TMI Blog2017 (1) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... ue and against the Assessee - Tax Case Appeal No. 1492 of 2007 - - - Dated:- 23-12-2016 - Nooty Ramamohana Rao And Anita Sumanth, JJ. For the Appellant : Mrs.Hema Muralikrishnan For the Respondent : Mr.R.Vijayaraghavan for M/s.Subbaraya Aiyar JUDGMENT ( Judgment of this Court was delivered by Anita Sumanth, J. ) The Assessee/Respondent in this appeal (CLL) was engaged in the business of manufacture and marketing of pharmaceuticals. It entered into three separate agreements with an entity by the name and style of Solvay Pharma (I) Ltd. (SPIL) dated 06.02.2003 for Brand Acquisition, Consultancy and Non-compete. The parties agreed that the consideration for the transaction shall be a sum of ₹ 6 crores. For the assessment year 2003-04, CLL took a stand in its Income Tax Assessment that the amount of ₹ 6 crores related solely to the transfer of business under the Brand Acquisition Agreement and no part thereof was attributable to non-compete. The Assessing Authority, however, held that part of the consideration of ₹ 6 crores would be attributable to non-compete as well. According to him, the bifurcation could be made on the basis of the instalm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof as follows: 4.Non-compete covenants SPIL and CLL hereby agree and confirm that the Non-compete agreement executed by and between the parties, forms an integral part of this agreement and the parties further confirm that, save as expressly permitted in writing by SPIL, subsequent to the date of execution of MOU dated December 6, 2002, CLL shall not directly or indirectly retain, use, sell, licence, or in any manner deal with or make available to any person in the Territory, the Brands, or any symbol, monogram, logo, word, device letter, numeral, picture, or combination of any or all of these elements which is, in any manner, confusingly similar to the Brands or any registrations in relation thereto. Without prejudice to the generality of the foregoing, and unless specifically authorized in writing by SPIL, and if so authorized then in the manner and for the period in relation to which such authorization is given, CLL shall not, subsequent to the execution of MOU dated December 6, 2002 do any of the following in relation to the Brands: 4.1 Manufacture 4.2 Trade 4.3.Marketing 4.4. Stocking 4.5.Registrations 4.6.Research 4.7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illion only) payable upon CLL submitting to SPIL, necessary registrations under the new Drug Laws Rules, to enable SPIL to import any of the products or the Active Drug Substances in respect of any of the products. SPIL shall pay simple interest at a rate lower of, 7% p.a. and the rate offered by ICICI Bank on deposits placed with the Bank for a tenure of one year, on the said sum of ₹ 10,000,000/- from the date of the agreement until the date of registration under the new Drug rules or until February 28, 2003, whichever is earlier. c.A sum of ₹ 10,000,000/- (Rupees Ten Million Only) upon the completion of one year from the date of execution of this agreement. SPIL shall pay simple interest at a rate lower of 7% p.a. and the rate offered by ICICI Bank on deposits sum of ₹ 10,000,000/- from the date of the agreement until the end of one year from the agreement. 8. In this background, the question before us is, whether any part of the consideration of ₹ 6 crores would relate, and be attributable to, the activity of non-compete. We dont have to look far for the answer. The parties, in clause No. 3.6 of the non-compete agreement dated 06.02.2003, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus made a conscious and clear distinction between the positive right to carry on a business or the activity of manufacture, production or process, consideration for the transfer of which would be chargeable under the head capital gains and a negative right, being a covenant against the carrying on of any activity in relation to a business, the consideration for which would be taxable as business income. Thus, post 1.4.2003, consideration received towards a negative covenant, as contra-distinguishable to consideration received towards the transfer of business rights, would be liable to tax as business profits. The question whether the activity of non-compete was incidental or dominant was thus irrelevant, and the Tribunal mis-directed itself in addressing itself to the same. This is particularly so since the parties themselves agree, in Article 3.6 (extracted above) of the Non-compete Agreement, that the total consideration of ₹ 6 crores shall include consideration towards the negative covenant as well. 12. We now address the more ticklish question of attribution since the agreements are silent in this regard. The learned counsel for the Assessee, would impress upon us th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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