M/s Trans Global PLC( Early Known AS Moran Holdings PLC), Kolkata V. D,I,T (IT) 3(1),kolkata, Kolkata

ITA 943/KOL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4913 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 03-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 25-04-2013
• Court: TRIBUNAL
• Department Lawyers: N O N E
• Assessee Lawyers: A K GUPTA; R N BAJORIA
• Keywords: Capital asset; Business income; Double taxation relief; Permanent establishment; Cost of acquisition; Capital receipt
• Section: 143(3); 263; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI M. BALAGANES H, AM] I. T. A. NO. 943/KOL/2013 ASSESSMENT YEAR: 2008-09 M/S. TRANS GLOBAL PLC (EARLIER KNOWN AS VS. DIREC TOR OF INCOME-TAX (INTERNATIONAL M/S. MORAN HOLDINGS PLC) TAXATION)-3(1), KOLKAT A. (PAN: AAECM8469J) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 03.03.2016 DATE OF PRONOUNCEMENT: 16.03.2016 FOR THE APPELLANT: SRI R. N. BAJORIA, ADVOCATE & SRI A. K. GUPTA, FCA FOR THE RESPONDENT: N O N E ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF REVISION ORDER OF CIT, KOLKATA VIDE M. NO. DIT(IT&TP)/KOL/263/139/2012-13 DATED 21.02.2013. AS SESSMENT WAS FRAMED BY ADIT(IT)- 3(1), KOLKATA U/S. 143(3) OF THE INCOME TAX ACT, 19 61 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2008-09 VIDE HIS ORDER DATED 24.12. 2010. 2. WE HAVE HEARD THIS MATTER EX PARTE BECAUSE NONE IS PRESENT FOR AND ON BEHALF OF THE REVENUE. REVENUE HAS FILED A PETITION FOR ADJOURNM ENT ASKING FOR ADJOURNMENT IN EIGHT MATTERS. THE REASON GIVEN BY REVENUE IN ITS PETITION DATED 0 2.03.2016. LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY OPPOSED THE ADJOURNMENT PETITION STATING THE REASONS THAT THE APPEAL IS PENDING SINCE 2013 AND REVENUE WANTS TO ADJOURN THE MATTER ON FRI VOLOUS GROUND. IN VIEW OF THIS FACT, WE PROCEED TO HEAR THE MATTER EX PARTE FOR THE REASON THAT THE REVENUE IS SEEKING ADJOURNMENT ON FRIVOLOUS GROUND AND THIS IS A REGULAR FEATURE, WHI CH IS A MATTER OF RECORD. HENCE, WITHOUT GIVING ADJOURNMENT, AS THE APPEAL IS PENDING SINCE 2013, W E PROCEEDED TO DECIDE IT EX PARTE. 3. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF DIT(IT), KOLKATA REVISING THE ASSESSMENT U/S. 263 OF THE ACT IS WHETHER THE NON-COMPETE PREMIUM IS TAXABLE IN THE HANDS OF THE ASSESSEE UNDER THE HEAD CAPITAL GAINS U/S. 55(2)(A) READ WITH PROVISO (I) TO SECTIO N 28(VA) OF THE ACT IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE OR NOT? 2 ITA NO.943/KOL/2013 M/S. TRANS GLOBAL PLC AY 2008-09 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A NON-RESIDENT COMPANY FURNISHED ITS RETURN OF INCOME FOR THE RELEVANT AY 2008-09 ON 31.03.2010. T HE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT BY THE ADIT(IT)-3(1), KOLKATA VIDE HIS O RDER DATED 24.12.2010. THE DIT- INTERNATIONAL TAXATION (IN SHORT IT) FROM ASSESSMEN T RECORDS NOTICED THAT THE ASSESSEE HAS RECEIVED 750000 (CONVERTED IN INDIAN CURRENCY I.E . RS.6,05,25,000/-) AS NON-COMPETE PREMIUM. ACCORDING TO DIT, THIS RECEIPT WAS NOT DI SCLOSED BY THE ASSESSEE IN ITS RETURN OF INCOME AND NOT INCLUDED AS INCOME IN TOTAL INCOME. ACCORDINGLY, HE ISSUED SHOW CAUSE NOTICE (SCN) U/S. 263 OF THE ACT DATED 14.11.2012, WHEREI N HE SHOW CAUSED THE ASSESSEE AS TO WHY THIS NON-COMPETE PREMIUM RECEIVED BE NOT ASSESSED AS CAP ITAL GAINS IN TERM OF PROVISION OF SECTION 55(2)(A) READ WITH SECTION 28(VA) OF THE ACT. THE RELEVANT PARA 3 TO 7 OF THE SCN READ UNDER: 3. ON PERUSAL OF THE ASSESSMENT ORDER ALONG WITH THE MATERIAL AVAILABLE ON RECORD, IT IS SEEN THAT AS PER THE SALE PURCHASE AGREEMENT(IN SHORT, SPA) DATED 18.01.2007, THE PURCHASER WAS TO PAY THE SELLER (THE ASSESSEE) AN ADVANCE FOR NON-COMPET E PREMIUM OF BRITISH 7,50,000 (PARA 5.6 OF PAGE 19 OF SPA) AND THE SAID NON-COMPETE PREMIUM WA S TO BE PAID WITHIN SEVEN (7) DAYS OF THE EFFECTIVE DATED (18.01.2007). THUS, THE AFORESAID AMOUNT IN POUND STERLING WAS PAID OR ACCRUED TO YOU IN JANUARY, 2007. 4. AS PER CLAUSE 6.3.1(F) AT PAGE 22 OF THE SPA, T HE SELLER (THE ASSESSEE) WAS REQUIRED TO EXECUTE A NON-COMPETE AGREEMENT WITH THE PURCHASER (M/S. MCLE OD RUSSEL INDIA LTD.) AND THE BALANCE NON- COMPETE PREMIUM, AFTER ADJUSTMENT OF THE ADVANCE, W AS TO BE PAID THROUGH WIRE TRANSFER TO THE BANK ACCOUNT OF THE SELLER MAINTAINED WITH THE ICIC I BANK IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE NON-COMPETE AGREEMENT. REASON FOR THIS NOTICE 5. THE AFOREMENTIONED AMOUNT OF NON-COMPETE PREMIUM IS CHARGEABLE TO TAX UNDER THE HEAD 'INCOME FROM CAPITAL GAINS' IN ACCORDANCE WITH THE PROVISIONS OF SECTION 55(2)(A) OF THE ACT. IN THE CASE UNDER REVIEW, IT IS FOUND THAT THERE WA S AN AGREEMENT 'NOT- TO-COMPETE' WITH THE PURCHASER ACCORDING TO THE SPECIFIC TERMS AS PROVID ED IN THE NON- COMPETE AGREEMENT, FOR WHICH M/S MC1EOD RUSSEL INDIA LTD WAS REQUIRED TO PAY THE NON- COMPETE PREMIUM OF M/S MC1EOD RUSSEL INDIA LTD BRITISH 7,50,000 I.E. CONVERTED IN INDIAN RUPEES TO RS. 6,05,25,000/-. THE SPA THUS CONTAINED A PROHIBITORY/RESTRICTIVE COVENANT I N THE FORM OF THE NON-COMPETE AGREEMENT AND THE COMPENSATION IN THE FORM OF NON-COMPETE PREMIUM OF BRITISH 7,50,000 IS THUS CLEARLY A CAPITAL RECEIPT. THIS SUM OF CAPITAL RECEIPT IS REQ UIRED TO BE CHARGED TO TAX UNDER THE HEAD 'INCOME FROM CAPITAL GAINS'. SUPPORT FOR THE ABOVE CONTENTI ON IS DRAWN FROM THE JUDGEMENT OF THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF GUFIC CHEM P. LTD. REPORTED IN 332 ITR 602 [2011], WHEREIN THE APEX COURT HAS HELD THAT PAYMENTS RECEIVED AS N ON-COMPETITION FEE UNDER A NEGATIVE COVENANT IS IN THE NATURE OF CAPITAL RECEIPTS. 