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2023 (4) TMI 290 - AT - Income TaxNature or receipt - Addition u/s 28(1) or 28(IV) or capital receipt - consideration received for exclusive arrangement and goodwill for closing down own hospital - consideration(s) towards non-compete fee(s) doubted or held as artificial - Doctor moving her medical practice and associated goodwill to the Company - assessee, an individual, is a renowned doctor specializing in the field of IVF, who was running as proprietary nursing home under the name and style of “mother & Child”, since last 40 years and entered into a Service Agreement with an independent/unrelated company Nova specializing in the field of IVF, whereby Nova agreed to engaged the assessee as consultant for rendering exclusive services to it, in the lieu of consideration - whether CIT (A) has grossly erred in Law in holding that amount received by the assessee consideration for not carrying out independently the professional activities in future which is exempt u/s 28(IVA ) of Income Tax Act, 1961 as a professional income and is taxable U/s 28(1) of Income Tax Act, 1961 HELD THAT:- There is a proper agreement which provides for the non-compete fee/goodwill. The agreement has been turned down by the authorities below as it is colorable device. This observation is not backed by any proper reasoning. The case laws relating to the proposition is that the Revenue should only look at the agreement and not look through the binding agreements between the parties. For this, the reliance on case laws as mentioned above, which are referred by the ld. Counsel for the assessee is germane and supports the case of the assessee. The various case laws and proposition relied upon by the ld. Counsel for the assessee also supports the case of the assessee. AO has made addition u/s 28(va) - The amendment to bring profession also, into the said clause was brought in w.e.f. AY 2017- 18. Hence, non-compete fee related to profession is made taxable only w.e.f. AY 2017-18 and the non-compete fee in relation to profession for period prior to AY 2017-18 would be treated as capital receipt. Furthermore, the ld. CIT(A) has changed the section from 28(va) to section 28(1) of the Act without confronting the assessee. This is a fatal mistake. The reasoning of the ld. CIT(A) that since the name of the new entity is different than the assessee’s clinic called Mother and Child, the agreement is not to be believed. It is noted that it is the doctor and the skill which has got reputation and not the name board of the said clinic. Hence, the ld. CIT(A)’s finding fault in the non-user of assessee’s own clinic name is not sustainable. Assessee deserves to succeed also on the principle of consistency in as much as for Assessment Years 2013-14, 2015-16 and 2016-17, the same was treated as capital receipt and the same had been accepted by the Revenue. The reference to the decision of Excel Industries [2013 (10) TMI 324 - SUPREME COURT] and Radhasoami Satsang Saomi Bagh [1991 (11) TMI 2 - SUPREME COURT] is also germane and supports the case of the assessee. A sum received towards undertaking restrictive covenant of non imparting service to any other person and not to share associated goodwill of medical practice being in the nature of non compete fee is a capital receipt and not taxable under provision of the Act. Hence, assessment by the AO u/s 28(va) as noted above is not sustainable and similarly the order of the Ld. CIT(A) whereby he changed the head from section 28(va) to section 28(1) without confronting the assessee is also not sustainable and the ld. CIT(A)’s view that the same is taxable under the normal professional income is also not sustainable in the background of the aforesaid discussion, the agreement and the case law referred above. In these circumstances, in the background of aforesaid discussion and precedent, we set-aside the orders of the authorities below and delete the addition. Appeal of the assessee stands allowed.
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