The DCITNavsari Circle, Navsari V. M/s. Gufic Limited, Navsari

ITA 3355/AHD/2008

• Counselvise Citation: 335520514 RSA 2008
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 08-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M J SHAH
• Keywords: Capital receipt; Revenue expenditure
• Section: 28

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A.L.GEHLOT, ACCOUNTANT MEMBER ./ I.T.A. NO.3355/AHD/2008 ( / / / / ASSESSMENT YEAR : 1997-98) THE DY.CIT NAVSARI CIRCLE NAVSARI / VS. M/S.GUFIC LIMITED KABILPORE NAVSARI ! ./'# ./ PAN/GIR NO. : AABCG 1082 E ( $ / // / APPELLANT ) .. ( %&$ / RESPONDENT ) $ ' / APPELLANT BY : SHRI SAMIR TEKRIWAL, SR. D.R. %&$ ( ' / RESPONDENT BY : SHRI M.J. SHAH, A.R. )* ( +,! / / / / DATE OF HEARING : 12/01/2012 -. ( +,! / DATE OF PRONOUNCEMENT : 31.1.12 / / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WH ICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-VAL SAD DATED 12/06/2008. AND THE SOLITARY SUBSTANTIAL GROUND REA DS AS UNDER:- RELIEF CLAIMED IN APPEAL THE LEARNED C.I.T. (APPEALS) ERRED IN DELETING THE AGGREGATE ADDITIONS OF RS.50,00,000/- MADE BY THE AO ON ACCO UNT OF NON COMPETE FEES TREATED AS REVENUE EXPENDITURE, BY THE ASSESSING OFFICER MAY KINDLY BE RESTORED. ITA NO.3355/AHD /2008 DY.CIT VS. M/S.GUFIC LTD. ASST.YEAR - 1997-98 - 2 - 2. IN RESPECT OF THE IMPUGNED ADDITION FACTS IN BRI EF AS NOTED BY THE AO VIDE AN ORDER U/S.143(3) R.W.S. 147 OF THE IT AC T DATED 30/11/2004 WHILE PASSING THE ORDER FOR A.Y. 1997-98 WERE THAT THE ASSESSEE-COMPANY HAD CLAIMED THE AMOUNT OF RS.50 LACS AS EXEMPT WHIC H WAS IN THE NATURE OF NON-COMPETE FEES AND THEREFORE TREATED AS CAP ITAL RECEIPT. IT WAS FOUND THAT A NON-COMPETITION AGREEMENT WAS EXECUTED BY THE ASSESSEE- COMPANY WITH M/S. RANBAXY LAB LIMITED DATED 31.03.1 997. THE NON- COMPETITION AGREEMENT WAS WITH A CLAUSE NOT TO MANU FACTURE THE BRAND MOX FOR NEXT TWENTY YEARS. THE ASSESSEES SUBM ISSION WAS THAT BY THIS AGREEMENT THE ASSESSEE HAD LOST INCOME BY STOP PING THE MANUFACTURE AND SALE OF THE PRODUCT. BY STOPPING THE MANUFACT URING OF THE SAID PRODUCT, IN LIEU, THE ASSESSEE HAD RECEIVED RS.50 L ACS AS LUMP SUM AMOUNT. AS PER AO, IT WAS A REVENUE RECEIPT, HENC E TAXED ACCORDINGLY BY REFERRING SECTION 28(VA) OF IT ACT. 3. LD. CIT(A) HAS DISCUSSED SEVERAL CASE LAWS AND T HEREAFTER NOTED THAT AT THE TIME WHEN THE RANBAXY LAB LTD. HAD DECI DED TO TAKE OVER THE PRODUCT OF GUFIC LTD. DEFINITELY THERE WAS A THREA T OF DAMAGING THE INTEREST OF RANBAXY LAB LTD., THEREFORE, NON-COMPET ITION AGREEMENT WAS ENTERED INTO. IT HAS ALSO BEEN NOTED THAT BY INSE RTION OF CLAUSE (VA) OF SECTION 28 W.E.F. 01/04/2003 THE AMOUNT IN QUESTION HAS BEEN BROUGHT INTO TAX NET. UPTO 01/04/2003, THE AMOUNT IN QUE STION COULD NOT BE BROUGHT TO TAX U/S.28(VA). THE ADDITION WAS DELETE D, HENCE THE REVENUE IS IN APPEAL. ITA NO.3355/AHD /2008 DY.CIT VS. M/S.GUFIC LTD. ASST.YEAR - 1997-98 - 3 - 4. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, NOW THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE SUPREME COURT PRONOUNCED IN ASSESSEES GROUP CASE TITLED AS GUFFIC CHEM P.L TD. VS. CIT (C.A.NO.2522 OF 2011) :: CIT VS. MANDALAY INVESTME NT P.LTD. (C.A. NO.2523 OF 2011) REPORTED IN 332 ITR 602 (SC), WH EREIN IT WAS HELD THAT VIDE FINANCE ACT 2002 W.E.F. 01/04/2003 I.E. F ROM A.Y. 2003-04 THE SAID CAPITAL RECEIPT IS MADE TAXABLE. FACTS OF TH E SAID CITED DECISION WERE IDENTICAL THAT DURING A.Y.1997-98 THE SAID APPELLAN T HAD RECEIVED RS.50 LACS FROM RANBAXY LAB LTD. AS NON-COMPETITION FEES IN TERMS OF AN AGREEMENT DATED 31/03/1997. THE RELEVANT PORTION I S REPRODUCED HEREUNDER:- THE ASSESSEE, WHICH WAS CARRYING ON THE BUSINESS O F MANUFACTURING, SELLING AND DISTRIBUTION OF PHARMACE UTICAL AND MEDICAL PREPARATIONS, RECEIVED DURING THE ASSESSMEN T YEAR 1997- 98 RS.50 LAKHS FROM RANBAXY AS NON-COMPETITION FEE. IT AGREED TO TRANSFER ITS TRADE MARKS TO RANBAXY AND IN CONSIDER ATION FOR SUCH TRANSFER THE ASSESSEE AGREED THAT IT SHALL NOT CARR Y ON DIRECTLY OR INDIRECTLY THE BUSINESS HITHERTO CARRIED ON BY IT. THE AGREEMENT WAS FOR 20 YEARS. THE TRIBUNAL HELD THAT THE AMOUN T WAS A CAPITAL RECEIPT; BUT THE HIGH COURT REVERSED THE DECISION. ON APPEAL TO THE SUPREME COURT: HELD, REVERSING THE DECISION OF THE HIGH COURT, THA T PRIOR TO APRIL 1, 2003, WHEN PARLIAMENT STEPPED IN TO SPECIFICALLY TAX SUCH RECEIPTS, THE PAYMENT WAS IN THE NATURE OF A CAPITA L RECEIPT. ITA NO.3355/AHD /2008 DY.CIT VS. M/S.GUFIC LTD. ASST.YEAR - 1997-98 - 4 - 4.1. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE HONBLE APEX COURT, WE HEREBY AFFIRM THE FINDINGS OF LD.CIT(A) AND DISM ISS THIS GROUND OF THE REVENUE. 5. IN THE RESULT, REVENUES APPEAL DISMISSED. SD/- SD/- ( A.L. GEHLOT ) ( MU KUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 31/ 01 /2012 0,.., .../ T.C. NAIR, SR. PS / ( %+1 2 1+ / ( %+1 2 1+ / ( %+1 2 1+ / ( %+1 2 1+/ COPY OF THE ORDER FORWARDED TO : 1. $ / THE APPELLANT 2. %&$ / THE RESPONDENT. 3. + )3 / CONCERNED CIT 4. )3() / THE CIT(A)-VALSAD 5. 167 %+ , , / DR, ITAT, AHMEDABAD 6. 78 9* / GUARD FILE. /) /) /) /) / BY ORDER, &1+ %+ //TRUE COPY// : :: :/ // / ' ' ' ' ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION..16.1.12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 17.1.12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.31.1.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31.1.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER