2021 (1) TMI 485 - HC - Income Tax

Receipt in the form of non-compete fees - Revenue or capital receipt - HELD THAT - As decided in ANJUM G BALAKHIA 2016 (7) TMI 575 - GUJARAT HIGH COURT it is well settled that a liability cannot be created retrospectively. In the present case, compensation received under Non-Competition Agreement became taxable as a capital receipt and not as a revenue receipt by specific legislative mandate vide Section 28(va) and that too with effect from 1.4.2003. Hence, the said section 28(va) is amendatory and not clarificatory - Appellate Tribunal right in holding that provisions of section 28(iv) are not applicable in the case of assessee - Decided in favour of assessee

Summary

Issues:
1. Interpretation of noncompete fees as capital in nature for tax purposes.
2. Disallowance of sales promotion expenses without proper justification.
3. Eligibility of miscellaneous income for deduction under section 80 HHC.

Interpretation of Noncompete Fees:
The High Court addressed the first issue concerning the characterization of noncompete fees as capital in nature for tax purposes. The Revenue challenged the ITAT's decision regarding the taxability of ?14,55,41,760 received as noncompete fees. The Court noted a previous judgment in a related case involving the same assessee where a similar issue was decided in favor of the assessee. Consequently, the Court upheld the ITAT's decision and dismissed the appeal.

Disallowance of Sales Promotion Expenses:
Regarding the disallowance of ?45,215 for sales promotion expenses done by the AO on an estimates basis without proper justification, the Court found that the AO had not been provided with sufficient details by the assessee to substantiate the claim. As a result, the High Court agreed with the ITAT's decision to delete the disallowance, as the AO's action lacked proper justification.

Eligibility of Miscellaneous Income for Deduction:
The third issue involved the eligibility of ?54,316 of miscellaneous income for deduction under section 80 HHC. The Court considered whether the income was derived from export activities, which would make it eligible for the deduction. The assessee failed to justify that the income was export-derived, raising doubts about its eligibility for the deduction. Despite this, the ITAT had allowed the deduction. However, the High Court did not find sufficient grounds to support this decision and dismissed the appeal, thereby denying the deduction for the miscellaneous income.

In conclusion, the High Court dismissed the appeal, upholding the ITAT's decisions on the issues of noncompete fees and sales promotion expenses, while denying the deduction under section 80 HHC for the miscellaneous income.