TMI Blog2004 (3) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... ibutable to the restrictive covenant and obligations, taking note of the fact that the restrictive covenants were in force for a short period of two years - Tribunal is right in its finding that only a part of sum is a capital receipt and not liable to tax as income under section 28(ii)(c) – assessee’s appeals are dismissed. - - - - - Dated:- 29-3-2004 - Judge(s) : A. S. VENKATACHALA MOORTHY., P. K. MISRA. JUDGMENT The judgment of the court was delivered by A. S. VENKATACHALAMOORTHY J. -The assessee is engaged in varied trading and service activities as clearing and forwarding agents, electrical and engineering (structural) contractors, marketing of branded products, etc. In 1979, the assessee was appointed as one of the selling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00,000 in two stages, viz., Rs. 25,00,000 on June 30, 1987, and Rs. 15,00,000 on June 30, 1988, subject to certain conditions to be fulfilled by the assessee-company. We hereunder extract the relevant portion from the said agreement: "Now this parties witnessed that the terms and conditions mutually agreed by and between the parties hereto are as follows: 1. In consideration of the premature termination of the aforesaid selling agency/distributorship relating to the said food products and the said toiletries, and in consideration of the covenants of the second party as are contained in clause 2 below, the first party shall pay to the second party, upon faithful compliance and observation of such covenants: (a) a sum of Rs. 25,00,000 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same by the first party, the second party shall have no further claim of any nature whatsoever against the first party. 4. If the first party shall be of the opinion in which behalf its decision shall be final and binding on the second party-that the second party has committed a breach of its obligations and/or covenants and/or the second party has failed to faithfully perform and discharge its obligations hereunder, it shall be open to the first party to terminate this agreement by giving notice in writing to the second party, and upon such termination, the payments to be made hereunder, if any, after such termination, shall not be required to be made by the first party. Payments, if any, made before such termination, shall be the full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the entire fact of termination of the agreement was examined by the Tribunal in the assessee's own case for the immediately preceding assessment year and the conclusion was that out of the compensation amount received, Rs. 5,00,000 only represented capital receipt, meaning thereby the balance of Rs. 35,00,000 would be revenue in nature, and upheld the order of the authorities treating the same as revenue receipt. Tax Case (Appeal) No. 46 of 2002 relates to the assessment year 1988-89 while Tax Case (Appeal) No. 42 of 2002 would relate to the assessment year 1989-90. Learned counsel, appearing for the assessee, advanced his arguments only with reference to the question as to whether the said sum of Rs. 40,00,000 received by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributable to the restrictive covenant was a capital receipt, not assessable to tax. The Supreme Court left to the determination of the assessing authorities as to how the compensation was to be apportioned. In that case, the Supreme Court observed as under: "If the compensation paid was in respect of two distinct matters, one taking the character of a capital receipt and the other of a revenue receipt, we do not see any principle which prevents the apportionment of the income between the two matters. The difficulty in apportionment cannot be a ground for rejecting the claim either of the Revenue or of the assessee. Such an apportionment was sanctioned by courts in Wales v. Tilley [1943] 11 ITR (Suppl.) 69 (HL); Carter v. Wadman [1946] 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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