Chanchal Mehta, CHENNAI V. ITO, CHENNAI

ITA 595/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8834 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 01-08-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 14-03-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: D ANANAD
• Keywords: Business income; Share purchase agreement; Advance ruling; Benefit of exemption

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./ I.T.A.NO.595/MDS/2016 / ASSESSMENT YEAR : 2008-09 SMT. CHANCHAL MEHTA NO.196, GOVINDAPPA NAICKEN STREET, CHENNAI 600 001 VS. THE INCOME TAX OFFICER WARD VIII(2) CHENNAI [PAN AJBPM 4173 G] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : SHRI D. ANANAD, ADVOCATE /RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT / DATE OF HEARING : 01 - 0 8 - 2016 ! / DATE OF PRONOUNCEMENT : 10 - 0 8 - 2016 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-13, CHENNA I, DATED 28.1.2016 FOR ASSESSMENT YEAR 2008-09. THE ASSESS EE HAS RAISED ALTOGETHER FOUR GROUNDS OF WHICH GROUND NO.1 IS GEN ERAL IN NATURE, NEEDING NO SPECIFIC ADJUDICATION. ITA NO. 595/16 :- 2 -: 2. IN GROUND NO.2, THE GRIEVANCE RAISED BY THE ASSESS EE IS THAT THE AMOUNT KEPT IN ESCROW ACCOUNT WAS CONSIDERED AS NON-COMPETE FEES AND ASSESSED AS BUSINESS INCOME U/S 28(VA) OF THE ACT. 3. FACTS APROPOS ARE THAT THE ASSESSEE, AN INDIVIDUAL , FILED HER RETURN DECLARING INCOME OF ` 2,55,490/- OUT OF INTEREST. DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE ASSESSI NG OFFICER THAT A SUM OF `74,78,167.20 WAS CREDITED IN THE PERSONAL CAPITAL ACCOUNT WITH A NARRATION LONG TERM CAPITAL GAINS. WHEN QUERIED WHY THE AMOUNT WAS NOT SHOWN IN THE RETURN OF INCOME, REPLY OF THE ASSESSEE WAS THAT THE SAME REP RESENTED PROFITS ON SALE OF SHARES OF CERTAIN COMPANIES, WHICH WAS INVESTED IN CONSTRUCTION OF HOUSE PROPERTY. AS PER T HE ASSESSEE, LONG TERM CAPITAL GAINS WAS EXEMPT U/S 5 4F OF THE ACT. THE ASSESSING OFFICER MADE A VERIFICATION OF THE SALE OF SHARES. HE FOUND THAT THE ASSESSEE WAS SHAREHOLDER OF ONE M/S TRISHYIRAYA RECYCLING INDIA (P) LTD. (TRISHYIRA YA). THE ENTIRE SHAREHOLDING OF THE SAID COMPANY INCLUDING TH AT OF THE ASSESSEE WAS TRANSFERRED ON 3.12.2007 TO ONE M/S SI MS GROUP MAURITIUS LTD. THROUGH A TRIPARTITE AGREEMENT . THE PARTIES TO THE SAID AGREEMENT WAS M/S SIMS GROUP MAURITIUS LTD., TRISHYIRAYA AND SHAREHOLDERS OF TRISHYIRAYA. THE CONSIDERATION AGREED AS PER THE ABOVE AGREEMENT WAS ` 8 ITA NO. 595/16 :- 3 -: CRORES OF WHICH `6.4 CRORES WAS PAID AS FIRST INSTALL MENT AND THE BALANCE OF `1.6 CRORES WAS KEPT IN AN ESCROW ACC OUNT