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Issues involved: Jurisdiction of Commissioner u/s 263 | Taxability of non-compete fee as revenue receipt
Jurisdiction of Commissioner u/s 263: The appeal challenged the order of the ld. CIT(A) Chennai III, Chennai dated 19.3.2004. The first ground raised regarding the jurisdiction of the Commissioner in passing the order u/s 263 of the Act was not pressed before the Tribunal and thus dismissed as not pressed. Taxability of non-compete fee as revenue receipt: The assessee contended that the sum of Rs. 37,40,000/- received as non-compete fee should not be taxed as it was treated as a capital receipt. The Assessing Officer initially accepted this treatment under section 143(3) but the CIT(A) later held that it should be taxed as a revenue receipt towards goodwill. The Tribunal examined the agreements of transfer of business where the assessee transferred assets to another company and received consideration including the non-compete fee. The Tribunal observed that the amount termed as non-compete fee was a revenue receipt and should be taxed. It noted that the assessee had not calculated any goodwill despite having a good market share for 25 years, indicating a collourable device to avoid tax. The Tribunal emphasized that legitimate tax avoidance is permissible but not tax evasion through devices. It upheld the CIT(A)'s decision to ascertain the real character of the transaction, stating that the department has the power to discover the true intention of parties behind the documents. The Tribunal agreed with the CIT(A)'s findings that the compensation for non-competing clause was misleading to tax authorities and the subsequent conduct of the assessee supported this conclusion. Therefore, the appeal of the assessee was dismissed, affirming the taxability of the non-compete fee as a revenue receipt.
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