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TMI Blog2012 (2) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... had received non-compete fee of Rs..10.00 crores from the same company M/s. Citadel Aurobindo Biotech Ltd., the Tribunal had restored the matter back to the file of the ld. CIT(A) following the order of the Tribunal in the case of ACIT vs. Shri P. Rajendra Rao in I.T.A. No. 589/Mds/2008 order dated 24.09.2009, wherein also the assessee had received the non-compete fee of Rs..4.00 crores from the same company M/s. Citadel Aurobindo Biotech Ltd. as in the case of the present assessee. He, therefore prayed that following the earlier orders of the Tribunal, the matter should be restored back to the file of the ld. CIT(A) for adjudication afresh as per the directions contained in those orders of the Tribunal. 3. The ld. AR of the assessee did not object to the above submissions of the ld. DR. 4. After considering the rival submissions and perusing the orders of lower authorities and materials available on record, we find that in the instant case, according to the Assessing Officer, the assessee received Rs..6.00 crores as non-compete fee from M/s. Citadel Aurobindo Biotech Ltd., which was treated by him as revenue receipt and added the same to the income of the assessee, but was treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax a sum of Rs..4.00 crores as non-compete fee treated as profits in lieu of salary under section 17(3) of the Act. Against this action of the Assessing Officer, the assessee has preferred the present appeal wherein the treatment of amount brought to tax by the Assessing Officer has been agitated. 3.1 The assessee mainly challenged addition of non-competing fee of Rs..4.00 crores. It was submitted before the first appellate authority that such amount is not taxable because it does not fall within the inclusive definition of income under section 2(24) of the Income Tax Act and moreover, as regards the non-compete fee of Rs..4.00 crores from CABL, the assessee had no employer and employee relationship with CABL and this is not chargeable under the head Rs.salary', besides, since section 28(va), which was inserted by Finance Act, 2002 with effect from 01.04.2003 only, and hence it is not applicable to the assessment year 2002-03. Therefore, non-competing fee is not assessable as business income as well in the assessment year under consideration. The facts of the case are otherwise similar one as reported in the case of JCIT v. Alfa Laval (I) Ltd. 286 ITR [AT] 193 [Mum.], and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs..4.00 crores out of which Rs..20.00 lakhs has already been received in the year under consideration and balance of Rs..3.80 crores have also accrued to the assessee and has also been credited by CABL towards non-compete fee as per account copy filed, therefore, it is revenue receipt in the hands of the assessee which is rightly been assessed by the Assessing Officer and the ld. CIT(A) is not justified in deleting the said addition. It was, thus strongly pleaded for reversal of the impugned order. 5. We have heard both the sides, considered the material on record as well as precedents relied upon by the rival sides. It is not in dispute that agreement was entered into between the assessee and CABL. Record indicate that Rs..4.00 crores towards non-compete fee was credited to assessee's account as per account copy filed from M/s. CABL. The assessee has to receive Rs..4.00 crores for non-competing fee in the line of trade. Since the assessee has not admitted any income from this source, therefore, the Assessing Officer reopened the assessment and assessed such income and while doing so, it has been observed that M/s. CABL has taken over the manufacturing business activity of certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscovered the magnetism in the assessee. In that sense the entire payment is attributable to the goodwill of the assessee. As the goodwill in this case is self-generated, the cost is nil as per the provisions of section 52(2)(a)(ii) of the IT Act. Accordingly, the entire receipt is taxable as capital gains. There is yet another way of looking at the receipt. As on the date of payment the assessee was an employee of the company and the payment is received from his employer. In this context, the company CABL and CFPL are doing business in the same line but the CFPL is restraint from doing business in the Union of India and Kingdom of Nepal. Secondly, the payment is directly related to the services which the assessee was rendering. Why it is given is not a major issue, since any payment, whether it be salary remuneration, commission, etc. forms part of salary as per section 17(1). Even if it is a casual and nonrecurring payment section 10(3) does not exclude it from taxation, if it is an addition to remuneration. In view of the above, the receipt as well as the amount due to the assessee is also assessable under the head Rs.Salary'. 5.1 And the case of the assessee is mainly on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any time before 26.3.2009. Therefore, the Assessing Officer has incorrectly presumed that the non-compete fee has accrued in its entirety on the date of Agreement itself. 3. Copies of the following decisions: a. Gillanders Arbuthnot & Company Ltd. vs. CIT (46 ITR 847) b. CIT vs. Rao Raja Kalyan Singh (97 ITR 690)(Raj) c. Mehboob Productions P. Ltd. vs. CIT (106 ITR 758)(Bom) d. CIT vs. Saraswathi Publicities (132 ITR 207) e. Universal Radiators vs. CIT (201 ITR 800) to support the appellant's contention that the receipt of noncompete fee is a capital receipt and, hence, is not taxable. 4. Decision of the Supreme Court in the case of Turner Morrisson and Company Limited vs. CIT (23 ITR 152), wherein, it has been held that for any sum to be taxable u/s 5 of the Income-tax Act, there should be a constructive receipt ie. to say that the assessee should have either received the sum or there should be a clear probability to receive the same. In the appellant's case, there is no probability or possibility to receive the money because the Company has become defunct. 2 5. Copies of the following decisions. a. State Bank of Travancore vs. CIT (1986) (18 ITR 102, 154)(SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the ld. Counsel for the assessee has pleaded for setting aside the matter on the file of the ld. CIT(A) for passing similar direction as passed in the case of Shri P. Rajendra Rao and there being no objection from Revenue side in case the order of the ld. CIT(A) is set aside and restore back the matter on his file, therefore, we, considering the entirety of facts, circumstances of the case and material on record set aside the order of the ld. CIT(A) and restore the matter back on his file with the direction to follow similar direction here as has to be followed in the case of ACIT v. Shri P. Rajendra Rao in ITA No. 589/Mds/2008 and decide the appeal afresh." 5. In view of the submissions made before us by the ld. DR to which no serious objection was made by the ld. AR of the assessee, we, following the above order of the Tribunal in the case of Shri M. Ranjan Rao, set aside the orders of lower authorities and restore the matter back to the file of the ld. CIT(A) with the same directions as contained in the order in the case of Shri M. Ranjan Rao quoted above. The ld. CIT(A) shall allow reasonable opportunity of hearing to both the parties before adjudicating the issue afresh. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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