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2019 (8) TMI 732

..... eign insurance companies to set up general insurance business in India. The entire matter was regulated by the Government of India under the relevant regulations. Thus, several competing companies in India were desirous of starting insurance business with foreign partnerships / Joint ventures. Therefore, commercial prudence demanded the U.K.Company to restrain the assessee, preventing them from entering into insurance business, which they had not done earlier, secondly, preventing the assessee from entering into an agreement with any other foreign insurance company. The condition is clear and lucid and it is to be treated as a 'restrictive covenant' and merely because the assessee was not in the insurance business is not a ground to .....

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..... nam And Mrs. Justice V. Bhavani Subbaroyan For the Appellant : Mr.R.Vijaya Raghavan For the Respondent : Mr.T.Ravikumar JUDGEMENT T.S.SIVAGNANAM, J. This Tax Case Appeal by the assessee filed under Section 260-A of the Income Tax Act, 1961, ('the Act' for brevity) is directed against the order passed by the Income Tax Appellate Tribunal C Bench, Chennai in I.T.A.No.955/Mds/05 dated 31.07.2007 for the assessment year 2001-02. 2. The above Tax Case Appeal has been admitted on 22.12.2008 on the following substantial questions of law:- "1. Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the amount received towards restrictive convenant is revenue receipt chargeable to tax? 2. Whethe .....

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..... Income on 31.10.2001 declaring the total income of ₹ 8,58,48,600/-. In the scrutiny assessment, which was completed on 31.03.2004, the total income was determined at ₹ 120,65,85,728/-. The assessing officer while completing the assessment disallowed the amount received as compensation for restrictive covenant. In the agreement entered into between Royal and Sun Alliance Insurance (RSA), U.K., and General Insurance Company, India, the assessee was paid ₹ 16.80 Crores based on the agreement which according to the assessee is the receipt in the capital field, as it was received as consideration for restraining the assessee from entering into insurance business on its own and also restraining itself from negotiating with any .....

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..... n the ground that the so called 'Non compete Fee' is being received by the assessee, which is not for the business of insurance and the payment is clearly towards 'exploitation of the service and infrastructure' of the assessee and hence falls under the revenue field. The assessee is before us on appeal challenging the said finding and we are required to answer the above framed substantial question of law. 10. The agreement entered into between the assessee and the U.K.Company is tiled as Letter of Intent agreed and accepted by the parties on 5th April, 2000 in London. The following clause is the subject matter of interpretation: At the instance of the U.K.Company, assessee restrained itself from interfering with any other p .....

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..... gn insurance company. The condition is clear and lucid and it is to be treated as a 'restrictive covenant' and merely because the assessee was not in the insurance business is not a ground to read down the condition. Thus, we are of the considered view that the interpretation given by the CIT(A) to the said covenant is just and proper and we do not agree with the finding of the assessing officer as well as the Tribunal in this regard. 12. Mr.T.Ravikumar, learned Senior Counsel for the respondent / revenue vehemently contended that the factual finding that the payment was received by the assessee before the commencement of business is the finding, which stares against the assessee and the same has not been challenged. In our consider .....

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..... ee referred to the decision of the assessee's own case in TCA No.159 of 2009 dated 06.03.2019, which pertains to the capital subsidy received by the assessee from the U.K.Company. 16. It is the submission of Mr.Ravikumar, learned Senior Standing Counsel for the respondent / revenue that the substantial question of law No.1 pertains to capital subsidy and in fact, the decision would enure in favour of the Revenue. We do not agree with the said submission as the Letter of Intent provides additional investment at the instance of the assessee and the condition stated 'if at the time of finalisation of shareholders agreement it is found that assessee is required to further infuse equity during the initially agreed pay-back period, U.K.Co .....

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