2016 (3) TMI 29 - HC - Income Tax

Non-compete fees - treatment to the receipt - taxation effect - Held that - The finding of the Tribunal that the amount received by the Appellant was not in the nature of non-compete fees is not perverse as that amount of ₹ 3,80,48,100/claimed as non-compete fees was not a lumsum figure but an odd figure which was claimed to have been arrived after negotiations. In the result, the Appellant was called upon to give details of the components of ₹ 3,80,48,100/claimed as non-compete fees. The Appellant failed to furnish the details. Thus taking into account all the facts, it was fairly concluded that the payment of ₹ 3,80,48,100/claimed as non-compete fees was not in fact so. Further,held that the agreement dated 31st March, 2002 is a subterfuge to colour an amount received in lieu of salary as a non-compete fees so as not to pay tax on the same. In the circumstances, the payment of Rs,3,80,48,100/was held to be not non-compete fees and was brought to tax under the head salary and in particular, under Section 17(3)(ii) of the Act - Decided in favour of the Revenue

Summary

Issues Involved:
1. Whether the amount received by the Appellant was in the nature of non-compete fees.
2. Whether the Tribunal's finding was perverse or contrary to the material on record.
3. Classification of the amount received under the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Nature of the Amount Received
The core issue was whether the amount of Rs. 3,80,48,100 received by the Appellant from Grasim Limited was non-compete fees. The Appellant, who retired at the age of 81 after 33 years of service, claimed that this amount was non-compete fees based on an agreement dated 31st March 2002. However, the amount was received in three tranches before the agreement date. The Assessing Officer, CIT(A), and the Tribunal all found that the payment was not non-compete fees but rather a subterfuge to avoid tax. The authorities noted the odd figure of the payment, lack of details on how it was negotiated, and the continuation of the Appellant's advisory role post-retirement as indicators that the payment was not genuinely for non-compete purposes.

Issue 2: Tribunal's Finding and Material on Record
The Tribunal's decision was based on several factors, including the timing of the payments, the Appellant's age and continued association with Grasim, and the deduction of TDS by Grasim without protest from the Appellant. The Tribunal concluded that the agreement dated 31st March 2002 was a camouflage. The High Court upheld this view, stating that the Tribunal's conclusions were reasonable and not perverse or arbitrary. The Court emphasized that the Appellant failed to provide a satisfactory breakdown of the Rs. 3,80,48,100 and did not convincingly explain why such a large amount was paid before the agreement date.

Issue 3: Classification under the Income Tax Act
The Appellant argued that if the amount was not non-compete fees, the authorities should classify it under the appropriate head. The Assessing Officer had classified the amount as "profits in lieu of salary" under Section 17(3)(ii) of the Income Tax Act. The High Court noted that this classification was not challenged by the Appellant in the appellate proceedings. Therefore, the classification under Section 17 stood valid. The Court also dismissed the argument that the obligation to return the amount in case of breach under the agreement would affect its classification, reiterating that the agreement itself was considered a camouflage.

Conclusion:
The High Court concluded that the Tribunal's view was a reasonable and possible interpretation of the facts. The question of whether the amount was non-compete fees was answered in the negative, in favor of the Revenue. The appeal was disposed of with no order as to costs.