TaxTMI 
TaxTMI 
TaxTMI 
2016 (6) TMI 302
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....h M/s TTK & Co (Joint venture Company TTK-LIG). London International Group PIC paid 4,99,000 pounds as non-compete fee to M/s TTK Bio-med Limited for not competing the condoms business. TTK Bio-med has merged with TTK Healthcare Limited, the assessee Company with effect from 01.07.1999. The particular transaction, relating to receipt of non-compete money concerning which this appeal is brought forth by the Revenue is for the assessment year 2000-2001. 3. The assessee company has claimed the amount of Rs. 3,44,92,800/- received by it from London International Group PIC as not taxable, treating it as capital receipt. The Assessing Officer, the Assistant Commissioner of Income Tax by his order dated 18.03.2003 assessed the non-compete fee as revenue receipt. The appeal preferred there against to the Commissioner of Income Tax (Appeals) for short, CIT(A) has failed holding that the amount of Rs. 3,44,92,800/- received by the assessee company is in consideration of the services rendered/to be rendered and accordingly, the said amount represents revenue receipt. Then the assessee carried the matter in appeal before the Income Tax Appellate Tribunal, which by its order dated 15.06.2007 r....
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....ubt that, for the relevant assessment year, if the income is to be treated as capital receipt, it cannot suffer the incidence of taxation, whereas, if it were to be treated as a revenue receipt, the order of assessment as affirmed by the CIT(A) has to be upheld. 7. It will be appropriate to notice as to how this very question has been answered by the Supreme Court in Oberoi Hotel (P) Ltd vs. Commissioner of Income Tax (AIR 1999 SC 1110). Paragraphs 3 to 7 of the judgment read as under: "3. The question whether the receipt is capital or revenue is to be determined by drawing the conclusion of law ultimately from the facts of the particular case and it is not possible to lay down any single test as infallible or any single criterion as decisive. This Court in the case of Karam Chand Thapar & Bros. P. Ltd. v.Commissioner of Income Tax (Central, Calcutta: [1971] 80 ITR 167(SC) discussed and held that in commissioner of Income Tax v. Chari and Chari Ltd : [1965] 57 ITR 400(SC), it was held that ordinarily compensation for loss of an office or agency is regarded as capital receipt, but this rule is subject to an exception that payment received even for termination of agency agreement ....
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....compensation paid in respect of the rights arising under the trading contract would be a revenue receipt and must be referred to the profits which would be made in carrying out of contract. The Court has also observed : "Whether a payment of compensation or termination of an agency is a capital or revenue receipt, it would have to be considered whether the agency was in the nature of capital asset in the hands of the assessee, or whether it was only part of his stock-in-trade." ' 6. The aforesaid judgment was considered in the case of Kettlewell Sullen & Co. Ltd. v. Commissioner of Income Tax, Calcutta: [1964] 53 ITR 261(SC) , wherein the Court has held as under : "Whether a particular receipt is capital or income from business, has frequently engaged the attention of the courts. It may be broadly stated that what is received for loss of capital is a capital receipt; what is received as profit in a trading transaction is taxable income. But the difficulty arises in ascertaining whether what is received in a given case is compensation for loss of a source of income, or profit in a trading transaction." After considering various decisions it was further held as under: "....
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....s of a source of assessee s income or not. The Supreme Court in Gillanders Arbuthnot & Co. Ltd vs. CIT (1964 (53) ITR 283) has brought out a dichotomy between receipt of compensation by an assessee for loss of agency and receipt of compensation attributable to the negative/restrictive covenant. If the compensation is received for the loss of agency, it is to be treated as a revenue receipt whereas, if the compensation is attributable to a negative/restrictive covenant, then, it would amount to a capital receipt. The Supreme Court in Guffic Chem (P.) Ltd. Vs. Commissioner of Income Tax (2011 (332) ITR 602) examined this very question and in its paragraph 7 held that compensation received for refraining from carrying on competitive business was a capital receipt and that payment received as non-competitive fee under a negative contract was always treated as a capital receipt till the assessment year 2003-2004, i.e. till the introduction of Section 28 (va) by way of an amendment to the Act with effect from 01.04.2003. 9. There is no serious dispute raised at the Bar with regard to this principle. But the dispute is all about it s application to the given fact situation. But however, ....
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....lready entered into till then by the TTK Bio-med have got to be met with. It is also true that the TTK Bio-med has agreed to forward all trade information and trade enquiries with regard to rubber contraceptive business to LIG, to enable it to exploit it. Such forwarding the trade enquiries is only an obligation more towards those who approached the TTK Bio-med, as, the failure to forward any such trade enquiries to LIG does not bring about any consequences much less penal ones with regard to agreement entered into by and between the parties. 11. Hence, we are of the opinion that, applying the legal principles enunciated by the Supreme Court in Rai Bahadur Jairam Valji s case, Kettlewell Bullen & Co Ltd case, Gillanders Arbuthnot & Co Ltd case, Karam Chand Thapar & Bros case, Oberoi Hotel (P) Ltd case and Guffic Chem (P) Ltd case, the amount equivalent to 4,99,000 pounds paid by the LIG is liable to be treated as a measure of compensation towards the negative covenant of non compete entered into by and between Bio-med Limited and LIG. In our opinion, it is not necessary that the assessee need to shelve all his other sources of income as well, for the receipt of compensation to amo....