Home Case Index All Cases Income Tax Income Tax + SC Income Tax - 2020 (7) TMI SC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (7) TMI 544 - SUPREME COURTReceipt of non-competitive fee - non-compete fee payable under the Deed of Covenant - capital receipt or revenue receipt - substantial question of law that was raised by the High Court - difference in members of ITAT - majority decision of ITAT said that non-competitive fee was a capital receipt u/s 28(iv) income tax act and not a revenue receipt as envisaged in Section 28(ii) of I.T. Act - whether the said Deed of Covenant can be said to contain a restrictive covenant as a result of which payment is made to the appellant, or whether it is in fact part of a sham transaction which, in the guise of being a separate Deed of Covenant, is really in the nature of payment received by the appellant as compensation for terminating his management of CDBL, in which case it would be taxable under Section 28(ii)(a)? HELD THAT:- Clearly, without any recorded reasons and without framing any substantial question of law on whether the said amount could be taxed under any other provision of the Income Tax Act, the High Court went ahead and held that the amount of INR 6.6 crores received by the assessee was received as part of the full value of sale consideration paid for transfer of shares – and not for handing over management and control of CDBL and is consequently not taxable under Section 28(ii)(a) - Nor is it exempt as a capital receipt being non-compete fee, as it is taxable as a capital gain in the hands of the respondent-assessee as part of the full value of sale consideration paid for transfer of shares. This finding would clearly be in the teeth of Section 260-A (4), requiring the judgment to be set aside on this score. The reasons given by the learned Assessing Officer and the minority judgment of the Appellate Tribunal are all reasons which transgress the lines drawn by the judgments cited, which state that the revenue has no business to second guess commercial or business expediency of what parties at arms-length decide for each other. As decided in Guffic Chem (P) Ltd. [2011 (3) TMI 6 - SUPREME COURT] the agreement entered into by the assessee with Ranbaxy led to loss of source of business; that payment was received under the negative covenant and therefore the receipt of ₹ 50 lakhs by the assessee from Ranbaxy was in the nature of capital receipt. In fact, in order to put an end to the litigation, Parliament stepped in to specifically tax such receipts under the non-competition agreement with effect from 1-4-2003.” Decided in favour of assessee.
|