Tc/568/2008 Of Commissioner Of Income Tax Vii v. M.p.purushothaman

IN THE HIGH COURT OF JUDICATURE AT MADRASJudgment Reserved On Judgment Pronounced On30.07.201905.08.2019CORAM: THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMand THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case (Appeal) No.568 of 2008andTax Case Appeal No.38 of 2009 T.C.(A) No.568 of 2008:- Commissioner of Income Tax VII,Chennai. .. Appellant/Respondent-vs- M P Purushothaman59, Harris Road,Pudupet, Chennai-600 002... Respondent/Appellant APPEAL under Section 260A of the Income-tax Act, 1961against the order dated 17.10.2007 on the file of the Income-taxAppellate Tribunal Bench 'B', Chennai in I.T.A.No.626/Mds/07 forthe assessment year 2002-03. TCA.No.568/2008 : Against the order of the Income Tax AppealsChennai -600 034, dated 15.12.2006 in ITA.No.32/2006-07. Against the order of the Assistant Commissioner of IncomeTax Central Circle(2), Chennai -600 034 dated 29.03.2016PANGIR.No.AGMPP4159R in the assessment year 2002-03. T.C.A.38 of 2009:-The Commissioner of Income Tax,Tamil Nadu-VII, Chennai... Appellant/Appellant-vs- Shri.M.P.PurushothamanNo.59, Harris Road,Pudupet, Chennai-600 002.PAN AGMPP 4159 R .. Respondent/Respondent https://hcservices.ecourts.gov.in/hcservices/ APPEAL under Section 260A of the Income-tax Act, 1961against the order dated 04.07.2008 on the file of the Income-taxAppellate Tribunal Bench 'B', Chennai in I.T.A.No.508/Mds/07 forthe assessment year 2002-03. TCA.No.38/2009 : Against the order of the Income Tax AppealsChennai -600 034, dated 15.12.2006 in ITA.No.32/2006-07 in theAssessment year 2002-03. Against the order of the Assistant Commissioner of IncomeTax Central Circle(2), Chennai -600 034 dated 29.03.2016PANGIR.No.AGMPP4159R in the assessment year 2002-03. For Appellant:Mr.S.Rajesh,(In both Appeals)Standing CounselFor Respondent:Mr.A.S.Sriraman(In both Appeals) COMMON JUDGMENT T.S.Sivagnanam, J. These appeals have been filed by the Revenue under Section260A of the Income-tax Act, 1961 (hereinafter referred to as“the Act”), challenging the orders dated 17.10.2007 and04.07.2008 passed by the Income-tax Appellate Tribunal Bench'B',Chennai(“theTribunal”,forbrevity)inI.T.A.No.626/Mds/07 and I.T.A.No.508/Mds/07 for the assessmentyear 2002-03 respectively. 2.The reason for preferring two appeals is on account of thefact that aggrieved by the order passed by the Commissioner ofIncome-tax (Appeals)-I, Chennai (for brevity, “the CIT(A)”),dated 15.12.2006, the assessee as well as the Revenue filedappeals before the Tribunal and two separate orders were passedby the Tribunal accepting the case of the assessee and thisbeing the reason, the Revenue has filed two tax case appeals. 3.A decision in T.C.(A) No.568 of 2008 would cover bothcases. The appeal was admitted, on 03.07.2008, on the followingsubstantial question of law:-“Whether on the facts and circumstances of thecase, the Tribunal was right in holding that theprice shown @ Rs.14.75 per share should beaccepted as genuine, when the same shares weresold by the company for Rs.127 per share?” 4.The assessee is the Chairman and Managing Director ofM/s.Empee Distilleries Ltd. A search was conducted in thebusiness premises of the company and the residence of theassessee was also searched. https://hcservices.ecourts.gov.in/hcservices/ 3.A decision in T.C.(A) No.568 of 2008 would cover bothcases. The appeal was admitted, on 03.07.2008, on the followingsubstantial question of law:-“Whether on the facts and circumstances of thecase, the Tribunal was right in holding that theprice shown @ Rs.14.75 per share should beaccepted as genuine, when the same shares weresold by the company for Rs.127 per share?” 4.The assessee is the Chairman and Managing Director ofM/s.Empee Distilleries Ltd. A search was conducted in thebusiness premises of the company and the residence of theassessee was also searched. https://hcservices.ecourts.gov.in/hcservices/ 5.The Revenue would state that it was found that theassessee and his family members had sold their shares toM/s.McDowell Alcobev Ltd., at Rs.14.25 per share when theremaining share held by M/s.Empee Sugars & Chemicals Ltd., weresold at Rs.127.35 per share. The assessee received Rs.10 Croresas non compete fee which he claimed was not taxable. TheAssessing Officer found that the price of the same shares wassold at a much higher price in the hands of Empee Sugars &Chemicals Ltd., who had huge accumulated losses which could beset off against the capital gains and in the hands of theassessee, it was artificially lower and split into considerationfor shares and non compete fee to evade taxes. The AssessingOfficer disbelieved the stand of the assessee that the amountwas paid towards non compete fee and added the same to the pricereceived for sale of shares, and charged the same to capitalgains. 