TaxTMI 
TaxTMI 
2012 (7) TMI 48
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....namely, M/s. Real Image Private Limited, which was involved in the business of Technology Marking, Trading of Computers, Audit, Visual and Audio Visual equipments. By agreement dated 20.4.2000, M/s. Real Image Media Technologies Private Ltd., (formerly known as Media Artists Pvt. Ltd.,) took over the entire business of the assessee company for an agreed consideration of Rs.68,75,250/-, to be paid in the form of Rs.6,87,525/- fully paid up equity shares of Rs.10/- each. As per clause 11 of the aforesaid agreement, the assessee transferred all the commercial goodwill, in particular the trade name "Real Image" in favour of M/s. Real Image Media Technologies Pvt. Ltd., without any consideration. Clause 12 provides for further supplementary agre....
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....r the amount received by the assessee was towards non-compete fee and in the nature of capital receipt or could it be treated as transfer of goodwill thereby the receipt is in the nature of revenue, answered the same in favour of the assessee, thereby rejected the appeal preferred by the Revenue. Aggrieved by the order of the Tribunal, the Revenue has come with the present appeal before this Court. 3. While admitting the Tax Case Appeal, the following substantial questions of law have been formulated for consideration :- "Whether on the facts and circumstances of the case, the Tribunal was right in holding that the amount received for intangible assets under a separate agreement, is only a non-compete fee and does not contain any e....
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....n various decisions of the Supreme Court, including the latest decision of the Supreme Court in Guffic Chem (P) Ltd., v. Commissioner of Income-tax (2011) 198 TAXMAN 78 (SC) contended that the law is well settled that the receipt of compensation attributable to the restrictive covenant is a capital receipt and not liable for tax. 6. The question which arises for consideration is as to whether the payment made under the agreement not to compete is a capital receipt as pleaded by the assessee or towards goodwill as pleaded by the Revenue ? 7. The assessee is a private company and during the previous year relevant to assessment year 2001-02, the assessee entered into an agreement, dated 20.04.2000, with M/s. Real Image Media Te....
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..... Whether the payment received as non-competition fee under a negative covenant was a capital receipt or a revenue receipt has been the issue in a recent decision of the Supreme Court in Guffic Chem (P) Ltd., v. Commissioner of Income-tax (2011) 4 SCC 254 = (2011) 198 TAXMAN 78 (SC). In the aforesaid decision, the assessee-company transferred its trademarks to a company by name Ranbaxy and entered into an agreement with Ranbaxy under which the assessee company was restricted from manufacturing drugs for a period of 20 years for which the assessee had received certain amount from Ranbaxy as 'non-compete fee'. The Assessing Officer treated the said receipt as revenue receipt. On appeal, the CIT held that the sum received by the assessee from ....
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....1 Act. It became taxable only with effect from 1-4-2003. It is well settled that a liability cannot be created retrospectively. In the present case, compensation received under the non-competition agreement became taxable as a capital receipt and not as a revenue receipt by specific legislative mandate vide Section 28(v-a) and that too with effect from 1-4-2003. Hence, the said Section 28(v-a) is amendatory and not clarificatory. 9. Lastly, in CIT v. Rai Bahadur Jairam Valji it was held by this Court that if a contract is entered into in the ordinary course of business, any compensation received for its termination (loss of agency) would be a revenue receipt. In the present case, both CIT(A) as well as the Tribunal, came to the conclusion ....