ACIT, CHENNAI V. Shri M.S.Krishnamurthy, CHENNAI

ITA 2114/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57967 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-02-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 10-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: OMKARESHWAR CHIDRA
• Assessee Lawyers: G SITARAMAN
• Keywords: Business income; Capital receipt
• Section: 234B; 148

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI C BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 2114/MDS/2010 ASSESSMENT YEAR: 2002-03 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE XV, CHENNAI 600 034. VS. SHRI M.S. KRISHNAMURTHY, NO.9, JANAKI AVENUE, ALWARPET, CHENNAI 18. [PAN: AABPK2965K] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI OMKARESHWAR CHIDRA, CIT DR ASSESSEE BY : SHRI G. SITARAMAN, C.A. DATE OF HEARING : 15.02.2012 DATE OF PRONOUNCEMENT : 15.02.2012 ORDER PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) XII, CHENNAI DATED 24.09.2010 PASSED IN APPE AL NO.111/09-10 IN ASSESSMENT YEAR 2002-03. SHRI OMKARESHWAR CHIDRA, C IT-DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI G. SITARAMAN, C.A . REPRESENTED ON BEHALF OF THE ASSESSEE. 2. THE LD. DR ARGUED THAT THE REVENUE HAS TAKEN 5 GROUNDS OF APPEAL IN THIS APPEAL AND THE SOLE ISSUE INVOLVED IS THAT WHE THER THE NON-COMPETE FEE OF ` . 6.00 CRORES WAS A REVENUE RECEIPT AS HELD BY THE ASSESSING OFFICER OR IT WAS CAPITAL RECEIPT AS HELD BY THE LD. CIT(A). HE S UBMITTED THAT IN THE ASSESSMENT YEAR 2002-03 IN THE CASE OF DCIT V. SHRI M. RANJAN RAO IN I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 2114 114114 114/ // /M/ M/M/ M/1 11 10 00 0 2 I.T.A. NO. 1909/MDS/2008 ORDER DATED 30.05.2011, WH EREIN THE ASSESSEE HAD RECEIVED NON-COMPETE FEE OF ` .10.00 CRORES FROM THE SAME COMPANY M/S. CITADEL AUROBINDO BIOTECH LTD., THE TRIBUNAL H AD RESTORED THE MATTER BACK TO THE FILE OF THE LD. CIT(A) FOLLOWING THE OR DER OF THE TRIBUNAL IN THE CASE OF ACIT VS. SHRI P. RAJENDRA RAO IN I.T.A. NO. 589/MDS/2008 ORDER DATED 24.09.2009, WHEREIN ALSO THE ASSESSEE HAD REC EIVED THE NON-COMPETE FEE OF ` .4.00 CRORES FROM THE SAME COMPANY M/S. CITADEL AUR OBINDO BIOTECH LTD. AS IN THE CASE OF THE PRESENT ASSESSEE. HE, TH EREFORE PRAYED THAT FOLLOWING THE EARLIER ORDERS OF THE TRIBUNAL, THE M ATTER SHOULD BE RESTORED BACK TO THE FILE OF THE LD. CIT(A) FOR ADJUDICATION AFRESH AS PER THE DIRECTIONS CONTAINED IN THOSE ORDERS OF THE TRIBUNAL. 3. THE LD. AR OF THE ASSESSEE DID NOT OBJECT TO TH E ABOVE SUBMISSIONS OF THE LD. DR. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD , WE FIND THAT IN THE INSTANT CASE, ACCORDING TO THE ASSESSING OFFICER, THE ASSES SEE RECEIVED ` .6.00 CRORES AS NON-COMPETE FEE FROM M/S. CITADEL AUROBIN DO BIOTECH LTD., WHICH WAS TREATED BY HIM AS REVENUE RECEIPT AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE, BUT WAS TREATED AS CAPITAL RECEIPT BY THE LD. CIT(A) AND THE LD. CIT(A) OPINED THAT ON THE BASIS OF REAL INCOME THEO RY ONLY ` .1.00 CRORE WAS ACCRUED TO THE ASSESSEE AND NOT ` .6.00 CRORES. WE FIND THAT IN THE CASE OF SHRI M. RANJAN RAO, WHEREIN THE FACTS INVOLVED WERE EXACTLY THE SAME AS I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 2114 114114 114/ // /M/ M/M/ M/1 11 10 00 0 3 INVOLVED IN THE INSTANT CASE, THE TRIBUNAL HAS HELD AS UNDER: 6. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE M ATERIAL ON RECORD AND FIND THAT IN THE APPEAL IN THE CASE OF ACIT V. SHRI P. RAJENDRA RAO IN ITA NO. 589/MDS/2008, THE D BENCH OF THE TRIBUNAL HAS SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORED BACK THE MATTER ON HIS FILE WIT H THE DIRECTION BY DISCUSSING THE ISSUE FROM PARA 2 TO 4.2 AND CONCLUD ED IN PARA 5 TO 5.3 WHICH ARE REPRODUCED AS UNDER: 2. THE REVENUE HAS RAISED IN ALL 5 GROUNDS OUT OF WHICH GROUNDS NO. 1 AND 5 ARE GENERAL AND NEED NO ADJUDICATION. IN GROU ND NO. 2 TO 4, THE CHALLENGE IS WITH REGARD TO DELETION OF ADDITION OF ` .4.00 CRORES ON ACCOUNT OF NON-COMPETING FEE. 3. FACTS INDICATE THAT THE ASSESSEE FOR THE ASSESS MENT YEAR 2002-03 HAD FILED HIS RETURN OF INCOME ON 27.2.2003 DECLARING A TOTAL INCOME OF ` . 8,42,232/-. THIS WAS PROCESSED UNDER SECTION 143(1 ) ON 16.04.2003. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2003-04, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CREDITED AN AMOUNT OF ` .4.00 CRORES TOWARDS NON-COMPETE FEES AS PER THE AC COUNT COPY FILED FROM M/S. CITADEL AUROBINDO BIOTECH. LTD., [CABL] ON 27. 03.2002 AND AS PER THE AGREEMENT BETWEEN THE ASSESSEE AND CABL, THE ASSESS EE HAS TO RECEIVE RS.4.00 CRORES FROM THE COMPANY FOR NOT COMPETING T HE LINE OF TRADE. SINCE THE ASSESSEE HAS NOT ADMITTED THIS AS INCOME, THE N ON-COMPETE FEE OF ` .4.00 CRORES HAS ESCAPED INCOME FOR THE ASSESSMENT YEAR 2 002-03. HENCE, A NOTICE UNDER SECTION 148 WAS ISSUED TO THE ASSESSEE ON 13. 02.2006 AND IN RESPONSE TO THIS THE ASSESSEE HAS FILED A LETTER DATED 22.02 .2006 STATING THAT THE RETURN OF INCOME FILED ON 27.02.2003 MAY BE TREATED AS ONE IN RESPONSE TO NOTICE ISSUED UNDER SECTION 148. FINALLY THE REOPENED ASSE SSMENT WAS COMPLETED ON 28.12.2006 ON A TOTAL INCOME OF ` .4,08,51,232/- AS A RESULT OF WHICH A NET DEMAND OF ` .1,62,11,532/- HAS BEEN RAISED AGAINST THE ASSESSEE WHICH IS INCLUSIVE OF INTEREST LEVIED UNDER SECTION 234B AND 234C OF THE ACT. IN THE REOPENED ASSESSMENT, THE ASSESSING OFFICER HAS BROU GHT TO TAX A SUM OF ` .4.00 CRORES AS NON-COMPETE FEE TREATED AS PROFITS IN LIEU OF SALARY UNDER SECTION 17(3) OF THE ACT. AGAINST THIS ACTION OF TH E ASSESSING OFFICER, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL WHEREIN T HE TREATMENT OF AMOUNT BROUGHT TO TAX BY THE ASSESSING OFFICER HAS BEEN AG ITATED. 