TMI Blog2011 (3) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... see from Ranbaxy was in the nature of capital receipt - judgment of the Karnataka High Court dated 29.10.2009 set aside. - Civil Appeal No. 2522 of 2011 - - - Dated:- 16-3-2011 - S.H. Kapadia, Chief Justice; K.S. Panicker Radhakrishnan and Swatanter Kumar, JJ JUDGMENT 1. Leave granted. 2. Whether a payment under an agreement not to compete (negative covenant agreement) is a capital receipt or a revenue receipt is the question which arises for determination in this case? Facts 3. During the assessment year 1997-98 the assessee received Rs.50,00,000/- (Rupees Fifty Lakhs only) from Ranbaxy as non-competition fee. The said amount was paid by Ranbaxy under an agreement dated 31.3.1997. Assessee is a part of Gufic Group. Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward off competition in manufacture of certain drugs, Ranbaxy had entered into an agreement with the assessee restricting the assessee from manufacturing the drugs mentioned in the Schedule and consequently the CIT(A) held that the said sum of Rs.50 lakhs received by the assessee from Ranbaxy was a capital receipt not taxable under the Income Tax Act, 1961 (hereinafter for short Rs.the 1961 Act') during the relevant assessment year. This decision was affirmed by the Tribunal. However, the High Court reversed the decision of the Tribunal by placing reliance on the judgment of the Supreme Court in the case of Gillanders Arbuthnot and Co. Ltd. v. CIT, Calcutta 53 ITR 283. Against the said decision of the High Court assessee has come to this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selling or accepting any agency for explosives. 7. Two questions arose for determination, namely, whether the amounts received by the appellant for loss of agency was in normal course of business and therefore whether they constituted revenue receipt? The second question which arose before this Court was whether the amount received by the assessee (compensation) on the condition not to carry on a competitive business was in the nature of capital receipt? It was held that the compensation received by the assessee for loss of agency was a revenue receipt whereas compensation received for refraining from carrying on competitive business was a capital receipt. This dichotomy has not been appreciated by the High Court in its impugned judgment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for its termination (loss of agency) would be a revenue receipt. In the present case, both CIT (A) as well as the Tribunal, came to the conclusion that 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 Rs.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 non-competition agreement with effect from 1.4.2003. 8. For the above reasons, we set aside the impugned judgment of the Karnataka High Court dated 29.10.2009 and restore the order of the Tribunal. Consequently, the civil appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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