TaxTMI 
TaxTMI 
2011 (8) TMI 454
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....f my experience and expertise in providing such services, I had the ability to do this business on my individual capacity. Munich Re was interested in becoming a shareholder of the said company. For this purpose a Memorandum of Understanding dt. 15th Oct. 1999 was entered into between me and Munich Re. Under the MOU, it was inter alia agreed that PHMC will increase its share capital by issue of further shares and Munich Re would subscribe to 500000 No. of shares being 33.33% of the shareholding in the PHMC and our percentage holding and of others will be reduced to 66.67% from 100%. Further I will grant Munich Re option to acquire 265000 shares of PHMC (17.67% of increased capital) at par (Rs. 10 per share) at any time within next 5 years after the increase in share capital. Thus eventually Munich Re will hold 51% of increased share capital in PHMC. As Munich Re had acquired 33.33% of shares in the PHMC and had the option to go upto 51% they insisted that I should give up my right to carry on such business as may be carried on by PHMC. Since the amount was received in respect of right to carry on this business the entire amount of Rs. 43,14,775/- has been offered for tax a....
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....mercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services. Provided that sub-clause (a) shall not apply to: (i) Any sum whether received or receivable in cash or kind on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business which is chargeable under the head Capital Gains." 6. From the combined reading of both the above provisions and sec 28(va), it is abundantly clear that if the assessee gives up right to carry on any activity in relation to business the same would be revenue receipt. As against that if the assessee gives up the right to carry on any business the consideration received would be capital in nature. The Legislature has consciously made a demarcation between activity in relation to business and business. 7. It is further submitted that in the present case the field of professional activities of the assessee is confined to Radiology and Imaging only as he is specialised in that branch of medical science which he had to give up as committed in clause 1 of the Non compete agreement dated 15.10.1999. Th....
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.... Indian restaurant displaying a board outside the premises announcing their policy of not granting credit as under: "We have entered into a non compete agreement with our neighbouring branch of State Bank of India. They will not sell Idli wada and we will not give credit". 11. It was further submitted that there is a vast difference between the languages of S. 28(va) and sec 55(2) of the Act whereas sec 28(va) of the act uses the words any activity in relation to any business sec 55(2) of the act is composed of the words right to carry on any business it is further submitted that the Assessing Officer and the Ld. CIT(A) have also completely ignored the proviso to sec 28(va) of the act wherein it has been stated in unambiguous term that clause (a) shall not be applicable in respect of the amount received for transfer of the right to carry on any business as such consideration would be chargeable to tax under the head capital gain. It is, therefore submitted that by virtue of the said proviso the Legislature has maintained the demarcation between the revenue receipt and capital receipt even after the amendment made by the Finance Act 2002 w.e.f. 1.4.2003. 12. It is submitted....
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....y MR to NS specified below. NS convenants that, from the date of execution of this Agreement, he (whether alone or jointly with any other person, and whether directly or indirectly qrand whether as a shareholder, participating partner, promoter, director, officer, agent, manager, employee or consultant of in or any other person or in any other similar position) will not directly or indirectly) (a) Compete with PHMC in any business as may be carried out by PHMC in future. (b) Solicit or endeavour to entice away from or discourage from or dealing with PHMC any person who was at any time customer or client of PHMC, (c) Solicit or endeavour to entice away from or discourage from being employed by PHMC any person who is an officer or employee of PHMC whether or not such person would commit a breach of contract by reason of leaving services, (d) Employ, engage or attempt to employ or engage or negotiate or arrange the employment or engagement by any other person, firm or company of any person who was at any time employee or officer of PHMC, (e) Carry out his professional radiology practice or any other independent....
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....he JV companies, based on the business results of the company to be computed on the basis of the formula given in the Non Compete Agreement, which is based on the performance and profitability for a period of 5 years. Thus the payment made during the year can be considered only as payment made for the services rendered by the Assessee to the Non-resident Transferee, based on the performance/profitability. Thus the payment has been rightly assessed as revenue receipt. 20. Even if the entire agreement is considered as a single one and the payment is part of the non compete fee paid, the issue has to be considered in the context of Section 28(v)(a) introduced with effect from 01.04.2003. The Supreme Court in the case of Guffic Chem (P.) Ltd. v CIT [2011] 332 ITR 602/198 Taxman 78/10 taxmann.com 105 has held that any payment for restrictive covenant is capital receipts, the same has to be considered in the light of the amendment and introduction of Section 28(v)(a). The compensation accrues and is receivable only under the year in appeal. Therefore the taxability of the amount is to be considered as per the provisions of law prevailing for this year. Hence the receipt should be anal....
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....ght to manufacture or trade remained intact after the period for which negative covenants were signed. Even though the Tribunal in that case held in favour of the assesee as it related to the year prior to 2003-04, the ratio that mere restriction not to carry out manufacture or trade in competition would not amount to transfer of right to carry on any business, would be applicable to the instant case. 24. In the circumstances, it cannot be said that the assessee has transferred completely it right to carry on any business; in fact the Assessee had continued to do his activity in the same line even after entering into this non compete agreement. Agreement not to compete with the 3rd party in the business will not encompass totality of right to carry on any business. The right to carry on any business is larger in scope and range and agreement not to compete with the business of a particular person is only part of its right. The agreement not to compete with the particular person in his business does not prevent the assessee from carrying on the same business in a manner which will not compete with the business of that person. Therefore, in our opinion, the agreement not to compet....