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TMI Blog2012 (8) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... x Case (Appeal) No. 226 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 law in holding that the sum received by the appellant in pursuance of the restrictive covenant is taxable in his hands?" 2. The Revenue's appeal before the Tribunal related to deletion of addition of Rs.21 lakhs, alleged to have been received by the assessee on account of restrictive covenant, which was treated by the Assessing Officer as a revenue receipt, but treated by the Commissioner as a capital receipt. The assessee is stated to be one of the founder director of Log-In Systems Innovations Limited. The company was engaged in the business of software development and consultancy. Under agreement dated 15.10.1993 the business of Log-In Systems Innovations Limited was sold to Synergy Credit Corporation Limited as a going concern for a sum of Rs.6 lakhs. A perusal of the agreement shows that the sale was effective from 1st April 1993. On the very same date of the execution of the agreement, the purchaser compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent nomenclature given would not alter the character of the receipt. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals). 3. The Commissioner of Income Tax (Appeals) reasoned out as follows:- The take over of the entire business for a sum of Rs.6 lakhs, that the agreement entered into between the purchaser company and four Directors by paying Rs.21 lakhs each under the restrictive covenant agreement and that the offer of appointment to all four Directors went on almost around the same time frame. Thus, even though there were three agreements, all that had to be considered as a composite event. In the circumstances, the Commissioner of Income Tax (Appeals) rejected the view of the Assessing Officer that the restrictive covenant was only a make believe agreement. He held that the Assessing Officer had not brought out anything on record to indicate that the real salary of the assessee should have been higher than the salary fixed by the agreement dated 8th October 1993. The Commissioner of Income Tax (Appeals) held that payment made under the restrictive covenant was an independent payment and had nothing to do with the salary p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erring to the decision reported in 261 ITR 358 K.RAMASAMY v CIT, the Tribunal pointed out that the facts in the decided case and the case on hand are identical. All the four directors of Log-In Systems became Executive Directors of the purchaser company and all four Directors were paid a sum of Rs.21 lakhs each for not carrying on the business of computer software development. In the circumstances, the Tribunal came to the conclusion that the sum of Rs.21 lakhs received by the assessee was in the nature of revenue receipt. 7. Referring to Section 17(3)(iii) relied on by the assessee, the Tribunal held that the said section cannot be held to have retrospective effect and the dispute raised by the assessee was covered by provisions contained in Sections 17(1)(iv) and / or 17(3)(ii) of the Act. Thus, the Tribunal confirmed the assessment. Aggrieved by this, present appeal by the assessee. 8. As far as the first question of law on the reopening of the assessment and validity of the assessment made under Section 147 of the Act is concerned, learned counsel appearing for the assessee fairly stated before this Court that the said issue is covered by decision of this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement, the Synergy Credit Corporation, desirous of availing exclusive rights to the services of the assessee herein imposed a restrictive covenant on the assessee not to carry on business of computer software, development and marketing of any kind. For the said restrictive covenant, on entering into an agreement, the assessee was paid a sum of Rs.21 lakhs in cash as per the time schedule to be mutually agreed upon and in any case not beyond the period of twelve months from the date of the agreement. The restrictive covenant also referred to the period during which restrictive covenant was to operate as five years. Considering the fact that the agreement for acquisition itself was stated to be effective from 1.4.93, one has to see the contents of the letter dated 8.10.1993 written by Synergy Credit Corporation to the assessee. The letter straight away opens with reference to discussion held with the assessee and reads as under, "This has reference to the discussions held with you. It gives us pleasure in appointing you as Executive Director in Synergy Credit Corporation Limited with effect from October 08, 1993. As Executive Director, you will be entitled to the following:- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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