TMI Blog2007 (5) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... that the sum of ₹ 37,40,000/- received by the assessee as non compete fee was nothing but a camouflage and is actually a revenue receipt towards goodwill and is to be taxed. 4. The brief facts of the issue are that assessee entered into a non-compete agreement with Madras Carbon Brushes Pvt. Ltd, Whereby assessee transferred the entire business along with the assets and liabilities except land and building. In consideration of this transfer the assessee received a sum of ₹ 37,40,000/- and assessee treated it as capital receipt not offered to tax. The same was accepted by the Assessing Officer, while concluding assessment under section 143(3). Later the CIT(A) exercised his power under section 263 and held that it is a non-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either paid as cash or by way of issue of shares in MCB as per the valuation approved by MC and MCB. MCB have verified the condition of plant and machinery along with other current assets such as stock-in-trade, deposits, bank balances and current liabilities and hereby warrant that the sale or transfer to them of the assets in particular stock and machinery is as where is condition with no recourse to MC. Transfer of Goodwill MC has in the last 25 years have established goodwill both the customers and in the market and MC do hereby confirm that MCB will be entitled to carry on the business of manufacture of products under any trade name, with either old or new technology and entitle do all the privilege, licences, use of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a total consideration of ₹ 69,98,43,06. The assessee has received consideration as follows:- MCB agrees to pay for the transfer of assets subject to the liabilities taken over by the MCB from MC, a sum of ₹ 68,90,143.06 (rupees sixty eight lakhs ninety thousand one hundred and forty three and paise six only) including the non-competing compensation as mentioned in clause 04.03., in the following manner: Towards transfer of business networth (assets and liabilities as mentioned in the schedule) ₹ 31,50,000 (Rupees thirty one lakhs and fifty thousand only) by way of issue of shares in MCB on the face value and the balance of ₹ 143.06 by way of cash. Towards compensation for non-competing clause by payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than two and half decades and had a good market reputation and market share, it has not charged anything for the goodwill. The assessee continued to be the owner of 49% shares of the new company. The directors were employed by the new company and they were getting salary income. The assessee, was in capable of competing because it had neither finances nor technology nor any other important wherewithal's. Further, when you sell the business, manufacturing automatically stops. And to start a new one, it takes years, provided you have other capacity. Therefore, receiving money for stopping of manufacturing is obviously used to mislead the tax authorities. Subsequent conduct of the assessee brings out the fact that no such comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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