TMI Blog2012 (8) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.1993 would not be called as independent agreement. Therefore, any amount received under the so called non compete agreement, would only be treated as salary for the purpose of assessment and thus revenue in nature - Decided against assessee. - TC(A). Nos. 225 and 226 of 2006 - - - Dated:- 25-7-2012 - Mrs.Justice CHITRA VENKATARAMAN, Mr.Justice K.RAVICHANDRABAABU, JJ. For Appellant : Mr.V.S.Jayakumar For Respondent : Mr.T.R.Senthil Kumar JUDGMENT CHITRA VENKATARAMAN, J. The assessee has preferred the above appeals as against the common order of the Income Tax Appellate Tribunal relating to assessment year 1994-95 passed in Revenue's appeal as well as in the cross objection filed by the assessee. The Tax Case (Appeal) No. 225 of 2006 was admitted on the following substantial questions of law:- "(i) Whether the Tribunal was right in upholding the reassessment made under Section 147 of the Act for the assessment year 1994-95? (ii) Whether the Tribunal was right in sustaining the levy of the interest under Section 234B and C as consequential in nature, when it should have held that there is no liability to advance tax and therefore no liability f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the offer to join the concern from 1.11.1993. Even though the letter dated 19th October 1993 stated that the assessee was to join from 1.11.1993, the fact as regards the employment of the assessee is clear from the letter dated 8th October 1993 written by Synergy Credit Corporation Limited. In the background of the restrictive covenant entered into, question arose as to whether the receipt of Rs.21 lakhs was to be treated as capital receipt. The assessee placed reliance on the decision of the Supreme Court reported in 53 ITR 283 GILLANDERS ARBUTHNOT CO. LTD v. CIT and 60 ITR 11 CIT v. BEST CO. P. LTD. The Assessing Officer initiated proceedings under Section 147 read with 143(3) of the Act. In considering the claim made on the receipt of Rs.21 lakhs, the Assessing Officer pointed out that once a person is employed in a company, the employer has full rights to utilise the services of that person. Thus, when Synergy Credit Corporation had employed the assessee, the right of the employer to exploit the expertise of the assessee goes without saying. Consequently, the restrictive covenant was only a make believe agreement mainly intended to give an appearance of capital receipt. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 of the Act was concerned, the Tribunal held that the intimation under Section 143(1)(a) could not be treated as an order under Section 143(2) and there was no change of opinion in initiating proceedings under Section 147 read with Section 143(2) of the Act. Following the decision of the Allahabad High Court reported in 229 ITR 46 PRADEEP KUMAR HAR SARAN LAL v. ASSESSING OFFICER, the Tribunal held that the order of the Commissioner holding the jurisdiction of the Assessing Officer to make assessing under Section 147 of the Act was correct. Thus, the assessee's cross objection failed on this score. 5. As far as the merits of the assessment is concerned, the Tribunal pointed out to the facts relating to the agreement of sale between the purchaser company and Log-In Systems and Innovations Limited, in which the assessee was the Director. The non compete agreement and the employment agreement formed part of the same transactions. Going by the fact that the assessee was offered employment as early as 8th October 1993, the restrictive covenant entered into on 15.10.1993 would not be called as independent agreement. Thus, the restrictive covenant agreement was only a make believe agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal has to be set aside. He pointed out that when the agreement of sale was entered into for acquisition of the business, the payment was not in contemplation, in the sense that the assessee himself had accepted the offer dated 8.10.1993 to join in the purchaser company only on 1.11.1993. In the background of the said facts, the claim of the assessee has to be accepted. 10. Heard learned counsel for the assessee as well as learned standing counsel for the Revenue and perused the materials available on record. 11. As already seen in the preceding paragraph, the agreement for acquisition of the business between Log-In Systems, in which the assessee was a Director and Synergy credit Corporation was entered on 15.10.1993 was effective from 1st April 1993. Thus, on and from 1.4.93, the business of Log-In Systems was transferred to Synergy Credit Corporation. The aggregate price quoted in the agreement was Rs.6 lakhs. It is a matter of record that on the very same date, the assessee is stated to have entered into a non compete agreement. A reading of the said agreement shows a reference to the purchase of the business by Synergy Credit Corporation for a sum of Rs.6 la ..... X X X X Extracts X X X X X X X X Extracts X X X X
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