ACIT, CHENNAI V. Shri P.Harihara Rao, CHENNAI

ITA 1657/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58171 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 15-03-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 10-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Keywords: Capital receipt; Set aside
• Section: 143(3); 148

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI D BENCH, CHENNAI. BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT & SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 1657/MDS/2011 ASSESSMENT YEAR: 2002-03 THE ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE I, CHENNAI - 34. VS. SHRI P. HARIHARA RAO, NO. 2, LIN PERARA LANE, MYLAPORE, CHENNAI 4. [PAN: AAAPH3121M] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ANIRUDH RAI, CIT ASSESSEE BY : NONE DATE OF HEARING : 1 5 . 0 3 .201 2 DATE OF PRONOUNCEMENT : 30.03.2012 ORDER PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE DEPARTMENT AGAINST T HE ORDER OF THE CIT(A) VI, CHENNAI DATED 20.07.2011 IN ITA NO.147/0 9-10 RELEVANT TO THE ASSESSMENT YEAR 2002-03. SHRI ANIRUDH RAI, CIT REPR ESENTED ON BEHALF OF THE REVENUE 2. DESPITE SERVICE OF NOTICE THROUGH DEPARTMENT, N ONE APPEARED ON BEHALF OF THE ASSESSEE AT THE TIME OF HEARING. HENC E, WE PROCEEDED TO DECIDE THE APPEAL ON MERITS AFTER HEARING THE LD. D R. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.165 165165 1657 77 7/M/ /M/ /M/ /M/1 11 11 11 1 2 3. THE ONLY ISSUE RAISED IN THIS APPEAL OF THE REV ENUE IS AGAINST THE CIT(A) ORDER IN DELETING THE ADDITION OF ` .6.00 CRORES MADE BY THE ASSESSING OFFICER. 4. THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME F ROM SALARY AND OTHER SOURCES. THE RETURN OF INCOME WAS FILED BY THE ASSE SSEE ON 31.12.2002 DECLARING TOTAL INCOME OF ` .3,81,120/-. SUBSEQUENTLY, A NOTICE WAS ISSUED UNDER SECTION 148 AND THE ASSESSMENT WAS COMPLETED ON 29.12.2009 UNDER SECTION 143(3) R.W.S. 147 OF THE ACT DETERMINING TH E INCOME OF THE ASSESSEE AT ` .6,03,81,120/-. WHILE DOING SO, THE ASSESSING OFFIC ER MADE ADDITION OF ` .6.00 CRORES TOWARDS NON-COMPETE FEE RECEIVED BY TH E ASSESSEE TREATING THE SAME AS PROFIT IN LIEU OF SALARY. 5. THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE F OLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GUFFIC CHEM PVT. LTD. VS. CIT [2011] 332 ITR 602, WHEREIN THEIR LORDSHIPS HELD TH AT COMPENSATION RECEIVED FOR REFRAINING FROM CARRYING ON COMPETITIVE BUSINES S WAS A CAPITAL RECEIPT. THE HONBLE SUPREME COURT ALSO HELD THAT SUCH RECEI PT BECAME TAXABLE ONLY W.E.F. 01.04.2003 BY VIRTUE OF AMENDMENT TO SECTION 28(VA) OF THE ACT. 6. AT THE TIME OF HEARING, THE LD. DR SUBMITTED TH AT IN THE CONNECTED CASES OF SHRI P. RAJENDRA RAO AND SHRI M. RANJAN RA O, THIS TRIBUNAL HAD SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICE R BY ORDERS IN I.T.A. NO. 589/MDS/2008 