WITH ABN AMRO BANK, NUNGAMBAKKAM, CHENNAI. AFTER VERIFYI NG THE AGREEMENT, THE ASSESSING OFFICER CAME TO AN OPINI ON THAT THE SALE CONSIDERATION HAD TO BE DIVIDED INTO TWO. AS PER THE ASSESSING OFFICER, THERE WAS A RESTRICTIVE COVENANT I N THE AGREEMENT BY VIRTUE OF WHICH THE SELLERS INCLUDING T HE ASSESSEE WERE RESTRAINED FOR FOUR YEARS FROM ENTERING INTO OR CARRYING ON OR BE ENGAGED OR INTERESTED IN ANY BUS INESS WHICH WAS SIMILAR TO OR TO COMPETE WITH THE BUSINES S OF TRISHYIRAYA. WHEN THIS WAS POINTED OUT TO THE ASS ESSEE, HER SUBMISSION WAS THAT NO PART OF THE CONSIDERATION PER TAINED TO ANY NON-COMPETE CLAUSE. THE ASSESSING OFFICER WAS OF THE OPINION THAT OUT OF THE TOTAL CONSIDERATION RECEIV ED BY THE ASSESSEE, WHAT WAS HELD IN THE ESCROW ACCOUNT IN HE R NAME COULD BE CONSIDERED ONLY AS NON-COMPETE FEE WHICH C AME WITHIN THE AMBIT OF SEC. 28(VA) OF THE ACT. AS PER T HE ASSESSING OFFICER, THE ASSESSEE HAD INCORRECTLY CONS IDERED WHOLE OF THE AMOUNT AS PART OF ITS SALE CONSIDERATION AND COMPUTED THE INCOME FROM CAPITAL GAINS. THE ASSES SING OFFICER REWORKED THE LONG TERM CAPITAL GAINS ARISING TO THE ASSESSEE EXCLUDING THE AMOUNT KEPT IN THE ESCROW AC COUNT. ITA NO. 595/16 :- 4 -: THE ASSESSING OFFICER COMPUTED THE AMOUNT HELD IN ESCROW ACCOUNT UNDER THE HEAD INCOME FROM BUSINESS. 4. ASSESSING OFFICER ALSO CALCULATED INTEREST DUE TO T HE ASSESSEE ON THE AMOUNT HELD IN THE ESCROW ACCOUNT @ 8%. AS PER THE ASSESSING OFFICER, THIS WAS ALSO NOT DISC LOSED BY THE ASSESSEE. ACCORDINGLY, THE ASSESSING OFFICER FR AMED THE ASSESSMENT BY MAKING ADDITION TOWARDS INTEREST ON E SCROW ACCOUNT, AFTER REWORKING THE LONG TERM CAPITAL GAINS AND MAKING AN ADDITION TOWARDS NON-COMPETE FEE. 5. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). ARGUMENT OF THE ASSESSEE WAS THAT THE AMOU NT IN ESCROW ACCOUNT WAS NEITHER NON-COMPETE FEE NOR WAS I T A BUSINESS RECEIPT. AS PER THE ASSESSEE, CONSIDERATI ON RECEIVED FOR TRANSFER OF SHARES FELL UNDER CAPITAL GAINS ONLY . FURTHER, AS PER THE ASSESSEE, NO INTEREST HAD ACCRUED ON TH E AMOUNT IN THE ESCROW ACCOUNT. HOWEVER, THE CIT(A) BRUSHED ASIDE THESE ARGUMENTS AND CONFIRMED THE ACTION OF THE ASSES SING OFFICER. 6. NOW, BEFORE US, THE LD. AR STRONGLY ASSAILING THE ORD ER OF THE CIT(A) SUBMITTED THAT THE TRIPARTITE AGREEMEN T DATED 3.12.2007 CLEARLY MENTIONED THE EQUITY SHARE HOLDIN G OF THE ASSESSEE IN TRISHYIRAYA. AS PER THE LD. AR, THE A SSESSEES ITA NO. 595/16 :- 5 -: HOLDING WAS ONLY 27,900 OUT OF THE TOTAL 2,50,000 SH ARES. THE AGREED CONSIDERATION FOR TRANSFER OF SHARES BELONGI NG TO THE ASSESSEE WAS `71,42,400/-. AS PER THE LD. AR, THE BALANCE OF THE CONSIDERATION OF `17,85,600/- WHICH WAS KEPT I N THE ESCROW ACCOUNT WAS FOR NO REASON CONSIDERED AS NON-C OMPETE FEE. AS PER THE LD. AR IT WAS ONLY SECOND INSTALLM ENT DUE OUT OF THE TOTAL CONSIDERATION AGREED FOR THE TRANSFER OF SHARES AND IT WAS NOT LINKED TO ANY NON-COMPETE CLAUSE. THE C ONDITIONS WHICH WERE TO BE SATISFIED BEFORE RELEASING THE AMOU NT IN ESCROW ACCOUNT, AS PER THE LD. AR, WERE STATED IN C LAUSE 4 OF THE AGREEMENT. INSOFAR AS THE INTEREST ON THE AMOU NT IN ESCROW ACCOUNT WAS CONCERNED, THE SUBMISSION OF THE LD. AR WAS THAT THE MAXIMUM INTEREST THAT COULD BE CONSIDE RED IN THE HANDS OF THE ASSESSEE WAS THE ACTUAL INTEREST C REDITED IN THIS ACCOUNT AND HYPOTHETICAL APPLICATION OF 8% INT EREST RATE WAS INCORRECT. 7. PER CONTRA, THE LD. DR SUBMITTED THAT THERE WAS A RESTRICTIVE COVENANT IN THE AGREEMENT. SUCH RESTRI CTION APPEARING IN CLAUSE 9 OF THE AGREEMENT CLEARLY STATE D THAT THE SELLERS COULD NOT CARRY ON ANY BUSINESS SIMILAR TO THE ONE CARRIED ON BY TRISHYIRAYA FOR A PERIOD OF FOUR YEARS . AS PER THE LD. DR, THE TOTAL CONSIDERATION AGREED FOR THE TRANSFE R OF THE SHARES INCLUDED NON-COMPETE FEE. THE AMOUNT WHICH W AS KEPT ITA NO. 595/16 :- 6 -: IN THE ESCROW ACCOUNT AS PER THE LD. DR, REPRESENTED THE NON- COMPETE FEE. ACCORDING TO HIM, THE LOWER AUTHORITI ES WERE JUSTIFIED IN CONSIDERING THE NON-COMPETE FEE U/S 28( VA) OF THE ACT AND RESTRICTING THE LONG TERM CAPITAL GAINS TO THAT EXTENT. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. CLAUSE (3) OF THE AGREEMENT GIVES DETAILS OF THE CONSIDERATION. THE S AID CLAUSE IS REPRODUCED BELOW: 3. CONSIDERATION 3.1 THE PAYMENT OF CONSIDERATION BY THE PURCHASER WILL BE MADE IN THE MANNER SET OUT IN THIS CLAUSE. 3.2.1 THE FIRST INSTALMENT OF THE CONSIDERATION, BEING TH E SUM OF RS. 64,000,000/- WILL BE PAID BY THE PURCHAS ER ON THE COMPLETION DATE BY MEANS OF ELECTRONIC MONEY TRANSF ER. THE SELLERS SHALL HAND OVER SHARE CERTIFICATES AND SHAR E TRANSFER DEEDS DULY EXECUTED IN FAVOUR OF PURCHASER; PERMITS , LICENSES, APPROVALS AND ALL OTHER DOCUMENTS REQUIRED AS PER C LAUSE 4 OF THIS AGREEMENT ON THE ISSUANCE OF WRITTEN INSTRUCTI ONS FROM THE PURCHASER TO THE HSBC BANK, MAURITIUS TO TRANSMIT T O THE CREDIT OF SELLERS THE CONSIDERATION AMOUNT IN THE THEIR BA NK ACCOUNTS IN THE FOLLOWING PROPORTION: NAME OF THE SHAREHOLDER VALUE OF REMITTANCE IN INDIAN RUPEES 1 MR. AKSHAY J. J MEHTA 16197376 2 MRS. USHA A MEHTA 7853824 3 UDIT A MEHTA 3660800 4 JS MEHTA HUF THROUGH ITS KARTA MR. J. S. MEHTA 13120000 5 TRISHI