TaxTMI 
TaxTMI 
2011 (7) TMI 62
X X X X Extracts X X X X
X X X X Extracts X X X X
....secticides, including household insecticides (mats/mosquito destroyer), at an agreed price. It is seen from the facts projected before this Court that upto the year 1995-96, the assessee was selling its products manufactured under its trademark, apart from the agreement with Bayer India Limited to manufacture and sell mats under contract basis. Under agreement dated 24.5.1995 with Transelektra Domestic Products Limited, (hereinafter referred to as TDP Limited), the assessee agreed to receive non-compete fee, that they shall not manufacture, sell or distribute mosquito repellents, mats or mat heater machines under the Trade Mark or otherwise, either on its own account or on behalf of any other person. Under the terms of the above agreement, the assessee received a sum of Rs.2,70,00,000/- (Rupees two crores seventy lakhs only) as by way of non-compete fee. It is also seen from the documents placed before this Court that under agreement dated 24.5.1995 with M/s.TDP Limited, the assessee assigned its goodwill for a consideration of Rs.35 lakhs. In terms of the restrictive non-compete clause, the assessee contended that the said receipt was a capital receipt and hence, could not be asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ax, Madras Vs. Best & Company) and pointed out that when the assessee company before us was permitted to manufacture as before and sell the same, as evident from the contract with Bayer India Limited, there was no loss of source of income, much less of an enduring nature, as had been contended by the assessee. He also referred to the decision of the Commissioner of Income Tax (Appeals), pointing out to the difference between the two sub clauses on the non-compete clauses under the agreement which enabled the assessee to carry on business as before. In the light of the fact that the assessee continued to manufacture mosquito repellents, mats and mat heater machines as before, even after the agreement dated 24.5.1995, and that the business practically continued, the non compete fee has to be treated only as a revenue receipt. He further submitted that a partial restriction in the business activity, per se, would not make the receipt, capital in nature. 6. Per contra, learned counsel appearing for the assessee, referred to the decision of the Apex Court reported in [1966] 60 ITR 11 (Commissioner of Income Tax, Madras Vs. Best & Company), which has been consistently followed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... during the period, PLC shall not, without TDP's prior written consent, directly or indirectly own, manage, operate, join, have an interest in, control or participate in the ownership, management, operation or control of, or be otherwise connected in any manner with, any body corporate, partnership, proprietorship, trust, estate, association or other business entity which directly or indirectly engages, as a commercial activity anywhere in the Territory, in the Business that PLC shall not in any manner whatsoever manufacture, sell, or distribute Mosquito Repellent Mats or Mat Heater Machines under the Trade Marks or otherwise, either on its own account or on behalf of any other person whether as an agent or as a licensee or under any other relationship; Provided that nothing herein contained shall be deemed to prevent or restrain PLC from carrying on and PLC shall be at liberty and shall have the full right and freedom to carry out, indulge in manufacture and sell Mosquito Repellant Mats and Mat Heater Machines, within and/or outside India, on a contractual basis and or on behalf of any other person whether as an agent or as a licensee or under any other relationship provided that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onger available to the assessee, but the loss that the assessee suffered could not be called just the loss of income, but loss of an income generating aspect of the business; thus the compensation received in this loss of source of income makes the receipt a capital receipt at the hands of the assessee. 13. The controversy as to whether the non-compete fee is revenue or capital was resolved by the Parliament by insertion of Clause Va to Section 28 of the Finance Act 2002 with effect from 1.4.2003. Referring to the said amendment in Section 28, the Apex Court in the decison reported in [2011] 332 ITR 602 (Guffic Chem P. Ltd. Vs. C.I.T., Belgaum and another)pointed out as follows: " Payment received as non-competition fee under a negative covenant was always treated as a capital receipt till the assessment under the year 2003-04. It is only vide the Finance Act, 2002 with effect from April 1, 2003 that the said capital receipt is now made taxable (See section 28(va)). The Finance Act, 2002 itself indicates that during the relevant assessment year compensation received by the assessee under non-competition agreement was a capital receipt, not taxable under the 1961....