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2016 (3) TMI 29 - BOMBAY HIGH COURT

2016 (3) TMI 29 - BOMBAY HIGH COURT - TMI - Non-compete fees - treatment to the receipt - taxation effect - Held that:- The finding of the Tribunal that the amount received by the Appellant was not in the nature of non-compete fees is not perverse as that amount of ₹ 3,80,48,100/claimed as non-compete fees was not a lumsum figure but an odd figure which was claimed to have been arrived after negotiations. In the result, the Appellant was called upon to give details of the components of  .....

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fees and was brought to tax under the head 'salary' and in particular, under Section 17(3)(ii) of the Act - Decided in favour of the Revenue - Income Tax Appeal No. 910 of 2007 - Dated:- 5-2-2016 - M. S. Sanklecha And B. P. Colabawalla, JJ. For the Appellant : Mr. R.Murlidharan with Mr. A. K. Jasani For the Respondent : Mr. Ashok Kotangale with Mr. Arun Nagarjun and Mr. Arun Kumar Bagul, i/b. Ms. Anuradha Mane JUDGMENT ( Per M. S. Sanklecha J. ) This appeal under Section 260A of the Income Tax A .....

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e documents in the Paper Book and overlooking the written submissions made by the Appellant? . 3. Briefly, the facts leading to the present appeal are as under: (a) On 31st March, 2002, the Appellant at the age of 81 years, retired from employment with M/s. Grasim Limited (Grasim). This was after having worked for over 33 years with Grasim; (b) At the time of retirement, the Appellant received retirement benefits of more than ₹ 95 lakhs from Grasim. A monthly pension of ₹ 3 lakhs per .....

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e Amount (in Rupees) 1 30.10.2001 2,00,00,000/ 2 20.02.2002 30,00,000/ 3 27.03.2002 1,50,48,100/ Total: 3,80,48,100/ (d) In its return of income for the subject Assessment Year, the Appellant claimed that the amount of ₹ 3,80,48,100/received by him as non-compete fees from Grasim was not taxable; (e) The Assessing Officer in his Assessment Order dated 30th January, 2004 passed under Section 143(3) of the Act noted the following further facts: (i) Grasim had deducted Tax at Source (TDS) of .....

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nents of ₹ 3,80,48,100/claimed as non-compete fees. The Appellant failed to furnish the details. Thus taking into account all the facts, the Assessing Officer concluded that the payment of ₹ 3,80,48,100/claimed as non-compete fees was not in fact so. Further, he held that the agreement dated 31st March, 2002 is a subterfuge to colour an amount received in lieu of salary as a non-compete fees so as not to pay tax on the same. In the circumstances, the payment of Rs,3,80,48,100/was hel .....

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h March, 2002. All these amounts were received prior to date of Agreement dated 31st March, 2002. It further records that the payment of ₹ 2.00 Crorewas made on 30th October, 2001 was in fact an advance against non-compete fees/ exgratia, fees etc. Thus, he concluded that theagreement dated 31st March, 2002 indicating non-compete fees is the document which has been entered into so as to only hide the real nature of transaction. All this with a view to not pay legitimate tax on it. It was f .....

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aforesaid circumstance, the CIT(A) by order dated 31st March, 2005 upheld the order dated 30th January, 2004 of the Assessing Officer and held that the payment of ₹ 3,80,48,100/claimed as non-compete fees is, in fact, classifiable under Section 17 of the Act as profits in lieu of salary; and (h) Being aggrieved by the order dated 31st March, 2005 of the CIT(A), the Appellant carried the issue in appeal to the Tribunal. The Tribunal by the impugned order took in to consideration the followi .....

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t forthcoming; (iv) The Appellant was appointed as an advisor to Grasim w.e.f. 1st April, 2002 for a period of nine months i.e. up to 31st December, 2002. Thus, he continued to work for Grasim not only after the receipt of non-compete fees, date of his retirement and after the agreement for non-compete fees; (v) Grasim did not consider the payment made to the Appellant as non-compete fees as it had deducted TDS on the payment of ₹ 3,80,48,100/at ₹ 1,16,42,719/. This was accepted by t .....

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ot be held to be payment for non-compete fees; In the result, the appeal of the Appellant was dismissed by the impugned order dated 9th May, 2006 while upholding the order dated 31st March, 2005 of the CIT(A). 4. Being aggrieved by the impugned order dated 9th May, 2006 of the Tribunal, this appeal has been filed to this Court. Mr. Murlidharan, learned Counsel appearing for the Appellant in support of the appeal submits as under: (a) The payment received as non-compete fees is not taxable in the .....

