INCOME-TAX TRIBUNAL DECISIONS
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Vol. 111, Part 7, for the week
of April 16 – April 22, 2008 |
table of orders reported
Saurabh Srivastava v. Dy. CIT (
Sujay Trading (P.) Ltd. v. Jt. CIT (Mum.) (TM)
subject index
Business income
Chargeable as
- Assessment year 1994-95 - Assessee-company
was formed with its main object to trade in various goods - Besides, assessee's ancillary objects were to lend and advance money
and to invest in shares and securities, etc. - During previous year relevant to
assessment year 1994-95, assessee passed a resolution
to treat said ancillary object as its main object - Assessee
invested funds in various stocks, bonds, etc., and earned interest thereon - In
its return of income, assessee showed interest income
as its income from business - However, Assessing Officer, taking view that assessee had not commenced business as per its main object,
disallowed claim of assessee and treated interest
income as its income from other sources - Whether Assessing Officer was
justified - Held, no - Sujay Trading
(P.) Ltd. v. Jt. CIT (Mum.)
(TM)
- Assessment year 1998-99 - Whether where
compensation is received partly for transfer of capital assets, incidental to
carrying on business and partly for undertaking restrictive covenant of not
competing with business of assessees, compensation
relatable to such activity would be a capital receipt - Held, yes - Assessee, a computer engineer, associated with Software and
Information Technology, was promoter, founder as well as Managing Director of a
company ‘H’ and held certain shares of said company - Company ‘H’ was agreed to
be taken over by a U.K. company and, as per shares purchase agreement dated
4-12-1997 entered into by U.K. company with shareholders of ‘H’ including assessee, 76 per cent of subscribed equity capital was
agreed to be transferred in favour of U.K. company by
shareholders in order to effect said takeover - In terms of said agreement, assessee sold his all shares of company ‘H’ to U.K. company
- In addition to share transfer agreement, U.K. company also entered into a
non-compete agreement with assessee on same date, i.e.,
4-12-1997, whereby assessee was restrained from
carrying out any software development activity for any other person who
directly competed with U.K. company and its associate and subsidiary companies
for a period of 18 months - In meantime, assessee
also entered into yet another new service agreement with company ‘H’ on
24-2-1998, whereby assessee was employed as Managing
Director of said company - Thereafter, shares purchase agreement was completed
on 26-2-1998 and 76 per cent of shares of company ‘H’ stood owned and vested in
U.K. company on that date - During previous year relevant to assessment year
1998-99, assessee received certain amount from U.K. company
as non-compete fees and claimed same to be exempt being in nature of a capital
receipt - Assessing Officer rejected claim of assessee
and held that amount in question was a revenue receipt liable to be taxed under
section 28(ii) - Whether even though, on date of payment of non-compete
fees by U.K. company to assessee, an employer and
employee relationship existed between company ‘H’ and assessee,
since restrictive covenants stipulated in non-compete agreement provided for
not doing something to compete with business of U.K. company and associate
companies up to a period of 18 months from date of agreement dated 4-12-1997 to
31-5-1999 and, since non-compete agreement was an independent, distinct and
separate agreement from service agreement and it was not dependent on assessee continuing in employment with company ‘H’ and,
further since restrictions accepted by assessee
adversely affected his income earning potential by exploiting entrepreneur
skill, knowledge, etc., non-compete fees received by assessee
was in nature of a capital receipt - Held, yes - Whether since entering
into a non-compete agreement for restrictive covenant could not be considered
and treated as part of rendering services to employer company ‘H’, non-compete
fee was not taxable under head ‘Salary’ under section 17(3)(i)/17(2)(v)
- Held, yes - Whether since assessee continued
to be Managing Director of company ‘H’ even after takeover, payment of
non-compete fees was not in any way directly or indirectly linked to
termination of management and, therefore, non-compete fees was not covered
under section 28(ii) - Held, yes - Whether since non-compete fees
did not arise to assessee from carrying on of
business or profession, it would also not be taxable under section 28(iv)
- Held, yes - Whether since Legislature, in their wisdom, has
specifically made taxable receipt of a non-compete fees under an agreement
under clause (va) of section 28 inserted by
Finance Act, 2002 with effect from 1-4-2004, non-compete fees in question could
not be brought to tax under amended section also - Held, yes - Whether
since assessee had not transferred any capital asset,
non-compete fees was also not liable to be taxed under head ‘Capital gains’
under section 45 - Held, yes - Whether since non-compete fees received
by assessee was for undertaking restrictive covenants
of not undertaking or engaging himself in business of assessee
or joining employment with any other concern, same was also not liable to be
taxed under head ‘Income from other sources’ - Held, yes - Whether, in
view of aforesaid, it could be concluded that non-compete fees for undertaking
restrictive covenants was in nature of capital receipt and, hence, not liable
to be taxed under any head of income mentioned under section 14 - Held,
yes - Saurabh Srivastava
v. Dy. CIT (Delhi) (SB)
Income-tax Act,
1961
- Section 28(i)