AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (8) TMI 662
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.... holding that the entire amount of payment is a capital receipt, when the restrictive covenant is only a small portion of the same? 3. Whether the Tribunal was treating the payment as one made for non competition, when the agreement clearly allows the assessee to work for others, provided she pays 5% of her earnings to the company" T.C(A)No.1175 of 2008 ) (Appeal by Company) "1. Whether on the facts and circumstances of the case, the Tribunal was right in holding that the non compete fee brand equity is entitled for depreciation under Section 32 of the IT Act? 2. Whether on the facts and circumstances of the case, the Tribunal was right in holding that the brand equity is entitled for depreciation under section 32 of the IT Act." 3. Ms.Radikaa, the assessee in TC(A)1365/2007 is an artist and film director with a significant presence in the big as well as small screens. M/s. Radaan Pictures Private Limited, (Radaan in short), the assessee in TC(A) 1175/2007 had entered into an agreement with Ms.Radikaa dated 3.4.2000. The agreement, in recognition of her expertise and skill in the area of film making desired to utilise her services and intellectual capacity for the ....
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....rop in business revenue from the sole proprietary that stood compensated by the arrangement for non-compete with the company. The payment of the non-compete fee was thus, according to him, on revenue account. 6. In any event, and more importantly, he noticed that the individual retained control over the business even after execution of the succession agreement dated 31.3.2000 in so far as she continued in the position of a Director in the company holding more than 99.99 percent voting rights as on 2.4.2000. He was thus of the view that the arrangement of payment of non-compete fee was itself a farce and a colourable exercise. 7. Reliance in this regard, was placed on the decision of the Madras High Court in the case of K.Ramasamy vs. Commissioner of Income Tax (182 ITR 640) to the effect that one should take into account the totality of attendant circumstances in order to decide the true character of a payment made between two entities and pierce the veil if the circumstances so warrant. 8. The assessment in the hands of the assessee was completed making an addition of the non-compete fee of an amount of Rs. 75 lakhs. The assessment in the hands of the company was complete....
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.... therefore, reject the first ground raised by the Revenue." The claim of depreciation on non-compete fee as well as brand equity was upheld by the Tribunal by order dated 14.12.2007. 12. As against the above orders of the Tribunal, the revenue is in appeal before us. We are called upon to decide (i) the taxability of the sum of Rs. 75 lakhs received by the individual as non compete fee in T.C.(A).No.1365 of 2007 and (ii) the eligibility to depreciation on brand equity in the hands of the company in T.C.(A).No.1175 of 2008. 13. Mr.Swaminathan, appearing for the Revenue, would assail the orders of the CIT(A) and ITAT vehemently invoking in support the findings of the assessing officer. He would point out that the payment of non-compete fee was itself sham. The assessee was in control of the business from inception and continued to be so until and even after the assessment year in question. The conclusion of the appellate authorities that the amount was capital in nature was erroneous since it was clearly to enable the receipt of continued profits from business activity. 14. Mr.Sridhar appearing for the assessee would raise the following submissions: (i) That the approa....
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....skills of the Artist. The Artist, who was managing the business as a proprietary concern continued to be part of the corporate structure, employing the same skill sets as always employed by her. It was only the business setting that was enlarged over the relevant period. Though exclusivity of engagement with the company is sought to be portrayed post execution of the non-compete, her services are still available to third parties, subject to consent by, and receipt of 5% of the income therefrom by the company. Though learned counsel would point out that the latter has been occasioned only once, in the case of Oscar Films, the very presence of such a clause in the agreement would support the conclusion that the arrangement between parties is only a smokescreen. 19. Ms.Radhikaa was, and continues to be, the face of the business and as proprietrix and thereafter, a director with substantial shareholding, she retained a firm hold on the reins of decision making. The transaction of non compete is thus an illusion in the aforesaid facts and circumstances. The finding of the assessing officer is that the individual artiste continued to be in control of the affairs of the business both p....
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....in their individual capacity on the other, was the same. Piercing the veil, High Court observed that the position of the brothers did not change in substance after the company was formed and given a right to run the business. This observation would equally apply in the present case as well. 23. Learned counsel for the assessee relied upon the judgement of the Supreme Court in the matter of Vodafone International Holdings B V Vs. Union of India (341 ITR 1) and the decision of the Madras High Court in Commissioner of Income Tax Vs. High Energy Batteries (India) Limited for the proposition that in order to ascertain the legal nature of a transaction, one has to look at the entire transaction as a whole and cannot adopt a dissecting approach. In this context, the Supreme Court cautioned that the transaction should be 'looked at' and not 'looked through'. We believe that this is precisely what we have done in this case. 24. Mr.Sridhar would also aver that the concurrent findings of the first and second appellate authorities were not liable to be disturbed, placing reliance on the decision of the Madras High Court in the case of Commissioner of Income Tax Vs. Real I....