2008 (11) TMI 52 - HC - Income Tax

Assessee received a sum of Rs 35,07,000/- in consideration for entering into a negative convenant / non-compete agreement - whether this receipt was a capital receipt and was, therefore, exempt from tax - held that the receipt was in the nature of a capital receipt and, therefore, was not exigible to income-tax revenue s appeal is dismissed

Summary

Issues: Whether the receipt of Rs 35,07,000/- by the assessee under a non-compete agreement is a capital receipt exempt from tax?

Analysis:

The High Court of Delhi heard an appeal against the Income-tax Appellate Tribunal's order relating to the assessment year 1997-98. The revenue contended that the Commissioner of Income-tax (Appeals) erred in deleting the addition of Rs 35,07,000/- as a capital receipt. The agreement in question prohibited the assessee from engaging in a competing business without consent and in return, the assessee received the sum from AB Electrolux. The central issue was whether this receipt qualified as a capital receipt exempt from tax.

The tribunal, relying on previous decisions, including Inder Kumar Khosla and Saurav Srivastava v. DCIT, held that the receipt was indeed a capital receipt and not subject to income tax. The court noted that a similar decision in the case of Inder Kumar Khosla was upheld by the court previously, indicating consistency in the interpretation of such receipts as capital in nature.

Moreover, the court referenced its own judgments in cases like Rohitasava Chand v. Commissioner of Income Tax and CIT v. S. Dhanbal, where similar issues were addressed, further supporting the tribunal's decision. Based on the precedents and established legal principles, the court found no substantial question of law to consider and consequently dismissed the appeal. The judgment reaffirmed that the receipt under the non-compete agreement was indeed a capital receipt and therefore not taxable.