TaxTMI 
TaxTMI 
2026 (9) TMI 616
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....d (in short 'Company'/'Ma Foi'). The present appeals relate to assessment year (AY) 2009-2010. Returns of income were filed by the appellants claiming that a sum of one Million Euros received in the financial year relevant to the subject AY was exempt as a capital receipt in terms of the Income tax Act 1961 (in short 'Act'). The issue was taken up for assessment and by an order dated 27.12.2011, the assessing authority rejected the claim. 3. The submissions of the appellant as put forth by Mr.Mr.R.Vijayaraghavan, learned counsel, are as follows. Both appellants were founders of the Company. They had entered into a strategic alliance with an entity by name Vedior NV (in short 'Vedior') based in Amsterdam, Netherland. This was formalised by way of a shareholders agreement dated 30.04.2004 (in short 'agreement') wherein the parties had been Vedior Asia BV, the appellants, the Company and Ma Foi Employees Welfare Trust. 4. The 2004 shareholders agreement provided for shareholding of 76.33% to be held by Vedior, and 23.52% jointly by the appellants. The agreement specifically provided that the respective shareholding as aforesaid, would not be transferred by either party, without ....
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....d in the circumstances of the case the Tribunal was right in law in holding that the amount paid to assessee was only towards signing the agreement and not for withdrawal of legal notice ignoring the terms of agreement dated 20.08.2008?' 9. The appellants rely on the following judgments:- 1.Guffic Chem (P) Ltd. v. Commissioner of Income Tax & Anr. [332 ITR 602 (SC)] 2.Oberoi Hotel Pvt. Ltd. v. Commissioner of Income-Tax [236 ITR 903 (SC)] 3.B.G. Shah v. Commissioner of Income-Tax [162 ITR 23 (Bom)] 4.Baroda Cement & Chemicals Ltd. v. Commissioner of Income Tax [158 ITR 636 (Guj)] 5.Commissioner of Income Tax v. J.Dalmia [149 ITR 215 (Del)] 10. Dr.S.Sathiya Narayanan, learned Senior Standing Counsel appearing for the Department would firstly point out that there are three concurrent orders as against the appellant. He takes us in detail through the 2004 shareholders agreement, legal notice dated 14.06.2008 and the MoU, pointing out that the interpretation of those documents by the Income tax authorities was correct and the conclusion that the amount was liable to tax, unimpeachable. 11. He would submit that no referable question ....
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....d party or any other body corporate, however at a price not less than the price at which it was offered to the Promoters; and (ii) if Vedior does transfer the said Shares to such third party or any other body corporate then Vedior shall procure that such third party or other body corporate shall offer to acquire the Minority Shares from the Minority Shareholders at such price and on the same terms and conditions. It shall be noted that such pre-emptory rights do not apply if Vedior is transferring its shareholding to any other company in the Vedior N.V. group of companies.' 15. While so, in the financial year relevant to the assessment year in question, the appellants submit that they had come to understand from market sources, that the holding company of Vedior, Vedior NV was in talks with an entity by name Randstad primarily headquartered in the Netherlands, and with extensive business interests in Europe and Netherlands, to take over all entities in the Vedior group. As a result, all entireties in the Vedior group, including the holding Company Vedior NV and subsidiaries, including Vedior Asia BV, would be taken over by Randstad. 16. According to appellants, this constitut....
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....bine Team4u, and the deputee businesses of Emmay HR and Ma Foi (staffing) into a joint Mass Customized Staffing business under the name Randstad. 3. EUR0,5M for achieving a 7.5% (compared to 6% currently) market share threshold or showing consistent organic growth of 40% (defined as Compound Annual Growth Rate over 4 quarters starting 1/7/2008). 4. EUR0,5M for achieving a 10% market share threshold or showing consistent organic growth of 40% for an additional year ending 30/6/2010 (same definition). 5. EUR0,5M for achieving a 12.5% market share threshold or showing consistent organic growth of 40% for an additional year ending 30/6/2011 (same definition). 6. General Condition for all the above points: - Any tax implications are the responsibility of the bonus recipients. - While we have stated Euro equivalents for convenience, it is Intended that all amounts due under this bonus structure will be payable in Rupees at the rate of 65 Rupees per Euro. - 3, 4, and 5 are subject to DSO remaining below 60 days and EBITA remaining above 3.5%. ............ ............ Your commitment not to challenge....
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.... in cash or kind under an agreement for not carrying out any activity in relation to business, would be taxable as business income. 23. Hence, on and from 01.04.2003 any consideration received towards non-compete fee would be taxable in terms of Section 28(va) of the Income Tax Act. However, amounts received towards other negative covenants within the sphere of business arrangements will continue to be treated as capital receipts. 24. The genuineness of the business arrangement inter se the parties has not been questioned by the Income Tax Department. In our understanding, 2004 shareholders agreement granted rights to appellants to purchase, as a first right, the shares of Vedior in the Company. By being acquired by Randstad, the entitlement of the appellants to first purchase has been negated/effaced. 25. In Guffic Chem (P) Ltd. (supra), the Supreme Court considered the taxability of receipts and their classification as capital or revenue. The question that had been framed for determination was whether a payment under an agreement not to compete (negative covenant) is a capital or a revenue receipt. 26. In that context, the Supreme Court notes that payment towards a no....