2019 (3) TMI 900 - HC - Income Tax

High Court upholds Tribunal decisions on agricultural income & capital gains, clarifying non-compete fee treatment.

The High Court dismissed the appeal, affirming the Tribunal's decisions on both issues raised by the Revenue. The Court upheld the Tribunal's ruling that ... Exemption u/s 10(1) - Agricultural activity - Character of income - As per revenue Assessee company cannot be categorized as agricultural operation - tribunal allowed the claim - HELD THAT:- As decided in assessee's own case [2019 (2) TMI 1442 - BOMBAY HIGH COURT] order of the Tribunal dismissed the Revenue's appeal before it on the above issue following an order of this coordinate bench for Assessment Year 2000-01 in respect of the same respondent assessee. It also notes the binding order in CIT Vs. M/s. Monsanto India Ltd.[2011 (8) TMI 1298 - BOMBAY HIGH COURT] raising the same issue, which were dismissed by this Court - As the impugned order has followed the decision of this Court, no fault can be found with the same -Tribunal was correct in treating its commercial income of the sale of hybrid seeds, as agricultural income exempt under Section 10(1) - Decided against revenue Receipts under a Non-Compete Agreement - capital gain or business receipt - Tribunal held that the receipt was capital and it gave rise to long term capital gain - HELD THAT:- Tribunal was right on both counts. The Non-Compete Agreement was part and parcel of the sale of the business and cannot be seen in isolation. Further, the Assessee was in the business of producing and selling wheat herbicides since the year 1997 and therefore, while selling the business, the Assessee also executed a NonCompete Agreement, which was part of the sale of assets held by the Assessee in excess of 36 months. - Decided against revenue Issues:1. Whether the Tribunal was correct in treating the commercial income from the sale of hybrid seeds as agricultural income exempt under Section 10(1) of the Income Tax ActRs.2. Whether the Tribunal erred in holding that the receipt of non-compete fee from the sale of business assets was not assessable as business profits under Section 29(va) but as long-term capital gainRs.Analysis:Issue 1:The case involves an Assessee, a limited company engaged in manufacturing and selling hybrid seeds for agriculture, claiming exemption under Section 10(1) of the Income Tax Act for the assessment year 2007-2008. The Revenue disputed the categorization of the Assessee's activity as agricultural operation, leading to the disallowance of the exemption by the Assessing Officer. However, the Tribunal ruled in favor of the Assessee, prompting the Revenue to file an appeal. The High Court noted that similar issues had been raised in previous years for the same Assessee, with previous appeals being rejected by the Court. Given the precedent and consistent rulings, the Court did not entertain the first question raised by the Revenue.Issue 2:The second question pertains to the receipt of a non-compete fee under an agreement related to the sale of the Assessee's business assets. The agreement included the sale of the business for a specific consideration, part of which was allocated to the non-compete fee. The Assessing Officer treated this amount as the Assessee's income, leading to an appeal by the Assessee. The Commissioner (Appeals) deemed the receipt to be capital in nature but subject to short-term capital gain. Both parties appealed to the Tribunal, which concluded that the receipt was capital and resulted in long-term capital gain. The High Court upheld the Tribunal's decision, emphasizing that the non-compete agreement was an integral part of the business sale transaction and that the Assessee had been in the business since 1997. Therefore, the transfer of the capital asset giving rise to long-term capital gain was deemed appropriate. Consequently, the Court found no legal question to be addressed and dismissed the appeal.In conclusion, the High Court dismissed the appeal, affirming the Tribunal's decisions on both issues raised by the Revenue.