1979 (7) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Whether the amount received by the assessee from Blaze was liable to be assessed in the relevant assessment years.
2. Whether the sum of Rs. 1,50,000 represents a capital or a revenue receipt.

Summary:

Issue 1: Assessment of Amount Received
The primary question referred to the court was whether the Tribunal was right in holding that no part of the amounts received by the assessee, aggregating Rs. 1,50,000 from Blaze, was liable to be assessed in the assessment years 1968-69, 1969-70, and 1970-71. The assessee, a registered firm, had entered into an agreement with Blaze on April 1, 1966, modifying an earlier agreement from May 16, 1965. The agreement stipulated that the assessee would refrain from carrying on business with Hindustan Lever Ltd. or Lintas Ltd. in the agreed area until March 31, 1975, in exchange for Rs. 1,50,000, payable in instalments. The ITO initially brought to tax Rs. 25,000 for each of the assessment years 1968-69 and 1969-70, and Rs. 1,00,000 for the assessment year 1970-71. However, the AAC and the Tribunal held that the entire amount was not assessable in any of the three years, considering it a capital receipt.

Issue 2: Nature of Receipt (Capital vs. Revenue)
The core issue was whether the sum of Rs. 1,50,000 received by the assessee was a capital or a revenue receipt. The Tribunal found that the agreement of April 1, 1966, did not bring to an end any existing agreement with Lintas, as it had already ended on December 31, 1965. The Tribunal concluded that the amount received was for refraining from carrying on any business with Hindustan Lever or Lintas, thus categorizing it as a capital receipt. The court referenced several Supreme Court cases, including Kettlewell Bullen and Co. Ltd. v. CIT and CIT v. Best and Co. (P.) Ltd., to determine the nature of the receipt. The court held that compensation for agreeing to refrain from carrying on competitive business is prima facie of the nature of a capital receipt. The court concluded that the receipt in question was attributable to a restrictive covenant and thus was a capital receipt, not assessable to tax.

Conclusion:
The court answered the referred question in the affirmative, holding that the sum of Rs. 1,50,000 received by the assessee was a capital receipt and not liable to be assessed in the relevant assessment years. The assessee was entitled to its costs, with counsel's fee set at Rs. 500.