TaxTMI 
TaxTMI 
2001 (5) TMI 7
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....cannot be any capital gain tax also. The Income-tax Officer did not accept the claim of the assessee. He treated that amount as a professional receipt. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) has also confirmed the view taken by the Assessing Officer. In second appeal before the Tribunal, the Tribunal has discussed the nature of receipt in the light of various decisions and held that the receipt is in the nature of non-taxable capital receipt. Heard learned counsel for the parties. Learned counsel for the Revenue has submitted that there was no material on record to prove that the assessee could set up any competitive business carried on by Gillette. The non-compete agreement is a colourable device and that amount should be treated as revenue receipt. Learned counsel for the assessee has submitted that the assessee had earlier collaboration with Gillette Company to set up an industrial unit in India for manufacturing and marketing shaving blades and other shaving products manufactured by Gillette in the U.S.A. The Indian company known as M/s. Indian Shaving Products Limited (hereinafter referred to as "I.S.P.") was f....
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....as under: "In consideration of the premises and Gillette making a payment of Rs. 80 (eighty) million as stated in clause 3 below, the covenantor (i.e., the assessee) undertakes that he shall not at any time during continuance of his office as chairman of ISP or for three years thereafter engage himself whether directly or indirectly and whether as owner, substantial shareholder (at least 5 per cent.) director, manager, consultant or in any other manner in any business which undertakes or is engaged in the manufacture, marketing or distribution of razors, razor blades, shaving systems or shaving preparations." Now the question does arise whether on these facts it can be said that the payment under the "non-compete agreement" is a colourable device, as the assessee has not sold any assets. The facts are not in dispute that the assessee had earlier collaboration with Gillette Company and M/s. India Shaving Products Ltd., was formed and that the company has set on the units to produce Gillette blades and other shaving products, that company was formed in 1982, the assessee was non-executive chairman of that company. Though the major shareholding was of Gillette Company, but th....
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....the present case, the covenant was an independent obligation undertaken by the assessee not to compete with the new agents in the same field for a specified period. It came into operation only after the agency was terminated. It was wholly unconnected with the assessee's agency termination. We, therefore, hold that that part of the compensation attributable to the restrictive covenant was a capital receipt and hence not assessable to tax." In Gillanders Arbuthnot and Co. Ltd. v. CIT [1962] 46 ITR 847 (Cal), the issue before this court was that the compensation received on termination of several agencies, as consideration for termination, whether the receipt in the form of compensation should be treated as capital receipt. This court held that as the undertaking not to engage in a competitive business was not given, no part of the compensation money was received by the assessee on condition not to carry on competitive business in explosives, consequently no part thereof was exempted from the Income-tax Act. In CIT v. Bombay Burmah Trading Corporation [1986] 161 ITR 386 (SC), the issue before their Lordships was what should be the nature of compensation received against termina....
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....r that if the amount of compensation has been received not to compete in business from the person who paid the amount, the amount received cannot be taxed as income. The relevant part of the agreement reads as under: "Whereas (A) Pursuant to a promoters agreement entered into on August 4, 1982, between the same parties as are parties hereto the said parties promoted the incorporation of Indian Shaving Products Ltd. ('ISP') which is now a public listed company engaged, in the manufacture, marketing and distribution of shaving products. In the course of promotion and subsequent operations of ISP the covenantor, who has maintained close contacts with the international management of Gillette and has acted continuously as chairman of ISPs board of directors, has acquired extensive and valuable experience of the shaving products industry both in India and abroad. (B) Gillette owns a majority of the issued equity capital of ISP and is desirous of retaining the support of the covenantor in the further development of ISP's operations in and exports from India. Gillette is also desirous of retaining the covenantor's support in relation to its international shaving products busine....
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....aving systems or shaving preparations which are the products of Gillette. That has left no doubt that the payment was for not to compete in business with the Gillette. Learned counsel for the Revenue has submitted that there was no material to show that the assessee was in a capacity to compete or to set up a new unit for the same products on the same technology as produced by Gillette in India. Learned counsel for the assessee has drawn our attention in para. 7 at page 13 of the Tribunal's order, wherein the Tribunal found that the assessee has proved that the letter dated December 15, 1994, of Shri Udayan Bose before the Assessing Officer and the Commissioner of Income-tax (Appeals) which indicates that the chairman of Credit Capital Finance Corporation Ltd., has approached the assessee to set up a joint venture in India to produce the similar type of items which are being produced by Gillette. Even otherwise the finding of fact of the Tribunal was that the assessee had earlier collaboration with Gillette to set up an industrial unit in India for manufacturing and marketing shaving blades and other shaving products manufactured by Gillette in U.S.A. The unit was set up i....