TMI Blog2015 (3) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... with another company. The Tribunal came to hold that there was no intention to acquire goodwill of the assessee and therefore, non-compete fee received by the assessee could not be treated as goodwill and it is not taxable as income.We find, on facts, that there is no reason to differ with the said finding. The reliance placed by the Assessing Officer on Section 55(2)(a) of the Income Tax Act was repelled by the Tribunal rightly on a plea that the said provision came into effect in the year 1998-99, whereas the assessment year in the present case is 1996-97. Therefore, there was no basis to fall back on the said provision. As has been recorded by the Commissioner of Income Tax (Appeals) and the Tribunal, we find, in the facts of the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her directly or indirectly in the manufacture of existing range of products. On the basis of the the agreement for cessation of the manufacturing activity, especially D and V type tap changers including MA2 and MA9 drive mechanism, a sum of ₹ 6.89 crores (approx.) was received by the assessee as a consideration for complying with the terms of agreement and claimed the same as exempt as capital receipt. However, the Assessing Officer held that there was absolute transfer of business's independent unit with all tangible and intangible asset. The Assessing Officer further held there was a separate consideration received for the sale of plant and machinery and related equipments, and hence, the receipt should be attributed to transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee company surrendered all its trade names, customers list, suppliers list, licenses, permits, approval under an agreement with another company, and the latter having continued the business using its own logo and trade names, there was no intention to acquire the goodwill of the assessee and therefore, the non-compete fee received by the assessee cannot be treated as goodwill and it is not taxable as income. The recourse to sec.55(2) can be made only from the Asst. year 1998-99 in respect of consideration received for the transfer thereof, which includes extinguishment or curtailment of such right. In this connection the ld. Counsel for the assessee has relied on the CBDT Instruction No.1964 dated 17-03-1999. The appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in respect of goodwill. 10. The admitted fact in this case is the assessee company has transferred the technical know how and other advantages to the joint venture company consisting of the assessee company and MR and the assessee continued its business using its own logo, trade name, licenses, permits and approval under an agreement with another company. The Tribunal came to hold that there was no intention to acquire goodwill of the assessee and therefore, non-compete fee received by the assessee could not be treated as goodwill and it is not taxable as income. 11. We find, on facts, that there is no reason to differ with the said finding. The reliance placed by the Assessing Officer on Section 55(2)(a) of the Income Tax Act wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was held that the compensation received by the assessee for loss of agency was a revenue receipt whereas compensation received for refraining from carrying on competitive business was a capital receipt. This dichotomy has not been appreciated by the High Court in its impugned judgment. The High Court has misinterpreted the judgment of this Court in Gillanders' case (supra). 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 the CIT(A) and the Tribunal. One more aspect needs to be highlighted. Payment received as non-competition fee under a negative covenant was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, Parliament stepped in to specifically tax such receipts under non-competition agreement with effect from 1.4.2003. (emphasis supplied). 13. In the above-said decision, the Supreme Court emphasised the fact that Finance Act, 2002, which came into effect from 01.04.2003, makes the capital receipt as taxable under Section 28(va) and held that liability cannot be created retrospectively. 14. Similar is the issue in respect of Section 55(2)(a) of the Income Tax Act. The said principle will apply to the provision under Section 55(2)(a), which came into effect only from the assessment year 1998-99. The assessment year in this case is 1996-97. Accordingly, following the above-said decision of the Supreme Court, the issue is answered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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