TMI Blog2001 (5) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... aring total income of Rs. 21,95,010, and subsequently filed a revised return disclosing taxable income of Rs. 21,96,555. During the course of assessment, the Assessing Officer noticed that the assessee has disclosed a sum of Rs. 8 crores as receivable from Gillette Company, U.S., by virtue of "non-compete agreement" dated January 18, 1996, the assessee claimed that it should be treated as capital receipt arising from the assessee's intellectual rights and as there was no cost to that asset there cannot be any capital gain tax also. The Income-tax Officer did not accept the claim of the assessee. He treated that amount as a professional receipt. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) has also confirmed the view taken by the Assessing Officer. In second appeal before the Tribunal, the Tribunal has discussed the nature of receipt in the light of various decisions and held that the receipt is in the nature of non-taxable capital receipt. Heard learned counsel for the parties. Learned counsel for the Revenue has submitted that there was no material on record to prove that the assessee could set up any competitive business ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shaving blades and other products by virtue of his position as chairman of ISP, and the fact of the assessee having been approached by a rival concern, the desire of the Gillette Company was to retain the assessee's support in relation to its international shaving products business in India and outside India, thereafter, the agreement was entered into between the assessee and Gillette. The relevant part of the agreement-dated January 18, 1996, which has been referred by the Tribunal, reads as under: "In consideration of the premises and Gillette making a payment of Rs. 80 (eighty) million as stated in clause 3 below, the covenantor (i.e., the assessee) undertakes that he shall not at any time during continuance of his office as chairman of ISP or for three years thereafter engage himself whether directly or indirectly and whether as owner, substantial shareholder (at least 5 per cent.) director, manager, consultant or in any other manner in any business which undertakes or is engaged in the manufacture, marketing or distribution of razors, razor blades, shaving systems or shaving preparations." Now the question does arise whether on these facts it can be said that the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpensation has been paid which includes the compensation for undertaking of the assessee, that assessee for five years shall refrain from selling or accepting any agency for explosives competitive with those covered by the agency agreement. The question before their Lordships whether the amount of compensation for the "non-compete agreement" is a revenue receipt. Their Lordships held that receipt is a capital receipt and not taxable. At page 22 their Lordships observed as under: "In the present case, the covenant was an independent obligation undertaken by the assessee not to compete with the new agents in the same field for a specified period. It came into operation only after the agency was terminated. It was wholly unconnected with the assessee's agency termination. We, therefore, hold that that part of the compensation attributable to the restrictive covenant was a capital receipt and hence not assessable to tax." In Gillanders Arbuthnot and Co. Ltd. v. CIT [1962] 46 ITR 847 (Cal), the issue before this court was that the compensation received on termination of several agencies, as consideration for termination, whether the receipt in the form of compensation should be trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd off competition from them in regard to the bus service business. The firms in their assessments claimed this amount as revenue expense. The assessee (deceased and his son) claimed that the amount received from the various firms towards restrictive covenant is not taxable as it is a capital asset. The Madras High Court has taken the view that the amount of compensation is not liable to tax either as income or capital gains. From the decisions referred above it is made clear that if the amount of compensation has been received not to compete in business from the person who paid the amount, the amount received cannot be taxed as income. The relevant part of the agreement reads as under: "Whereas (A) Pursuant to a promoters agreement entered into on August 4, 1982, between the same parties as are parties hereto the said parties promoted the incorporation of Indian Shaving Products Ltd. ('ISP') which is now a public listed company engaged, in the manufacture, marketing and distribution of shaving products. In the course of promotion and subsequent operations of ISP the covenantor, who has maintained close contacts with the international management of Gillette and has acted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all pay Rs. 80 million, as consideration, to the assessee, in case the assessee gives an undertaking that he shall not at any time during the continuance of his office, as chairman of ISP or for three years thereafter engage himself whether jointly or individually whether as owner or substantial shareholder, director, manager, consultant or in any other manner in any business with any other person in manufacturing, marketing or distribution of razors, razor blades, shaving systems or shaving preparations which are the products of Gillette. That has left no doubt that the payment was for not to compete in business with the Gillette. Learned counsel for the Revenue has submitted that there was no material to show that the assessee was in a capacity to compete or to set up a new unit for the same products on the same technology as produced by Gillette in India. Learned counsel for the assessee has drawn our attention in para. 7 at page 13 of the Tribunal's order, wherein the Tribunal found that the assessee has proved that the letter dated December 15, 1994, of Shri Udayan Bose before the Assessing Officer and the Commissioner of Income-tax (Appeals) which indicates that the chair ..... X X X X Extracts X X X X X X X X Extracts X X X X
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