TaxTMI 
TaxTMI 
2018 (1) TMI 319
X X X X Extracts X X X X
X X X X Extracts X X X X
....ade during the course of assessment proceedings, inspite of the fact that the appellant had filed a revised return and computation making such claim in the course of assessment proceedings and further in para 4.22 of the impugned assessment order the assessing officer had dealt and given a finding on such claim. 2. Without Prejudice on the facts and circumstances of the case and in law the CITA) failed to consider the submissions made during the course of appellate proceedings wherein the appellant had requested the CIT(A) to treat the said ground regarding capital receipt as additional ground of appeal and further requested to adjudicate the same, failing to appreciate the fact that CIT(A) has the power to admit and adjudicate additional ground of appeal. Without Prejudice 3. On the facts and in the circumstances of the case the CIT(A) erred in directing the assessing officer to charge the said amount received as non -compete fee under the head capital gains as the same is arising by virtue of transfer of right to carry on business. 4. On the facts and in the circumstances of the case and in law the CIT(A) failed to appreciate that the said amount was received by the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent case specific values have been assigned to the sale of shares and separately to non-compete fees. As such the decision relied upon is not justified. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have appreciated that in the case of Savita M. Mandhana, she was merely a shareholder and not actively engaged in the business and it was in light of this factual matrix that the Hon'ble Tribunal had upheld the taxation as Capital Gain. However, in the instant case, the assessee was a professional actively involved in managing the RSM Business and not merely a shareholder, as such non-compete fees are rightly taxed as Business Income. 3. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary". That as the subject matter of the cross appeals filed by the assessee and the revenue mainly revolves around a common issue, therefore, they are being taken up and disposed of together by way of a consolidate order. 3. Briefly stated, the facts of the case are that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee raised multiple contentions before the A.O, which can be summarised as under: "1. That the sum was inadvertently offered under the head capital gains although the same is a capita receipt, not liable for taxation. 2. That this receipt is for not practicing the RSM business, i.e. not practicing the profession of Chartered Accountant, for a period of five years. 3. That the "profession" includes vocation, but it does not provide that profession includes business. 4. That the word "profession" is missing from the Section 28(va), which proves that the legislature never intended to include the profession within the ambit of Section 28(va). 5. That the assessee is eligible to raise a claim for the first time before the assessing officer in the course of the assessment proceedings. 6. That without prejudice to the above claim and pursuant to the show cause notice it was submitted that in any case the said amount received by the assessee, if at all chargeable u/s. 45, as long term capital gains, and not as suggested in the show cause, u/s 28 of the 'Act', 7. That Section 28(i) is applicable in case of the assessee giving up the management of an Indian Company w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The consideration received by Mr. Wadhwa was a compensation for not competing with the Third Part, Fourth Part and Fifth Part. (viii) Profit making business structure of the First Part was not to be dysfunctional perpetually, i.e. in other words was not impaired permanently. (ix) In the facts and circumstances of the case, there is no negative covenants, and assessee was allowed to starts its profit making business structure after 5 years. (x) The assessee had not surrendered its COP, and continuing the business of Ambit Corporation Finance Ltd, albeit without using the name of RSM. (xi) The agreement itself uses the word Business, even though, the assessee has contended that it is carrying on profession, and not business." 6. The A.O further made a disallowance of Rs. 7,60,656/- u/s 14A r.w. Rule 8D of the Income tax 'Act' Rule 1962 in respect of the dividend income of Rs. 48,67,603/- which was claimed by the assessee as exempt. The A.O on the basis of his aforesaid observations assessed the income of the assessee at Rs. 31,23,79,380/-. 