TMI Blog2009 (7) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... with watch sales for a period of 10 years. The assessee filed a return of income on November 30, 1995 declaring a total income of Rs. 7,49,630. The Assessing Officer found during the course of assessment proceedings that a sum of Rs. 30,00,000 had been paid to the assessee as non-competition fee by Titan Industries. Since the SIFCO ven-dor which was manufacturing alarm time pieces was part and parcel of the assessee and discontinuance of that particular unit did not involve loss of enduring trading asset, the competition fee of Rs. 30,00,000 was treated as the income of the assessee as per the assessment order dated January 22, 1998 (annexure C). 3. The assessee being aggrieved by the same filed an appeal before the Commissioner of Income-tax (Appeals). The appellate authority found that out of Rs. 30,00,000 non-competition fee, received by the assessee that Rs.10,00,000 was towards goodwill and balance of Rs. 20,00,000 was towards fee. In so far as Rs. 10,00,000 paid towards goodwill, the matter was remitted back to the Assessing Officer for reconsideration and deleted the addition of Rs. 20,00,000 made by the Assessing Officer by holding it as capital receipt and not liable f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompleted as herein provided, it will not access any know-how or technology from collaborators for the manufacture/sale of quartz alarm time pieces or related products and also that it will not otherwise compete with Titan in the manufacture and sale of such products for a period of 10 (ten) years from such date." 8. He further contends that the assessee had number of divisions and it is only one unit, i.e, one unit that was sold and contends that entire con-sideration is revenue receipt and relies upon the decision in the matter of Tam Tam Pedda Guruva Reddy v. Joint CIT (Assessment) [2007] 291 ITR 44 (Karn). 9. Per contra the learned senior counsel Sri Sarangan contends that it is a lump-sum amount which has been paid and contends that the burden lies on the Department to establish this fact and in the absence of it, it should be held in favour of the assessee as capital receipt. He further contends that it should be looked into from the point of view of the payer and also pressed into service section 29 of the Contract Act. He also contends that it is a lump-sum payment for sale of one unit of the assessee and there is no termination of any agency. 10. The following a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant was to be paid `for the first three post-transfer years' two-fifths of the commission accrued on actual sales in the territory of the appellant's agency taken over by the Imperial Chemical Industries (India) Ltd., such commission to be computed at the rates of commission formerly paid to the appellant, and that in `the third post-transfer year' the principal company was to pay the appellant in addition a sum equivalent to full commission on the sales for that year effected by the Imperial Chemical Industries (India) Ltd. in the appellant's territory calculated at the same rates." 13. The hon'ble Supreme Court referred to the judgment rendered by the co-ordinate Bench on the same day in the case of Kettlewell Bullen and Co. Ltd. v. CIT [1964] 53 ITR 261 (SC) wherein it had been held as follows (page 282) : "On an analysis of these cases which fall on two sides of the dividing line, a satisfactory measure of consistency in principle is dis-closed. Where on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what in substance is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgies even after the sale of its unit to Titan Industries. In fact, the turnover during the year was Rs. 77.79 crores as against Rs. 44.66 crores in the last year. Thus, there was no loss of income to the assessee. Hence, the amount received by the assessee terming it "non-competition fee" cannot be termed as capital receipt. 16. The next judgment relied upon by Sri G. Sarangan is CIT v. Chari and Chari Ltd. [1965] 56 ITR (Sh. N) 22 (SC) ; [1965] 57 ITR 400 (SC). In the said case, the assessee was managing agent of three companies one of which was an electricity undertaking and the said agency of electricity undertaking was prematurely terminated because the Madras Government in exercise of its powers under the Madras Electrical Undertakings Acqui-sition Act, 1949, compulsorily acquired the undertaking and lieu of it the assessee was paid compensation and it has been held there in that the Department had failed to establish that cases falls within the exception to ordinary rule except holding that the assessee continued with other two agencies. However, in the instant case the Department has been able to establish that transfer did not result in any loss of income to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n charge of the business, the relevant accounts and balance-sheets of the assessee before and after the loss, other evidence disclosing the previous history of the total business and the relative importance of the agency lost and the present position of the business after the loss of the said agency have to be scrutinized by the Department." 19. Applying these principles in the instant case Assessing Officer has come to the conclusion that no loss was occurred to the assessee on account of transfer of enduring asset and as such that amount was brought to tax under revenue receipt and this finding of fact recorded by him by applying the ratio of the hon'ble Supreme Court referred to supra we find that both the appellate authorities were in error in upsetting this finding of the Assessing Officer. Hence, we hold the above said judgement upon which reliance was placed by the learned senior counsel does not come to the rescue of the assessee for treating Rs. 20 lakhs as capital receipt. 20. Another judgment relied upon by Sri Sarangan learned senior counsel is CIT v. Saraswati Publicities [1981] 132 ITR 207 (Mad) wherein the assessee had agreed to refrain from carrying on busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se view that this legislation was not applicable for earlier assessment years. It is seen from the judgment that it has been held therein that in the facts and circumstances of the case therein it had been held, it was a capital receipt and receipt of the same during the year in question and it was held that section 55(2) of the Act would not be applicable. It would not be out of place for us to mention here that unless section is brought about in the statute retrospectively, it cannot be made applicable unless it is held that it is clarificatory legislation. We do not wish to embark upon enquiry on this issue, since we have held in the facts and circumstances of this case the receipt of the amount by the assessee as revenue receipt and exigible to tax. 24. In view of the above discussion we hold that the appellate authorities were in error in holding that the sum of Rs. 20,00,000 received by the assessee as non-competition fee should be treated as capital receipt and not as revenue receipt 25. For the reasons abovesaid, we allow this appeal and answer the ques-tions of law formulated hereinabove in favour of the Revenue and against the assessee. - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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