TaxTMI 
TaxTMI 
TaxTMI 
2025 (6) TMI 890
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed pursuant to settlement agreement filed before Hon'ble Delhi High Court is a capital receipt not chargeable to income tax." 3. As could be seen from the grounds raised, the solitary dispute is with regard to nature of receipt of Rs. 3,68,38,400/- whether revenue or capital. 4. Briefly, facts are, assessee is a resident individual. For the assessment year under dispute, the assessee had filed his return of income on 28.08.2019, declaring income of Rs. 14,02,750/-. The assessee and other family members known as 'Wadhwas' were involved in the manufacturing and trading of packaging materials and were carrying on such business in India since the year 1960. For the purpose of such business, the Wadhwas used to import raw materials for use of export boxes in the corrugated packaging Industry. PACCESS, USA, a partnership registered in port land, Goregon, United States of America (USA) engaged in supply chain management and brokerage, paper medium LCC and other fiber board products wanted to explore the Indian market. Looking at the reputation and experience of Wadhwas in the corrugated package industries, PACCESS, USA desired to collaborate with Wadhwas to make their presence in In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpression that PACCESS USA is conducting its packaging business in India under the brand 'Billerud'. Having become conscious of such attempt on the part of the two entities the assessee in May 2017, filed a suit before the Hon'ble Delhi High Court, against the aforesaid two entities seeking the following relief: i. Decree of declaration and mandatory injunction that the JV agreement dated 12.12.2000 binds the declaration and therefore the defendants are not allowed to carry on any packaging business in India except through Paccess India. ii. Decree of permanent injunction restricting the aforesaid companies from carrying out any packaging business in India except in accordance with the JV agreement dated 12.12.2000. iii. Order for damages for breach of the terms of the JV agreement which shall be quantified post the rendition of the accounts of the defendants. 7. Post filing of suit, to avoid litigation BK Parties expressed their willingness to discuss the issue with PACCESS India and Wadhwas for reaching an out of court settlement of the dispute. After discussion between the parties, a settlement agreement was executed on 29.08.2018 under certain terms and conditions and it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yers representing B.K. Parties. Learned counsel submitted, when the JV agreement with PACCESS USA was terminated in the year 2013, it cannot be said that the amount received from B.K. Parties in the year 2018 by virtue of the settlement agreement is in connection with either termination of the JV agreement or modification of the terms and conditions of the said agreement. 9. Drawing our attention to the copy of settlement agreement placed in the paper book as well as the JV agreement, he submitted that the parties from whom the assessee received compensation are not parties to the JV agreement. He submitted, in fact, B.K. Parties with whom the assessee entered into settlement agreement have completely disowned the JV agreement and made it clear that they have nothing to do with the JV agreement as they are not parties to it. He submitted, in the aforesaid scenario it cannot be said that the amount received from B.K. Parties by virtue of settlement agreement executed in the year 2018 is on account of termination or modification in terms and conditions of the JV agreement executed in the year 2000, which automatically got terminated on dissolution of PACCESS USA. Thus, he submitted,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... viii. Rajeshkumar Shantilal Patel vs. ITO, Surat [2021] 127 taxmann.com 342 (Surat Trib). xi. CIT vs. Kumararani Smt. Meenakshi Achi [2007] 158 taxman 4 (Mad.) 11. Learned DR strongly relied upon the observations of Departmental Authorities. 12. We have considered rival submissions and perused the materials on record. We have carefully applied our mind to various judicial precedents cited before us. The dispute between the parties lie in a very narrow compass - whether the receipt falls within the ambit of either Section 28(ii)(e) of the Act or Section 28(va)(a) of the Act. Apparently, both, the AO and learned First Appellate Authority have held that the receipts come within the ambit of either of the aforestated provisions. Whereas, the consistent stand of the assessee is, the receipts are of capital nature and do not satisfy conditions of the aforestated provisions. Keeping in perspective, the stated position of the parties, we venture to resolve the dispute. As far as the factual aspect of the issue is concerned, it is borne out of record that on 12.12.2000, the assessee, otherwise known as 'Wadhwas', entered into a JV Agreement with PACCESS USA to form a joint venture com....