7. Aggrieved, the assessee carried the matter in appeal before the CIT(A). That during the course of the appellate proceedings it w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t acknowledged to refrain from engaging in RSM business within territory to protect the interest of PWCPL and the firms. (c). As per clause E of the said agreement, the term of such noncompetition activity was agreed at for five years. For the sake of convenience, the same is reproduced as under:- Non-Competition with PwCPL and The Firms. As an inducement for PwCPL and the firms to enter into and consummate the transactions envisaged under the transaction agreement (and for consideration specified in clause 6) Mr. Wadhwa and Ambit hereby expressly agree and undertake the following, for a total period of five (5) years commencing the Effective Date (the "Term"):- (a). Neither Mr. Wadhwa nor Ambit nor any of their respective Affiliates shall, directly or indirectly, on their own account or as an agent employee, officer, director, consultant, or shareholder or equity owner of any other person: (i) engage or attempt to engage in the RSM Business within the Territory or (ii) otherwise own, manage, operate, finance, control or participate in the ownership, management, operation, financing, or control of, any person engaging in the RSM business, or in any manner connected with th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a and his any of the associates was refrained from using the name RSM. F. As per the general terms and conditions of the said agreement, Mr. Wadhwa and his associate were restricted from providing and services to the person. The "person" is defined in the said agreement as follow:- "person" shall mean any individual corporation, partnership, limited liability company, limited liability, firm, association, joint venture, joint stock company, trust, unincorporated organization or other entity, or any Government Authority. G. As per Clause 6 of the said agreement, a consideration of Rs. 40.5 crores was payable to Mr. Wadhwa. The clause is reproduced as under:- "Consideration: Mr. Wadhwa and Ambit hereby acknowledge and agree that the implementation of the Transaction by PwCPL and the Firms constitutes good and valuable consideration for this agreement. Furthermore, in consideration of the non-compete covenants, the indemnities and agreeing to extinguish the brand RSM which Mr. Wadhwa was entitled to use in perpetuity a sum of Rs. 40.5 Crores (Rupees Forty Crores and Fifty Lacs only) all of which is payable at the later of either April 30,2007 or the effective date. Mr. Wad....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... name and for non-compete obligation related to the same, therefore, the same in the backdrop of definition of 'Capital asset' u/s 2(14), could only be subjected to tax under Sec. 45, as was claimed in the original return of income. The CIT(A) observed that the revised return of income which was filed by the assessee for claiming that the receipt of sum of Rs. 40.50 crore was not chargeable to tax, being in the nature of a capital receipt, was however not accepted by the A.O for two reasons, viz. (i). that as the revised return of income was filed beyond the time limit contemplated u/s 139(5) of the 'Act', therefore, the same was a non-est return and could not be acted upon; and (ii). the manoeuvring of the taxability of the assessee on the basis of an afterthought could not be allowed in the garb of the provisions of Sec 139(5). 11. The CIT(A) after deliberating on the contentions of the assessee in the backdrop of the facts of the case, observed, that as per Sec. 28(va)(a), any sum, whether received or receivable, in cash or kind, under an agreement for not carrying out any activity in relation to any business was liable to be booked as the 'business income' of the assessee unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the claim of the assessee that the receipt of Rs. 40.50 crore being in the nature of a capital receipt was not taxable. 12. The CIT(A) further deliberated on the claim of the assessee as to whether the receipt of Rs. 40.50 crore was liable to be taxed u/s 28(va) as 'business income', or under Sec. 45 as 'Capital gain'. The CIT(A) observed that as the assessee had transferred his share in RSM along with the brand value attached to it, therefore, the A.O being of the view that the consideration of Rs. 40.50 crore received by the assessee was attributable to the non-compete consideration, was thus liable to be taxed in the hands of the assessee u/s 28(va) of the 'Act'. The CIT(A) after deliberating on the facts of the case observed that admittedly the assessee was not carrying on any business of his own, but it was the firm RSM, in which he was having a share, which was carrying on the business. The CIT(A) observed that the assessee had only a "right to carry on business" and for this he had entered into a non-compete agreement for not carrying on any business which would compete with the business of PWCPL and others. The CIT(A) was of the view that the provision of Sec. 28(va) were ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder of the lower authorities, therein took us through the relevant extracts of the same. The ld. A.R in support of his contention that a question of law can be raised by an assessee at any point of time, therein relied on the judgment of the Hon'ble High Court of Madras in the case of Helios and Metheson Information Technologies Ltd., Vs. ACIT (2011) 332 ITR 403 (Mad). The ld. A.R taking support of the aforesaid judgment submitted that as the adjudication on the validity of the taxability of the amount under consideration involved purely a legal issue, therefore, the lower authorities had erred in declining to adjudicate the same. Per contra, the Departmental Representative (for short 'D.R') relied on the orders of the lower authorities. It was averred by the ld. D.R that the lower authorities had rightly declined to admit the claim of the assessee that the amount