Commissioner Of Income Tax, Del v. Mrs. Tara Sinha

$~R38 *IN THE HIGH COURT OF DELHI AT NEW DELHI+ITA 154/2005 COMMISSIONER OF INCOME TAX, DEL..... AppellantThrough:Mr. Zoheb Hossain, learned SeniorStanding Counsel. versus MRS. TARA SINHA ..... Respondent Through:Mr. Rajat Navet, Advocate. CORAM:JUSTICE S. MURALIDHARJUSTICE PRATHIBA M. SINGHO R D E R%11.08.2017 Prathiba M. Singh, J. 1. The Respondent Assessee - Mrs. Tara Sinha (hereafter ‘Assessee'), wasworking as the President of M/s Tara Sinha McCann Erickson Pvt. Ltd.(‘TSME’), an advertising agency. She also held 51% shares of the saidcompany, and McCann Erickson Worldwide Inc. (‘MEW’) held 40% of theshares of TSME. The remaining 9% shares were held by AssociatedCorporate Consultants Pvt. Ltd. 2. The Assessee filed her return of income for the Assessment Year (‘AY’)1995-96 declaring an income of Rs.12,74,721/. During the AY i.e. on 9[th]March, 1995, the Assessee resigned from TSME. Upon her retirement, shereceived payments as under: (i)Terminal benefit in the form of gratuity amounting toRs.2,88,462/-. (ii)Rs.35,13,150/- for the sale of her 51% shareholding in TSME to M/s. Gyan Marketing Associates Pvt. Ltd. vide agreement ITA No.154/2005Page 1 of 17 dated 10[th]March, 1995. (iii)Rs.3,15,31,750/-towardsenteringintoaNon-CompeteAgreement with MEW on 10[th]March, 1995. 3. The Assessing Officer (‘AO’) issued a show cause notice to the Assesseeas to why the amounts received by her from MEW should not be treated as arevenue receipt and as to why her claim, that the said money is a capitalreceipt, should be rejected. As part of the proceedings, the AO recorded theAssessee on 9[th]December, 1997 and the AO vide assessment order dated26[th]March, 1998 made an addition of Rs.3,15,31,750/- to the returnedincome of the Assessee. 4. The Assessee, preferred an appeal before the Commissioner of IncomeTax (Appeals) [‘CIT (A)’], who by order dated 24[th]December, 1998 deletedthe addition made by the AO and held that the payment of compensation inlieu of the non-compete agreement by the Respondent was a capital receiptand not chargeable to income tax. 5. The Revenue approached the Income Tax Appellate Tribunal (‘ITAT’)vide ITA No.1258/Del/99. The ITAT on 12[th]December, 2003, dismissed theappeal and held that the amount received was a capital receipt not liable totax. The Revenue has, thus, approached this Court by way of the presentAppeal. 6. This Court on 15[th]January, 2007 framed the following question of law: "Whether on the facts and circumstances of the casethe Income Tax Appellate Tribunal was right in law inholding that the sum of Rs.3,15,31,7501- is not taxable ITA No.154/2005 in the hands of the assessee being a capital receipt?" No other question was either pressed or framed. 7. Thus, the only question that is to be decided in this case is as to whetherthe sum of Rs.3,15,31,750/-, which was paid as a non-compete fee to theAssessee is to be treated as being taxable or not. Petitioner’s Submissions 8. Mr. Zoheb Hossain, learned Senior Standing Counsel appearing for thePetitioner/Revenue, submits that the amount of Rs.3,15,31,750/- is nothingbut a terminal benefit, which was couched as a non-compete fee in order toescape the payment of tax. "Whether on the facts and circumstances of the casethe Income Tax Appellate Tribunal was right in law inholding that the sum of Rs.3,15,31,7501- is not taxable ITA No.154/2005 in the hands of the assessee being a capital receipt?" No other question was either pressed or framed. 7. Thus, the only question that is to be decided in this case is as to whetherthe sum of Rs.3,15,31,750/-, which was paid as a non-compete fee to theAssessee is to be treated as being taxable or not. Petitioner’s Submissions 8. Mr. Zoheb Hossain, learned Senior Standing Counsel appearing for thePetitioner/Revenue, submits that the amount of Rs.3,15,31,750/- is nothingbut a terminal benefit, which was couched as a non-compete fee in order toescape the payment of tax. 9. Mr. Hossain relies on the findings of the AO that the said payment of thenon-compete fee and the share transactions were “actually a part of a well-orchestrated plan of breaking up the entire package of terminal benefitsreceived by her.” Mr. Hossain further relies upon the finding of the AO thatall these payments were contiguous in nature i.e., the payment of gratuity,the sale of shares