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2019 (4) TMI 1386 - HC - Income TaxNature of receipt - amount received for non -compete agreement - revenue or capital receipt - HELD THAT - Similar questions were examined by this Court in case of ARUN TOSHNIWAL ANURAG A. TOSHNIWAL VERSUS THE DY. COMMISSIONER OF INCOME OTHERS 2015 (4) TMI 516 - BOMBAY HIGH COURT held that it is only vide the Finance Act, 2002 which came into effect from 1st April, 2003 the said capital receipt was now taxable under section 28(va). Had the assessee not entered into an agreement of non-compete, he would have earned the amount from the business carried on out of the division which was sold. It is the sale of the said division that has deprived him of the income and part of the sale consideration itself, he was required to execute an agreement of non-compete and the compensation received under the said agreement was relatable on a consideration for sale of the business of the division and, therefore, for these reasons also, we are of the view that the amount is taxable under Section 28(va) - both the assessee have received the amount pursuant to the agreement dated 2nd June, 2008 that is well after 1st April, 2003 and would be covered by the provisions of Section 28(va) of the Act. We are accordingly of the view that no relief can be granted to the appellants. - Decided against the assessee.
Issues:
1. Whether the receipt of ?2,00,000 constituted a revenue receipt under section 28(va) of the Income Tax Act? 2. Whether the amount received was by way of transfer of whole business and not limited to any 'activity' in relation to the business, thus not applicable under section 28(va)? Analysis: 1. The appellant challenged the Income Tax Appellate Tribunal's judgment, arguing that the receipt of ?2,00,000 was not taxable under the head of 'profits and gains of business or profession' as the appellant was not conducting any business in the relevant previous year. The court referred to a previous decision and highlighted that the Finance Act, 2002 made capital receipts taxable under section 28(va) from 1st April 2003. The court emphasized that compensation for loss of business due to a non-compete agreement was considered a revenue receipt. It was noted that the appellant would have earned income from the business division sold to Thermo Electron LLS India Pvt. Ltd. if not for the non-compete agreement. Therefore, the court held that the amount received was taxable under section 28(va) as it was related to the sale of the business division. The court dismissed the appeal, stating that no relief could be granted as the amount was received after 1st April 2003 and fell under the provisions of section 28(va). 2. The appellant contended that the amount received was not limited to any 'activity' in relation to the business but was by way of the transfer of the whole business. The court analyzed the situation and concluded that the compensation received under the non-compete agreement was directly linked to the sale of the business division. The court emphasized that both appellants received the amount post the effective date of the provisions of section 28(va) of the Act. Therefore, the court held that the amount was taxable under section 28(va) as it was part of the consideration for the sale of the business division. The court dismissed the appeal, stating that no substantial questions of law were raised, and no relief could be granted.
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