being a capital receipt was not liable to be taxed at all, for the reason that not only the assessee had voluntarily offered the amount for tax under the head LTCG in his return of income, but also for the reason that the aforesaid claim was raised on the basis of an invalid revised return which had no existence in the e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he revised return of income filed by the assessee was beyond the statutory time limit within which the same could have been validly filed under Sec.139(5) of the 'Act', therefore, the same was characterised by the A.O as an invalid and a non-est return of income, and thus, was not taken cognizance of by him. We find that the assessee in his appeal before the CIT(A), had assailed the refusal on the part of the A.O to adjudicate his claim that the non-compete fee of Rs. 40.50 crore received by him, being in the nature of a 'Capital receipt', was thus not taxable at all. We find that the CIT(A) being of the view that as the assessee himself had offered the amount of Rs. 40.50 crore to tax under the head 'Capital gain', and had accordingly paid the tax on the same, therefore, the A.O had rightly declined to accept the aforesaid claim of the assessee which was raised on the basis of a belated revised return of income. The CIT(A) fortified his aforesaid view by placing reliance on the judgment of the Hon'ble Supreme Court in the case of Goetz (India) Ltd. Vs. CIT (284 ITR 323)(SC). 17. We have given a thoughtful consideration to the issue as regards the validity of the refusal on the pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....before us. We find that the fact that the amount of Rs. 40.50 crore was received by the assessee by way of non-compete fees is not in dispute before the lower authorities. We find that the issue that the amount received by the assessee by way of non-compete fees is a 'Capital receipt', is no more res integra pursuant to the judgment of the Hon'ble Supreme Court in the case of Guffic Chem P. Ltd. Vs. Commissioner of Income-tax and another (2011) 332 ITR 602 (SC). The Hon'ble Apex Court had in its aforesaid judgment observed that amount received by an assessee as non-compete fees under a negative covenant was a 'Capital receipt', and though the same vide the Finance Act, 2002 was w.e.f 01.04.2003 made taxable under Sec. 28(va) of the 'Act', however, the same was taxable as a 'Capital receipt' and not as a 'revenue receipt'. We are of the considered view that now when the non-compete fee of Rs. 40.50 crore was received by the assessee pursuant to the restrictive/negative covenant in the agreement entered into between him and Price Water House Cooper Pvt. Ltd. and others on 25.04.2007, as per which he had relinquished his right to practice as a Chartered accountant and Financial consul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iew that no violence can be done to the conscious, purposive and intentional absence of the word 'Profession' in the said statutory provision. We are thus of the considered view that as held by the Hon'ble High Court of Gujarat in the case J.K. Choksi Vs. CIT (252 ITR 863) (Guj), now when for the Income tax Act, the terms 'business' and 'profession' are separate and distinct, and business does not include profession, therefore, we are unable to adopt the interpretation accorded by the A.O, which had been vehemently stressed and relied upon by the ld. D.R before us. We may herein observe that our aforesaid view that the applicability of Sec. 28(va) was only restricted to a case where the amount had been received in relation to any 'business' and was not applicable to the extent the same was received in relation to a 'profession', can be well gathered from the fact that the legislature in all its wisdom had vide the Finance Act, 2016, with effect from 01.04.2017 made available the term 'or profession' in Sec. 28(va)(a) of the 'Act'. The aforesaid prospective insertion of the term 'or profession' in the aforementioned statutory provision, viz. Sec. 28(va)(a) makes its abundantly clear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Aggrieved, the assessee carried the matter in appeal before the CIT(A). It was submitted by the assessee before the CIT(A) that now when the assessee had not incurred any expenditure for the purpose of earning of the dividend income, therefore, the A.O had wrongly invoked the provisions of Sec. 14A and carried out the aforesaid disallowance of Rs. 7,60,656/-. The CIT(A) after deliberating on the aforesaid statutory provisions, viz. Sec. 14A r.w. rule 8D, therein observed that the A.O not being satisfied with the claim of the assessee that no part of the expenditure was attributable to earning of the exempt income, had thus made the aforesaid disallowance in terms of rule 8D of the Income tax Rules, 1963. The CIT(A) after deliberating on the issue under consideration, therein concluded that the A.O had rightly applied the provisions of Section 14A r.w. rule 8D and confirmed the aforesaid disallowance of Rs. 7,60,656/- in the hands of the assessee. 23. We have given a thoughtful consideration to the facts of the case and are of the considered view that the very process of determination of the amount of expenditure incurred in relation to exempt income would be triggered, only if the....