TMI Blog2015 (11) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... t cannot be regarded as non-competition fee because it has not been paid for not competing with the payer, but for not providing the benefit of his knowledge, expertise, skills etc. to any other person in the two wheeler segment. Thus compensation attributable to a negative/restrictive covenant is a capital receipt. Hence, as the sum received by the appellant does not fall within the ambit of section 28(va), and being a capital receipt is not taxable under the Income-tax Act - Decided in favour of assessee. - ITA No. 882/Del/2015 - - - Dated:- 10-11-2015 - SHRI I.C. SUDHIR AND SHRI O.P. KANT For The Appellant : S/Shri C.S. Aggarwal Gautam Jain, Adv. For The Respondent : Shri Surjit Kumar, DR ORDER PER I.C. SUDHIR: JUDICIAL MEMBER The assessee has filed this appeal against the order of the learned Commissioner of Income-tax (Appeals)-11, New Delhi, confirming the order of the Income-tax Officer, Ward 24(3), New Delhi, that the sum of ₹ 1,32,00,000 received by the appellant from M/s Suzuki Motorcycle India Pvt. Ltd. ( Suzuki India ) is chargeable to tax under section 17(3) of the Income-tax Act, 1961 as profits in lieu of salary , and rejecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents in support of the Grounds in Appeal. In his oral submissions, Shri Aggarwal has urged that the conclusion by the I.T.O. and CIT (A) that the appellant was an employee of Suzuki India is in complete disregard of the facts. Shri Aggarwal urged that the following WHEREAS clauses of the Agreement between Suzuki India and the appellant are very significant:- WHEREAS Suzuki Motor Corporation, Japan ( SMC ) and Mr. Sheel have been joint venture partners in the Company; AND WHEREAS pursuant to a joint venture agreement between Mr. Sheel and SMC, Mr. Sheel was appointed as the managing director of the Company by virtue of his being the Indian joint venture partner; AND WHEREAS Mr. Sheel wishes to step down as managing director of the Company as he is no longer the joint venture partner of SMC; According to Shri Aggarwal, the second WHEREAS clause clearly establishes that the appellant was appointed as managing director of the Company by virtue of his being the Indian joint venture partner . The third WHEREAS clause states that the appellant wishes to step down as managing director of the Company as he is no longer the joint venture partner of SMC . Shri Aggarwal urged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shareholders to this effect as an argument to support the contention that the appellant was an employee of the company. Shri Aggarwal pointed out that the conclusion drawn by the I.T.O. is clearly fallacious. Under section 319 of the Companies Act, 1956, the tenure of a managing director was limited to five years and was required to be periodically extended by the shareholders. Therefore, even though the appellant was appointed managing director by virtue of his being the Indian joint partner , the tenure had to be extended by a resolution of the shareholders of Suzuki India to comply with the law. Shri Aggarwal, therefore, urged that on an examination of the facts on record and the submissions made by him it is manifest that there is not an iota of evidence to show that the appellant was an employee of Suzuki India. 8. Shri Aggarwal then dealt with the issue whether the amount received by the appellant fell within the ambit of clause (va) which was inserted in section 28 of the Income-tax Act by the Finance Act, 2002. He pointed out that the Memorandum Explaining the Provisions in the Finance Bill, 2002, prepared by the Central Board of Direct Taxes and laid on the Table of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant is chargeable to tax under the Income-tax Act, which, he contends, the I.T.O. and CIT (A) have failed to do. Shri Aggarwal has urged that the amount received by the appellant is in the nature of a capital receipt and could be taxed only if it was covered by section 28 (va) of the Income-tax Act which, he urged, it is not. 12. Ground Nos 3 to 8 relate to the following observations made by the learned CIT (A) in paragraph 4.1.13 of his order regarding the Opinion of Shri Bhardwaj:- This Opinion cannot have a cloak of substantial view for it makes incomplete references to the agreement between the parties and such deliberate incomplete references help in no insignificant measure to arrive at self-serving conclusions that could have been useful to the appellant in avoiding due and lawful taxes. A plain comparison of the documents shows that the opinion makes no reference to the obligation of the appellant in clause 1 of the agreement that he shall not provide the benefit of his knowledge of regulatory matters, negotiating skills and strategic planning expertise to any other person in India in the two wheeler segment for a period of two years, from the date of execution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rquisites from Integra or Suzuki India reinforces that the appellant was not an employee of Suzuki India. The learned Senior Advocate also urged that it is a well-known business practice that negotiating parties do not record minutes of the day to day discussions. The Agreement between Suzuki India and the appellant under which the sum of ₹ 1,32,00,000 was paid to the appellant is the main document for determining the issues under consideration, which conclusively establishes that the relationship between Suzuki India and the appellant is not that of employer and employee. 15. We have considered the arguments given by the I.T.O. in his assessment order and by the learned CIT (A) in his appellate order; the Opinion of Shri Bhardwaj; and the submissions made, and Synopsis provided, by the learned Senior Advocate; the arguments advanced in his reply by the Departmental Representative; and Shri Aggarwal s rejoinder. Two main issues need to be considered. The first and the principal issue is whether the sum of ₹ 1,32,00,000 received by the appellant from Suzuki India is taxable as profits in lieu of salary under section 17(3) of the Act. The second issue is that, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived or receivable, in cash or kind, under an agreement for- (a) not carrying out any activity in relation to any business; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services: Provided that sub-clause (a) shall not apply to- (i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head Capital gains ; (ii) any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India. Sub-clause (b) of clause (va) has no relevance for the issue under consideration. We have, therefore, to consider whether the amount received by the appellant falls under sub-clause (a) of clause (va) of section 28 of the Income-tax Act. We fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A) in paragraph 4.1.13 of his order. We agree with Shri Aggarwal that learned CIT(A) was not justified in saying that the Opinion of Shri Bhardwaj deliberately makes an incomplete reference to the Agreement to arrive at a self-serving conclusion, when Shri Bhardwaj has, in fact, reproduced the relevant part of the Agreement in his Opinion and has given cogent and valid reasons, backed with authority, in support of the conclusion that the amount received by the appellant does not fall within the ambit of section 28(va) of the Act. It would have been more appropriate for the Learned CIT(Appeals) to analyze and rebut the points made by Shri Bhardwaj in paragraphs 5 to 9 of his Opinion. We, therefore, deprecate the above uncalled for observations made by the learned CIT(A) on the opinion of the learned Advocate. 19. For the reasons given in paragraphs 15, 16, 17 and 18, we uphold the claim of the appellant that (a) the sum of ₹ 1,32,00,000 received by the appellant from Suzuki India is not taxable under section 17(3) of the Income-tax Act; (b) the said sum does not fall within the ambit of section 28(va), and being a capital receipt is not taxable under the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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