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of ₹ 3,80,48,100/if held to be not claimable as non-compete fees, then the authorities must hold under which head is the same classifiable. This not being done, the amount of ₹ 3,80,48,100/is classifiable as non-compete fees as claimed; and (d) The classification of the amount of ₹ 3,80,48,100/under the head 'profit in lieu of salary' under Section 17 of the Act must fail as the obligation under the Agreement dated 31st March, 2002 is to return the same if there is a br .....

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ingly, no interference is called for with the impugned order of the Tribunal; and (b) The authorities under the Act have come to a finding of fact that the so called agreement dated 31st March, 2002 is colourable document being a subterfuge, as in fact, no amount was in fact paid as non-compete fees to the Appellant. 6. We have considered the rival submissions. In principle, there is no dispute that the amount received as ₹ 3,80,48,100/if held to be a non-compete fees in respect of Assessm .....

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ct on the basis of inferences drawn from evidence and material on record, then unless such inferences drawn are either arbitrary and/or perverse and/or such that no person trained in law could arrive at, the Court would not interfere in an appeal under Section 260A of the Act. In other words, where the view of the authorities on facts based on inference is a possible view and sustainable then this Court will not interfere with the view of the authorities. We shall now examine the submissions kee .....

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gotiated fees. The Appellant at no stage thereafter either before the authorities under the Act or even before us at the hearing of the appeal made any attempt to explain the circumstances in which the non-compete fees was negotiated at an odd figure of ₹ 3,80,48,100/. The submission of the Appellant that the figure of the compensation being odd or round, cannot by itself determine the character of the Appellant cannot be disputed. However, it is only one of the factors which the authoriti .....

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ate Authorities, the same was not made available. This is one of the features which suggests that the payment is not for non-compete fees as relied upon by all the authorities. 9. Similarly, the contention that the amount of ₹ 3,80,48,100/was received by the Appellant before the date of retirement and also before the execution of the non-compete agreement dated 31st March, 2002 by itself would not determine the character of the payment. The fact that the character of payment does not under .....

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dication of the fact that the payment which was made in advance was for some other purpose and not for as non-compete fees as claimed. However, as an afterthought, the same has been shown as non-compete fees to reduce the tax implication. 10. It was next contended by Mr. Murlidharan, learned Counsel appearing for the Appellant that the impugned order incorrectly places reliance upon the letter dated 29th October, 2001 to hold that the amount of ₹ 3,80,48,100/is not a non-compete fees. This .....

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t non-compete fees but also in respect of other fees namely - exgratia, other fees etc., The Appellant at no point of time, gave the breakup of ₹ 2.00 Crore paid in advance on 30th October, 2001 and the amount thereof attributable to non-compete fees. Nor has the Appellant led any evidence from Grasim to show what quantum out of ₹ 2.00 Crore paid to the Appellant, is on account of non-compete fees. Thus, this factor is one more feature which leads to the view that it is improbable th .....

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submits that there can be no estoppel against statute. Therefore, even if Appellant itself agrees to the deduction of TDS by Grasim, yet it would not prevent the Appellant from urging that in law, the non-compete fees cannot be subjected to tax. There can be no quarrel with the above submission of the Appellant. However, when this fact of nondeduction of TDS and no protest by the Appellant is taken along with other facts, the view taken by the authorities that the payment is made not on account .....

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. 1st April, 2002 as an adviser to the Grasim. On the above basis, the impugned order concludes that it is indicative of the fact that the Appellant continues to serve Grasim and, therefore, he could not have competed with Grasim. Thus, concluding that the payment of ₹ 3,80,48,100/was not a payment for non-compete fees. It is submitted on behalf of the Appellant that competition to Grasim from the Appellant is not by physical labour but by sharing his experiences and business tactics with .....

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y must fail/fall as under the Agreement dated 31st March, 2002, there is an obligation to return, if the Appellant commits a breach. This submission overlooks the fact that the Agreement dated 31st March, 2002 has on examination of the surrounding circumstances has been found to be in the nature of camouflage. Thus, being only a paper document, no right or obligations are created by the document. 14. Therefore, in the above facts, if one takes into account all factors listed out by the Tribunal .....

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