2012 (3) TMI 618 - AT - Income Tax

Summary

Issues Involved: Appeal against CIT(A) order deleting addition of non-compete fee u/s 147 for AY 2002-03.

Issue 1: Addition of Non-compete Fee

The assessee, an individual, filed return declaring income of Rs. 3,81,120. Assessment completed u/s 143(3) r.w.s. 147, adding Rs. 6.00 crores as non-compete fee. CIT(A) deleted the addition based on Supreme Court ruling that such compensation is a capital receipt taxable from 01.04.2003. Department argued for setting aside appeal based on similar cases, but Tribunal found no new material submitted to CIT(A) and upheld the decision. Assessee contended that non-compete fee is capital receipt, not taxable as salary, and not covered u/s 28(va) for AY 2002-03. CIT(A) agreed, citing Supreme Court judgment and dismissed Revenue's appeal.

Issue 2: Judicial Interpretation

The CIT(A) relied on the Supreme Court's decision in Guffic Chem Pvt. Ltd. case, distinguishing between revenue and capital receipts for non-compete fees. The Court held that such fees were capital receipts until 01.04.2003, when they became taxable under section 28(va). The Tribunal upheld CIT(A)'s decision, stating that the non-compete fee in question was a capital receipt not taxable as profits in lieu of salary. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order.

In conclusion, the Tribunal dismissed the Revenue's appeal against the CIT(A) order deleting the addition of non-compete fee, holding that the fee was a capital receipt not taxable as profits in lieu of salary for the assessment year 2002-03. The decision was based on the Supreme Court's interpretation of such fees as capital receipts until 01.04.2003, when they became taxable under section 28(va).