3.1 THE ASSESSEE MAINLY CHALLENGED ADDITION OF NON- COMPETING FEE OF ` .4.00 CRORES. IT WAS SUBMITTED BEFORE THE FIRST APP ELLATE AUTHORITY THAT SUCH AMOUNT IS NOT TAXABLE BECAUSE IT DOES NOT FALL WITH IN THE INCLUSIVE DEFINITION OF INCOME UNDER SECTION 2(24) OF THE INCOME TAX ACT AND MOREOVER, AS REGARDS THE NON-COMPETE FEE OF ` .4.00 CRORES FROM CABL, THE ASSESSEE HAD NO EMPLOYER AND EMPLOYEE RELATIONSHIP WITH CABL AND THIS IS NOT CHARGEABLE UNDER THE HEAD SALARY, BESIDES, SINCE SECTION 28(VA), WHICH WAS INSERTED BY FINANCE ACT, 2002 WITH EFFECT FROM 01.0 4.2003 ONLY, AND HENCE IT I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 2114 114114 114/ // /M/ M/M/ M/1 11 10 00 0 4 IS NOT APPLICABLE TO THE ASSESSMENT YEAR 2002-03. T HEREFORE, NON-COMPETING FEE IS NOT ASSESSABLE AS BUSINESS INCOME AS WELL IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE FACTS OF THE CASE ARE OTHE RWISE SIMILAR ONE AS REPORTED IN THE CASE OF JCIT V. ALFA LAVAL (I) LTD. 286 ITR [AT] 193 [MUM.], AND THE CHENNAI BENCHES OF ITAT IN THE CASE OF R.K. SWAMY V. ACIT 88 ITD 185, WHEREIN IT HAS BEEN HELD THAT NON-COMPETING FE E IS NOT LIABLE TO TAX. EVEN THOUGH THE AGREEMENT OF CABL IS FOR ` .4.00 CRORES, THE ASSESSEE HAS SUBMITTED THAT HE HAS RECEIVED ONLY ` .20.00 LAKHS ONLY AND THE BALANCE IS NOT RECOVERABLE, AS THE COMPANY HAS BECOME DEFUNCT. FUR THER RELIANCE WAS MADE ON FEW MORE AUTHORITIES AS MENTIONED BY THE LD . CIT(A). 3.2 THE LD. CIT(A), WHILE CONSIDERING AND ACCEPTING THE PLEA OF THE ASSESSEE HAS CONCLUDED TO DELETE THE IMPUGNED ADDIT ION AS PER SECOND LIMB OF PARA 4.2 OF HIS ORDER. 4. AGGRIEVED BY THIS ORDER OF THE LD. CIT(A), THE DEPARTMENT HAS COME UP IN APPEAL AND PLEADED THAT THE LD. CIT(A) HAS FA ILED TO APPRECIATE THE FACT THAT SECTION 2(24) GIVES AN INCLUSIVE DEFINITION OF INCOME AND SAME IS CONFIRMED BY THE FOLLOWING DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF EMIL WEBBER VS. CIT 200 ITR 483 AND CIT V. G.R. KARTHIKEYAN 201 ITR 866. FURTHER, THE LD. CIT(A) HAS ERRED IN NOT C ONSIDERING THE OBSERVATIONS OF THE ASSESSING OFFICER THAT EVEN IF THE RECEIPT IS TO BE TREATED AS CAPITAL IN NATURE, THE SAME CAN BE TREATED AS TA XABLE CAPITAL GAIN BEING A PAYMENT FOR THE CONSIDERATION OF GOODWILL OF THE AS SESSEE WHICH IS A SELF- GENERATED ASSET. THE LD. CIT(A) HAS ALSO ERRED IN G RANTING RELIEF ON THE BASIS OF REAL INCOME THEORY, WHEN THE ASSESSEE WAS ENTI TLED TO ` . 4 CRORES AS PER THE AGREEMENT AND PLEADED FOR REVERSAL OF THE ORDER OF THE LD. CIT(A) AND RESTORING THAT OF THE ASSESSING OFFICER. 