and the non-compete fee. He further relies upon theinterpretation of the AO, that the Non-Competition Agreement dated 10[th]March, 1995 was severely tilted in favour of the Assessee and was in effectnot a “serious” Non-Competition Agreement. In support of this finding, theAO had relied upon the clauses in the agreement, which did not impose anyrestrictions on the Assessee from competing with MEW outside India andthat the laws of England were made applicable to the contract and also thatthe arbitration would be as per International Chamber of Commerce (‘ICC’) Page 3 of 17 ITA No.154/2005 Paris. The latter two factors, according to the AO, exhibited the non-seriousnature of the Agreement i.e., that MEW never intended to enforce the same.Mr. Hossain, thus, submitted that the AO had followed the judgment of theSupreme Court in McDowell Company Pvt. Ltd. v. CIT, 1985 (154) ITR148, to hold that any transaction ought not to be looked at with blinkers inan isolated manner and has to be viewed from the context in which itbelongs. He, thus submits, that the AO had rightly held that the entireconsideration of Rs.3,15,31,750/- was taxable under Section 28 (ii) of theAct. Mr. Hossain thereafter submits that a perusal of the list of clients of theAssessee, which included some of the most well known companies, bothIndian and multinational, clearly shows that the amounts paid to theAssessee were actually part of the terminal benefits but were merelydescribed as a non-compete fee. 10. Mr. Hossain contended that the CIT (A) had erred in holding that thedecision to pay the non-compete fee was merely a “business prudence”decision. The growth of TSME after the retirement of the Assessee showsthat there has not been any lag or reduction in its revenues and thus the so-called competition from the Assessee could not have dented TSME in anymanner. 11. Mr. Hossain urges that the ITAT wrongly upheld the decision of theCIT (A) by relying on the decision of the ITAT in Shiv Raj Gupta in ITANo.489/Del/98, which now stands reversed by this Court. 12. The foundation of Mr. Hossain’s arguments rests on the decision of this ITA No.154/2005 Court in CIT v. Shiv Raj Gupta 372 ITR 337 (2015) (hereafter ‘Shiv RajGupta’) dated 22[nd]December, 2014. He specifically relies upon thejudgment to argue that this Court considered the Vodafone judgment of theSupreme Court and any camouflage of terminal benefits as a non-competefee, should be held to be an `abusive tax avoidance’. 13. Mr. Hossain, urges that the entire amount of Rs.3,15,31,751/- ought tobe treated as a taxable income and the orders of the ITAT and CIT (A)deserve to be set aside. Respondent's Submissions 12. The foundation of Mr. Hossain’s arguments rests on the decision of this ITA No.154/2005 Court in CIT v. Shiv Raj Gupta 372 ITR 337 (2015) (hereafter ‘Shiv RajGupta’) dated 22[nd]December, 2014. He specifically relies upon thejudgment to argue that this Court considered the Vodafone judgment of theSupreme Court and any camouflage of terminal benefits as a non-competefee, should be held to be an `abusive tax avoidance’. 13. Mr. Hossain, urges that the entire amount of Rs.3,15,31,751/- ought tobe treated as a taxable income and the orders of the ITAT and CIT (A)deserve to be set aside. Respondent's Submissions 14. Mr. Rajat Navet, learned counsel appearing for the Respondent, submitsthat the Respondent was a well acknowledged personality in the field ofadvertising. She was responsible for setting up the advertising agency ofMcCann Erickson Pvt. Ltd. in India. She has enjoyed a very high stature inthe field to the extent that McCann Erickson started to call their agency inIndia by prefixing the Assessee’s name viz., Tara Sinha McCann Erickson(`TSME’). Her goodwill and reputation in the advertising field wasunparalleled and thus, the amount she received as non-compete fee was trulyto avoid her taking away the clients of the agency, post her retirement. Theamount paid to her was well deserved and the same was not taxable. 