9911796707
TMI Blog1997 (2) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee-company had an agreement dated April 17, 1972, with Hevea Corporation, doing industrial lining jobs, which was valid up to February 15, 1975. The compensation due to the assessee was fixed at different rates, depending on the type of work and the facilities utilised. Clause 10 of the agreement specifically provided for compensation for default by either party at Rs. 48,000 per year of the uncompleted period of the agreement. There was, however, a modification by the subsequent agreement, dated March 26, 1974, by which the parties agreed to release their respective rights under agreement dated April 17, 1972. The relevant clauses are clauses 6 and 7. Clause 6 states that Chemplant hereby covenant that they will not carry on any business in rubber lining and rubber bonding till April 16, 1975, either themselves or in association with others, except through Hevea. Clause 7 states that Hevea agreed to pay a sum of Rs. 20,000 as compensation in respect of the said covenant of Chemplant restraining themselves from carrying on any business in rubber lining and rubber bonding except through Hevea up to April 16, 1975, and releasing their rights under the agreement dated April 17, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the restraint which was placed on the assessee and the fact that the machinery connected with the same were handed over for an agreed price as part of the agreement, would clearly establish that there had been loss of a source of income, and that, therefore, the compensation is a capital receipt. Therefore, according to learned counsel, the sum of Rs. 20,000 was not received for loss of income, but it was for the cancellation of the agreement, preventing the assessee from carrying on rubber lining business. In order to support his contention, learned counsel appearing for the assessee relied upon the decisions reported in Gillanders Arbuthnot and Co. Ltd. v. CIT [1964] 53 ITR 283 (SC) at page 287; CIT v. Best and Co. P. Ltd. [1966] 60 ITR 11 (SC) at page 22 and CIT v. Saraswathi Publicities [1981] 132 ITR 207 (Mad) at page 214. A passage occurring at page 168 of Law of Income-tax in the text book written by Kanga and Palkhivala, 8th edition, was also relied upon. According to learned standing counsel appearing for the Department, the agreement was one in restraint of trade on the assessee's part in the sense that certain monopolistic rights were created in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and rubber bonding. The assessee used to procure the business for Hevea and Hevea used to do the business in the factory premises of the assessee for which the assessee used to receive commission payment. By the subsequent agreement, the assessee was prevented from doing such commission agency business for a period of one year. In CIT v. Saraswathi Publicities [1981] 132 ITR 207 this court held as under : "The cases decided by the Supreme Court thus fall into two categories. The first category consists of those cases where there is a mere loss of a trading agency of a company which has a number of such agencies. The second category covers those cases where the receipt is not for the loss of an agency but for certain restrictive covenants preventing the assessee from carrying on business to that extent. While learned counsel for the Revenue proceeded as if the case on hand fell within the ambit of the first of the two propositions, the attempt of learned counsel for the assessee was to bring it in the latter category. In view of the finding of the Tribunal, which we have already extracted, that in the present case the receipt is referable to a restrictive covenant, we have to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill, is prima facie of the nature of a capital receipt. In the abovesaid decision, it was further held as under : "The principal question in dispute is whether the amounts received by the appellant as compensation for loss of agency are of the nature of capital or revenue. It is necessary in the first instance to eliminate two subsidiary contentions raised by the appellant. It was urged that the amounts received by the appellant were in lieu of compensation for cancellation of the agency by the principal company, for loss of goodwill of the appellant's business, and also in consideration of the appellant's agreeing not to carry on any competitive business in explosives or other commodities in which business was carried on by the appellant under the agency agreement. It cannot seriously be disputed that compensation paid for agreeing to refrain from carrying on competitive business in the commodities in respect of which the agency was terminated, or for loss of goodwill would, prima facie, be of the nature of a capital receipt. But there is no evidence that compensation was paid to the appellant as consideration for giving the undertaking not to carry on a competitive business, or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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