4.1 WHEREAS, THE LD. COUNSEL FOR THE ASSESSEE, WHIL E RELYING UPON THE ORDER OF THE LD. CIT(A) IN THIS REGARD HAS PLEADED FOR CONFIRMATION OF THE SAME. IT WAS FURTHER SUBMITTED THAT SO FAR AS ASSES SMENT YEAR 2002-03 IS CONCERNED, SUCH RECEIPT COULD NOT BE TAXED IN THE H ANDS OF THE ASSESSEE AND MOREOVER IN EFFECT, THE ASSESSEE HAS RECEIVED ONLY ` .20.00 LAKHS AND BALANCE OF ` .3.80 CRORES HAS NOT TILL BEEN RECEIVED AND THIS AM OUNT IS ALSO NOT RECOVERABLE, BECAUSE THE COMPANY WITH WHOM THE ASSE SSED HAD ENTERED INTO AGREEMENT, HAS BECOME DEFUNCT. THEREFORE, ON THE BA SIS OF REAL INCOME THEORY ALSO AMOUNT COULD NOT BE TAXED. IT WAS, THUS PLEADED FOR CONFIRMATION OF THE IMPUGNED ORDER OF THE LD. CIT(A). 4.2 THE LD. DR, IN ORDER TO COUNTER THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE HAS PLEADED THAT SINCE CLEAR AGREEMENT IS THERE FOR PAYMENT OF ` .4.00 CRORES OUT OF WHICH ` .20.00 LAKHS HAS ALREADY BEEN RECEIVED IN THE YEAR UNDER CONSIDERATION AND BALANCE OF ` .3.80 CRORES HAVE ALSO ACCRUED TO THE ASSESSEE AND HAS ALSO BEEN CREDITED BY CABL TOW ARDS NON-COMPETE FEE AS PER ACCOUNT COPY FILED, THEREFORE, IT IS REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE WHICH IS RIGHTLY BEEN ASSESSED BY THE ASSE SSING OFFICER AND THE LD. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 2114 114114 114/ // /M/ M/M/ M/1 11 10 00 0 5 CIT(A) IS NOT JUSTIFIED IN DELETING THE SAID ADDITI ON. IT WAS, THUS STRONGLY PLEADED FOR REVERSAL OF THE IMPUGNED ORDER. 5. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MA TERIAL ON RECORD AS WELL AS PRECEDENTS RELIED UPON BY THE RIVAL SIDES. IT IS NOT IN DISPUTE THAT AGREEMENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND CABL. RECORD INDICATE THAT ` .4.00 CRORES TOWARDS NON-COMPETE FEE WAS CREDITED T O ASSESSEES ACCOUNT AS PER ACCOUNT COPY FILED FROM M /S. CABL. THE ASSESSEE HAS TO RECEIVE ` .4.00 CRORES FOR NON-COMPETING FEE IN THE LINE OF T RADE. SINCE THE ASSESSEE HAS NOT ADMITTED ANY INCOME FROM THIS SOURCE, THEREFORE, THE ASSESSING OFFICER REOPENED THE ASSESSMENT AND ASSES SED SUCH INCOME AND WHILE DOING SO, IT HAS BEEN OBSERVED THAT M/S. CABL HAS TAKEN OVER THE MANUFACTURING BUSINESS ACTIVITY OF CERTAIN MEDICAL FORMULATIONS FROM M/S CITADEL FINE PHARMACEUTICALS LTD. WITH RESPECT TO U NION OF INDIA AND KINGDOM OF NEPAL. FOR ACQUIRING THESE RIGHTS CABL H AS PAID ` .40 CRORES EITHER PAID OR CREDITED THE ACCOUNTS OF CERTAIN PER SONS EITHER DIRECTOR OR CHIEF EXECUTIVES, A SUM OF ` .80 CRORES OUT OF WHICH ONE OF THE BENEFICIARIES IS THE ASSESSEE WHO HAS BEEN PAID A SUM OF ` .20 LAKHS AND CREDITED WITH A SUM OF ` .3.80 CRORES TOTALING ` . 4 CRORES. IT IS THE CASE OF THE DEPARTMENT THAT T HE ASSESSEE HAVING AN EXPERIENCE OF MORE THAN 20 YEARS AS IN-CHARGE OF THE MARKETING DIVISION HAS BEEN OFFERED THIS SUM OF ` .4 CRORE AS NON-COMPETE FEE. THIS AMOUNT EITHER RECEIVED OR DUE HAS TO BE A SSESSED AS PROFITS IN LIEU OF SALARY UNDER SECTION 17(3) OF THE INCOME TAX ACT . FURTHER THE ASSESSEE HAS MADE AN AGREEMENT IN THE STYLE OF NON-COMPETITI ON AGREEMENT. WHERE THERE IS NO SCOPE FOR COMPETITION, THERE IS NO PLAC E FOR A NON-COMPETITION AGREEMENT. THE ASSESSEE WAS WORKING WITH CITADEL FI NE PHARMACEUTICALS LTD. AS CHIEF EXECUTIVE OF THE MARKETING DIVISION R ECEIVING DECENT SALARY AND PERKS. THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE HAD DONE ANYTHING AGAINST INTEREST OF EITHER CABL OR CFPL. T HERE IS, THEREFORE, NO QUESTION OF ANY NON-COMPETITION AGREEMENT HERE. BUT , THE REFERENCE TO THE REPORT IN 165 ITR 63 (MAD) BROUGHT INTO CONSIDERATI ON ANOTHER FAMOUS CASE LAW MCDOWELL & COMPANY (154 ITR 148)[SC] WHICH CA LLS FOR LOOKING BEYOND THE LITERAL MEANING OF TRANSACTION TO SEE TH E REAL INTENTION BEHIND THE CURTAIN. AND THE SUBJECT AGREEMENT ALSO REQUIRES SU CH PROBE. THERE ARE TWO POSSIBILITIES OF APPRECIATING THE RECEIPT AS PER TH E AGREEMENT AS CAPITAL OR AS REVENUE. THE PAYMENT OF ` .20 LAKHS AND THE AMOUNT DUE OF ` .3.80 CRORES ARE NOT AN OUTCOME OF A NON-COMPETITION AGREEMENT A S THERE WAS NO COMPETITION AS ON 27.02.2002. IT IS NOT A COMPENSAT ION FOR THE RIGHT TO CARRY ON BUSINESS AS THE ASSESSEE WAS NOT DOING ANY COMPE TING INDEPENDENT BUSINESS AS ON THAT DATE. IF AT ALL, THERE COULD BE ANY COMPETITION THE ASSESSEE WOULD NOT HAVE BEEN MADE A DIRECTOR IN CAB L LATER ON. A READING OF THE AGREEMENT SHOWS THAT IN EVERY SENSE IT WAS O NLY A LATE APPRECIATION OF THE RICH GOODWILL THAT THE ASSESSEE HAD IN THE FIEL D OF BUSINESS. IT IS POSSIBLE THAT CABL WHICH INITIATED THE BUSINESS IN PHARMACEU TICALS FIRST WAS HAPPY TO GET THE FORMULATIONS FROM CFPL. AND ONLY LATER T HEY DISCOVERED THE MAGNETISM IN THE ASSESSEE. IN THAT SENSE THE ENTIRE PAYMENT IS ATTRIBUTABLE TO I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 2114 114114 114/ // /M/ M/M/ M/1 11 10 00 0 6 THE GOODWILL OF THE ASSESSEE. AS THE GOODWILL IN TH IS CASE IS SELF-GENERATED, THE COST IS NIL AS PER THE PROVISIONS OF SECTION 52 (2)(A)(II) OF THE IT ACT. ACCORDINGLY, THE ENTIRE RECEIPT IS TAXABLE AS CAPIT AL GAINS. THERE IS YET ANOTHER WAY OF LOOKING AT THE RECEIPT. AS ON THE DA TE OF PAYMENT THE ASSESSEE WAS AN EMPLOYEE OF THE COMPANY AND THE PAYMENT IS R ECEIVED FROM HIS EMPLOYER. IN THIS CONTEXT, THE COMPANY CABL AND CFP L ARE DOING BUSINESS IN THE SAME LINE BUT THE CFPL IS RESTRAINT FROM DOI NG BUSINESS IN THE UNION OF INDIA AND KINGDOM OF NEPAL. SECONDLY, THE PAYMEN T IS DIRECTLY RELATED TO THE SERVICES WHICH THE ASSESSEE WAS RENDERING. WHY IT IS GIVEN IS NOT A MAJOR ISSUE, SINCE ANY PAYMENT, WHETHER IT BE SALARY REMU NERATION, COMMISSION, ETC. FORMS PART OF SALARY AS PER SECTION 17(1). EVE N IF IT IS A CASUAL AND NON- RECURRING PAYMENT SECTION 10(3) DOES NOT EXCLUDE IT FROM TAXATION, IF IT IS AN ADDITION TO REMUNERATION. IN VIEW OF THE ABOVE, THE RECEIPT AS WELL AS THE AMOUNT DUE TO THE ASSESSEE IS ALSO ASSESSABLE UNDER THE HEAD SALARY. 