wherein their Lordship following the principle laid down in the case of Guffic Chem vs CIT [2011 (3) TMI 6 - SUPREME COURT] held that prior to the amendment brought by the Finance Act 2002 w.e.f. 1.4.2003 in section 28(va), the compensation received by the assessee under non compete agreement was a capital receipt not taxable. Thus, issue as raised in the cross objection is squarely covered by the judgment of Hon’ble Apex Court. Accordingly, we hold that the payment of non-compete fee received by the assessee company has not compete fee is a capital receipt and not liable to be taxed. - Decided in favour of assessee.
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