A MEHTA 3660800 ITA NO. 595/16 :- 7 -: 6 MRS. CHANCHAL S MEHTA 7142400 7 TARA MEHTA 12364800 TOTAL (RS. SIXTY FOUR MILLION ONLY) 64000000 3.2.2 THE PARTIES AGREE THAT UPON RECEIPT OF THE AU DITED ACCOUNTS BY THE PURCHASER FROM THE WELLERS, THE PARTIES WILL AR RIVE AT THE ADJUSTMENT AMOUNT BASED ON THE AVAILABILITY OF NET TANGIBLE ASSETS WITH THE COMPANY, AND ITS SATISFACTION OF THE MINIM UM NET TANGIBLE ASSETS AS REQUIRED BY CLAUSE 5.2(G). DEPEN DING ON WHETHER THE NET TANGIBLE ASSETS AVAILABLE EXCEEDS O R IS BELOW THE MINIMUM STIPULATED IN CLAUSE 5.2(G), ANY ADJUSTMENT AMOUNT THAT MAY BE PAYABLE IS TO BE PAID BY EITHER THE PUR CHASER OR THE SELLERS WITHIN 10 DAYS OF THE AUDITED ACCOUNTS BEIN G HANDED OVER TO THE PURCHASER. 3.3 THE SECOND INSTALMENT WILL BE PAID TO THE SELL ERS IN THE SET OUT BELOW ON THE EXPIRY OF THE PERIOD OF 12 MONTHS FROM THE COMPLETION DATE ON THE FULFILMENT OF ANY PENDING CO NDITION PRECEDENT SET OUT IN CLAUSE 4 HEREIN AS AGREED BETW EEN THE PARTIES TO BE FULFILLED AFTER THE COMPLETION DATE A ND SUBJECT TO THERE BEING NO BREACH OF WARRANTIES OR RESTRICTIVE COVENANTS. PENDING PAYMENT OF THE SECOND INSTALMENT, AN AMOUNT EQUAL TO THE SECOND INSTALMENT WILL BE DEPOSITED IN AN ESCRO W ACCOUNT OPENED WITH ABN AMRO BANK AT ITS NUNGAMBAKKAM BRANC H, CHENNAI, IN INDIA AS PER THE ESCROW AGREEMENT AGREE D TO BETWEEN THE PARTIES AND THE ESCROW AGENT. S.NO. NAME OF THE SHAREHOLDER VALUE OF REMITTANCE 1 MR. AKSHAY J. A MEHTA 4049344 2 MRS. USHAA MEHTA 1963456 3 UDIT A MEHTA 915200 4 JS MEHTA HUF THROUGH ITS KARTA MR. J. S. MEHTA 3280000 5 TRISHI A MEHTA 915200' 6 MRS. CHANCHAL S MEHTA 1785600 7 TARA MEHTA 3091200 TOTAL(RUPEES SIXTEEN MILLION ONLY) 16000000 ITA NO. 595/16 :- 8 -: 9. RELEASE OF THE SECOND INSTALLMENT WAS SUBJECT TO SATISFACTION OF CONDITIONS PRECEDENT SAID TO BE IN CL AUSE (4). IT IS THEREFORE, NECESSARY TO LOOK INTO CLAUSE (4) WHIC H IS REPRODUCED BELOW: 4. CONDITIONS PRECEDENT 4.1 THE COMPLETION OF THE SALE AND PURCHASE OF THE SHARES WILL BE CONDITIONAL UPON THE FULFILLMENT OF THE FOLLOWING C ONDITIONS: A) OBTAINING APPROVAL FROM THE BOARD OF DIRECTORS F OR TRANSFER OF SHARES IN FAVOUR OF THE PURCHASER. B) OBTAINING AND PROVIDING A MEDICAL REPORT FROM AN OCCUPATIONAL HEALTH & SAFETY HOSPITAL, CERTIFYING THAT THE EMPLOYEES, DETAILED IN SCHEDULE J HEREUNDER, ARE IN GOOD HEALTH. C) RELOCATION OF THE EMPLOYEES RETAINED BY THE PUR CHASER WHO RESIDE IN THE COMPANY'S FACTORY INSIDE MEPZ TO RESIDENCES OUTSIDE MEPZ D) OBTAINING A 'NO DUES LETTER' FROM THE EMPLOYEES AS PER THE FORMAT GIVEN IN THE SAID SCHEDULE