TMI Blog2012 (7) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... e goodwill and there is no evidence to show that the amount received was towards transfer of Goodwill. Therefore, payment received as non-competition fee under a negative covenant is a capital receipt and not taxable under the Act. The same was always treated as a capital receipt till AY 2003-2004 - Substantial question of law is answered against the Revenue - Tax Case No.223 of 2008 - - - Dated:- 21-6-2012 - MR JUSTICE ELIPE DHARMA RAO, MR JUSTICE M. VENUGOPAL, JJ. For Petitioner : Mr.T. Ravikumar Standing Counsel for I.T For Respondent : Mr.C. Saravanan JUDGMENT ELIPE DHARMA RAO, J The Revenue has come forward with the present Tax Case Appeal against the order passed by the Income Tax Appellate Tribunal Mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de order dated 29.3.2004, held that the amount of Rs.98,22,000/- received by the assessee is nothing but the "Goodwill" and brought to tax under Section 45 read with Section 55(2)(a) of the Income Tax Act, 1961. The matter was taken in appeal by the assessee before the Commissioner of Income Tax, who, by order dated 22.03.2005, by observing that the assessee is neither manufacturing any products nor selling them under any particular brand name and the best it may enable the assessee company to have the continuity and deal with the same customers as was done by the assessee company earlier, held that the assessing officer cannot interpret the agreements to hold that the payment of Rs.98,22,000/- was towards 'Goodwill" and reversed the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-compete fee" is only a payment towards "goodwill". He has also contended that introducing the provision in the statute with effect from 1.4.2003 vide the Finance Act, 2002 would indicate that it is the intention of the Legislature to tax such receipts irrespective of the assessment year. Learned counsel by placing reliance upon the decision of the Supreme Court in Lachminarayan Madan Lal v. Commissioner of Income-tax (1972) 086 ITR 0439 submitted that the surrounding facts and circumstances such as the Director of the going concern and the purchasing company is one and the same and the Partners of the going concern were not restricted from using the trade name "Real Image" have established the true nature of the transaction to the effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -compete fee. According to the Assessing Officer, though the agreement entered into in respect of non-compete fee does not prescribe directly that the "goodwill" was not transferred, the entire reading of the agreement and the surrounding facts of the case reveal that the "goodwill" was transferred along with the business and it is not correct to state that consideration paid to the assessee was not for the purchase of the goodwill. The CIT (A) reversed the aforesaid finding by observing that the amount received towards 'non-compete fee' is clearly a 'capital receipt' and not taxable in the hands of the assessee company and there is no evidence to show that the amount received was towards transfer of 'Goodwill'. The Tribunal had also confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the High Court in its impugned judgment. The High Court has misinterpreted the judgment of this Court in Gillanders case. In the present case, the Department has not impugned the genuineness of the transaction. In the present case, we are of the view that the High Court has erred in interfering with the concurrent findings of fact recorded by CIT (A) and the Tribunal. 8. One more aspect needs to be highlighted. The payment received as non-competition fee under a negative covenant was always treated as a capital receipt till Assessment Year 2003-2004. It is only vide the Finance Act, 2002 with effect from 1-4-2003 that the said capital receipt is now made taxable [see Section 28(v-a)]. The Finance Act, 2002 itself indicates that dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not taxable under the Act. Since the CIT (Appeals) and the Tribunal have concurrently held that the payment received as non-compete fee by the assessee from the purchaser company is a capital receipt and not the amount received towards the transfer of goodwill, applying the principle laid down in the aforesaid decision of the Supreme Court, we are not inclined to interfere with such a concurrent finding. 10. The decision in Lachminarayan Madan Lal v. Commissioner of Income-tax (1972) 086 ITR 0439 relied on by the learned Standing Counsel to the effect that the surrounding facts and circumstances have established the true nature of the transaction to the effect that the goodwill has also been transferred along with the business of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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