TMI Blog2005 (5) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... 3)?" – held that it would be illogical and against the language of section 56 to hold that everything that is exempted from capital gains by the statute could be taxed as a casual or non-recurring receipt under section 10(3) read with section 56 - - - - - Dated:- 3-5-2005 - Judge(s) : D. K. SETH., SOUMITRA PAL. JUDGMENT Soumitra Pal J.-The instant income-tax appeal preferred by the Revenue under section 260A of the Income-tax Act, 1961, against the order passed by the learned Income-tax Appellate Tribunal, Calcutta for the assessment year 1989-90 was admitted on December 19, 2000, on the following questions: "(a) Whether, on the facts and circumstances of this case and according to the proper view of the law, the sum of Rs. 1.75 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad authorised the assessee to enter into the agreement on behalf of the other shareholders who were his relatives, friends and associates. There was also an agreement or reconstitution of WIEL and how after the sale of shares the affairs of WIEL would be managed. The agreement also provided that the assessee would continue on the board of directors as chairman. The assessee agreed to sign such documents and carry out acts and things as would be reasonably required to give effect to the terms of that agreement. The UBL, however, thought it expedient to bind the assessee by written agreement refraining him from undertaking any business similar to the business of the said company as the assessee was carrying on before and could have carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt in question was paid to the appellant by the employer by way of compensation on termination of his employment, when in fact, the same was not in any way connected or related thereto .... The amount was specifically paid for the restrictive covenant and for no other consideration. I have already held that the said receipt was a capital receipt and was not synonymous with income. The same was also not casual in nature. I, therefore, hold that the said sum of Rs. 175 lakhs or any portion thereof was not taxable as income of the appellant and was also not covered by the provisions of section 10(3) of the Act. The addition of Rs. 1,74,95,000 made by the Assistant Commissioner of Income-tax is, therefore, deleted." The Revenue, being aggrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve chairman of that company. Though the major shareholding was of Gillette Company, but the assessee being non-executive chairman of ISP acquired the expertise knowledge in Gillette Company products, such as knowledge regarding raw material from where it is available, cheap and better quality manufacturing technique of Gillette products and its market. He had gained this experience for a number of years that is from 1982 to 1996. The assessee has also produced the letter dated December 15, 1994, from the Credit Capital Finance Corporation, which manufactures Shick brand blades, addressed to the assessee wherein Credit Corporation proposed for similar type of collaboration with the assessee, as the assessee had with Gillette Company. No mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a restrictive covenant of not entering into competitive business was a receipt by the assessee of a capital nature and, thus not liable to tax. So far as question No. 2 is concerned, since the sum of Rs. 175 lakhs was a "capital receipt" having no cost of acquisition or the cost of acquisition could not be assessed, in our view, the sum is not taxable under section 48 of the Income-tax Act, 1961, and thus it cannot be brought to tax under section 45 of the Act. This principle of law has been laid down in the judgment in CIT v. B.C. Srinivasa Setty reported in [1981] 128 ITR 294 where the apex court was considering whether capital gains can arise under section 45 of the Act on the transfer by the assessee-firm of its goodwill to the newl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 (Cal) in which one of us (D. K. Seth, J.) was a party, this court while dealing with the issue whether the Tribunal was right in holding that the sale proceeds received by the assessee on the sale of export licence represented capital receipt and was exempt from income-tax, held that the sum received on transfer of licence was a capital asset and cannot be charged to tax as income. In our view, the sum of Rs. 175 lakhs received pursuant to the restrictive clause, though a capital receipt since it has no element of cost of acquisition, is incapable of computation and deductions enumerated in section 48, thus not chargeable to "Capital gains". Thus, question No. 2 is answered in the affirmative and in favour of the assessee and against the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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