6. THE ABOVE MENTIONED AMOUNT OF RS.6,05,25,000/- I S THEREFORE TAXABLE UNDER THE HEAD CAPITAL GAINS INASMUCH AS THE COST OF ACQUISITION O F SUCH RIGHT TO CARRY ON ANY BUSINESS OR RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THIN G IS TO- BE TREATED AS NIL IN ACCORDANCE WITH THE PROVISIONS OF SECTION 55(2)(A) OF THE ACT. ERRONEOUS & PREJUDICIAL TO THE INTERESTS OF REVENUE 7. WHILE MAKING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT, THE ASSESSING OFFICER, ADIT - 3(1), KOLKATA DID NOT MAKE ANY ENQUIRY REGAR DING THE TAXABILITY OF THE ABOVE SUM OF NON- 3 ITA NO.943/KOL/2013 M/S. TRANS GLOBAL PLC AY 2008-09 COMPETE PREMIUM OF RS, 6,05,25,000/- NOR DID HE EXA MINE THE ISSUE AND APPLY HIS MIND THERETO IN THE LIGHT OF THE FACTS OF THE CASE AND EXISTING LEG AL PROVISIONS. IN VIEW OF THE ABOVE, THE ORDER U/S 143(3), DATED 24.12.2010 IS CONSIDERED ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE. 5. THE ASSESSEE REPLIED TO THE SCN BY STATING THAT THE RECEIPT OF NON-COMPETE PREMIUM WAS TAXABLE IN THE HANDS OF THE ASSESSEE AS BUSINESS RE CEIPTS U/S. 28(VA) OF THE ACT. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE WAS TAX RESIDENT IN UNI TED KINGDOM (UK) AND IT DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. ACCORDING TO ASSE SSEE, THE ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENU E INASMUCH AS THE ASSESSMENT WAS FULLY IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. ACCORDI NG TO HIM, THE AO DULY APPLIED HIS MIND TO THE FACTS OF THE CASE AND IN VIEW OF THE CLEAR PROV ISIONS OF SECTION 28(VA) OF THE ACT READ WITH ARTICLE 7 OF DTAA, THIS AMOUNT WAS NOT TAXABLE. IN ACCORDANCE TO THIS REPLY, THE AO ISSUED ANOTHER SHOW CAUSE LETTER REBUTTING THE CHALLENGE O F THE ASSESSEE OF THE REVISION PROCEEDINGS AND HOLDING THAT TO SUM UP, THE ASSESSEE TRANSFERRED SHARES OF MTC IL THEREBY TRANSFERRING THE CONTROLLING INTEREST IN THE BUSINESS OF THE SAID COMPANY. THE RESULTANT RECEIPT WAS DISCLOSED AS CAPITAL GAINS. THE ASSESSEE RECEIVED A NON-COMPETE PREMIUM OF BRITISH 750000 BY SURRENDERING/TRANSFERRING ITS RIGHT TO CARRY ON ANY BUSINESS FOR FIVE YEARS IN FI VE COUNTRIES. HOWEVER, THIS SUM WAS NOT DISCLOSED IN THE RETURN OF INCOME AS INCOME UNDER THE HEAD CA PITAL GAINS. THE ABOVE SUM IS CONSIDERED TAXABLE UNDER THE HEAD CAPITAL GAINS IN ACCORDANCE WITH THE PROVISO TO SECTION 55(2)(A) READ WITH PROVISO TO SECTION 28(VA) OF THE