F E) TAKING INSURANCE AGAINST LOSS OR DAMAGE BY FIRE ON ACCOUNT OF EXPLOSIONS AND HAZARDOUS GOODS, WORKERS ACCIDENT INSURANCE AND SUCH OTHER INSURANCE AS MAY BE REQUIRED TO BE TAKEN BY MEPZ IN TERMS OF CLAUSE Q OF THE LEASE DEED DATED 18/09/2006 ENTERED INTO BY TRISHYI RAYA RECYLING (IHDIA) PVT. LTD. WITH MEPZ. F) DISCONTINUANCE OF THE ELECTRONIC WASTE, ASSET MANAGEMENT, REFURBISHING & RESALE OF ELECTRONIC PRODUCTS BUSINESS BEING RUN IN THE NAME AND STYLE OF RAM AGR O CHEMICAL INDUSTRIES LTD. AND OTHER AFFILIATES IN AL L LOCATIONS AND THE CLOSURE OF THE VARIOUS SERVICING BUSINESSES BEING RUN BY THE SELLERS WITHIN A PERIOD OF 30 DAYS FROM THE DATE OF COMPLETION. THESE BUSINESSES SHALL NOT BE CARRIED OUT BY THE SELLERS EITHER DIRE CTLY OR INDIRECTLY I.E. BY AND THROUGH THEIR HEIRS, ASSIGNS , NOMINEES ETC. ITA NO. 595/16 :- 9 -: G) PROOF OF PROVISION OF A MINIMUM INVENTORY OF ONE MONTH'S PRODUCTION WITH THE RAW MATERIAL INVENTORY OF UNPRO CESSED E-WASTE HOLDING A MAXIMUM OF 20% MONITORS, AND COMPLIANCE WITH OTHER INVENTORY REQUIREMENTS. H) PRODUCTION OF RECORDS RELATING TO / PROVING OWNERSH IP OF ASSETS/PROVING RENTAL AND LEASE, AS DESCRIBED IN SC HEDULE C HEREUNDER . I) EXECUTION OF THE CONSULTANCY AGREEMENT BY MR. AK SHAY J. MEHTA, AS PER ANNEXURE I. ALL THE ABOVE CONDITIONS MUST BE COMPLIED WITH BY T HE PARTIES CONCERNED ON OR BEFORE THE COMPLETION DATE AND THE COMPLETION DATE IS 5 TH DECEMBER, 2007 . 4.1.1 PARTIES AGREE THAT THE SELLERS AND MR. SUREND AHARA WILL EXTEND ALL NECESSARY CO- OPERATION TO ENABLE T HE PURCHASER TO OBTAIN ALL NECESSARY APPROVALS AND AUTHORISATIONS WHERE NECESSARY AND TO THE EXTENT RE QUIRED UNDER INDIAN LAW FROM ALL AUTHORITIES WITH RESPECT TO THE SALE AND PURCHASE OF THE SHARES UNDER THIS AGREEMENT . 4.1.2 THE SELLERS AND MR. SURENDHARA J. MEHTAA AGREE TO CHANGE THE NAME OF THE BUSINESS CONDUCTED AT THE MA HINDRA CITY SEZ (MAHINDRA INDUSTRIAL PARK LTD.) FROM M/ S ELECTRONIC RECYCLING TO ANOTHER NAME. THE NEW NAME SHALL BE APPROVED BY THE PURCHASER. 4.2 SIMS SHALL APPLY FOR THE APPROVAL TO THE ADV ANCE RULING AUTHORITY, NEW DELHI (DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, AND GOVERNMENT OF INDIA), WITH IN A PERIOD OF 30 DAYS FROM THE COMPLETION DATE, FOR AN ADVANCE RULING TO ASCERTAIN AS TO WHETHER TRISHYIRAYA IS EN TITLED TO CLAIM A 100% EXEMPTION ON ITS PROFITS UNDER SECTION 245Q OF THE INCOME TAX ACT, 1961, FOR THE ENTIRE PERIOD THA T TRISHYIRAYA HAS AVAILED THIS BENEFIT. IN THE EVENT THAT THE ADVANCE RULING AUTHORITY DOES NOT DECIDE THE ISSUE W ITHIN TWELVE MONTHS FROM THE COMPLETION