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TMI Blog2015 (11) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... In February, 2002 Metromode Technology Ltd, Mauritius ("Metromode") became a shareholder in Integra. In March, 2003, the appellant was appointed as managing director of Integra. In June, 2004, M/s Suzuki Motor Corporation, Japan ("Suzuki Japan") became a major shareholder in Integra and, in February, 2005, the name of Integra was changed to M/s Suzuki Motorcycle India Pvt. Ltd. The appellant continued as managing director of the re-named company. In March, 2010, the appellant decided to terminate his relationship as a joint venture partner in Suzuki India and, consequently, stepped down as managing director of Suzuki India. On 31 March, 2010, the appellant and Suzuki India entered into an Agreement where under Suzuki India agreed to pay a sum of Rs. 1,32,00,000 to the appellant, in consideration of the appellant not providing "the benefit of his knowledge of regulatory matters, negotiating skills and strategic planning expertise to any other person in India in the two wheeler segment for a period of two years from the date of the Agreement". 3. In the return of income for the assessment year 2010-11, the assessee claimed exemption in respect of the sum Rs. 1,32,00,000 received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to him; the duration of his employment; the circumstances in which the employment could be terminated; and the amount payable on retirement from or termination of employment. The fact that there was no such Service Agreement and that the appellant was not paid or provided any salary, perquisites, or benefits during his entire terms as managing director from March, 2003 to March, 2010 reinforces the conclusion that the appellant was not an employee of Suzuki India. 6. Shri Aggarwal invited our attention to the reply of Suzuki India in response to the I.T.O.'s letter dated 20 November, 2012 asking Suzuki India to state the section under which tax was deducted from Rs. 1,32,00,000 paid to the appellant, where it is stated that "Tax was deducted under section 194J; however, to avoid any future dispute we deducted the maximum rate applicable i.e. 30%". Shri Aggarwal contended that if the company regarded the appellant as an employee, it would have stated in its reply that tax was deducted under section 192. It is also relevant to point out that paragraph 3 of the Agreement between Suzuki India and the appellant shows that the appellant had contended that no income-tax is deductible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent by Suzuki India to the appellant was not made for not competing with it, but for prohibiting him from providing the benefit of his knowledge, skill and expertise to others. 9. Shri Aggarwal contended that the expressions "business" and "profession" have been used in the Act in a mutually exclusive sense. The activity of providing the benefit of one's knowledge of regulatory matters, negotiating skills and strategic planning expertise to any other person would be regarded as an activity in relation to a profession, and not an activity in relation to a business. Besides, the appellant was not carrying on any such professional activity. Even assuming that he was carrying on any such professional activity (which he certainly was not) the amount paid to him will not fall within the ambit of the words for "not carrying out any activity in relation to any business" used in section 28(va) of the Act. 10. In support of his contention, Shri Aggarwal invited our attention to page 692 of Volume 1 of Kanga and Palkhivala's "The Law and Practice of Income-tax" relating to clause (va) of section 28 that "This clause taxes a sum received for a restrictive covenant in relation to a busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted to refer to the words in italics in the above cited passage from the CIT's order. The learned CIT (A) has ignored the fact that in paragraph 2 of the Opinion, Shri Bhardwaj has clearly stated that the appellant was paid by the company "in consideration of his agreeing not to provide the benefit of his knowledge of regulatory matters, negotiating skills and strategic planning expertise to any other person in India in the two wheeler segment for a period of two years from the date of execution of the Agreement". Mr. Aggarwal has urged that the unwarranted observations made by the learned CIT (A) on the integrity of the Advocate need to be condemned. 13. In his reply, the learned Departmental Representative urged that the learned counsel for the appellant has not been able to establish that the appellant was not an employee of Suzuki India and the mere fact that he did not receive any salary or perquisites from Suzuki India does not justify the conclusion he was not an employee of the company. He also contended that the resignation of the appellant and the Agreement between him and Suzuki, India were both made on the same date, that is, 31 March, 2010. Such agreements are enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , New Delhi (1972) 86 ITR 122, the Supreme Court has observed at page 126 that: "A servant acts under the direct control and supervision of his master. An agent, on the other hand, in the exercise of his work, is not subject to the direct control or supervision of the principal, though he is bound to exercise his authority in accordance with all lawful orders and instructions which may be given to him from time to time by his principal." In the course of the assessment proceedings, the Assessing Officer had asked Suzuki India as to "What were the duties assigned to Mr. Satya Sheel Khosla as a Managing Director and what type of work he was looking after" to which Suzuki India replied that he was assigned the following duties:- "a. Managing all affairs of the company. b. Evolving business strategies and development. c. Advising management on various issues in relation to business of the company. d. Overlook the management of the company." The wide amplitude of the role assigned to the appellant clearly show that he was not subject to the direct control or supervision of Suzuki India, but was managing all affairs of the company; evolving business strategies; and advising the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only vide the Finance Act, 2002 with effect from April 1, 2003 that the said capital receipt is now made taxable (See section 28(va)). The Finance Act, 2002 itself indicates that during the relevant assessment year compensation received by the assessee under noncompetition agreement was a capital receipt, not taxable under the 1961 Act." We agree with Shri Aggarwal that as the sum of Rs. 1,32,00,000 was paid by Suzuki India to the appellant in consideration of not providing "the benefit of his knowledge of regulatory matters, negotiating skills and strategic planning expertise to any other person in India in the two wheeler segment" it cannot be regarded as non-competition fee because it has not been paid for not competing with the payer, but for not providing the benefit of his knowledge, expertise, skills etc. to any other person in the two wheeler segment. The views expressed by Shri Bhardwaj in his Opinion and the contention by Shri Aggarwal that section 28(va) taxes a sum received for a restrictive covenant in relation to a business, but not a profession is also supported by the observations in paragraph 28 on page 692 of Kanga and Palkhivala's "Law and Practice of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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