2014 (12) TMI 107 - HC - Income Tax

Computation of sums under the component non-compete Held that - The Tribunal has rightly appreciated the matter in the factual background - the Tribunal referred to the agreement under which the transfer took place together with the clauses - in the teeth of composite arrangement and of this nature it would not be possible to sustain the exercise of the AO and the Commissioner - when there is no specific consideration paid as non-compete amount, that the exercise carried out by the AO and upheld by the Commissioner to the above extent was interfered with the order of the Tribunal is upheld as such no substantial question of law arises for consideration - Decided against revenue.

Summary

Issues:
Challenge to order passed by Income Tax Appellate Tribunal regarding computation of sums under noncompete clause.

Analysis:
The Revenue appealed the Income Tax Appellate Tribunal's order dated 15-02-2012, challenging the computation of sums under the noncompete clause. The Tribunal held that the Commissioner and the Assessing Officer erred in determining the amounts under the noncompete clause as done by them. The case involved a Private Limited Company formed by the Mandhana family, which later entered into a Joint Venture with a German company. Subsequently, a Dutch company acquired all the shares of the Mandhana family, including a noncompete clause in the agreement. The Tribunal referred to previous decisions to conclude that the Assessing Officer's determination of consideration under the noncompete clause was incorrect. The Revenue contended that the Tribunal's findings raised a substantial question of law.

Upon careful review of the Tribunal's order, the High Court found that the Tribunal had considered the factual background and referred to previous decisions to support its reasoning. The Assessing Officer had bifurcated the amount received per share, taxing a portion as business income and attributing the rest to noncompete fees. The Commissioner disagreed with the Coordinate Bench decisions and upheld the noncompete fees. The Tribunal analyzed the agreement and held that in such a composite arrangement, the Assessing Officer and Commissioner's exercise was unsustainable. The Tribunal considered the history of the company and the noncompete clause's purpose to prevent competing business activities. The High Court concluded that the Tribunal's factual findings did not raise a substantial question of law. The Appeals were dismissed, clarifying that the dismissal did not confirm or deny the Tribunal's judgments or those of its Coordinate Bench.

In summary, the High Court dismissed the Appeals brought by the Revenue challenging the Income Tax Appellate Tribunal's order on the computation of sums under the noncompete clause. The Court upheld the Tribunal's findings, stating that the factual background did not raise a substantial question of law. The Court clarified that the dismissal did not express an opinion on the Assessing Officer and Commissioner's exercise, leaving room for further examination of contentions in an appropriate case.