6.Aggrieved by the order of assessment, the assessee filedappeal before the CIT(A), who held that the non compete feeshould not be disturbed, but the high amount charged to EmpeeSugars & Chemicals Ltd., should be treated as having been partlyfor shares sold by the assessee. Accordingly, the CIT(A)treated Rs.8,79,13,221/- as capital gains of the assessee, andthat the same should be reduced from the gains in the hands ofEmpee Sugars & Chemicals Ltd. 7.The assessee preferred appeal to the Tribunal. TheTribunal held that notional capital gains cannot be taxed, andthat the price for which the shares were agreed to be sold bythe assessee was a reasonable price. Accordingly, the appealfiled by the assessee was allowed. 8.Mr.S.Rajesh, learned Standing Counsel for theappellant/Revenue contended that the entire share holding ofEmpee Distilleries Ltd., had been transferred to McDowells andwhile 51% of the shares held by the assessee and his family werevalued at Rs.14.25 shares, the balance held by another companyowned by the assessee, that is, Empee Sugars & Chemicals wassold at Rs.127, which clearly shows that the price shown by theassessee is not a genuine one. 9.It is further submitted that the Tribunal should haveconsidered the fact that the assessee not only received Rs.14.25paise per share, but also a non compete fee of Rs.10 Crores.Further, it is submitted that the Tribunal erred in holding thatnothing was found during the search with regard to the seizedmaterial when there is a specific reference made by theAssessing Officer to the seized materials. 10.Further, it is contended that the finding of the Tribunalthat the addition has been made on the basis of Board Resolutionwhich was done behind the back of the assessee, is not supportedby any material, nor there is any reference in the assessmentorder and therefore, the observation of the Tribunal is onassumptions. 11.The learned Standing Counsel placed reliance on thedecisions in Lachminarayan Madan Lal vs. CIT reported in [1972]86 ITR 439 (SC); and Mc Dowell & Co. Ltd., vs. Commercial TaxOfficer reported in [1985] 154 ITR 148 (SC). 10.Further, it is contended that the finding of the Tribunalthat the addition has been made on the basis of Board Resolutionwhich was done behind the back of the assessee, is not supportedby any material, nor there is any reference in the assessmentorder and therefore, the observation of the Tribunal is onassumptions. 11.The learned Standing Counsel placed reliance on thedecisions in Lachminarayan Madan Lal vs. CIT reported in [1972]86 ITR 439 (SC); and Mc Dowell & Co. Ltd., vs. Commercial TaxOfficer reported in [1985] 154 ITR 148 (SC). 12.Mr.A.S.Sriraman, learned counsel appearing for therespondent/assessee sought to sustain the order passed by theTribunal firstly by contending that there is absolutely noseized material emanating out of the search and seizureoperations warranting assessment under Section 153C of the Act.In this regard, the learned counsel placed reliance on thedecision in the case of CIT vs. Sinhgad Technical EducationSociety reported in [2017] 397 ITR 344. 13.It is further submitted that whatever material which issaid to have been seized were all disclosed by the assesseeabout one year back, when the returns were filed, and thepresent assessment could not have been done with those material.It is further submitted that the non compete fee which wasreceived by the assessee pursuant to an agreement dated30.03.2002, should always be treated as a capital receiptespecially when, there is a negative covenant restraining theassessee from commencing identical business that was transferredto McDowells for a period of seven years. Further, it issubmitted that the consideration received for transfer of shareswas duly accounted for and offered for tax. Therefore, it issubmitted that this non compete fee cannot be taxed by theDepartment. 14.To support his submissions, reliance was placed on thedecision of the Hon'ble Supreme Court in Guffic Chem (P) Ltd.,vs. CIT & Anr. reported in (2011) 332 ITR 0602. 15.The learned counsel has referred to the return of incomefor the assessment year 2002-03 along with the computation toshow that all details were disclosed one year prior to thesearch and seizure operations and there is no material with theAssessing Officer to invoke Section 153 of the Act. 16.In reply, Mr.S.Rajesh would contend that the power underSection 153 of the Act includes power to assess and re-assessand the Assessing Officer has clearly brought out the materials https://hcservices.ecourts.gov.in/hcservices/ which were seized which is the basis of the assessment underSection 153C of the Act. 17.We have heard learned counsel for the parties. 18.A search under Section 132 of the Act was conducted inthe business premises of M/s.Empee Distilleries Ltd., on25.11.2003 and concluded on 05.01.2004. The residence of theChairman and Managing Director of Empee Distilleries Ltd., theassessee, was also searched. The assessee, his two sons, histwo daughters and his wife are the Directors of severalcompanies which formed the Empee Group. The search resulted inseizure of cash of Rs.1 Crore from the residence of theassessee, gold weighing 5856.4 grams and diamonds of 87.06carats. Gold weighing 978.9 grams and diamonds of 17.31 caratswere seized from the residence of one of the two sons of theassessee. 17.We have heard learned counsel for the parties. 18.A search under Section 132 of the Act was conducted inthe business premises of M/s.Empee Distilleries Ltd., on25.11.2003 and concluded on 05.01.2004. The residence of theChairman and Managing Director of Empee Distilleries Ltd., theassessee, was also searched. The assessee, his two sons, histwo daughters and his wife are the Directors of severalcompanies which formed the Empee Group. The search resulted inseizure of cash of Rs.1 Crore from the residence of theassessee, gold weighing 5856.4 grams and diamonds of 87.06carats. Gold weighing 978.9 grams and diamonds of 17.31 caratswere seized from the residence of one of the two sons of theassessee. 19.On the basis of the materials found and seized during thecourse of search, and after recording satisfaction, a noticeunder Section 153C was issued on 04.01.2005. The assessee wasgranted 30 days' time, from the date of receipt of the notice,to file his return of income in respect of the notice underSection 153C of the Act. The assessee filed his return ofincome on 29.07.2005, without offering any additional incomethan what was admitted in his return originally filed on20.10.2002. Pursuant to notice issued under Section 143(2)dated 23.08.2005, the authorised representative of the assesseeappeared before the Assessing Officer and filed details.Subsequently, notice under Section 142(1) dated 07.12.2005, wasissued along with questionnaire in which, details were calledfor. 20.The assessee was called upon to show cause as to why thenon compete fee of Rs.10 Crores should not be brought to tax inview of the facts brought out as a result of search. Theassessee filed his reply dated 20.03.2006. The AssessingOfficer, upon analysing the transaction as a whole, held that itis a device employed by the assessee to avoid tax andaccordingly, the sum of Rs.10 Crores received by the assesseehas the character of capital gains on transaction of shares andthe income was taxed at 20%. 21.The assessee preferred appeal before the CIT(A), who byorder dated 15.12.2006, allowed the appeal in part. 22.The assessee and the Revenue filed appeals before theTribunal. The assessee's appeal was allowed by the Tribunal.Consequently, the Revenue's appeal was dismissed. This is how,the Revenue is before us by way of these appeals. https://hcservices.ecourts.gov.in/hcservices/ 21.The assessee preferred appeal before the CIT(A), who byorder dated 15.12.2006, allowed the appeal in part. 22.The assessee and the Revenue filed appeals before theTribunal. The assessee's appeal was allowed by the Tribunal.Consequently, the Revenue's appeal was dismissed. This is how,the Revenue is before us by way of these appeals. https://hcservices.ecourts.gov.in/hcservices/ 23.In the show cause notice issued to the assessee pursuantto the search and seizure operations, it was stated that theseized material contains documents relating to transfer ofM/s.Empee Breweries Ltd., as a growing concern to M/s.McDowellAlcobev Ltd., and an asset purchase agreement was drawn betweenEmpee Distilleries Ltd., and Empee Breweries Ltd., fortransferring the plant and machineries of Empee DistilleriesLtd., to Empee Breweries Ltd., which had its brewing division inSriperumpudur. The assessee and his family members havecontrolling shares in Empee Distilleries Ltd., Empee BreweriesLtd., and Empee Sugars & Chemicals Ltd. The transfer of assetshad taken place, as a result of an agreement between theassessee and his family members with McDowell Alcobev Ltd. Theassessee and his family agreed to sell 29,75,375 number ofshares at an agreed price of Rs.14.25 per share and these sharesformed 51.08% of the total shares floated by Empee BreweriesLtd. McDowell Alcobev Ltd., and Empee Distilleries Ltd., soldall their shares (48.92%) to Empee Sugars & Chemicals Ltd., at aprice of Rs.10 per share on 02.04.2002, and the assessee and hisfamily members, Empee Distilleries Ltd., Empee Breweries Ltd.,and Empee Sugars & Chemicals Ltd., entered into an agreementwith McDowell Alcobev Ltd. Empee Distilleries Ltd., sold theirshares to Empee Sugars & Chemicals Ltd., for Rs.10/- and theassessee and his family members sold the same shares to McDowellAlcobev Ltd., at Rs.14.25 per share and Empee Sugars & ChemicalsLtd., sold the newly acquired shares to McDowell Alcobev Ltd.,at Rs.127.35 per share, i.e., at 12 times profit ratio. Theassessee and Empee Distilleries Ltd., who had sold their sharesat 12 times lower price, were granted a non compete fee and theassessee received Rs.10 Crores as his share of non compete feeand Empee Distilleries Ltd., Rs.7 Crores. Empee DistilleriesLtd., and the assessee claimed that the receipts were capital innature and hence, did not offer the same to tax. 24.The Assessing Officer was of the prima facie view thatthe non compete fee should be taxed in the hands of the assesseeconsidering the chain of events noted by him. The assessee, intheir reply, contended that the non compete fee of Rs.10 Croresis accounted for in the books of accounts for the year ended31.03.2002 and the reason for effecting such payment is set outin the agreement dated 30.03.2002 and that the assessee hadentered into a share purchase agreement dated 18.01.2002 withEmpee Distilleries Ltd., for sale of equity shares in EmpeeBreweries Ltd., owned and controlled by the assessee and hisfamily members. Further, the assessee stated that by assetpurchase agreement dated 28.02.2002, Empee Breweries Ltd.,purchased operating assets and licences of the Brewery unit fromEmpee Distilleries Ltd., and in terms of the share purchaseagreement, the assessee transferred the entire shares held by him and his family members in Empee Breweries Ltd., to McDowelAlcobev Ltd. him and his family members in Empee Breweries Ltd., to McDowelAlcobev Ltd. 25.The assessee contended that there is no material towarrant the conclusion that the transaction is a colourabledevice to avoid tax. It was stated that the sum of Rs.10 Crorespaid to the assessee is the consideration as per agreement dated30.02.2002 for accepting restrictive covenant in the aforesaidagreement. Further, the assessee contended that Empee BreweriesLtd., is a public limited company in which, public are notsubstantially interested and he and his family members held morethan 50% of the shares in the company, its performance had notbeen encouraging and the said buyer agreed to purchase theshares, but insisted that the restrictive covenant should beaccepted and to accept the same, Rs.10 Crores was paid to theassessee. 26.Further, it was stated that the share purchase agreementand non compete fee agreement have been acted upon and aregenuine. Copies of those agreements were also filed before theAssessing Officer. It was submitted that every attempt of taxplanning cannot be treated as illegitimate and must not belooked upon with disfavour. This explanation furnished by theassessee was considered by the Assessing Officer and it was heldthat the reason for sale of shares at a low price of Rs.10 and14.25 paise where the sale price could have been Rs.127.35 hasnot been satisfactorily explained. The company, Empee Sugars &Chemicals Ltd., is controlled by the same Directors has effecteda sale to McDowell Alcobev for Rs.127.35 paise within a shortspan of time. Explaining the nature of transaction, theAssessing Officer pointed out that what has been sold to EmpeeDistilleries Ltd., which is a group company for Rs.10, is soldback by the other company, Empee Sugars & Chemicals Ltd., atRs.127.35 paise to Empee McDowell Ltd., and this capital gain isset off against the losses