5.1 AND THE CASE OF THE ASSESSEE IS MAINLY ON THE C ONCLUSION DRAWN BY THE LD. CIT(A) WHO WHILE ACCEPTING THE PLEA OF THE ASSESSEE, HAS HELD AS UNDER: AFTER CAREFUL CONSIDERATION OF THE FACTS OF THE C ASE AND SUBMISSIONS OF THE LEARNED REPRESENTATIVE, I FIND T HAT HIS CONTENTION IS FOUND TO BE ACCEPTABLE THAT THE AMOUNT OF RS.4 C RORES DO NOT FALL WITHIN THE INCLUSIVE DEFINITION U/S 2(24) OF THE I. T. ACT AND TOWARDS THE SAME AMOUNT BEING NON-COMPETE FEES THERE IS NO EMPLOYER- EMPLOYEE RELATIONSHIP BETWEEN THE APPELLANT AND CAB L. SECTION 28(VA), INSERTED BY FINANCE ACT, 2002, WITH EFFECT FROM 01.04.2002 IS NOT APPLICABLE TO THE FACTS OF THE APPELLANT. IT IS ALSO NOTICED THAT THE ASSESSING OFFICER HAS WRONGLY PRESUMED THAT THE AMOUNT OF ` .4 CRORES BEING NON-COMPETE FEES HAS ACCRUED IN ITS ENTIRETY ON THE DATE OF AGREEMENT IT SELF WHEREAS IN FACT THE PAYMENT COULD BE MADE DURING THE 7 YEARS TENURE (BEFORE 26.03.2009) OF THE AGREEMENT. AFTER CAREFUL CONSIDE RATION OF THE FACTS OF THE CASE AND RESPECTFULLY RELYING UPON VAR IOUS JUDICIAL PRONOUNCEMENTS, I HOLD AS UNDER: THE AMOUNT OF RS.4 CRORES IS NOT LIABLE TO TAX SIN CE IT IS A NON-COMPETE FEES AND IT IS A CAPITAL RECEIPT. IT CA N ALSO NOT BE CHARGED UNDER THE HEAD SALARY, SINCE THERE IS NO EMPLOYER- EMPLOYEE RELATIONSHIP. I AM ALSO OF THE OPINION THA T THE ACCRUAL NEEDS TO BE JUDGED AS THE PRINCIPLES OF THE REAL IN COME THEORY, WHETHER AN ACCRUAL HAS TAKEN PLACE OR NOT. IN THE I NSTANT CASE THE APPELLANT HAS RECEIVED ONLY ` .20 LAKHS OUT OF ` .4 CRORES AND THERE ARE NO CHANCES TO RECEIVE THE BALANCE. THE AMOUNT O F ` .20 LAKHS ACTUALLY RECEIVED TOWARDS NON-COMPETE FEES IS ALSO NOT LIABLE TO TAX AS DISCUSSED. THE APPEAL ON THIS GROUND IS, THEREFO RE, ALLOWED. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 2114 114114 114/ // /M/ M/M/ M/1 11 10 00 0 7 5.2 FURTHER FROM THE PERUSAL OF THE ORDER OF THE FI RST APPELLATE AUTHORITY, IT IS FOUND THAT THE AR OF THE ASSESSEE HAS SUBMITT ED FOLLOWING DOCUMENTS, CITATIONS AND ALSO RAISED A NEW POINT AT FIRST APPE AL STAGE, WHICH APPEARS IN HIS ORDER FROM MIDDLE OF PAGE 6 TO START OF PAGE 8, AS REPRODUCED BELOW: 1. CERTIFICATE FROM CITADEL AUROBINDO BIOTECH LIMITED, THAT THE APPELLANT WAS ONLY A NON-EXECUTIVE DIRECTOR AND DID NOT DRAW ANY REMUNERATION OR SITTING FEES FROM THAT COMPANY DURI NG HIS TENURE OF DIRECTORSHIP. 