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TMI Blog2011 (7) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... was the promoter/director/shareholder of various companies which were manufacturing and trading in carbon dioxide gas. The said businesses were sold vide the agreement dated 9-2-1998 to M/s. Praxair Carbon Dioxide Private Limited, Bangalore. By a separate agreement of even date, Dr. Bhaskar Kini and his brothers entered into non-competition agreement with M/s. Praxair Carbon Dioxide (P.) Ltd. The consideration paid under the said agreement was Rs. 3 crores. In terms of the said agreement they agreed not to engage in similar business in any capacity for a period of 10 years. In the return filed by him, the said amount was disclosed and exemption was claimed as capital receipt. The return filed by the assessee under section 143(1) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred the asset under a separate agreement. Under the present agreement they have agreed not to carry on the very same business which they were carrying on earlier. In other words, they have agreed not to compete with the purchaser of the said business for which they have been paid consideration. Till 1-4-2003 it was not taxable and only from 1-4-2003 the said amount has become taxable. The said amount having received by the assessee on 9-2-1998, prior to 1-4-2003, the same is not taxable and the finding recorded by the Tribunal is legal and valid and do not call for any interference. 6. The above appeal was admitted on 18-6-2008 to consider the following substantial questions of law :- 1. Whether the Tribunal was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the products, Therefore, under the agreement they did not transfer any right to manufacture, produce or process any article or thing. This is an independent agreement entered into by the promoters with the purchasers of all the assets of the aforesaid companies and the partnership firm. It is in this background, we have to find out, whether the amount received under this agreement is taxable under the Act. 8. Section 28 deals with profits and gains of business or profession. Section 28(va) was inserted by Finance Act, 2002 with effect from 1-4-2003 which reads as under :- "28. Profits and gains of business or profession.-The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Apex Court in the case of Guffic Chem (P.) Ltd. v. CIT [2011] 332 ITR 602/198 Taxman 78/10 taxmann.com 105. At page 607 it is observed as under :- "Payment received as non-competition fee under a negative covenant was always treated as a capital receipt till the assessment year 2003-04. It is only vide the Finance Act, 2002 with effect from April 1, 2003 that the said capital receipt is now made a taxable [See section 28(va)]. The Finance Act, 2002, itself indicates that during the relevant assessment near compensation received by the assessee under non-competition agreement was a capital receipt, not taxable under the 1961 Act. It became taxable only with effect, from April 1, 2003. It is well settled that a liability cannot be creat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to carry on any business, tenancy rights, stage carriage permits or loom hours. In the first place, section 55 is not a charging section, Secondly, it deals with right to manufacture, produce or process any article or thing. The assessee is not the person who has transferred the assets of the companies and the firms in which he was actively involved. Under a separate agreement for transfer of assets and right to manufacture, separate consideration has been paid and for which tax is collected from the companies which received the consideration for such transfer. The present agreement no doubt came to be executed contemporaneously on the same day. But, the consideration paid under this agreement is to the assessee not to compete with the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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