2009 (10) TMI 966 - HC - Income Tax

High Court rules non-compete payment as revenue, upholds Assessing Officer's decision.

THE COMMISSIONER OF INCOME TAX, THE ASST COMMISSIONER OF INCOME TAX CIRCLE-2 Versus GUFFIC CHEM PVT LTD

The High Court held that the amount received under the non-competition agreement should be treated as a revenue receipt, overturning the Tribunal's ... - Issues involved: The issue involves the treatment of an amount received by the assessee pursuant to a non-competition agreement as either a capital receipt or a revenue receipt.Summary:Issue 1: Treatment of amount received under non-competition agreementThe appeal by the Revenue was filed u/s 260-A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal. The question was whether the amount of Rs. 50,00,000 received by the assessee under a non-competition agreement with Ranbaxy Lab. Ltd. should be considered a capital or revenue receipt. The Assessing Officer initially treated it as a capital receipt, but the Appellate Authority accepted the assessee's contention that it was a capital receipt. The Revenue appealed to the Tribunal, which dismissed the appeal. The High Court, referring to a previous decision, held that the amount received under the non-competition agreement should be treated as a revenue receipt, overturning the Tribunal's decision and restoring the Assessing Officer's order.The High Court allowed the appeal, setting aside the Tribunal's order and restoring the Assessing Officer's order regarding the treatment of the amount received under the non-competition agreement.