DATE, THEN, MR. A KSHAY MEHTA AND MR. SURENDHARA J. MEHHTA, SHALL GIVE A PERSONAL GUARANTEE OF A SUM OF RS. 5 MILLION OR SUCH HIGHER SUM INCLUSIVE OF INTEREST AND PENALTY AS COULD BE LEVIE D BY THE INCOME TAX AUTHORITIES IF SUCH DEDUCTION WAS NOT AV AILABLE TO THE COMPANY, AND THE SAID GUARANTEE WILL SUBSIST UNTIL SUCH TIME AS AND BE SUBJECT TO THE ISSUE OF THE EXT ENSION OF ITA NO. 595/16 :- 10 -: THE BENEFIT OF EXEMPTIONS OF INCOME TAX UNDER THE I NCOME TAX ACT, 1961 ON PROFITS FOR THE PERIOD OF OPERATIO N IN MEPZ EARNED BY TRISHYIRAYA BEING DETERMINED FINALLY. TRI SHIRAYA SHALL KEEP THE SELLERS FULLY INFORMED OF ANY DEVELO PMENT / COMMUNICATION RECEIVED BY THE COMPANY IN THIS REGAR D. 4.3 SHOULD ANY OF THE CONDITIONS SET OUT ABOVE NOT BE FULFILLED BY THE DATE AGREED IN THE PRECEDING CLAUS E, THE PARTY ENTITLED TO CLAIM COMPLIANCE OF THE CONDITION MAY A T ITS DISCRETION, DECIDE TO PROCEED WITH THE COMPLETION O F THE TRANSACTION ON THE COMPLETION DATE. 4.4 NOTWITHSTANDING CLAUSE 4.4, IN THE EVENT OF ALL THE CONDITIONS PRECEDENT NOT BEING FULFILLED ON OR BEFO RE COMPLETION DATE, THE PURCHASER MAY AT ITS SOLE DISC RETION , DECIDE NOT TO PROCEED WITH THE PURCHASE OF THE SHAR ES WITHOUT GIVING RISE TO ARTY OTHER INDEMNITIES, CLAIMS OR LIABILITIES. 4.5 THE PURCHASER HAS VERIFIED ALL THE DOCUMENTS R EFERRED TO DETAILED IN SCHEDULES, C, D, E, H, & ANNEXURE IV. 10. A READING OF THE ABOVE CONDITIONS DOES NOT SHOW ANY STIPULATION THAT THE RELEASE OF THE SECOND INSTALLM ENT WAS LINKED TO ANY NON-COMPETE CLAUSE. WHAT WAS EXPECTED BY BOTH THE PARTIES WAS SMOOTH TRANSFER OF THE SHARES A ND RELATED DOCUMENTATIONS FROM THE SELLER TO THE BUYER . NO DOUBT, THERE INDEED A RESTRICTIVE COVENANT AT CLAUS E (9) WHICH IS REPRODUCED BELOW: 9. RESTRICTIVE COVENANTS 9.1 FOR THE PURPOSE OF ASSURING TO THE PURCHASER THE FU LL BENEFIT OF THE BUSINESSES AND GOODWILL OF THE COMPA NY, EACH OF THE SELLERS AND SURENDHARA J. MEHTAA AND THEIR AFFILIATES HEREBY UNDERTAKES BY WAY OF CONSIDERATION FOR THE O BLIGATIONS OF THE PURCHASER UNDER THIS AGREEMENT AS SEPARATE A ND INDEPENDENT AGREEMENTS THAT, FOR A PERIOD OF 4 YEAR S FROM THE ITA NO. 595/16 :- 11 -: DATE OF THIS AGREEMENT, THEY WILL NOT, EXCEPT AS DI RECTOR OR EMPLOYEE OR CONSULTANT OF THE COMPANY, DIRECTLY OR INDIRECTLY EITHER ON HIS/ITS OWN BEHALF OR JOINTLY WITH OR AS AGENT, DIRECTOR, MANAGER, CONSULTANT OR EMPLOYEE OR OTHERWISE ON BEH ALF OF ANY OTHER PERSON, FIRM, COMPANY OR ORGANISATION: I. AT ANY TIME AFTER COMPLETION DATE, DISCLOSE OR USE FOR ANY PURPOSE, ANY CONFIDENTIAL INFORMATION CONCERNING TH