15. Mr. Navet further submits that it is settled law as decided in severalcases that non-compete fee is not taxable. He relies upon the followingdecisions: 1. CIT v. HCL lnfosystems Ltd. 385 ITR 35 (Delhi) (hereafter, ‘HCL ITA No.154/2005Page 5 of 17 Infosystems’), 2. CIT v. Bisleri Sales Ltd. 377 ITR 144 (Bom) (hereafter, ‘BisleriSales’), 3. Khanna and Annadhanam v. CIT 351 ITR 110 (hereafter, ‘Khannaand Annandhanam’), 4. Guffic Chemical Pvt. Ltd. v. CIT 32 ITR 602 (SC) (hereafter,‘Guffic Chemical’), 5. Rohitasava Chand v. CIT 306 ITR 242 (Del) (hereafter, ‘RohitasavaChand’), 6. CIT v. A.S. Wardekar 283 ITR 432 (Cal) (hereafter, ‘A.S.Wardekar), 7. CIT v. Saroj Kumar Poddar 279 ITR 573 (Cal) (hereafter, ‘SarojKumar Poddar’), 8. CIT v. Saraswati Publicity (1981) 132 ITR 207 (Mad) (hereafter,‘Saraswati Publicity’), 9. Lachhman Das v. CIT 124 ITR 706 (Del) (hereafter, ‘LachhmanDas’) and, 10. Beak v. Robson (1943) 11 ITR Suppl. 23 16. Mr. Navet further submitted that the share transactions could not in anymanner be held to be tainted at the instance of the Assessee, inasmuch as,the decision as to who should be the purchaser of the shares was of McCannErickson and the Assessee had no role to play in the same. In any event,according to Mr. Navet, the Non-Competition Agreement was entered intowith MEW itself and was a valid and enforceable agreement in law. Hesought to distinguish the Shiv Raj Gupta (supra) case based on the fact that Page 6 of 17 ITA No.154/2005 8. CIT v. Saraswati Publicity (1981) 132 ITR 207 (Mad) (hereafter,‘Saraswati Publicity’), 9. Lachhman Das v. CIT 124 ITR 706 (Del) (hereafter, ‘LachhmanDas’) and, 10. Beak v. Robson (1943) 11 ITR Suppl. 23 16. Mr. Navet further submitted that the share transactions could not in anymanner be held to be tainted at the instance of the Assessee, inasmuch as,the decision as to who should be the purchaser of the shares was of McCannErickson and the Assessee had no role to play in the same. In any event,according to Mr. Navet, the Non-Competition Agreement was entered intowith MEW itself and was a valid and enforceable agreement in law. Hesought to distinguish the Shiv Raj Gupta (supra) case based on the fact that Page 6 of 17 ITA No.154/2005 in the said case, the Assessee did not possess a license to manufacture or sellIMFL. The Assessee therein did not have a net worth, which would enablehim to set up a new venture or pose a threat to M/s/ Shaw Wallace CompanyGroup (`SWC’) and that the SWC Group was a much larger group to whomthe Assessee would not be pose any threat. Mr. Navet states that, unlike inShiv Raj Gupta (supra), which was concerned with the manufacturingbusiness, for which a proper manufacturing license would be required, Mrs.Tara Sinha – the Assessee was fully equipped to start a competing businessfrom the date she retired from TSME. She, having been single-handedlyresponsible for setting up TSME in India, commanded a position fromwhich she had the potential to take away not just the clients but even keyemployees of TSME. Thus, MEW had rightly paid a non-compete fee to theAssessee. The nature of the services being rendered by the Assessee were sopersonal to her that in the service industry such individuals being paid a non-compete fee is not surprising. According to Mr. Navet, in Shiv Raj Gupta(supra), the sum of Rs. 6.6 Crores was paid as a consideration for sale ofshares and not as a non-compete fee. He, thus, submits that the present caseis covered squarely by the ratio of Khanna and Annadhanam (supra),Rohitasava Chand (supra) and HCL lnfosystems Ltd (supra). Analysis and Findings 17. It is not seriously disputed by the Revenue that Mrs. Tara Sinha – theAssessee was an acknowledged personality in the advertising field in India.The Revenue’s argument is that the money paid as a non-compete fee is, infact, a terminal benefit and hence taxable. In order to determine as towhether the amount paid as a non-compete fee is taxable or not, it is Page 7 of 17 ITA No.154/2005 necessary to take a look at the relevant Clauses of the Non-CompetitionAgreement, which read as under: “1. Mrs. Sinha covenants and undertakes that she willnot at any time during a period of two years from thedate of this Agreement, directly or indirectly,not at any time during a period of two years from thedate of this Agreement, directly or indirectly, a. be involved in any business in India ofmarketingcommunications(advertising,salespromotion, public relations, etc.) as an employee,consultant, partner or otherwise in any otherconcern/company which is competitive with thepresent line of business of MEW;marketingcommunications(advertising,salespromotion, public relations, etc.) as an employee,consultant, partner or otherwise in any otherconcern/company which is competitive with thepresent line of business of MEW; b. solicit or perform services in connection withanybusinessinIndiaofmarketingcommunications (advertising, sales promotion,public relations, etc.) of any existing clients ofMEW;anybusinessinIndiaofmarketingcommunications (advertising, sales promotion,public relations, etc.) of any existing clients ofMEW; c. hire any employee of MEW. 2. In consideration for the covenants of Mrs. Sinha setout in Clause 1 hereinabove, MEW shall pay to Mrs.Sinha in India the Rupee equivalent of US $ 996,500. 5. ThisAgreementshallbegovernedby,andinterpreted in accordance with the Laws of England. b. solicit or perform services in connection withanybusinessinIndiaofmarketingcommunications (advertising, sales promotion,public relations, etc.) of any existing clients ofMEW;anybusinessinIndiaofmarketingcommunications (advertising, sales promotion,public relations, etc.) of any existing clients ofMEW; c. hire any employee of MEW. 2. In consideration for the covenants of Mrs. Sinha setout in Clause 1 hereinabove, MEW shall pay to Mrs.Sinha in India the Rupee equivalent of US $ 996,500. 5. ThisAgreementshallbegovernedby,andinterpreted in accordance with the Laws of England. 6. If any dispute or difference of any kind whatsoevernot otherwise dealt with herein, shall arise between theparties hereto shall promptly and in good faithnegotiate with a view to its amicable resolution andsettlement. In the event no amicable resolution orsettlement is reached within a reasonable time, suchdispute or difference shall be referred to and settled byarbitrationinaccordancewiththeRulesofConciliation and Arbitration of the InternationalChamber of Commerce (ICC), Paris. The venue ofarbitration shall be New Delhi.” 18. The AO relied upon the Clauses 3 & 4 of the agreement, which read asunder: “3. The restrictions set out in Clause 1 are consideredreasonable by the parties, having regard to the mutualpromisessetoutinthisagreement,andtheconsiderationpayabletoMrs.SinhaunderthisAgreement, but in the event that any such restrictionshall be found to be void but would be valid if somepart were deleted, or the period or area of applicationreduced,suchrestrictionshallapplywithsuchmodification as may be necessary to make it valid andeffective. 4. The restrictions set out in each paragraph of Clause1 constitute separate and independent restrictions. Inthe event that any restriction set out in any paragraphshall held to be unenforceable the restrictions set outin the other paragraphs shall be unaffected.”1 constitute separate and independent restrictions. Inthe event that any restriction set out in any paragraphshall held to be unenforceable the restrictions set outin the other paragraphs shall be unaffected.” 19. By relying on clauses 3 & 4, the AO came to the conclusion that the trueintention of MEW is not to enforce any of the restrictions contained inClause 1. The AO, in the opinion of the Court, did not construe theagreement as a whole. The AO, incorrectly, interprets Clauses 2, 3 & 4 inholding that they actually contradict each other. The AO was clearly wrongin holding that the agreement was structured in a manner so as to give theAssessee “adequate loopholes” to bypass the restrictions with the “consentof MEW”. He termed the agreement as being non-serious. The AO alsoappears to have wrongly construed the fact that the payment was receivedprior to the signing of the agreement and hence it is nothing but a terminalbenefit. ITA No.154/2005 20. In the statement of the Assessee, which was recorded by the AO on 9[th]December, 1997, she had explained to the AO that it was due to her personalefforts that the business of the company had grown and expanded from oneoffice in Delhi to offices in several cities including Mumbai, Bangalore,Calcutta, Chennai and Kathmandu. She has explained the reason to leaveTSME, as MEW wanted to drop her name from TSME in order to have acompetitive advantage in India. She further explained that the money beingpaid to her as a non-compete fee was not directly related to the remunerationshe was receiving from TSME. The AO acknowledges as under: “5.2 It is clear from the deposition of the assessee thatthe concern, TSME was actually a brain-child of Mrs.Tara Sinha. In fact, the concern “took shape aroundher dining table”. It is because of her efforts that theagency had grown