AND I.T.A. NO. 1909/MDS/2008 AS THE CI T(A) HAD GIVEN RELIEF TO THE ASSESSEES BASED ON REAL INCOME THEORY, THOUG H THE ASSESSEE WAS I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.165 165165 1657 77 7/M/ /M/ /M/ /M/1 11 11 11 1 3 FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THEREFOR E, HE SUBMITTED THAT THIS APPEAL ALSO MAY BE SET ASIDE TO THE ASSESSING OFFIC ER TO DECIDE IN LINE WITH THE OTHER TWO CONNECTED APPEALS. 7. WE HAVE PERUSED THE ORDERS OF THIS TRIBUNAL IN THE CASES OF SHRI P. RAJENDRA RAO AND SHRI M. RANJAN RAO (SUPRA). THE TR IBUNAL HAD SET ASIDE THESE APPEALS TO THE FILE OF THE ASSESSING OFFICER AS THE ASSESSEES HAVE FILED ADDITIONAL INFORMATION BEFORE THE CIT(A) FOR THE FI RST TIME AND SINCE NO OPPORTUNITY WAS GIVEN TO THE ASSESSING OFFICER, THE TRIBUNAL FELT THAT THE ISSUE SHOULD GO BACK TO THE FILE OF THE ASSESSING O FFICER FOR VERIFICATION OF THE MATERIALS FILED BEFORE THE CIT(A). 8. IN THE CASE ON HAND, ON GOING THROUGH THE ORDER S OF LOWER AUTHORITIES, WE NOTICED THAT NO ADDITIONAL MATERIAL WAS FILED BE FORE THE CIT(A) BY THE ASSESSEE WHICH WAS NOT FILED BEFORE THE ASSESSING O FFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS.. THE ISSUE BEFORE THE CI T(A) WAS WHETHER THE NON-COMPETE FEE RECEIVED BY THE ASSESSEE IS LIABLE TO BE TAXED AS REVENUE RECEIPT OR IS NOT EXIGIBLE TO TAX AS CAPITAL RECEIP T AND THE CIT(A) DECIDED THE ISSUE RELYING ON THE HONBLE SUPREME COURTS DECISI ON. THEREFORE, WE ARE NOT INCLINED TO SEND THIS APPEAL TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION. 9. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSEE CONTENDED THAT THE NON-COMPETE FEE IS IN THE NATURE OF CAPITAL RECEIPT AND NOT TAXABLE. IT WAS SUBMITTED THAT ALTHOUGH THE AGR EEMENT WITH M/S. CITADEL I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.165 165165 1657 77 7/M/ /M/ /M/ /M/1 11 11 11 1 4 AUROBINDO BIOTECH LTD. (CABL IN SHORT) WAS FOR ` .6.00 CRORES, THE ASSESSEE RECEIVED ONLY ` .1.00 CRORE DURING THE RELEVANT PREVIOUS YEAR. IT W AS ALSO SUBMITTED THAT BALANCE IS NOT REVOCABLE AS COMPANY HAD BECOME DEFUNCT. THE ASSESSEE SUBMITTED THAT FROM THE AGREEMENT ITSE LF IT CAN BE CONCLUDED THAT THE SUM OF ` .6.00 CRORES HAD NOT BECOME DUE DURING THE RELEVANT PREVIOUS YEAR SINCE THE PAYER HAD THE RIGHT TO PAY THE COMPENSATION WITHIN TEN YEARS. IT WAS ALSO SUBMITTED THAT IN ANY CASE, WHOLE ARRANGEMENT HAS FAILED AND THEREFORE, THE SUM IS NOT TAXABLE AT ALL . THE ASSESSEE FURTHER SUBMITTED THAT THE NON-COMPETE FEE WAS RECEIVED FRO M CABL IN WHICH HE DID NOT HAVE ANY EMPLOYEE EMPLOYER RELATIONSHIP AND IS THEREFORE NOT TAXABLE UNDER THE HEAD SALARIES. IT WAS ALSO ARGUED THAT THE SAME CANNOT BE BROUGHT TO TAX UNDER SECTION 28(VA), WHICH HAS BEEN INSERTED BY FINANCE ACT, 2002 W.E.F. 01.04.2003 ONLY AND THEREFORE, THE SAID PROVISIONS CANNOT BE APPLIED FOR THE ASSESSMENT YEAR 