2. IT CAN BE SEEN FROM THE AGREEMENT THAT THE PAYMENT COULD BE MADE BY CITADEL AUROBINDO BIOTECH LIMITED OF THE NON-COM PETE FEE IN TIME DURING THE TENURE OF THE AGREEMENT 7 YEARS I.E. A NY TIME BEFORE 26.3.2009. THEREFORE, THE ASSESSING OFFICER HAS INC ORRECTLY PRESUMED THAT THE NON-COMPETE FEE HAS ACCRUED IN ITS ENTIRET Y ON THE DATE OF AGREEMENT ITSELF. 3. COPIES OF THE FOLLOWING DECISIONS: A. GILLANDERS ARBUTHNOT & COMPANY LTD. VS. CIT (46 ITR 847) B. CIT VS. RAO RAJA KALYAN SINGH (97 ITR 690)(RAJ) C. MEHBOOB PRODUCTIONS P. LTD. VS. CIT (106 ITR 758)(B OM) D. CIT VS. SARASWATHI PUBLICITIES (132 ITR 207) E. UNIVERSAL RADIATORS VS. CIT (201 ITR 800) TO SUPPORT THE APPELLANTS CONTENTION THAT THE RECE IPT OF NON- COMPETE FEE IS A CAPITAL RECEIPT AND, HENCE, IS NOT TAXABLE. 4. DECISION OF THE SUPREME COURT IN THE CASE OF TURNER MORRISSON AND COMPANY LIMITED VS. CIT (23 ITR 152), WHEREIN, IT H AS BEEN HELD THAT FOR ANY SUM TO BE TAXABLE U/S 5 OF THE INCOME- TAX ACT, THERE SHOULD BE A CONSTRUCTIVE RECEIPT IE. TO SAY THAT THE ASSESSEE SHOULD HAVE EITHER RECEIVED THE SUM OR THERE SHOULD BE A C LEAR PROBABILITY TO RECEIVE THE SAME. IN THE APPELLANTS CASE, THERE IS NO PROBABILITY OR POSSIBILITY TO RECEIVE THE MONEY BECAUSE THE COMPAN Y HAS BECOME DEFUNCT. 2 5. COPIES OF THE FOLLOWING DECISIONS. A. STATE BANK OF TRAVANCORE VS. CIT (1986) (18 ITR 102 , 154)(SC) B. WESTERN INDIA OIL DISTRIBUTING COMPANY LTD. VS. CIT (1994) (206 ITR 359, 365-366)(BOM). TO SUPPORT THE APPELLANTS POINT OF VIEW THAT ACCRU AL NEEDS TO BE JUDGED ON THE PRINCIPLES OF THE REAL INCOME THEORY WHETHER AN ACCRUAL HAS TAKEN PLACE OR NOT MUST, IN APPROPRIATE CASE, BE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 2114 114114 114/ // /M/ M/M/ M/1 11 10 00 0 8 JUDGED ON THE PRINCIPLES OF THE REAL INCOME THEORY. AFTER ACCRUAL, NON-CHARGING OF TAXES ON THE SAME BECAUSE OF CERTAI N CONDUCT BASED ON THE IPSE DIXIT OF A PARTICULAR ASSESSEE CA NNOT BE ACCEPTED. IN DETERMINING THE QUESTION WHETHER IT IS HYPOTHETICAL INCOME OR WHETHER REAL INCOME HAS MATERIALIZED OR N OT, VARIOUS FACTORS WILL HAVE TO BE TAKEN INTO ACCOUNT. IT WOUL D BE DIFFICULT AND IMPROPER TO EXTEND THE CONCEPT OF REAL INCOME T O ALL CASES DEPENDING UPON THE IPSE DIXIT OF THE ASSESSEE, WHIC H WOULD THEN BECOME A VALUE JUDGMENT ONLY, WHAT HAS REALLY ACCRU ED TO THE ASSESSEE HAS TO BE FOUND OUT AND WHAT HAS ACCRUED M UST BE CONSIDERED FROM THE POINT OF VIEW OF REAL INCOME TA KING THE PROBABILITY OR IMPROBABILITY OF REALIZATION IN A RE ALISTIC MANNER AND DOVETAILING OF THESE FACTORS TOGETHER BUT ONCE THE ACCRUAL TAKES PLACE, ON THE CONDUCT OF THE PARTIES SUBSEQUE NT TO THE YEAR OF CLOSING, AN INCOME WHICH HAS ACCRUED CANNOT BE M ADE NO INCOME. 