Trademark Assignment and Non-Competition Payment Exempt from Tax

The court affirmed the decision that amounts received by the assessee from a trade mark assignment and non-competition agreement in the ice cream sector were not taxable as they were considered capital receipts exempt from capital gains tax. The court held that the Revenue is bound by instructions issued by the Central Board of Direct Taxes and must adhere to them as long as they remain in operation, even if there are inconsistencies with previous court decisions. The appeal was dismissed as no substantial question of law was found.

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Issues:
Taxability of amounts received from trade mark assignment and non-competition agreement in manufacturing ice cream.

Analysis:
During the assessment year 1996-97, the respondent-assessee entered into agreements with another company for the assignment of its trade mark and a non-competition agreement in the ice cream sector. The assessee claimed that the amounts received were not taxable, relying on instructions from the Central Board of Direct Taxes. The Assessing Officer disagreed, but the Commissioner of Income-tax and the Tribunal upheld the assessee's claim based on the instructions issued by the Board, stating that such receipts were capital receipts and not exigible to tax.

The Revenue appealed the Tribunal's decision, arguing that the instructions from the Central Board of Direct Taxes did not align with the actual provisions of the Income-tax Act. However, the court cited a Supreme Court decision stating that the Revenue is bound by the instructions issued by the Board and cannot take a stand contrary to them. The court emphasized that as long as a circular remains in operation, the Revenue must adhere to it.

The court acknowledged certain inconsistencies in previous apex court decisions regarding the binding nature of circulars issued by the Board when they conflict with the law declared by the Supreme Court. However, it was noted that in cases where there is no contrary pronouncement from the apex court, the circulars and instructions issued by the Board under section 119 of the Act are binding.

Based on the above legal principles and the fact that the appellate authorities had considered the issue in light of the Supreme Court's pronouncements and the Board's instructions, the court found no substantial question of law to consider in the appeal. Therefore, the court dismissed the appeal, affirming the decision that the amounts received by the assessee were not exigible to tax as they were capital receipts exempt from capital gains tax.

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