E BUSINESS, ACCOUNTS OR FINANCES OF THE COMPANY OR AN Y OF THEIR CLIENTS' OR CUSTOMERS' OR TRANSACTIONS OR AFFAIRS K NOWN TO THEM OR WHICH MAY HAVE COME TO THEIR KNOWLEDGE OR ASSIST-ANY PERSON, TO-DO SO. THIS IS HOWEVER SUBJECT TO ANY REQUIREMENT FOR DISCLOSURE BY ANY AUTHORITY-UNDER ANY LAW, THE NEED FOR SUCH DISCLOSURE IN THE COURSE IF ANY PROCEEDINGS, A ND EXCEPTS ANY CONFIDENTIAL INFORMATION RECEIVED BY THE SELLER S FROM ANY THIRD PARTY. II. NEITHER THE SELLERS,NOR SURENDHARA J MEH TAA, OR THEIR AFFILIATES NOR THEIR NOMINEES WILL IN ANY MANNER CA RRY ON OR BE ENGAGED OR INTERESTED IN ANY BUSINESS WHICH IS S IMILAR TO OR COMPETES WITH THE BUSINESS OR ANY PART THEREOF C ARRIED ON BY THE COMPANY. THE SELLERS ARE ALSO PROHIBITED FRO M .SOLICITING, ENGAGING IN OR CONDUCTING BUSINESS. TH E SELLERS AND SURENDHARA J. MEHTA UNDERTAKE NOT TO ENGAGE IN ANY BUSINESS OR TRANSACTIONS WITH THE FOLLOWING ENTITIE S FOR THE PERIOD AS STATED IN CLAUSE 9.1 ABOVE. .. THE PURCHASER WILL UPON VERIFICATION OF THE COMPANY 'S RECORDS ADD ANY FURTHER ENTITIES WHICH HAVE TRANSAC TED WITH THE COMPANY TO THE ABOVE LIST WITHIN A PERIOD OF 6 MONTHS FROM THE COMPLETION DATE. THE SELLERS CAN, HOWEVER, DEAL IN ALL NON-FERROUS A ND FERROUS METALS. THE SELLERS AND SURENDHARA J. MEHTA STRICTLY PROHIBITED FROM DEALING IN ANY MANNER WITH ANY ELECTRONIC MATERIAL AND WEEE AND WILL ALSO DIRECT A NY ENQUIRIES THEY MAY RECEIVE FROM THIRD PARTIES FOR ELECTRONIC ITA NO. 595/16 :- 12 -: RECYCLING SERVICES TO TRISHYIRAYA, III. DIRECTLY OR INDIRECTLY SOLICIT OR ENTICE AWAY FROM THE. COMPANY OR OFFER EMPLOYMENT TO OR OFFER TO CONCLUD E ANY CONTRACT OF SERVICES WITH OR EMPLOY OR CONCLUDE ANY CONTRACT! OF SERVICES WITH ANY OFFICER OR EMPLOYEE OF THE COMPANY WHETHER OR NOT SUCH PERSON WOULD COMMIT A BREACH OF HIS CONTRACT OF EMPLOYMENT BY REASON OF L EAVING THE SERVICE OF THE COMPANY EXCEPT FOR THOSE IN SCHE DULE F. IV. THE SELLERS AND SURENDHARA J. MEHTA, HAVING TAKEN INDEPENDENT LEGAL ADVICE ACKNOWLEDGE AND AGREE THA T THE RESTRICTIONS SET OUT IN THIS CLAUSE ARE FAIR AND RE ASONABLE IN THE CIRCUMSTANCES AND THAT IF ANY ONE OR MORE OR ASSESSMENT YEAR PART OF SUCH RESTRICTIONS SHALL BE RENDERED OR JUDGED INVALID OR UNENFORCEABLE, SUCH RESTRICTION OR PART SHALL BE DEEMED TO BE SEVERED FROM THIS AGREEMENT AND SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT IN A NY WAY AFFECT THE VALIDITY OR ENFORCEI1BILLTY OF THE REMAINING PROVISIONS IN THIS AGREEMENT. V. EACH OF THE SELLERS AND SURENDHARA J. MEHTA UNDERTAKE THAT THEY WILL NOT FOR THE PURPOSES OF ANY BUSINES S OR ENTERPRISE