TMI Blog2011 (7) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... er in respect of the subject matter of the other agreement - In the first place, the assesses has not transferred any capital asset to the purchaser - It has not transferred any right to produce or manufacture any article. The consideration paid to him is not to compete - Therefore, the case would not fall under Section 55(2) of the. Act. It is because it was not falling under Section 55(2) and was not falling under any other provisions of the Act - Therefore, only from 1.4.2003 the consideration received under a non-competition agreement is chargeable to tax under the heading of profits and gains of business. - ITA No. 2934 of 2005 - - - Dated:- 18-7-2011 - N. Kumar and Ravi Malimath, JJ. E. Sanmathi Indrakumar, Adv., for the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted by the Finance Act, 2002 with effect from 1.4.2003. The assessee preferred an appeal. The Commissioner of Income Tax (Appeals) accepted the assessee's claim that the receipt in question is a capital receipt. However, he was of the view that the receipt is liable to be taxed as capital gains in view of the amendment effected to Section 55(2)(b) by Finance Act, 1997. He accordingly directed the Assessing Officer to compute capital gains as long term capital gains. Aggrieved by the same, the assessee preferred an appeal to the Tribunal. 3. It is relevant to point out at this stage that the revenue did not challenge the said finding of the Appellate Authority that it was not a revenue receipt and that it was a capital asset. The Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re should be transfer of a capital asset. In the instant case, the assessee has not transferred any capital asset. It is the company which had transferred 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 (he finding recorded by the Tribunal is legal and valid and do not call for any interference. 6. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pacity whatsoever, of any entity whatsoever, render services to, or be otherwise employed by or associated with, any person or entity which competes or intends to compete with Praxair, with respect 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 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oop hole in the legislation, this amendment was brought about. Therefore, the said income is chargeable to income tax only from 1.4.2003. This view of ours find support from a recent judgment of the Apex Court in the case of GUFFIC CHEM P LTD vs COMMISSIONER OF INCOME TAX [(2011) 332 ITR 602. At page 607 it. is observed as under:- "Payment received as non-competition fee wider 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 thai the said capital receipt is now made a taxable (See Section 23(va). The Finance Act 2002, itself indicates that during the relevant assessment, year compensation received by the assessee under non-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to a capital asset being goodwill of a business or a trade mark of brand name associated with a business or a right to manufacture produce or process any article or thing or right 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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