Https://Hcservices.ecourts.gov.in/Hcservices v. Shri M.krishnamoorthy

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 27.01.2020 THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE R.SURESH KUMAR Tax Case Appeal No.730 of 2010 The Commissioner of Income Tax-VIChennai.... AppellantVs. M.Krishnamoorthy ... Respondent Appeal filed under Section 260A of the Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal 'B'Bench, Chennai dated 18.12.2009 in I.T.A.No.1874 /Mds/2008against the order dated 20.06.2008 made in PAN No. onthe file of the Commissioner of Income Tax (Appeals) VIII,Chennai for the Assessment year 2001-2002 against the orderdated 28.12.2007 made in PAN/GIR No. on the file ofthe Income Tax Officer Range III(2) Chennai for the Assessmentyear 2001-2002. For Appellant : Mr.M.Swaminathan Senior Standing Counsel For Respondent : Mr.A.S.Sriraman For Mr.S.Sridhar JUDGMENT (Judgment of the Court was delivered by DR.VINEET KOTHARI, J.) Revenue has filed this Tax Case Appeal under Section 260-Aof the Income Tax Act, aggrieved by the order passed by theIncome Tax Appellant Tribunal dated 18.12.2009 in respect ofAssessment Year 2001-02, holding that the non-compete feereceived by the assessee to the extent of Rs.4 Crore was acapital receipt and not revenue receipt. 2. Section 28 (va) of the Income Tax Act, was inserted bythe Finance Act, 1992, with effect from 1.4.2003 holding thatsuch non-compete fee shall be revenue receipt includible underthe Head Profits and Gains of business taxable under Section 28of the Act. Prior to 1.4.2003, a controversy involved in the https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT (Judgment of the Court was delivered by DR.VINEET KOTHARI, J.) Revenue has filed this Tax Case Appeal under Section 260-Aof the Income Tax Act, aggrieved by the order passed by theIncome Tax Appellant Tribunal dated 18.12.2009 in respect ofAssessment Year 2001-02, holding that the non-compete feereceived by the assessee to the extent of Rs.4 Crore was acapital receipt and not revenue receipt. 2. Section 28 (va) of the Income Tax Act, was inserted bythe Finance Act, 1992, with effect from 1.4.2003 holding thatsuch non-compete fee shall be revenue receipt includible underthe Head Profits and Gains of business taxable under Section 28of the Act. Prior to 1.4.2003, a controversy involved in the https://hcservices.ecourts.gov.in/hcservices/ present case was decided not only by a Division Bench of thisHigh Court in the case of K.Ramaswamy Vs. Commissioner of IncomeTax (261 ITR 356), but also in the decision of the HonourableSupreme Court in Guffic Chem (P) Ltd Vs. Commissioner of IncomeTax ((2011) 332 ITR 602). Para 7 of the said Supreme Courtdecision is quoted below for ready reference:"7. Two questions arose for determination,namely, whether the amounts received by theappellant for loss of agency was in normalcourse of business and therefore whether theyconstitutedrevenuereceipt?(emphasissupplied). The second question which arosebefore this Court was whether the amountreceived by the assessee (compensation) on thecondition not to carry on a competitive businesswas in the nature of capital receipt? It washeld that the compensation received by theassessee for loss of agency was a revenuereceipt whereas compensation received forrefraining from carrying on competitive businesswas a capital receipt. This dichotomy has notbeen appreciated by the High Court in itsimpugned judgment. The High Court hasmisinterpreted the judgment of this Court inGillanders Arbuthnot & Co. Ltd.'s case (supra).In the present case, the Department has notimpugned the genuineness of the transaction. Inthe present case, we are of the view that theHigh Court has erred in interfering with theconcurrent findings of fact recorded by CIT(A)and the Tribunal. One more aspect needs to behighlighted. Payment received as non-competitionfee under a negative covenant was always treatedas a capital receipt till Assessment Year 2003-2004. It is only vide Finance Act, 2002 witheffect from 1-4-2003 that the said capitalreceipt is now made taxable [see Section 28(va)]. The Finance Act, 2002 itself indicatesthat during the relevant assessment yearcompensation received by the assessee under non-competition agreement was a capital receipt, nottaxable under the 1961 Act. It became taxableonly with effect from 1-4-2003. It is wellsettled that a liability cannot be createdretrospectively.Inthepresentcase,compensation received under Non-CompetitionAgreement became taxable as a capital receiptand not as a revenue receipt by specificlegislative mandate vide section 28(va) and thattoo with effect from 1-4-2003. Hence, the said section 28(va) is amendatory and notclarificatory (emphasis supplied). Lastly, inCIT v. Rai Bahadur Jairam Valji (1959) 35 ITR148 it was held by this Court that if a contractis entered into in the ordinary course ofbusiness, any compensation received for itstermination (loss of agency) would be a revenuereceipt. In the present case, both CIT(A) aswell as the Tribunal, came to the conclusionthat the agreement entered into by the assesseewith Ranbaxy led to loss of source of business;that payment was received under the negativecovenant and therefore the receipt of Rs.50lakhs by the assessee from Ranbaxy was in thenature of capital receipt. In fact, in order toput an end to the litigation, Parliament steppedin to specifically tax such receipts under thenon-competition agreement with effect from 1-4-2003." 3. In view of the above, the controversy is no longer resintegra and the questions of law framed in the present Tax Case(Appeal) viz.,"1.Whether on the facts and circumstances ofthe case the Appellate Tribunal was right in law indeleting the addition made by the assessing officerto the tune of Rs.4 crore as non-compete feereceived by the assessee as capital receipt isvalid?2.Whether on the facts and circumstances of thecase the Appellate Tribunal was right in law indeleting the addition made by the assessing officerto the tune of Rs.4 crore as capital receipt, eventhough the assessing officer computed the incomeunder the head "Income from other sources" on thematerials available on record?" deserves to be answered in favour of the Assessee and againstthe Revenue by holding that the non-compete fee received by theassessee during the Assessment Year 2001-02 would be a capitalreceipt and not a revenue receipt. 4. The Tax Case (Appeal) filed by the Revenue is,accordingly, dismissed. No order as to costs. -s/d- Assistant Registrar(CS-I) Sub-Assistant Registrar To 1. Income Tax Appellate Tribunal,'B' Bench, Chennai.'B' Bench, Chennai. 2.The Commissioner of Income Tax(Appeals)VIIIChennai(Appeals)VIIIChennai 3.The Income Tax OfficerRange III(2), ChennaiRange III(2), Chennai GMR(CO)SP(28/02/2020) T.C.A.No.730 of 2010