Hemant Prabhakar Pradhan v. The Asst. Commissioner Of Income Tax. Circle – 1

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.340 OF 2017 Hemant Prabhakar Pradhan .... Appellant versus The Asst. Commissioner of Income Tax. Circle – 1... Respondent ….... Mr.Mohan Deshpande, Advocate for Appellant.Mr.Mohan Deshpande, Advocate for Appellant.•Mr.Sham Walve, Advocate for Respondent.Mr.Sham Walve, Advocate for Respondent. CORAM : AKIL KURESHI & SARANG V. KOTWAL, JJ.DATE: 15[th] MARCH, 2019. P.C. : 1. This Appeal is filed by the assessee to challenge the judgment of Income Tax Appellate Tribunal. Following questionsare presented for our consideration; (i)Whether on the facts and in the circumstances ofthe case and in law, the Hon'ble ITAT erred inholding that the receipt of Rs.2,00,000/- inquestion constituted a revenue receipt in the handsthe case and in law, the Hon'ble ITAT erred inholding that the receipt of Rs.2,00,000/- inquestion constituted a revenue receipt in the hands 2 / 4 11-ITXA-340-17.odt of the Appellant u/s 28(va) of the Act, whenadmittedly the Appellant was not carrying out anybusiness in the relevant previous year and in theabsence thereof, the receipt could not be taxedunder the head of 'profits and gains of business orprofession'? (ii) Whether on the facts and in the circumstances ofthe case and in law, the Hon'ble ITAT failed toappreciate that the amount in question wasreceived by way of transfer of whole business andwas not limited to any 'activity' in relation to thebusiness, and thus the provisions of S.28(va)would have no application whatsoever?the case and in law, the Hon'ble ITAT failed toappreciate that the amount in question wasreceived by way of transfer of whole business andwas not limited to any 'activity' in relation to thebusiness, and thus the provisions of S.28(va)would have no application whatsoever? 2. Learned Counsel for the Appellant-Assessee fairlypointed out that the similar questions were examined by this Court in case of Arun Toshniwal, Mumbai, Vs. Deputy-Commissioner of Incometax 1(3), reported in (2015) 59taxmann.com 274 (Bombay). In the said decision whiledismissing the assessee's Appeal, the Court made followingobservations; 3 / 4 11-ITXA-340-17.odt (10) It is only vide the Finance Act, 2002 which came intoeffect from 1[st] April, 2003 the said capital receipt wasnow taxable under section 28(va). Accordingly, theCourt held that there dichotomy between the receiptof compensation by the assess for loss of businessarising out of the negative covenant compensation forloss of agency would be a revenue receipt as noted inthe decision in the case of Gillanders Arbuthnot & Co.Ltd. V. CIT [1964] 53 ITR 283 (SC). The assessee inthat case was dealing with explosives. That agencywas terminated and by way of compensation,Imperial Chemical Industries (Export) Ltd. Paid twofifths of the commission accrued on past sales an tooka formal undertaking from the assessee to refrainfrom selling or accepting any agency for explosives.This was considered by the Supreme Court and it washeld that the said amount received for non-competeagreement was not taxable upto 1[st] April, 2003 and,therefore, in that case, the amount received is notliable to be taxed. It is clarified by the Supreme Courtthat section 28(va) of the Act was amendatory andnot clarifactory and, therefore the amount receivedbefore the said date was not taxable under section28(va) of the Act. 11.Following the aforesaid decision, we are of the viewthat in the present case, as well the amount receivedby the assessee was taxable under section 28(va) ofthe Act. In the present case, it is evident that had theassessee not entered into an agreement of non-compete, he would have earned the amount from thebusiness carried on out of the division which was soldto Thermo Electron LLS India Pvt. Ltd. It is the sale ofthe said division that has deprived him of the incomeand part of the sale consideration itself, he wasrequired to execute an agreement of non-compete andthe compensation received under the said agreementwas relatable on a consideration for sale of thebusiness of the division and, therefore, for thesereason also, we are of the view that the amount istaxable under Section 28(va). Furthermore, in thepresent case, both the assessee have received theamount pursuant to the agreement dated 2[nd] June,2008 that is well after 1[st] April, 2003 and would becovered by the provisions of Section 28(va) of the Act.We are accordingly of the view that no relief can begranted to the appellants. The appeals do not raiseany substantial questions of law and the same aredismissed. No order as to costs.”that in the present case, as well the amount receivedby the assessee was taxable under section 28(va) ofthe Act. In the present case, it is evident that had theassessee not entered into an agreement of non-compete, he would have earned the amount from thebusiness carried on out of the division which was soldto Thermo Electron LLS India Pvt. Ltd. It is the sale ofthe said division that has deprived him of the incomeand part of the sale consideration itself, he wasrequired to execute an agreement of non-compete andthe compensation received under the said agreementwas relatable on a consideration for sale of thebusiness of the division and, therefore, for thesereason also, we are of the view that the amount istaxable under Section 28(va). Furthermore, in thepresent case, both the assessee have received theamount pursuant to the agreement dated 2[nd] June,2008 that is well after 1[st] April, 2003 and would becovered by the provisions of Section 28(va) of the Act.We are accordingly of the view that no relief can begranted to the appellants. The appeals do not raiseany substantial questions of law and the same aredismissed. No order as to costs.” 3. In the result, this Appeal is dismissed. (SARANG V. KOTWAL, J.) (AKIL KURESHI, J.)