2012 (1) TMI 379 - AT - Income Tax

Summary

Issues involved: Appeal against deletion of aggregate additions of Rs. 50,00,000 made by AO on account of Non Compete fees treated as revenue expenditure.

Summary:

Issue 1: Treatment of Non Compete fees as revenue or capital receipt
The appeal pertains to the deletion of aggregate additions of Rs. 50,00,000 made by the AO on account of Non Compete fees treated as revenue expenditure. The AO treated the amount as a revenue receipt under section 28(va) of the IT Act. The assessee claimed that the amount was received as a lump sum in lieu of stopping the manufacture and sale of a product due to a non-competition agreement with another company. The CIT(A) noted that the amount in question could not be brought to tax u/s.28(va) before 01/04/2003. Referring to a Supreme Court decision, it was held that prior to April 1, 2003, such payments were in the nature of a capital receipt. The Tribunal affirmed the CIT(A)'s findings and dismissed the Revenue's appeal.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the aggregate additions of Rs. 50,00,000 made by the AO on account of Non Compete fees, considering them as capital receipts before the relevant amendment in the IT Act.