EITHER DIRECTLY OR INDIRECTLY ENGAGED IN BY THEM, USE THE REGISTERED TRADEMARK BELONGING TO THE COMPANY OR US E THE COMPANY'S NAME IN SUCH BUSINESS OR AS PART OF A DOM AIN NAME OR WEBSITE. VI. THE RESTRICTIONS CONTAINED IN THESE COVENANTS SHALL NOT EXTEND TO ANY CONFIDENTIAL OR SECRET INFORMATION WH ICH MAY COME INTO THE PUBLIC DOMAIN OTHERWISE THAN THROUGH THE DEFAULT OF ANY OF THE SELLERS. . VII. MR. AKSHAY J. MEHTA AGREES TO ENTER INTO AN EXCLUSIVE CONSULTANCY AGREEMENT WITH THE COMPANY FOR A PERIOD OF 12 MONTHS FROM THE DATE OF COMPLETION FOR NO FEES AND IN ACCORDANCE WITH THE TERMS SET OUT IN ANNEXURE I TO THIS AGREEMENT. ITA NO. 595/16 :- 13 -: 11. IN OUR OPINION, EXISTENCE OF THE RESTRICTIVE COVENA NT IN AN AGREEMENT WOULD NOT IPSO FACTO COVERT PART OF THE TOTAL CONSIDERATION AS RELATABLE TO SUCH RESTRICTION. FU RTHER, THE RESTRICTIVE COVENANT WAS FOR A PERIOD OF FOUR YEARS WH EREAS NO SUCH TIME PERIOD WHATSOEVER WAS MENTIONED IN CLAUSE (4) WHICH WERE THE CONDITIONS PRECEDENT BEFORE THE SECO ND INSTALLMENT IN THE ESCROW ACCOUNT WAS RELEASED TO T HE SELLERS. THE INTENTION OF THE PARTIES TO THE AGREEMENT DOES NOT SUPPORT THE CASE OF THE REVENUE THAT THE CONSIDERATI ON COULD HAVE BEEN DIVIDED INTO TWO VIZ. ONE FOR SALE OF SHARE S AND THE OTHER FOR AGREEING TO THE RESTRICTIVE COVENANT. WE ARE, THEREFORE, OF THE OPINION THAT THE ARTIFICIAL DIVISION ARRIVED AT BY THE LOWER AUTHORITIES WAS NOT WARRANTED IN THE CIRCUMSTANCES OF THE CASE. THEREFORE, THE ADDITION MADE U/S 28(VA) OF THE ACT STANDS DELETED. 12. COMING TO THE ASPECT OF INTEREST, IT HAS BEEN FAIRLY AGREED BY THE LD. AR THAT INTEREST ON ESCROW ACCOUNT TO THE EXTENT IT RELATED TO ASSESSEES SHARE COULD BE CONS IDERED IN HER HANDS. HOWEVER, ACCORDING TO HIM, WHAT WAS TO BE RECKONED WAS THE ACTUAL INTEREST AND NOT ANY HYPOTH ETICAL INTEREST. WE ARE OF THE OPINION THAT ASSESSEE COUL D NOT HAVE BEEN FASTENED WITH A CHARGE OF INTEREST MORE THAN WHA T IT ACTUALLY RECEIVED. WE ARE OF THE OPINION THAT THE I SSUE AS TO ITA NO. 595/16 :- 14 -: HOW MUCH INTEREST COULD BE TAXED IN THE HANDS OF THE ASSESSEE REQUIRES FRESH LOOK BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE ARE SET ASIDE AND THE ISSUE IS REMITTED BACK TO TH E FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION IN ACCORDANC E WITH LAW. GROUND NOS. 3 & 4 ARE ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED PROTANTO. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST, 2016, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 10 TH AUGUST, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF