Court bifurcates consideration for sale of shares and negative covenants, deems non-taxable. Appeals dismissed.

The court held that the consideration must be bifurcated and apportioned between the sale of shares and negative covenants, rejecting the argument that there was no consideration for the negative covenants. The Tribunal's order was deemed reasonable, and the apportionment towards the negative covenants was upheld. The consideration for the negative covenants was found not assessable to tax under Section 28 of the Income Tax Act. Consequently, the appeals were dismissed with no order as to costs.

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Issues Involved:
1. Bifurcation and apportionment of consideration for the sale of shares and negative covenants.
2. Whether there was any consideration payable for the negative covenants.
3. Whether the Tribunal's order is perverse.
4. Taxability of consideration for negative covenants under Section 28 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Bifurcation and Apportionment of Consideration:
The court addressed whether the assessee could bifurcate the consideration stipulated in the Share Purchase Agreement for the sale of shares and negative covenants. The court held that an assessee is entitled to seek bifurcation of the consideration mentioned in the agreement. The judgment of the Bombay High Court in Baijnath Charurbhuj and another v. Commissioner of Income Tax, Bombay City-II was cited, which supported the principle that the full value of shares must be the true value, not an artificial value assigned by the parties. The court emphasized that the negative covenants and shares are independent and distinct assets, and the consideration must be apportioned towards each if it is possible to ascertain their value.

2. Consideration Payable for Negative Covenants:
The court rejected the contention that there was no consideration payable for the negative covenants. It was argued that the members of the Saboo group did not possess the technical expertise to run a similar business. However, the court held that the term "engage" is of wide import, and the members of the Saboo group could engage in similar business merely as investors or through joint ventures. The clause 5.5 of the agreement prevented the Saboo group from engaging in any business similar to or in competition with Groz Beckert Saboo Ltd., directly or indirectly. The court noted that the absence of a penalty for breach of clause 5.5 did not render it meaningless or without value, as the Groz Beckert group could enforce the negative covenants through legal action.

3. Perverse Order of the Tribunal:
The court addressed the contention that the Tribunal's order was perverse because it failed to apportion the consideration towards each of the covenants/negative covenants. The court rejected this submission, noting that the contention was not raised before the Assessing Officer, the CIT(A), or the Tribunal. Additionally, the court held that even if some value should be attributed to other covenants, the apportionment of Rs. 100 out of Rs. 400 towards the negative covenants was reasonable. The Tribunal accepted the valuation of the shares at Rs. 60.24 per share, and the apportionment of 25% of the value of shares towards the negative covenants was on a conservative basis.

4. Taxability under Section 28 of the Income Tax Act:
The court examined whether the consideration for the negative covenants under Clause 5.5 was assessable to tax under Section 28(ii)(a) & (b) of the Income Tax Act. The court held that these sections were inapplicable as the members of the Saboo group held only 40% of the equity shares and did not manage the whole or substantially the whole of the affairs of Groz Beckert Saboo Ltd. The court noted that the general administration and management were in the hands of two Managing/Executive Directors, one nominated by each group, with the Chairman having a casting vote. Therefore, the Saboo group did not manage the whole of the affairs of the company. Additionally, Section 28(va) did not apply as it came into force with effect from 01.04.2003, and the case pertained to the assessment year 1994-95.

Conclusion:
The court concluded that the consideration must be bifurcated and apportioned between the sale of shares and the negative covenants. The contention that there was no consideration for the negative covenants was rejected. The Tribunal's order was not perverse, and the apportionment of Rs. 100 towards the negative covenants was reasonable. The consideration for the negative covenants was not assessable to tax under Section 28 of the Income Tax Act. The appeals were dismissed with no order as to costs.

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