2002-03. HOWEVER , THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT TREATED THE NON-COMPETE FEE PAYABLE TO THE ASSESSEE BY CABL AS PROFITS IN LIEU OF SALARY AND BROUGHT TO TAX. 10. THE CIT(A) HAS CONSIDERED THE SUBMISSIONS OF T HE ASSESSEE AND ALLOWED THE APPEAL OF THE ASSESSEE HOLDING THAT THE NON-COMPETE FEE RECEIVED BY THE ASSESSEE IS CAPITAL RECEIPT. THE CI T(A) AT PARAS 4 AND 5 OF HIS ORDER OBSERVED AS UNDER: I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.165 165165 1657 77 7/M/ /M/ /M/ /M/1 11 11 11 1 5 4. THE NEXT GROUND RELATE TO TAXING NON-COMPETE F EES OF ` .6.00 CRORES AS PROFIT IN LIEU OF SALARY. DURING APPELLAT E PROCEEDINGS, THE AR FILED DETAILED WRITTEN SUBMISSIONS CITING VARIOUS J UDGMENTS AND ALSO ENCLOSED EXTRACTS OF VARIOUS JUDGMENTS ON THE ISSUE OF TAXABILITY OF NON- COMPETE FEES RECEIVED. 5. THE AR ALSO BROUGHT TO MY NOTICE THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF GUFFIC CHEM P. LTD. VS . CIT (COPY OF JUDGEMENT FILED) WHEREIN IT IS HELD THAT COMPENSAT ION RECEIVED FOR REFRAINING FROM CARRYING ON COMPETITIVE BUSINESS WA S A CAPITAL RECEIPT. IN THE SAID JUDGEMENT THE COURT ALSO HELD THAT SUCH RECEIPT BECAME TAXABLE ONLY W.E.F. 1-4-2003 AND IT IS WELL SETTLED THAT A LIABILITY CANNOT BE CREATED RETROSPECTIVELY. RESPECTFULLY FOL LOWING THE DECISION OF THE HONBLE SUPREME COURT, I DELETE THE ADDITION OF ` .6.00 CRORES. THEREFORE, THE APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 11. WE HAVE GONE THROUGH THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF GUFFIC CHEM PVT. LTD. (SUPRA). THE HON BLE SUPREME COURT HAS HELD THAT THE COMPENSATION RECEIVED BY THE ASSESSEE FOR LOSS OF AGENCY WAS A REVENUE RECEIPT, WHEREAS COMPENSATION RECEIVED FO R REFRAINING FROM CARRYING ON COMPETITIVE BUSINESS WAS A CAPITAL RECE IPT. IT WAS HELD THAT PAYMENT RECEIVED AS NON-COMPETITION FEES UNDER A NE GATIVE COVENANT WAS ALWAYS TREATED AS A CAPITAL RECEIPT TILL THE ASSESS MENT YEAR 2003-04. IT IS ONLY VIDE THE FINANCE ACT, 2002 W.E.F. 01.04.2003 THAT T HE SAID CAPITAL RECEIPT IS NOW MADE TAXABLE UNDER SECTION 28(VA). THE FINANCE ACT, 2002 ITSELF INDICATES THAT DURING THE RELEVANT ASSESSMENT YEAR COMPENSATION RECEIVED BY THE ASSESSEE UNDER NON-COMPETE FEE RECEIVED/RECE IVABLE BY THE ASSESSEE IS A CAPITAL RECEIPT NOT EXIGIBLE TO TAX. WE ALSO SEE NO FORCE IN THE CONTENTION OF THE ASSESSING OFFICER THAT THE NON-CO MPETE FEE PAID TO THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.165 165165 1657 77 7/M/ /M/ /M/ /M/1 11 11 11 1 6 ASSESSEE IS TO BE ASSESSED AS PROFITS IN LIEU OF SA LARY. WE, THEREFORE, SUSTAIN THE ORDER OF THE CIT(A) AND DISMISS THE GROUND OF A PPEAL OF THE REVENUE. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.03.2012. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER CHENNAI, DATED, THE 30.03.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.