2000 (3) TMI 168 - AT - Income Tax

Summary

Issues Involved:
1. Whether the receipt of Rs. 175 lakhs by the assessee was a capital receipt or a revenue receipt.
2. Whether the receipt was casual and non-recurring in nature and thus taxable u/s 10(3) of the Income-tax Act.

Issue 1: Nature of Receipt (Capital vs. Revenue)
The Department contended that the receipt of Rs. 175 lakhs by the assessee should be treated as revenue receipt and taxable under section 10(3) of the I.T. Act. The Assessing Officer (AO) considered this amount as consideration for arranging the transfer of control of W.I.E.L. to U.B.L., deeming it a casual and non-recurring receipt. The AO cited the judgment of Allahabad High Court in CIT v. Gulab Chand [1991] 192 ITR 495 and the Supreme Court's decision in CIT v. B. C Srinivasa Setty [1981] 128 ITR 294 to support his stance that a capital receipt without a cost of acquisition should be treated as casual and non-recurring.

Issue 2: Applicability of Section 10(3)
The CIT(A) disagreed with the AO, holding that the Rs. 175 lakhs received by the assessee was a capital receipt for entering into a restrictive covenant, and not income under section 2(24) of the Act. The CIT(A) relied on various case laws, including Gillanders Arbuthnot & Co. Ltd v. CIT [1962] 46 ITR 847 and CIT v. Rao Raja Kalyan Singh [1974] 97 ITR 690, to establish that compensation for agreeing to refrain from competitive business is a capital receipt. The CIT(A) also referenced Circular No. 158 dated 27-12-1974, which clarified that casual and non-recurring receipts are liable to income-tax only if they can be characterized as income.

Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, stating that the Rs. 175 lakhs received by the assessee was a capital receipt for agreeing to a restrictive covenant and not casual or non-recurring in nature. The Tribunal emphasized that the receipt arose from a negotiated agreement and was not unforeseen or accidental. The Tribunal cited the case of M.N. Karani v. Asstt. CIT [1998] 64 ITD 119 (Mum.) and K.S.S. Mani v. ITO [1995] 54 ITD 76 (Mad.), where similar receipts were treated as capital receipts. The Tribunal concluded that the receipt was outside the purview of the definition of income and thus not taxable under section 10(3).

Conclusion:
The appeal filed by the Department was dismissed, and the CIT(A)'s order deleting the addition of Rs. 175 lakhs was upheld.