ACT. THE ASSESSEE ALSO REPLIED AND REITERATED THE SAME S UBMISSIONS. BUT THE DIT(IT) FINALLY DIRECTED THE AO TO REVISE THE ASSESSMENT AND TAX THE NON-COM PETE PREMIUM UNDER THE HEAD CAPITAL GAINS U/S. 55(2)(A) READ WITH PROVISO (I) TO SECTION 28(V A) OF THE ACT BY OBSERVING IN PARA 19 AND 20, WHICH READ AS UNDER: 19. THE ASSESSEE, IN THE PRESENT CASE, SURRENDERE D ITS RIGHT TO 'ENGAGE OF PARTICIPATE IN, FINANCIALLY, TECHNICALLY OR OTHERWISE, IN ANY MANNE R WHATSOEVER, IN THE MANUFACTURE, PRODUCTION, DISTRIBUTION AND SALE OF THE PRODUCT' (PARA-2.1(A) OF ARTICLE-2 OF NON-COMPETE AGREEMENT) IN FIVE COUNTRIES, NAMELY, INDIA, BANGLADESH, SRI LANK, BHU TAN AND NEPAL AND WHILE DOING SO IT RECEIVED A SUM OF 7,50,000/- (POUND STERLING SEVEN LAKH FIFT Y THOUSAND ONLY) AS NON-COMPETE PREMIUM. SUCH ALIENATION OF ITS RIGHTS TO CARRY OUT ITS BUSI NESS OR ACTIVITIES OF BUSINESS - TO ENGAGE OF PARTICIPATE IN, FINANCIALLY, TECHNICALLY OR OTHERWI SE, IN ANY MANNER WHATSOEVER, IN THE MANUFACTURE, PRODUCTION, DISTRIBUTION AND SALE OF THE PRODUCT IN FIVE COUNTRIES, NAMELY, INDIA, BANGLADESH, SRI LANKA, BHUTAN AND NEPAL FOR A PERIOD OF 5 YEARS IN FAVOUR OF A DIFFERENT ENTITY IS WITHIN THE MEANING OF TRANSFER OF CAPITAL ASSETS, AND WOULD NO T FALL UNDER SECTION 28(VA) OF THE ACT, RATHER IT WOULD BE COVERED UNDER THE PROVISO TO SUB-CLAUSE (A ) OF SECTION 28(VA) OF THE ACT. 20. THE RIGHTS ARE ASSETS. THE ASSESSEE SURRENDERED ITS RIGHTS TO CARRY OUT BUSINESS IN THE FIVE COUNTRIES FOR 5 YEARS. SUCH SURRENDER WAS COMPENSAT ED BY THE THIRD PARTY, AND IN LIEU OF THAT THE ASSESSEE RECEIVED A SUM OF 7,50,000/- (POUND STER LING SEVEN LAKH FIFTY THOUSAND ONLY) AS NON- COMPETE PREMIUM. ALSO, FOR THIS SURRENDER OF THE RI GHTS ALL THE FORMALITIES HAD BEEN GONE THROUGH. 4 ITA NO.943/KOL/2013 M/S. TRANS GLOBAL PLC AY 2008-09 IN FACT, NO ISSUE ON THIS WAS RAISED BY THE ASSESSE E. THAT BEING THE CASE, THE PROCESS OF SURRENDER OF RIGHTS WAS COMPLETE. CIRCULAR NO. 8 OF 2002 DATED 2 7.8.2002 EXPLAINING THE PROVISIONS OF THE FINANCE ACT, 2002 BY WHICH CLAUSE (VA) WAS INSERTED IN SECTION 28 OF THE ACT, CLARIFIES THAT RECEIPTS FOR TRANSFER OF RIGHTS TO MANUFACTURE, PRODUCE OR P ROCESS ANY ARTICLE OR THING OR RIGHT TO CARRY ON ANY BUSINESS WOULD BE CHARGEABLE TO TAX UNDER THE H EAD CAPITAL GAIN AND WOULD NOT BE TAXABLE AS PROFITS AND GAINS OF BUSINESS. AS PER SECTION 55(2) (A) OF THE ACT, RIGHT TO CARRY ON BUSINESS FALLS UNDER THE AMBIT OF THE SECTION, ALSO AS PER THE ITA T MUMBAI BENCH IN THE CASE OF MRS. HAMI ASPI BALSARA V. ASSISTANT COMMISSIONER OF INCOME-TAX, CI RCLE 12(3), MUMBAI, [2010] 126 ITD 100. IN VIEW OF THE ABOVE FACTS AND POSITION OF LAW, IT IS HELD THAT THE NON-COMPETE PREMIUM OF 7,50,000 (CONVERTED IN INR RS. 6,05,25,000/-) IS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS UNDER SECTION 55(2)(A) READ WITH PROVISO (I) TO SECTION 2 8(VA) OF THE ACT. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE TRIBUNA L. 6. WE HAVE LD. SR. COUNSEL SHRI R. N. BAJORIA AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US, THE ISSUE IS LIMITED WHETHER T HE RECEIPT OF NON-COMPETE PREMIUM IS TAXABLE AS CAPITAL GAINS U/S. 55(2)(A) READ WITH PROVISO (1 ) OF SECTION 28(VA) OF THE ACT, WHEN THE ASSESSEE IS A NON-RESIDENT COMPANY OF UK IN TERM OF ARTICLE-7 OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) WITH UK. ADMITTEDLY, THE ASSESSEE IS A NON-RESIDENT BRITISH COMPANY LIABLE TO TAX IN UK ONLY AND DOES NOT HAVE A PERMAN ENT ESTABLISHMENT IN INDIA. THE ASSESSEE RECEIVED NON-COMPETE PREMIUM DURING THE RELEVANT AY 2008-09 AND CLAIMED THAT THE AMOUNT RECEIVED ON ACCOUNT OF NON-COMPETE FEE IS NOT FOR T RANSFER OF ANY RIGHT TO CARRY ON ANY BUSINESS OR FOR TRANSFER OF ANY RIGHT TO MANUFACTURE. ACCOR DING TO ASSESSEE, THIS NON-COMPETE FEE PREMIUM IS A MERE REFRAINING FROM CARRYING ON ACTIV ITY, WHICH CAN BE TAXED U/S. 28(VA) OF THE ACT AS AMENDED BY THE FINANCE ACT, 2002 W.E.F. 01.0 4.2003. THE ASSESSEE ALSO PLEADED THAT THIS CAN BE ASSESSED AS BUSINESS INCOME BUT ASSESSEE BEI NG A NON-RESIDENT HAVING NO PERMANENT ESTABLISHMENT IN INDIA AND ACCORDINGLY, IN TERM OF ARTICLE-7 OF DTAA WITH UK ANY BUSINESS INCOME ARISING TO THE ENTERPRISE OF A CONTRACTING S TATE IS TAXABLE ONLY IN THAT STATE UNLESS THE ENTERPRISE IS CARRYING ON BUSINESS IN THE OTHER CON TRACTING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN. WE FIND THAT IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE IS HAVING A PERMANENT ESTABLISHMENT IN INDIA AND AS SU CH IN TERM OF ARTICLE-7 OF DTAA, BEING NON- COMPETE PREMIUM RECEIVED BY ASSESSEE CANNOT BE TAXE D IN INDIA. THE AO WHILE FRAMING ASSESSMENT U/S. 143(3) OF THE ACT, AFTER CONSIDERIN G THE PROVISIONS HAS NOT TAXED THE NON- COMPETE PREMIUM IN ACCORDANCE WITH THE PROVISIONS O F THE ACT AND THE PROVISIONS OF THE DTAA. THE DIT(IT) HAS RELIED ON THE CASE LAW OF HONBLE S UPREME COURT IN THE CASE MANGALORE ELECTRIC SUPPLY CO. LTD. VS. CIT (1978) 113 ITR 655 (SC) WHEREIN THE TRANSFER HAS BEEN DISCUSSED AND NOT THE TAXABILITY IN TERM OF DTAA. THE ANOTHER PRECEDENT CITED BY LD. DIT (IT) 5 ITA NO.943/KOL/2013 M/S. TRANS GLOBAL PLC AY 2008-09 OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. NAR AYAN DAIRY PRODUCTS (1996) 219 ITR 478 (SC) WHEREIN THE SIMILAR WORD TRANSFER WAS INTERPRE TED. FURTHER, HE ALSO REFERRED TO THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF BLUE BA Y FISHERIES PVT. LTD. VS. CIT 166 ITR 1 (KER), WHEREIN THE SAME ISSUE OF TRANSFER IS DISCUS SED. ACCORDING TO DIT(IT), TRANSFER OF SHARES OF MORAN TEA CO. (I) LTD., TRANSFERRING THE CONTROL LING INTEREST IN THE BUSINESS OF THE SAID COMPANY AND ACCORDINGLY, THE RESULTANT RECEIPT IS C APITAL GAINS TAXABLE U/S. 55(2)(A) OF THE ACT. 7. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE VIEW T HAT A PERUSAL OF NON-COMPETE AGREEMENT CLEARLY SHOWS THAT BY ANY STRETCH OF IMAGINATION IT CANNOT BE HELD THAT THERE IS A TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT RESULTING I N ASSESSMENT BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE FOR NOT ASSESSING NON-CO MPETE PREMIUM AS CAPITAL GAINS. THE ASSESSEE CLEARLY ACCEPTED THAT THE PROVISIONS OF SECTION 28( V)(A) OF THE ACT WILL APPLY TO THIS NON-COMPETE PREMIUM BEING BUSINESS INCOME BUT THAT WILL BE TAXE D IN UK BEING ASSESSEE A NON-RESIDENT BRITISH COMPANY HAVING NO PERMANENT ESTABLISHMENT I N INDIA IN TERM OF ARTICLE-7 OF DTAA. 8. BEFORE US, LD. COUNSEL FOR THE ASSESSEE HAVING R ELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GUFFIC CHEM P. LTD. VS. CIT (2 011) 332 ITR 602 (SC), WHEREIN IT IS HELD AS UNDER: 7. TWO QUESTIONS AROSE FOR DETERMINATION, NAMELY, WHETHER THE AMOUNTS RECEIVED BY THE APPELLANT FOR LOSS OF AGENCY WAS IN NORMAL COURSE OF BUSINESS AND THEREFORE WHETHER THEY CONSTITUTED REVENUE RECEIPT? THE SECOND QUESTION WHICH AROSE BEFORE THI S COURT WAS WHETHER THE AMOUNT RECEIVED BY THE ASSESSEE (COMPENSATION) ON THE CONDITION NOT TO CARRY ON A COMPETITIVE BUSINESS WAS IN THE NATURE OF CAPITAL RECEIPT? IT WAS HELD THAT THE COM PENSATION RECEIVED BY THE ASSESSEE FOR LOSS OF AGENCY WAS A REVENUE RECEIPT WHEREAS COMPENSATION R ECEIVED FOR REFRAINING FROM CARRYING ON COMPETITIVE BUSINESS WAS A CAPITAL RECEIPT. THIS DI CHOTOMY HAS NOT BEEN APPRECIATED BY THE HIGH COURT IN ITS IMPUGNED JUDGMENT. THE HIGH COURT HAS MISINTERPRETED THE JUDGMENT OF THIS COURT IN GILLANDERS' CASE (SUPRA). IN THE PRESENT CASE, THE DEPARTMENT HAS NOT IMPUGNED THE GENUINENESS OF THE TRANSACTION. IN THE PRESENT CASE, WE ARE OF THE VIEW THAT THE HIGH COURT HAS ERRED IN INTERFERING WITH THE CONCURRENT FINDINGS OF FACT RECORDED BY TH E CIT(A) AND THE TRIBUNAL. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. PAYMENT RECEIVED AS NON-CO MPETITION FEE UNDER A NEGATIVE COVENANT WAS ALWAYS TREATED AS A CAPITAL RECEIPT TILL THE ASSESS MENT YEAR 2003-04. IT IS ONLY VIDE FINANCE ACT , 2002 WITH EFFECT FROM 1.4.2003 THAT THE SAID CAPITA L RECEIPT IS NOW MADE TAXABLE [SEE: SECTION 28(VA) ]. THE FINANCE ACT , 2002 ITSELF INDICATES THAT DURING THE RELEVANT AS SESSMENT YEAR COMPENSATION RECEIVED BY THE ASSESSEE UNDER NON- CO MPETITION AGREEMENT WAS A CAPITAL RECEIPT, NOT TAXABLE UNDER THE 1961 ACT. IT BECAME TAXABLE O NLY WITH EFFECT FROM 1.4.2003. IT IS WELL SETTLED THAT A LIABILITY CANNOT BE CREATED RETROSPECTIVELY. IN THE PRESENT CASE, COMPENSATION RECEIVED UNDER NON-COMPETITION AGREEMENT BECAME TAXABLE AS A CAPIT AL RECEIPT AND NOT AS A REVENUE RECEIPT BY SPECIFIC LEGISLATIVE MANDATE VIDE SECTION 28(VA) AND THAT TOO WITH EFFECT FROM 1.4.2003. HENCE, THE SAID SECTION 28(VA) IS AMENDATORY AND NOT CLARIFICATORY. LASTLY, IN COMMISSIONER OF INCOME-TAX, NAGPUR V. RAI BAHADUR JAIRAM VALJI REPORTED IN 35 ITR 148 IT WAS HELD BY THIS COURT T HAT IF A CONTRACT IS ENTERED INTO IN THE ORDINARY COURSE OF BUSINESS, ANY COMPENSATION RECEIVED FOR ITS TERMINATION (LOSS OF AGENCY) WOULD BE A REVENUE REC EIPT. IN THE PRESENT CASE, BOTH CIT (A) AS WELL AS THE TRIBUNAL, CAME TO THE CONCLUSION THAT THE AG REEMENT ENTERED INTO BY THE ASSESSEE WITH 6 ITA NO.943/KOL/2013 M/S. TRANS GLOBAL PLC AY 2008-09 RANBAXY LED TO LOSS OF SOURCE OF BUSINESS; THAT PAY MENT WAS RECEIVED UNDER THE NEGATIVE COVENANT AND THEREFORE THE RECEIPT OF `50 LAKHS BY THE ASSES SEE FROM RANBAXY WAS IN THE NATURE OF CAPITAL RECEIPT. IN FACT, IN ORDER TO PUT AN END TO THE LIT IGATION, PARLIAMENT STEPPED IN TO SPECIFICALLY TAX SUCH RECEIPTS UNDER NON-COMPETITION AGREEMENT WITH EFFECT FROM 1.4.2003. 9. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AND CASE LAW OF HONBLE SUPREME COURT IN THE CASE OF GUFFIC CHEM P. LTD., SUPRA, WE HOLD THA T THE ABOVE SAID NON-COMPETE PREMIUM RECEIVED BY ASSESSEE IS A BUSINESS RECEIPT ASSESSAB LE U/S. 28(VA) OF THE ACT BUT IN TERM OF ARTICLE- 7 OF DTAA ANY BUSINESS INCOME ARISING TO THE ENTERP RISE OF A CONTRACTING STATE IS TAXABLE ONLY IN THAT STATE, ASSESSEE BEING A NON-RESIDENT COMPANY A ND DOES NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA, LIABLE TO TAX IN UK ONLY. ACCORDINGLY, T HE ASSESSMENT FRAMED BY AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENU E AND HENCE, THE REVISION ORDER PASSED BY DIT(IT) IS WITHOUT ANY BASIS AND QUASHED. 10. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.03.2016 SD/- SD/- (M. BALAGANESH) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 16TH MARCH, 2016 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1. APPELLANT M/S. TRANS GLOBAL PLC (EARLIER KNOWN AS M/S. MORAN HOLDINGS PLC) C/O, MANISH DHANDHANIA, CHARTERED ACCOUNTANTS, 1, R. N. MUKHERJEE ROAD, KOLKATA-700 001. 2. RESPONDENT DIT (IT)-3(1), KOLKATA. 3. ADIT , KOLKATA 4. CIT , KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .