SELECTED ORDERS OF ITAT

Vol. 20, Part 6, for the week March 25 - March 31, 2008

List of Cases

Dy. CIT v. Lyka Labs Ltd. (Mum.)

subject index

Business income

Chargeable as

- Assessment year 1998-99 - Whether a receipt can be said to be capital receipt when it is relatable to transfer of capital asset other than stock-in-trade and that parting of capital asset must be in a sense that transferor cannot make any gain out of same either for ever or for an enduring period - Held, yes - Assessee had been in business of manufacturing of various drugs and formulations and sale thereof as well as marketing of Nitro Glycerine based formulations/products manufactured by a company ‘S’ - It had a huge distribution network for marketing its own manufactured product as well as products manufactured by other parties - In course of such business, it came to possess certain marketing information relating to Nitro Glyce-rine based formulations - A foreign company ‘U’ was also engaged in manufacture of Nitro Glycerine based formulations and it intended to market its products in India - To facilitate its marketing process, it entered into an agreement with assessee to procure certain information relating to Nitro Glycerine based formulations - During previous year, assessee received certain amount from company ‘U’ on two accounts - (i) for transferring marketing information relating to formulations made from bulk Nitro Glycerine for period of three years, and (ii) for not competing with ‘U’ in promoting, distributing and selling activities of such formulations for period of five years - Consideration received was composite one and no apportionment was made in respect of above activities - Assessee claimed deduction of said receipt on ground that it was a capital receipt - Whether since assessee had simply parted with information relating to marketing of Nitro Glycerine formulations for a period of three years only without affecting its trading/marketing structure, imparting of such information did not amount to transfer of capital asset - Held, yes - Whether therefore, payment allocable to such business of imparting of information amounted to revenue receipt chargeable to tax - Held, yes - Whether payment relatable to non-compete covenant amounted to capital receipt, inasmuch as there was a loss of source of income to assessee from marketing of Nitro Glycerine based products for a period of five years - Held, yes - Dy. CIT v. Lyka Labs Ltd. (Mum.)

Method of accounting

Change of

- Assessment year 1998-99 - Whether in view of amended provisions of section 145 effective from 1-4-1997, an assessee is permitted to follow either cash system of accounting or mercantile system of accounting - Held, yes - Dy. CIT v. Lyka Labs Ltd. (Mum.)

Income-tax Act, 1961

- Section 28(i)

- Section 145

MAGAZINE

features

landmark rulings

v.k. subramani (Chartered Accountant)

- An analysis of Landmark ITAT’s rulings reported in Volume 110 of ITD and Volumes 19 & 20 of SOT