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TMI Blog2021 (10) TMI 1008X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation received by the assessee under non compete agreement was a capital receipt not taxable. Thus, issue as raised in the cross objection is squarely covered by the judgment of Hon ble Apex Court. Accordingly, we hold that the payment of non-compete fee received by the assessee company has not compete fee is a capital receipt and not liable to be taxed. - Decided in favour of assessee. - CO No. 192/Del/2007 (In ITA No. 2595/Del/2002) - - - Dated:- 13-10-2021 - Shri G.S. Pannu, Hon ble President And Shri Amit Shukla, Judicial Member For the Department : Sh. Mohd. Gayasuddin Ansari, Sr. DR For the Assessee : Shri Ajay Vohra, Sr. Advocate, Ms. Manisha Sharma, Advocate ORDER PER AMIT SHUKLA, J.M. The aforesaid cross objection was filed by the assessee alongwith ITA No. 2595/Del/2002 for the assessment year 1998-99. In cross objection the assessee has raised following grounds :- That on the facts and circumstances of the case the consideration of ₹ 1,50,00,000/- received by the assessee as non-compete fee was capital receipt not liable to tax. 2. Here in this case, the Tribunal vide order dated 13.11.2018 had disposed of the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or taxation. This was rejected by the tribunal in the above order as per reasons given above. 8. In the miscellaneous application the Ld. Authorised Representative submitted the Hon ble Delhi High Court in Principle Commissioner of Income Tax verses Silver Line 383 ITR 455 (Delhi) has decided that even the additional grounds can be raised for the first time before the tribunal in a cross objection. He specifically referred to fact in that case wherein the assessee raised an additional ground that no notice u/s 143 (2) had been issued prior to finalilze of the reassessment order by the Assessing Officer and therefore the assessment order is passed without jurisdiction. This issue was raised for the first time before the Tribunal and there was no concern for the Assessing Officer in the absence of any return filed by the assessee pursuant to notice issued u/s 148 of the Income Tax Act to issue any notice u/s 143(2) of the Act. As per para number 16 of the decision of the Hon ble Delhi High Court it was held that when there being no fresh evidence or disputed facts sought to be brought on record, the issue being purely one of law, the ITAT was not in error in permitting the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch cross objection should not be entertained. 5. We have heard the Ld. Sr. Counsel, Shri Ajay Vohra and also Sr. DR about the admissibility of grounds raised in the cross objection and perused the material already on record. First of all, this Tribunal in order passed in Miscellaneous Application filed by the assessee vide order dated 22nd March, 2021, has recalled the cross objection to decide the said ground raised, on the ground that it is purely a legal ground and same can be raised for the first time before the Tribunal in the cross objection following the principle laid down by the Hon ble Jurisdictional High Court in the case of Pr. CIT vs. Silver Line (supra). Before us Ld. Sr. Counsel submitted that, this claim was raised in view of the judgment of Hon ble Supreme Court in the case of Guffic Chem (P) Ltd. vs. CIT reported in 332 ITR 602 vide judgment and order dated 16th March, 2011, wherein their Lordship have held that prior to the amendment brought in section 28 w.e.f. 1.4.2003 any payment received as non-competition fee under a negative covenant was a capital receipt, not taxable under the Act. Here in this case also in view of sale and purchase agreement dated 1.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of executing of negative covenant is taxable or not,, i.e. whether it is a capital receipt. As evident from the aforesaid clauses of Sale and Purchase Agreement, the assessee was paid sum of ₹ 1,50,00,000/- that assessee will not for a period of two years from the closing date, directly or indirectly or otherwise carry out any business or activity in any manner similar to the business which was transferred. Thus, there was a clear cut negative covenant for which assessee had received non-compete fee. Since the payment of non-compete fee has been made in assessment year 1998-99, therefore, same is prior to the amendment brought to section 28 (va). The Hon ble Supreme Court in the case of Guffic Chem vs CIT reported in 332 ITR 602 (SC) had observed and held as under :- 5 The position in law is clear and well-settled. There is a dichotomy between receipt of compensation by an assessee for the loss of agency and receipt of compensation attributable to the negative/restrictive covenant. The compensation received for the loss of agency is a revenue receipt whereas the compensation attributable to a negative/restrictive covenant is a capital receipt. 6. The above dichotom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 non-competition agreement was a capital receipt, not taxable under the 1961 Act. It became taxable only with effect from 1-4- 2003. It is well-settled that a liability cannot be created retrospectively. In the present case, compensation received under Non-Competition Agreement became taxable as a capital receipt and not as a revenue receipt by specific legislative mandate vide section 28(va) and that too with effect from 1-4-2003. Hence, the said section 28(va) is amendatory and not clarificatory. Lastly, in CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 it was held by this Court that if a contract is entered into in the ordinary course of business, any compensation received for its termination (loss of agency) would be a revenue receipt. In the present case, both CIT(A) as well as the Tribunal, came to the conclusion that the agreement entered into by the assessee with Ranbaxy led to loss of source of business; that payment was received under the negative covenant and therefore the rece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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