in stature to what it was at the timeof transfer of shares.”the concern, TSME was actually a brain-child of Mrs.Tara Sinha. In fact, the concern “took shape aroundher dining table”. It is because of her efforts that theagency had grown in stature to what it was at the timeof transfer of shares.” “5.2 It is clear from the deposition of the assessee thatthe concern, TSME was actually a brain-child of Mrs.Tara Sinha. In fact, the concern “took shape aroundher dining table”. It is because of her efforts that theagency had grown in stature to what it was at the timeof transfer of shares.”the concern, TSME was actually a brain-child of Mrs.Tara Sinha. In fact, the concern “took shape aroundher dining table”. It is because of her efforts that theagency had grown in stature to what it was at the timeof transfer of shares.” 21. In light of the above findings of the AO, the subsequent conclusion ofthe AO that the money paid to her was not a non-compete fee but a terminalbenefit is wholly unsustainable. 22. From the record it is clear that TSME was a brain child of the Assessee.From a reading of Clause 1, it is clear that MEW was apprehensive abouther retirement and the effect it could have on their business and henceinsistedontheobligationscontained.Thisclauseisaclearacknowledgement that she did have the potential and stature to take away asubstantial number, if not all, of the clients and the employees of TSME.The non-compete fee paid to her cannot, therefore, be termed as acamouflage or a well- orchestrated plan to avoid payment of tax. Page 10 of 17 ITA No.154/2005 23. It is to be noticed that during the period when TSME had entered India,in 1990, Mrs. Tara Sinha was also operating as Tara Sinha Associates (TSA)for a billing of 1279.17 Lakhs for FY 1989-90. It is, therefore, no surprisethat her name was added and pre-fixed to the name of McCann Ericksonwhen TSME was established. The clients of the Assessee, at the time whenshe retired from TSME, did include some of the most well known Indianand Multinational companies. The Non-Competition Agreement dated 10[th]March, 1995 is, therefore, clearly a genuine agreement and the Clauses inthe agreement that the same would be governed by the laws of England andany disputes would be referred to ICC Paris, cannot be termed as a deviousmethod not to seek enforcement, inasmuch as, such clauses appear regularlyin several contracts involving international companies. The AO reads toomuch into these two clauses. 24. Insofar as, Clauses 3 & 4 are concerned, these are standard severabilityclauses which appear in most contracts that have multiple obligations cast onthe parties. Even if one obligation is held to be illegal or void, other clausesand obligations would be enforceable. These clauses cannot by any stretchof imagination, be held to be a ruse to not enforce the agreement. 25. The CIT (A) and ITAT have rightly held that the non-compete fee is nota taxable income. 26. A similar issue had arisen as far back as in 1942 before the House ofLords in Beak v. Robson (supra). The relevant portion reads as under: ITA No.154/2005 “The sum of £ 7,000 is not paid for anything done inperforming the services in respect of which Robson is-chargeable under Schedule E. The consideration whichhe has to give under-the covenant is to be given notduring the period of his employment, but after itstermination. He is giving to the company for a sum of£7,000 the benefit of a covenant which will only comeinto effect when the service is concluded. I agree withthe Court of Appeal in the view that to treat this £7,000as a profit arising from the respondent's office is toignore the real nature of the transaction. It is quite truethat, if he had not entered into the agreement to serveas a director and manager, he would not have received£ 7,000. But that is not the same thing as saying thatthe £ 7,000 is profit from his office of director so as toattract tax under Schedule E. TheAttorney-Generalpointsoutthatitisnotuncommon in managerial agreements to include acovenant not to compete after the service is terminatedwithout any separate consideration being allocated tothe covenant, and it was suggested that a decision infavour of the respondent in this case might involve theapportionment of the remuneration which a managerreceives under his agreement between the profit of hisoffice and the price, paid to