TaxTMI 
TaxTMI 
2010 (2) TMI 782
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....es ii) Clause (a) Rs.2,56,59,783.94 received compensation from DEGUSSA A.G for termination of agency arrangement credited to Capital Account of Partners. Note:- The firm is advised that the amount received is in consideration of the undertaking by it for reframing from competition and non promotion, either directly or indirectly, completion by third parties. Thus the amount received is by virtue of a restrictive covenant and therefore is in the nature of Capital receipt not liable to tax." 2.1 During the course of assessment proceedings, the AO after examining the nature of receipt held that the above income has been received by the assessee on account of Termination of Agency Agreement and that the income is exigible to tax. The AO by applying provisions of section 28(ii)(c), the above amount was brought to tax. 2.2 The assessee preferred appeal before the CIT(A), before him, it was argued that the compensation received by the assessee was for non-compete and not for termination of any Agency. The assessee also filed a certificate from DEGUSSA, stating that the compensation in question was paid to the assessee firm for agreeing ....
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....he dismissed the appeal of the assessee. Now, the assessee is in appeal here before us. 4. The contentions raised before the lower authorities were reiterated by the ld counsel of the assessee here before us. It was further submitted that the assessee preferred appeal before the Tribunal against quantum addition sustained by the CIT(A) and the Tribunal has allowed the appeal of the assessee in part. Attention of the Bench was drawn on the copy of the order of the Tribunal placed at page 125 of the paper book. It was further submitted the Tribunal has categorically held that provision of section 28(ii)(c) are not attracted on the facts of the present case. The findings are recorded by the Tribunal at page 21 of its order decided in ITA No.8183/M/2003 vide order dated 11.12.2008. It was submitted that though the Tribunal has held that the provision of sec. 28(ii)(c) are not attracted; however, part of the receipts were treated as business receipt and part of the receipts were treated not taxable. Accordingly, 25% of the compensation was treated related to the restrictive covenant which is not taxable and the balance 75% was treated as taxable by treating the same as revenue....
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....ns and various case laws relied upon by the ld counsel of the assessee and the orders of the authorities blow, we find that the assessee deserves to succeed in its appeal. The penalty levied by the AO and confirmed by the CIT(A) mainly is on the basis of additions confirmed by the Tribunal. The AO had made additions of Rs.2,56,59,783/- on account of amount received towards Termination of Agency agreement with DEGUSSA in view of provisions of sec.28(ii)(c). In quantum appeal, the Tribunal allowed the appeal in part as 25% of the compensation was treated to the restrictive covenant and the remaining 75% amount was treated as taxable by holding that the same is revenue receipts. While holding so, the Tribunal has clearly held that the provisions of sec.28(ii)(c) are not attracted. These findings of the Tribunal are final as the department has accepted that the provisions of sec. 28(ii)(c) are not applicable on the facts of the present case. The assessee had treated the amount received as capital receipt on account of restrictive covenant not allowable to tax whereas the Tribunal has treated this amount in part relating to restrictive covenant and part as revenue receipts. The issue ha....
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.... to have given rise to a substantial question of law, cannot be treated to be frivolous or mala fide as to attract levy of penalty u/s.271(1)(c)." 9.1 In the case of N.S. Narula in 106 Taxman 123, the Tribunal has held that; "it is also a well settled principle of law that assessment proceedings are entirely different from penalty proceedings and if the penalty proceedings are initiated u/s.271(1)(c) without invoking the Explanation, then the onus is on the Revenue to discharge and prove that the assessee concealed the income. Having regard to the above facts and in particular the reference u/s.256(2) granted by the High Court, it could not be said that the decision itself was finally sustained. There was, therefore, no reason to hold that the assessee had concealed the particulars of income". 10 The decision in the case of Rupam Mercantiles Ltd. (supra) has been followed by the Tribunal in the case of Reliance Industrial Investment and Holding Ltd. in ITA No.2317 and 2318/Mum/06 vide order dated 20-3-2009. It has been held therein that where the plea or the claim is held by the High Court to give rise to a substantial question of law, penalty u/s.2....