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... during the term of the agreement PACCESS India shall be the vehicle for all business in India of PACCESS, USA including all products. It also provided that during the term of the agreement Wadhwas will not participate separately in the sale of competing imported paper products. It further provided that any modification to the JV agreement shall not become effective without written consent from both parties. Article XII providing for termination of the JV Agreement reads as under: "ARTICLE-XII: TERMS OF THE AGREEMENT 12.1 This Agreement shall continue to be in force as long as either Party to this Agreement holds at least 26% of subscribed equity share capital of PACCESS, INDIA. This Agreement may be terminated: b) by mutual consent of the Parties hereto: c) in the event that the laws or regulations of India or of U.S.A. at any time be or become such that this Agreement cannot be continued, enforced or performed according to its terms subject to a reasonable notice period. d) In the event that any statutory or Government license or permission or registration is withdrawn, cancelled, or nullified causing the terms of this Agreement to be inoperative or unenforceable. e) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....connection with the termination of any contract relating to his business. Secondly, payment is in relation to modification of terms and conditions of any contract relating to his business. 17. In the facts of the present appeal, admittedly, the JV agreement was between the 'Wadhwas' and PACCESS USA, a partnership firm which subsequently converted into a company, namely, PACCESS LLC. B.K. Parties were never part of the JV agreement, nor they substituted either PACCESS USA or PACCESS LLC in the JV Agreement. In fact, B.K. Parties have completely disowned the JV Agreement in various communications made by the lawyers on their behalf with Wadhwas. Further, the JV agreement automatically got terminated on dissolution of PACCESS LLC, formerly known as PACCESS USA, in the year 2013. Thereafter, Paccess India continued to carry on its business activities without any hindrance or interference and or claiming any compensation from Paccess USA/Paccess LLC on account of either termination of the agreement or modification in terms of the agreement. Long after when the assessee found that B.K. Parties were interfering in the business activities by contacting the customers in India to directly d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment made is under an agreement in terms of which the person receiving the payment undertakes not to carry out any activity in relation to any business or profession. A reading of the settlement agreement between the assessee group and B.K. Parties, a copy of which is placed in the paper book reveals the terms of settlement as under: "SETTLEMENT 2.1 The Parties agree that with effect from the date of this Agreement: (a) this Agreement is in full and final settlement of any and all Claims: (i) by Paccess India and/or any of the Wadhwas and/or any Affiliate of Paccess India or any of the Wadhwas against any of the BK Parties and/or any Affiliate of any BK Party; and (ii) by any of the BK Parties against Paccess India and/or any of the Wadhwas and/or any Affiliate of Paccess India or any of the Wadhwas; (b) each Party irrevocably releases and covenants not to sue, or commence or continue any action, suit or proceeding whether by originating proceedings, counterclaim, arbitration or otherwise against, any other Party and/or its Affiliates in relation to any and all Claims; (c) each Party undertakes that it shall procure that none of its Affiliates shall sue, or comm....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... affiliates India, Sri Lanka, Bangladesh, Bhutan and Nepal. Thus, the terms of settlement agreement between the Wadhwa group and B.K. parties clearly establish that neither of the parties have given up their right to carryout their business activity in the specified geographical territories. On the contrary, the terms of settlement agreement prevent either of the parties in interfering with and hindering the business activity of each other. 22. Thus, neither the terms of settlement agreement under which the assessee had received payment nor any other material on record suggest that the assessee had entered into any agreement with B.K. Parties for not carrying out any activity in relation to any business or profession for which it has been compensated. On the contrary, the settlement agreement confer upon the parties unrestricted right to carry on business activities without interfering with each other. Thus, in our view, the payment received by the assessee would even come within the ambit of Section 28(va)(a) of the Act. 23. At this stage, it is necessary to observe, the Departmental Authorities have misconceived the facts, thereby, have misdirected themselves while coming to th....