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TMI Blog2024 (11) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a revenue receipt exigible to tax, is not erroneous in law for non-considering the relevant facts decided by the Assessing Officer and confirmed by the Appellate Authorities?" 3. The factual background in which the aforesaid substantial question of law arises for our consideration need mention. 4. The assessee is engaged in the business of manufacture and sale of Hepatitis-B Vaccine under the trade name "Shanvac-B". The assessee is equipped with in-house Research and Development team and claims to be the first company in India to develop the Hepatitis-B Vaccine. The assessee on 14.02.2000 entered into a Co-marketing agreement with PFIZER Ltd. Under the said co-marketing agreement, the assessee has agreed to manufacture the Vaccine in bulk quantities for PFIZER Limited and supply the same to it. The said Vaccine was to be promoted, marketed and sold by the PFIZER Limited. The assessee under the co-marketing agreement received a sum of Rs.6 crores. 5. The assessee filed the return of income for the assessment year 2000-01. The assessee was served with a notice on 28.03.2002 under Section 148 of the Act. The Assessing Officer passed an order on 31.03.2004 revising the compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-Tax, Punjab (1971) 82 ITR 812 (SC), Ansal Properties and Industries Ltd. vs. Commissioner of Income-Tax (2012) 347 ITR 647 (Delhi), Commissioner of Income-Tax vs. Dr. R. L. Bhargava (2002) 174 CTR (DEL) 50, Gujco Carriers vs. Commissioner of Income-Tax (2002) 256 ITR 50 (GUJ), and Commissioner of Income-Tax vs. Manoranjan Pictures Corporation (Priavate) Limited ILR 1998 DELHI 197. 8. On the other hand, learned counsel for the assessee has submitted that the assessee has received a sum of Rs.6 crores for transfer of technical know-how and for giving up the rights in any new vaccine which may be developed by it in relation to Hepatitis-B. It is also pointed out that under the co-marketing agreement, the assessee has surrendered its knowledge and technical know-how, which is a capital asset. It is therefore contended that any compensation received in lieu of such surrender is a capital receipt. It is contended that since the assessee has entered into a non-compete agreement, the same results in loss of source of income to the assessee, which has an adverse impact on the brand and market share on account of co-marketing agreement. It is pointed out that the consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , whereas compensation received for restraining from carrying on the competitive business was capital receipt. 12. The principles laid down in Kettlewell Bullen and Company Limited (supra) were referred to with approval in Prabhu Dayal (supra). 13. In Guffic Chem Private Limited (supra), the Supreme Court reiterated the principles laid down in Gillanders Arbuthnot and Company Limited (supra) and held that in case an amount is received under a negative covenant by the assessee, it is in the nature of a capital receipt. 14. A three-Judge Bench of the Supreme Court in Shiv Raj Gupta vs. Commissioner of Income Tax, Delhi-IV (2011) 11 SCC 58 followed the decision in Guffic Chem Private Limited (supra). 15. The nature and character of a receipt whether the same is a capital receipt or a revenue receipt has to be ascertained in the facts and circumstances of the case. Therefore, it is necessary for us to advert to the relevant clauses of the co-marketing agreement, which are extracted below for the facility of reference: "2.1 Appointment: SHANTHA hereby appoints Pfizer as the Exclusive Co-marketer for the product in the Territory. 7. Payment for Appointment, Options and other Rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A's progress in developing any such vaccine, (b) give PFIZER access to all registrations and technical information relating to the vaccine, and (c) file an application for a separate manufacturing license for a brand of the vaccine that could be co-marketed by PFIZER, in addition to and simultaneously with the application for a manufacturing license filed by SHANTHA for its own brand. PFIZER may exercise the option for any such vaccine at any time within six months after SHANTHA obtains the manufacturing license for the vaccine. If PFIZER exercises its option for any such vaccine, unless the parties agree otherwise, the terms of this Agreement (as supplemented by an agreement on the prices at which SHANTHA supplies the vaccine to PFIZER) shall apply to the new vaccine except that no payments shall be required under Section 7 other than those already provided for and paid for by PFIZER. 17.2 Rights to other new products in the territory: If at any time during the term of this Agreement, SHANTHA develops, manufactures and/or acquires the right to market any new product other than those to whom Section 17.1 applies, the following provision shall apply: (a) SHANTHA will keep PFIZ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to manufacture the product or a competitive product or source the product or competitive product from a third party. (vi) Clauses 1.14, 2.2, 3.2, 13.2, 17.1 and 17.2 contain restrictive covenants. (vii) The amount under the agreement has not been paid by PFIZER to assessee for purchase of stock in lieu of certain commercial rights. (viii) The patents and trademark which have not been obtained by the assessee for the vaccine have been given up for a consideration. (ix) Thus, rights in capital asset of the assessee have been relinquished by entering into the agreement which is a restrictive covenant. (x) The assessee has given up the right to appointment exclusively to co-marketer for all future products including combination of vaccine or any other vaccine or any other product. (xi) The assessee is also required to share all technical information, registration, progress of development etc., of new products with the PFIZER. 17. Thus, the payment of the amount under the agreement has been made to the assessee as it has surrendered its rights in a capital asset, namely patent and trademark. The agreement in question is a negative/ restrictive covenant and the amount has b ..... 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