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TMI Blog2017 (3) TMI 1699X X X X Extracts X X X X X X X X Extracts X X X X ..... short issue in question in the present appeal is the exigibility to tax in law of the 'non-compete fees' arising to the assessee. The company, Citadel Fine Pharmaceuticals Company Ltd., Chennai was taken over by another, Citadel Aurobindo Biotech Ltd. (CABL). As the assessee had critical knowledge about certain processes regarding the production of pharmaceutical products, CABL agreed (vide Agreement dated 27/3/2002/copy on record) to pay a sum of Rs. 600 lacs as non-compete fee, restraining him from carrying on the business of marketing/promoting ethical allopathic pharmaceutical formulations and generally from working for any company in the same field. While Rs. 100 lacs was paid during the relevant year, the balance was to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation afresh in light of the facts noted by it in the case of Asst. CIT v. P.Rajendra Rao (in ITA No.589/Mds/2008), reproducing extensively there-from (at para 4/pgs. 3-7 of its order), in-as-much as the said order stood followed by it earlier in M.Ranjan Rao (supra), the facts of which case it notes to be identical to the instant case. The ld. CIT(A), in the second round, was of the view that the entire sum of Rs. 600 lacs received or receivable by the appellant is liable to be treated as a capital receipt and, further, that as the same is from CABL, it could not be treated as profit in lieu of salary. 3. We have heard the parties, and perused the material on record. There can in principle be no dispute, i.e., in view of the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not on the statute book, so that notwithstanding a different reason the impugned order would get confirmed for receipt to that extent, i.e., Rs. 100 lacs, where the same is a non-compete fee, a finding strongly challenged by the Revenue (refer Gds. 2.3 & 2.4 of the Grounds of Appeal). For the balance Rs. 500 lacs, the matter would necessarily have to the back to his file for fresh adjudication on merits. The first issue in this regard, i.e., after determining the nature of the receipt, would be if the amount as at all accrued during the relevant year. This is as the assessee has all through, relying on the decision in Turner Morrison and Co. Ltd. v. CIT [1953] 23 ITR 152 (SC), holding that the sum assessable u/s. 5 of the Act sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding production of ethical allopathic pharmaceutical products. In fact, the field of allopathic formulations is so vast, and the term employed so vague, that no one could possibly have critical knowledge of all the products falling in such a wide classification. Why, at other place it is stated to be in appreciation of his services, which are in the field of marketing. Further, the subsequent co-option of the assessee as a director in CABL only undermines the claim of it being a non compete fee. As clarified by the tribunal in P.Rajendra Rao (supra) that if at all there was a competition from the assessee, he would not have been made a director in CABL later on. Further, that the compensation for the right to carry on business could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ater co-opted as directors, itself indicates the same to be a part of a plan, a pre-mediated transaction, and integral to the takeover of the business of Citadel Fine Pharmaceutical Company Ltd. The same could be a part of the business restructuring as well, though the claim cannot be lightly made, nor can, like-wise, the Revenue's claim of the impugned sum being profit-in-lieu of salary, assessable u/s. 15 r/w s. 17(3), be brushed aside so (lightly), particularly in this context. The assessee shall have to bring material or evidence on record to substantiate/prove his claims, which can only be decided on the basis of the facts borne out thereby, i.e., on the basis of given/proven facts. The ld. CIT(A) shall then, where relevant, determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is u/s. 143(3) r/w s. 147 of the Act, with, further, the ld. CIT(A) rejecting the challenge to the reassessment proceedings. Similarly, the decision in Asst. CIT v. P.Harihara Rao (in ITA No.167/Mds/2011 dated 30/03/2012), also relied upon by the assessee, would be of little consequence in view of the clear decision by the tribunal in the assessee's own case (in the first round), coupled with the absence of factual findings in the assessee's case. Before parting with our order, we may add that the appeal was heard by us on the basis of the non-compete fee being a capital receipt and, thus, not taxable for the years prior to AY 2003-04. The question of the nature of the receipt; accrual or otherwise in the facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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