5.3 SINCE CERTAIN DOCUMENTS HAVE BEEN FILED BY THE ASSESSEE AT FIRST APPEAL STAGE AS EMERGING FROM THE ABOVE PORTION OF CIT(A)S ORDER AND NEW POINT HAS ALSO BEEN RAISED AND ACCEPTED TO DECIDE T HE ISSUE IN FAVOUR OF THE ASSESSEE, BY BRINGING FOCUS ON REAL INCOME THEORY, WHEN THE ASSESSING OFFICER HAS NOT BEEN CONFRONTED WITH SUCH MATERIAL NOR HAS HE BEEN ASSOCIATED WITH APPEAL PROCEEDING, SO THERE IS CLEA R VIOLATION OF THE PROCEDURE AS LAID DOWN UNDER RULE 46A OF I.T. RULES AND MOREOVER AND LD. CIT(A) HAS ALSO NOT APPROPRIATELY DEALT WITH THE IS SUE IN HAND IN ITS RIGHT PROSPECTIVE, THEREFORE, IN OUR CONSIDERED VIEW THE IMPUGNED ORDER OF THE LD. CIT(A) COULD NOT BE HELD TO BE PROPER AND AS SUCH C ANNOT BE SUSTAINED. IN THE INTEREST OF JUSTICE AND TO HAVE FAIR PLAY IN TH E MATTER, WE ARE OF THE VIEW THAT IT WOULD MEET THE ENDS OF JUSTICE IF THE ORDER OF THE LD. CIT(A) IS SET ASIDE AND MATTER IS RESTORED BACK ON HIS FILE WITH THE DIRECTION TO REDECIDE THE ISSUE/APPEAL AFRESH AFTER FOLLOWING THE PROCEDU RE AS LAID DOWN UNDER RULE 46A AND GIVING DUE OPPORTUNITY TO THE ASSESSEE AS WELL AS TO THE ASSESSING OFFICER. WE HOLD AND DIRECT ACCORDINGLY. SINCE THE LD. COUNSEL FOR THE ASSESSEE HAS PLEADED FOR SETTING ASIDE THE MATTER ON THE FILE OF THE LD. CIT(A) FOR PASSING SIMILAR D IRECTION AS PASSED IN THE CASE OF SHRI P. RAJENDRA RAO AND THERE BEING NO OBJECTIO N FROM REVENUE SIDE IN CASE THE ORDER OF THE LD. CIT(A) IS SET ASIDE AND R ESTORE BACK THE MATTER ON HIS FILE, THEREFORE, WE, CONSIDERING THE ENTIRETY OF FA CTS, CIRCUMSTANCES OF THE CASE AND MATERIAL ON RECORD SET ASIDE THE ORDER OF THE L D. CIT(A) AND RESTORE THE MATTER BACK ON HIS FILE WITH THE DIRECTION TO FOLLO W SIMILAR DIRECTION HERE AS HAS TO BE FOLLOWED IN THE CASE OF ACIT V. SHRI P. R AJENDRA RAO IN ITA NO. 589/MDS/2008 AND DECIDE THE APPEAL AFRESH. 5. IN VIEW OF THE SUBMISSIONS MADE BEFORE US BY TH E LD. DR TO WHICH NO I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.2 22 2114 114114 114/ // /M/ M/M/ M/1 11 10 00 0 9 SERIOUS OBJECTION WAS MADE BY THE LD. AR OF THE ASS ESSEE, WE, FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL IN THE CASE OF SHRI M. RANJAN RAO, SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND RESTORE THE MATTER BACK TO THE FILE OF THE LD. CIT(A) WITH THE SAME DIRECTIONS AS CONTAINED IN THE ORDER IN THE CASE OF SHRI M. RANJAN RAO QUOTED ABOVE. THE LD. CIT(A) SHALL AL LOW REASONABLE OPPORTUNITY OF HEARING TO BOTH THE PARTIES BEFORE A DJUDICATING THE ISSUE AFRESH. THE GROUNDS OF APPEAL OF THE REVENUE ARE AL LOWED FOR STATISTICAL PURPOSES. 6. NO OTHER POINT HAS BEEN URGED BY THE REVENUE EX CEPT THE ABOVE POINT. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED AT THE CLOSE OF THE HEARING IN THE PRESENCE OF THE PARTIES ON 15.02.2012. SD/- SD/- (GEORGE MATHAN) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER CHENNAI, DATED, THE 15.02.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.