secure the covenant. Ipropose to say nothing about that, and to decide thepre sent case purely upon the terms of the agreement ofOctober 4, 1937. That agreement is admitted to be abona fide -contract and, so regarded, the £ 7,000cannot properly be treated as a profit arising from therespondent's office or employment.” Thus, the amount of 7000 pounds paid to Mr. Robson for agreeing not toengage in a competing business within 50 miles of Newcastle-upon-Tynewithout the company’s consent, was held to be not taxable. The House ofLords thus held that the test is to establish the `real nature of transaction’. Page 12 of 17 ITA No.154/2005 27. In the present case, the `real nature of the transaction’ is that it is a Non-Competition Agreement wherein the Assessee agreed – not to be involved in any business in India of advertisement, sale,promotion, public relations etc., which is competitive with MEWornot to be involved in any business in India of advertisement, sale,promotion, public relations etc., which is competitive with MEWor solicit any client of MEW orsolicit any client of MEW or hire any employee of MEW.hire any employee of MEW. 28. In lieu of these covenants and undertakings, she was paid an amount ofUS dollars 996,500 i.e. Rs.3,15,31,750/- at the prevalent exchange rates. TheAssessee, as clearly ascertainable from the record, was a lady who enjoyed astature in the advertising industry and the Non-Competition Agreement, bywhich she agreed not to compete in India with MEW, was clearly not asham. She is now 82 years of age and considering that the Revenue’s appealchallenges concurrent findings of the CIT (A) and ITAT, we do not find anycause to interfere. 29. In Khanna and Annadhanam (supra), this Court followed the judgmentof the Supreme Court in Kettlewell Bullen and Company Ltd. v. CIT,[1964] 53 ITR 261 SC, and held that any payment made which representscompensation for the loss of the source of income would be capital in natureand that it would not be taxable. This Court, while commenting upon theamounts paid to a Chartered Accountant’s firm, for terminating anarrangement with Delloitte Haskins and Sells (DHS) held as under: “…Itissomewhatdifficulttoconceiveofaprofessional firm of chartered accountants entering Page 13 of 17 ITA No.154/2005 into such arrangements with international firms ofchartered accountants, as the assessee, in the presentcase, had done, with the same frequency and regularitywith which companies carrying on business takeagencies, simultaneously running the risk of suchagencies being terminated with the strong possibility offresh agencies being taken. In a firm of charteredaccountants there, could be separate sources ofprofessional income such as tax work, audit work,certification work, opinion work as also referred work.Under the arrangement with DHS there was a regularinflow of referred work from DHS through the Calcuttafirm in respect of clients based in Delhi and nearbyareas; There is no evidence that the assessee-firm hadenteredintosimilararrangementswithotherinternational firms of chartered accountants. Thearrangement with DHS was in vogue for a fairly longperiod of time (13 years) and had acquired a-kind ofpermanency as a source of income. When that sourcewas unexpectedly terminated, it amounted to theimpairment of the profit-making structure or apparatusof the assessee-firm. It is for that loss of the source-ofincome that the compensation was calculated and paidto the assessee. The compensation was thus a substitutefor the source. In our opinion, the Tribunal was wrongin treating the receipt as being revenue in nature….” 30. In Guffic Chemical Pvt. Ltd. (supra), the Supreme Court held that thenon-compete fee of Rs.50 Lakhs received by Ranbaxy was a capital receipt.The Supreme Court categorically held as under: “…Decision 5 The position in law is clear and well settled. There isa dichotomy between receipt of compensation by anassessee for the loss of agency and receipt ofcompensation attributable to the negative/restrictivecovenant. The compensation received for the loss of agency is a revenue receipt whereas the compensationattributable to a negative/restrictive covenant is acapital receipt. 