TMI Blog2005 (6) TMI 504X X X X Extracts X X X X X X X X Extracts X X X X ..... 93. Synergy also offered appointment to the assessee as Executive Director on 8-10-1993 and he was ultimately appointed in that position w.e.f. 1-11-1993. Through a separate agreement dated 15-10-1993 entered with the assessee, Synergy Credit Corporation Ltd. imposed a restriction on the assessee ( i.e. , Ian Peter Morris) that assessee would not undertake the business of computer software, development and marketing of any kind. In consideration of this, Synergy agreed to make a payment of Rs. 21 lakhs and this sum of Rs. 21 lakhs was treated as capital receipt by the assessee, being made for restrictive covenant in view of the decision of the Supreme Court in cases of Gillanders Arbuthnot Co. Ltd. v. CIT [1964] 53 ITR 283 and CIT v. Best Co. (P.) Ltd. [1966] 60 ITR 11 . 3. The Assessing Officer did not agree with the submissions of the assessee. According to him, assessee received salary from his previous company i.e. , Log-In Systems Innovations Ltd. and also from the present company, i.e., Synergy Credit Corporation Ltd. The relationship between the company and the assessee was only employer and employee and as per section 17( 1 )( iv ), any fees, commissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not doing any business on the basis of knowledge or expertise, which they have derived during the course of employment. But this is not practiced in any business or industry all over the country. This is so because there are various laws under which such employees can be held responsible for doing similar business on the basis of technical expertise or knowledge derived during the course of employment. Therefore, whatever money was agreed to be paid was in fact part of salary and only a guise of restrictive covenant was given to hoodwink the Revenue against the legitimate tax dues of the Government. 6. He further argued that there was another angle that if Synergy wanted to restrict the assessee for not getting into the business of specific software, then there must be hundreds of other citizens in the country, who might be doing identical development of software, but Synergy had no such power to stop such people for carrying on the business of such specific software. This also shows that this payment was made only in respect of salary by the Synergy to the assessee, which was given the name of restrictive covenant just to save taxes. He also emphasized that this restriction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be taxed. 9. In the rejoinder, the ld. DR submitted that in respect of this contention that section 17( 3 )( iii ) was introduced w.e.f. 1-4-2002, this provision should be held to be of clarificatory nature because earlier also such payments were taxable. In any case, section 17( 1 )( iv ) as well as section 17( 3 )( ii ) would cover this kind of payment. 10. We have considered the rival submissions carefully and have gone through the relevant material on record. There is no dispute regarding the facts that assessee was director in Log-In Systems and the entire business of this company was acquired by Synergy for Rs. 6 lakhs vide agreement dated 15-10-1993. On the same date i.e., 15-10-1993, Synergy entered into a restrictive covenant agreement with the assessee for not carrying out the business of computer software development and paid a sum of Rs. 21 lakhs. On 8-10-1993, Synergy gave an offer to the assessee for joining that company as an Executive Director on the salary of Rs. 1,77,200 p.a. and assessee joined the services w.e.f. 1-11-1993. It is clear from the facts of the case that all events are part of the same transaction. The assessee along with some of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of running hotels individually or in association with others for a period of five years. On these facts, the Hon ble High Court held as follows : "Held, that the finding that the payment made by the company to these brothers was in the nature of revenue receipt in the hands of the brothers, would not negate the separate juristic existence of the company. The company continued to remain a legal entity with a right to hold property, to contract, etc. The true character of the payment made by it to these brothers who were shareholders and directors and who were partners of the firm and who had owned the buildings and the equipment used by the company for running the hotel, had to be judged by looking at the reality after removing or piercing the veil of the company, as the circumstances of the case justified such an exercise. The purpose of deed of compensation in reality was only to screen the payment made under that deed from liability to income-tax in the hands of the assessee. The Tribunal was right in law in holding that the compensation of Rs. 1,00,000 received by the assessees from the company during the previous years ended March 31, 1986, relevant to the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the opinion that the dispute raised before us regarding the compensation is well covered by section 17( 1 )( iv ) and/or 17( 3 )( ii ). 15. In these circumstances, we set aside the order of the ld. CIT (Appeals) and restore that of the Assessing Officer by holding that Rs. 21 lakhs received by the assessee was in the nature of revenue receipt. 16. In the result, the appeal is allowed. CO 53/Mds./2000 17. The assessee has raised various cross-objections, but at the time of hearing, the ld. AR submitted that particularly two issues have been challenged, viz., reopening of the assessment and levy of interest under sections 234B and 234C. Reopening 18. The ld. AR submitted that before processing the case under section 143(1)( a ), the Assessing Officer had asked certain clarifications, which were duly filed by the assessee and therefore, the intimation issued by him was basically an order under section 143(2) and the same cannot be reopened. 19. On the other hand, the ld. DR submitted that the first intimation under section 143(1)( a ) was passed and same cannot be treated to be 143(2) order. In any case, after the amendment of the section w.e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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