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Issues involved: Whether the receipt received by the assessee from General Electric Company USA for agreeing to refrain from carrying on competing business under a restrictive covenant is income exigible to tax? Whether the amount received under the agreement for not carrying out any activity in relation to business is exigible to tax or attracts capital gains?
Judgment Details: 1. The Tribunal noted that the amount received by the assessee is a capital receipt and is not liable to tax. The Revenue contended that the amount cannot be considered a capital receipt as the existing income-earning apparatus was not destroyed or impaired. The Tribunal referred to the amendment of section 28 by the Finance Act, 2002, introducing sub-clause (va) which proposed to tax receipts in the nature of non-compete fees. The Tribunal held that since the amendment was operative from April 1, 2003, the amount received under the agreement for not carrying out any business activity was not exigible to tax for the relevant year. 2. Regarding the question of whether the receipt would attract capital gains tax, the Tribunal relied on an instruction issued by CBDT stating that for consideration received for the transfer of a right to manufacture, produce, or process, recourse to section 55(2) could only be made from the assessment year 1998-99. Since the cost of acquisition was nil in the present case, it was held that the amount was not exigible to capital gains tax for the relevant year. 3. The Court found no error in the Tribunal's conclusion regarding the prospective nature of the amendment and its non-applicability to the assessment year under consideration. Similarly, concerning the issue of capital gains, it was determined that there was no error of law, leading to the dismissal of the appeal. Conclusion: The appeal was dismissed, upholding the Tribunal's decision that the amount received under the restrictive covenant was not exigible to tax and did not attract capital gains for the relevant assessment year.
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