6 The above-dichotomy is clearly spelt out in-thejudgment of this court in Gillanders' case (supra) inwhich the facts were as follows. The assessee in thatcase carded on business in diverse fields besides actingas managing agents, shipping agents, purchasingagents and secretaries. The assesse also acted asimportersanddistributorsonbehalfofforeignprincipals and bought and sold on its own account'Under an agreement which was terminable at will theassesseeactedasasoleagentofexplosivesmanufacturedbyimperialChemicalIndustries(Export) Ltd manufactured by Imperial ChemicalIndustries (Export) Ltd. That agency was terminatedand by way of compensation the Imperial ChemicalIndustries (Export) Ltd. paid for first three years aftertheterminationoftheagencytwo-fifthsofthecommission accrued on its sales in the territory of theagency of the Appellant and in addition in the thirdyear full commission was paid for the sales in thatyear. The Imperial Chemical Industries (Export) Ltd.took a formal undertaking from the Assessee to refrainfrom selling or accepting any agency for explosives.7. Two questions arose for determination, namely,whether the amounts received by the Appellant for lossof agency was in normal course of business andtherefore whether they constituted revenue receipt?The second question which arose before this Court waswhethertheamountreceivedbytheAssessee(compensation) on the condition not to carry on acompetitive business was in the nature of capitalreceipt? It was held that the compensation received bythe Assessee for loss of agency was a revenue receiptwhereas compensation received for refraining fromcarrying on competitive business was a capital receipt. This dichotomy has not been appreciated by the HighCourt in its impugned judgment. The High Court hasmisinterpretedthejudgmentofthisCourtinGillanders' case (supra)….” 31. Similar was the view of the Delhi High Court in Rohitasava Chand(supra), which dealt with the payment of non-compete fee to the Assesseewhich included a transaction for sale of shares. This Court after reviewingthe entire case law on the subject, held as under: “…24. There is no doubt that the non-competeagreement incorporates a restrictive covenant on theright of the assessed to carry on his activity ofdevelopment of software. It may not alter the structureof his activity, in the sense that he could carry on thesame activity in an organization in which he had asmall stake, but it certainly impairs the carrying on ofhis activity. To that extent it is a loss of a source ofincome for him and it is of an enduring nature, ascontrasted with a transitory or ephemeral loss. Duringthe currency of the non-compete agreement, theassessed was restrained from soliciting, interfering,engaging in or endeavoring to carry on any activity,including supply or services or goods concerningsoftware development. The non-compete agreementwas independent of the first agreement whereby theassessed agreed to transfer his shares to the foreigncompany. Under the circumstances, looking to the caselaw on the subject and the terms of the non-competeagreement, particularly the restrictive covenant, it isdifficult to agree with the view taken by the Tribunal.The receipt in the hands of the assessed was certainly acapital receipt in as much as it dented his profitmaking capabilities….” 32. The view of the Calcutta High Court in Saroj Kumar Poddar (supra) and the Madras High Court in Saraswati Publicity (supra) are to the sameeffect. 32. The view of the Calcutta High Court in Saroj Kumar Poddar (supra) and the Madras High Court in Saraswati Publicity (supra) are to the sameeffect. 33. The present case is clearly distinguishable from the Shiv Raj Gupta(supra) case in which the decision of this Court was made in the context ofthe facts of the said case involving a specialised regulated business likemanufacture and sale of liquor which requires a specific liquor license ineach State, manufacturing capability and capital investment, all of which theAssessee therein did not possess. 34. In the facts of the present case, this Court is persuaded to follow thedecisions in Guffic Chemical Pvt. Ltd (supra), Khanna and Annadhanam(supra) and Rohitasava Chand (supra) to hold that the Non-CompetitionAgreement is genuine and the payment made thereunder is indeed a non-compete fee. 35. The question of law framed is answered in the affirmative i.e. in favourof the Assessee and against the Revenue. 36. The appeal is dismissed but with no order as to costs. PRATHIBA M. SINGH, J AUGUST 11, 2017dk S.MURALIDHAR, J ITA No.154/2005