of Empee Sugars & Chemicals Ltd. 27.Further, it was pointed out that the capital gainsarising out of the sale of shares at the price of Rs.127.35paise by Empee Sugars & Chemicals Ltd., does not suffer taxbecause, Empee Sugars has accumulated losses that have not beenexhausted. Thus, the Assessing Officer concluded that thetransaction was not genuine. Furthermore, it was pointed outthat the transactions of selling shares at a lower price cannotbe viewed as a singular event for judging the genuineness and ifthe transactions are perceived as a whole, it shows the deviceemployed by the assessee to avoid tax, more so when the assesseeand Empee Distilleries Ltd., were under no compulsion to selltheir shares at very low prices after initiating the arrangementfor handing over Empee Breweries Ltd. It was noted by theAssessing Officer that nothing has changed since their sales for low prices, till the time the shares were sold for Rs.127.35paise. Accordingly, the stand taken by the assessee wasrejected and the assessment was completed. 28.On appeal before the CIT(A), it was held that non competefee should not be disturbed, but the high amount charged toEmpee Sugars & Chemicals Ltd., should be treated as having beenpartly for the shares sold by the assessee. Accordingly, a sumof Rs.8,79,13,221/- was treated as capital gains of the assesseeand the same should be reduced from the gains in the hands ofEmpee Sugars & Chemicals Ltd. 29.Aggrieved by the same, the assessee had preferred appealbefore the Tribunal. The Tribunal pointed out that the adequacyof consideration is between the transferor and transferee and inthe absence of any theory of collusiveness, the value asaccepted by the parties represents the full value ofconsideration. The Tribunal noted that the share purchaseagreement was not rejected by the authorities, the agreement wasacted upon and the ultimate purchaser was a stranger and thetransaction itself is at arms length and the entire fund flowwas through banking channel. 29.Aggrieved by the same, the assessee had preferred appealbefore the Tribunal. The Tribunal pointed out that the adequacyof consideration is between the transferor and transferee and inthe absence of any theory of collusiveness, the value asaccepted by the parties represents the full value ofconsideration. The Tribunal noted that the share purchaseagreement was not rejected by the authorities, the agreement wasacted upon and the ultimate purchaser was a stranger and thetransaction itself is at arms length and the entire fund flowwas through banking channel. 30.The Tribunal accepted the stand of the assessee, whoplaced reliance on the decision of the Hon'ble Supreme Court inK.P.Varghese vs. Income-tax Officer reported in [1981] 131 ITR597 (SC). The Tribunal observed that the price for which sharesare agreed to be sold is a justified reasonable price, as atthat time, the brewery licence was not accorded sanction byGovernment of Tamil Nadu and sanction was granted, subsequently. 31.Further, the Tribunal observed that while reading thefull value of consideration, one has to see the value at thetime of sale and subsequent events have no relevance fordeciding the factor of full value of consideration and theaction of the assessee cannot be viewed as to the evasion of taxto apply the legal principal laid down by the Hon'ble SupremeCourt in Mc Dowell & Co. Ltd. (supra). 32.We are at a loss to understand as to how the Tribunalcame to the conclusion that the price for which the shares areagreed to be sold is a justified reasonable price. Apparently,there was no material which was placed before the Tribunal toarrive at such a finding. More importantly, as rightly pointedout by the Assessing Officer, there was no compulsion on theassessee or Empee Breweries Ltd., to sell their shares at a lowprice after initiating the arrangements for handing over EmpeeBreweries Ltd., and the Assessing Officer noted that nothing haschanged since their sale for such low prices till the time the shares were sold for Rs.127.35 paise. Therefore, the findingrendered by the Tribunal that the price for which the shareswere agreed to be sold is a justified reasonable price is afinding not supported by any document and therefore, perverse.Further, the Tribunal holds that the assessee's reply forselling their shares at Rs.14.25 per share to McDowell Alcobevis more convincing. 33.On a perusal of the reply given by the assessee dated20.03.2006, to the show cause notice issued by the AssessingOfficer, it is seen that no explanation was offered by theassessee as to why he sold the shares at such low price. Thecontention of the assessee is that the amount of Rs.10 Croresreceived by him is towards non compete fee, as McDowell AlcobevLtd., insisted upon a restricted covenant on the assessee for aperiod of seven years. Therefore, the finding of the Tribunalthat the explanation offered by the assessee for selling theshares at Rs.14.25 to be convincing is not substantiated by anymaterial and therefore, perverse. The Tribunal, further, hasobserved that besides the search and seizure action on25.11.2003, under Section 132, both in the case of the assesseeand Empee Distilleries Ltd., there is no material relating tothe said addition. 34.Further, the Tribunal states that the assessment underSection 153C read with Section 153A and Section 143(3) wasframed on the sole reliance of the Board Resolution which wasdone behind the back of the assessee and such Board Resolutionalone cannot be taken as a valid piece of evidence particularlywhen, it was not confronted to the assessee. The Tribunal hadfailed to note that the Assessing Officer, at the firstinstance, while calling upon the assessee to show cause as towhy non compete fee of Rs.10 Crores should not be brought totax, placed reliance on the seized material in file no.Ann/MP/D&D/S.35. There is a specific reference to the same inparagraph 4.2 of the assessment order. Therefore, we fail tounderstand as to how the Tribunal came to the conclusion thatthere was no material to frame the assessment under Section 153Cof the Act. There has been no attempt made by the Tribunal toexamine the seized material which was the basis of theassessment proceedings, papers and documents were recovered fromthe residence of the assessee and the companies controlled by byhim. Therefore, to say the least, the finding of the Tribunal,in this regard, is wholly unsubstantiated and without anymaterial and consequently, perverse. 35.Mr.A.S.Sriraman, learned counsel argued that the amountpaid to the assessee to refrain from competing with EmpeeBreweries Ltd./McDowell Alcobev Ltd., has been clearly set downin the non compete agreement dated 30.03.2002, which has been acted upon by the parties. Therefore, in the light of the saidagreement, the stand taken by the Assessing Officer is whollyunsustainable. 36.On a reading of the agreement dated 30.03.2002, it is notclear as to who had represented McDowell Alcobev Ltd., as theagreement does not mention the name of the authorised signatoryof the company. The photostat copy which was placed before uscontains two signatures in the bottom of pages 1 to 5, and foursignatures in page 6. Of the four signatures, one is that ofthe assessee and two witnesses K.Sethuraman, a third party andthe daughter of the assessee Nisha Purushothaman. There is oneother signature which does not give any designation or the nameof the person, who had signed it. Apart from that, theagreement is an unregistered instrument based on which, theassessee was paid a sum of Rs.10 Crores. The Tribunal appearsto have brushed aside important facts more particularly, thesequence of events prior to the share transfer and thereafter. 37.In our considered view, the Assessing Officer rightlyconsidered the entire transaction and came to the conclusionthat it is a device employed by the assessee to evade taxes.The finding of the Assessing Officer, in this regard, isjustified, as it was found that the assessee and his familymembers sold their shares to McDowell Alcobev Ltd., at Rs.14.25paise per share, when the remaining shares held by EmpeeDistilleries Ltd., were sold by McDowell Alcobev Ltd., at aprice of 125.37 and the assessee received Rs.10 Crores as noncompete fee which he had claimed was not taxable. The price ofthe shares which was shown at a much higher price in the handsof Empee Sugars & Chemicals Ltd., was undoubtedly to benefit thecompany which had huge accumulated losses and consequently, thesame could be set off against capital gains. The benefit whichwill accrue to the assessee is by lowering and splitting up ofthe consideration for shares and non compete fee thereby being adevice employed to evade tax. 38.The question would be as to whether merely because therewas a non compete agreement, will it absolve the assessee. Thisissue was considered in Lachminarayan Madan Lal (supra) wherein,it was pointed out that mere