Itxa/64/2005 Of The Commissioner Of Income Tax Central-Iii, Mumbai v. Narendra D.desai

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO.64 OF 2005The Commissioner of Income TaxCentral III, MumbaiAppellantvsNarendra D.Desai..RespondentMr.Pankaj Kapoor for AppellantCORAM : F.I.REBELLO ANDR.S.MOHITE, JJDATED : 4TH DECEMBER, 2007P.C.1. The revenue has preferred this appeal againstthe order dated 28th May, 2002 . The issue forconsideration before the learned Tribunal waswhether the receipt received by the assessee fromthe General Electric Company USA (GE) for agreeingto refrain from carrying on competing businessunder a restrictive covenant is income exigible totax ? After going through the various facts thetribunal noted that the amount received is capitalreceipt and is not liable to tax. Before thetribunal, the contention of the revenue was thatthe amount in question cannot be considered to becapital receipt because existing income earningapparatus was not destroyed or impaired. In para11 of the judgment, the learned tribunal hasreferred to the amendment of section 28 by FinanceAct, 2002. Sub-clause (va) was introduced with effect from 1st April, 2003. The relevant portion . " (va) any sum whether received orreceivable in cash or kind under a agreementfor-(a) not carrying out any activity inrelation to any business; or(b) ..............................."The learned tribunal considered the Memorandum explaining the Provision in the Finance Bill, 2002 and quoted the following :- " MEASURES TO CURB TAX AVOIDANCE held that this amendment is operative from 1stApril, 2003. It was not made retrospective. Assuch it can be said that in the year underconsideration the amount received under anagreement for not carrying out any activity inrelation to business was not exigible to tax.3. As to whether it will attract capital gains,reliance was placed on Instruction No. 1964 dated17.3.1999 issued by CBDT. It was stipulated in thesaid Instruction that where the capital assettransferred is in the nature of a right tomanufacture produce or process an article or thing,recourse to section 55 (2) can be made only fromassessment year 1998-99 in respect of anyconsideration received for the transfer thereofwhich includes extinguishments or curtailment ofsuch right. Section 55 (2) (a) was amended witheffect from 1.4.1998. Considering that it was heldin the year under consideration, it would not beapplicable and since the cost of acquisition wasnil it was not exigible to capital gains tax. Inthe light of that, the issue was decided in favourof assessee and against the revenue.4. In our opinion, in so far as the issuepertaining to prospective and restrospectivecovenants, we do not find that there is any errorcommitted by the tribunal in arriving at theconclusion. The amendment was prospective andconsequently would not apply in relation to the 5. Similarly, considering the finding in so far ascapital gains is concerned, we also find that thereis no error of law and consequently the questionsof law as framed would not arise. Appeal isaccordingly dismissed. (F.I.Rebello, J)(R.S.Mohite, J) ‘