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TMI Blog2015 (3) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case, the Tribunal was right in holding that no part of the consideration should be apportioned towards goodwill, and that the entire amount should be treated as non compete fee contrary to the ruling of this Court in the case of G.D.Naidu (165 ITR 63)" 2. The brief facts of the case in a nutshell are as follows: The assessee company entered into an agreement with Machinenfabrik Reinhausen GmBH Germany (MR) to sell plant and machinery in respect of Tap Changer Division of the company. The business of the assessee company consisted of two division, viz., Transformer Division manufacturing power transformers and Tap Changer Division. As per the agreement, the assessee undertook not to engage either directly or indirectly in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition. 4. Not satisfied with the order of the Commissioner of Income Tax (Appeals), the Revenue pursued the matter before the Income Tax Appellate Tribunal. 5. The Tribunal, by following the decision in the case of DCIT V. Indian Syntans Investments (P) Ltd. (2007) (106) TTJ 388), dismissed the appeal holding as follows: 3. In this case there is no dispute that the assessee company has transferred the technical know-how or any other advantage to the joint venture comprising the assessee company and MR. Under similar circumstances this Tribunal, to which one of us the Accountant Member was a party, has held in the case of DCIT vs. Indian Syntans Investments (P) Ltd. (2007) (106 TTJ 388) held that the assessee company surrendered all i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve covenants is a capital receipt. 8. Heard learned standing counsel appearing for the Revenue and the learned counsel appearing for the assessee and perused the materials placed before this Court. 9. The assessment in this case relates to the assessment year 1996-97. It is seen that the Commissioner of Income Tax (Appeals) as well as the Tribunal came to hold that the agreement does not contain any clause which could be referred to transfer of goodwill, since the payment is in relation to cessation of certain manufacturing activity of the assessee company giving exclusive right to M/s.MR. The Appellate Authority as well as the Tribunal accepted the assessee's plea that it is not a payment in respect of goodwill. 10. The admitted fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a sum of Rs. 50 lakhs during the assessment year 1997-98, from Ranbaxy as non-competition fee. The Tribunal held that the said amount was capital receipt. On appeal, the High Court reversed the said decision. However, On further appeal, the Supreme Court held as follows: "7. Two questions arose for determination, namely, whether the amounts received by the appellant for loss of agency was in normal course of business and therefore whether they constituted revenue receipt? The second question which arose before this Court was whether the amount received by the assessee (compensation) on the condition not to carry on a competitive business was in the nature of capital receipt? It was held that the compensation received by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not clarificatory. Lastly, in Commissioner of Income-Tax, Nagpur v. Rai Bahadur Jairam Valji reported in 35 ITR 148 it was held by this Court that if a contract is entered into in the ordinary course of business, any compensation received for its termination (loss of agency) would be a revenue receipt. In the present case, both CIT (A) as well as the Tribunal, came to the conclusion that the agreement entered into by the assessee with Ranbaxy led to loss of source of business; that payment was received under the negative covenant and therefore the receipt of `50 lakhs by the assessee from Ranbaxy was in the nature of capital receipt. In fact, in order to put an end to the litigation, Parliament stepped in to specifically tax such receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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