existence of an agreement betweenthe assessee and its selling agents or payment of certainamounts as commission, assuming there was such payment did notbind the Income-tax Officer to hold that the payment was madeexclusively and wholly for the purpose of the assessee'sbusiness. It was further pointed out that although there mightbe such an agreement in existence, and payments might have beenmade, it was still open to the Income-tax Officer to considerthe relevant factors and determine for himself whether thecommission said to have been paid to the selling agents or any part thereof was properly deductible under Section 37 of theAct. This decision is a clear answer to the stand of theassessee and by applying the same, the stand taken by theassessee deserves to be out rightly rejected. 39.In the decision in Mc Dowell & Co. Ltd. (supra), it waspointed out that it is open to everyone to so arrange hisaffairs as to reduce the brunt of taxation to the minimum, taxplanning may be legitimate provided, it is within the frameworkof law; colourable devices cannot be part of tax planning and itis wrong to encourage or entertain the belief that it ishonourable to avoid the payment of tax by restoring to dubiousmethods. It was pointed out that it is the obligation of everycitizen to pay tax honestly without resorting to subterfuges.It was held that Courts are now concerning themselves not merelywith the genuineness of a transaction, but with an intendedeffect of it for fiscal purposes and no one can now get awaywith a tax avoidance project with the mere statement that thereis nothing illegal about it. Having held that the modus adoptedby the assessee is a device to avoid tax, we have no hesitationto interfere with the order passed by the Tribunal. 40.The assessee has placed reliance on K.P.Varghese (supra).41.We find the judgment to be wholly inapplicable to thefacts of the case and reliance on it is misplaced. 42.Mr.A.S.Sriraman, argued that the Tribunal had out rightlyheld that there was no incriminating material seized during thesearch operations and no assessment could have been done underSection 153C of the Act. To support his argument, reliance wasplaced on the decision in Sinhgad Technical Education Society(supra). 43.In the preceding paragraphs, we have analysed the factualdetails as culled out by the assessee and found that theassessee has specifically recorded the materials which wereseized during the search operations which were brushed aside bythe Tribunal in a single line order. Therefore, the decision inSinhgad Technical Education Society (supra), can be of noassistance to the case of the assessee. 44.Reliance was placed on Guffic Chem (P) Ltd. (supra) tostate that non compete fee is a capital receipt. 45.We cannot be compelled to go thus far because, we haveconcurred with the view taken by the Assessing Officer that thepayment of non compete fee was a colourable device adopted bythe assessee to avoid tax. Therefore, the decision in GufficChem (P) Ltd. (supra) does not in any manner help the case ofthe assessee. https://hcservices.ecourts.gov.in/hcservices/ 46.For the above reasons, the Revenue has to succeed inthese appeals. 47.In the result, the appeals are allowed, the orders passedby the Tribunal and the Commissioner of Income-tax (Appeals)-I,Chennai, are set aside and the assessment order is restored. Nocosts. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar To 1.The Assistant Commissioner of Income-tax, Central Circle I(2)(i/c), Chennai-600 034. 2.The Commissioner of Income-tax (Appeals), Chennai-600 034. 3.The Income-tax Appellate Tribunal Bench 'B', Chennai. Rajaji Bhavan, Besant Nagar. https://hcservices.ecourts.gov.in/hcservices/ 46.For the above reasons, the Revenue has to succeed inthese appeals. 47.In the result, the appeals are allowed, the orders passedby the Tribunal and the Commissioner of Income-tax (Appeals)-I,Chennai, are set aside and the assessment order is restored. Nocosts. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar To 1.The Assistant Commissioner of Income-tax, Central Circle I(2)(i/c), Chennai-600 034. 2.The Commissioner of Income-tax (Appeals), Chennai-600 034. 3.The Income-tax Appellate Tribunal Bench 'B', Chennai. Rajaji Bhavan, Besant Nagar. +2cc to Mr.S.Sridhar, Advocate SR.No.66578 and 66579+1cc to Mr.Karthik Ranganathan, Standing Counsel SR.No. 66556AKM/05.09.19/12P-7C/Judgment made inT.C.(A) No.568 of 2008AND T.C.A.No.38 of 2009