ITO, CHENNAI v. M/s. Badrashyam H.Kothari, CHENNAI

ITA 1871/CHNY/2008 | 2005-2006
Pronouncement Date: 23-07-2010 | Result: Partly Allowed

Appeal Details

RSA Number 187121714 RSA 2008
Assessee PAN AGJPK7393K
Bench Chennai
Appeal Number ITA 1871/CHNY/2008
Duration Of Justice 1 year(s) 10 month(s) 7 day(s)
Appellant ITO, CHENNAI
Respondent M/s. Badrashyam H.Kothari, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-07-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 23-07-2010
Assessment Year 2005-2006
Appeal Filed On 15-09-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AN D SHRI GEORGE MATHAN JUDICIAL MEMBER .. I.T.A. NO. 1871/MDS/2008 ASSESSMENT YEAR : 2005-06 THE INCOME-TAX OFFICER COMPANY CIRCLE-II(4) CHENNAI. VS. SHRI BADRASHYAM H. KOTHARI 18 MAHATMA GANDHI ROAD NUNGAMBAKKAM CHENNAI-600 034. PAN : AGJPK7393K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENT BY : SHRI R. VIJAYARAGHAVAN O R D E R PER GEORGE MATHAN JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A) -III CHENNAI IN APPEAL NO. CIT(A)-III/CHE/315/07-08 DATED 12-6-2008 FOR THE AS SESSMENT YEAR 2005-06. 2. SHRI SHAJI P. JACOB LEARNED SR. DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI R. VIJAYARAGHAVAN ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : I.T.A. NO. 1871/MDS/2008 3 4. FOR THESE AND OTHER GROUNDS THAT MAY BE ADD UCED AT THE TIME OF HEARING IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OF FICER RESTORED. GROUNDS NO. 1 AND 4 ARE GENERAL IN NATURE AND DO NO T CALL FOR ANY ADJUDICATION. 4. IN REGARD TO THE GROUNDS 2.1 2.2 2.3 AND 2.4 I T WAS SUBMITTED BY THE LEARNED D.R. THAT THE ASSESSEE IS AN INDIVIDUAL WHO WAS HAVING TWO PROPRIETARY- SHIP CONCERNS. IN THE FIRST CONCERN BEING M/S. TR ANSWORLD INDIA ENTERPRISES THE ASSESSEE DERIVES INCOME FROM RETAINER FEE. IN RESPE CT OF THE SECOND CONCERN BEING M/S. KOTHARI & KOTHARI THE SAME IS ENGAGED IN CONSULTANCY BROKERAGE AND COMMISSION RESPECTIVELY. THE ASSESSEE HAD FILE D HIS RETURN OF INCOME. IT WAS TAKEN UP FOR SCRUTINY. IN THE COURSE OF ASSESS MENT IT WAS NOTICED THAT THE ASSESSEE HAD SHOWN A SUM OF RS. 21 42 154/- AS LOSS IN STOCK-IN-TRADE AND THE SAME HAD BEEN DEDUCTED FROM THE BUSINESS INCOME PR OFESSIONAL INCOME AND BROKERAGE INCOME. IT WAS SUBMITTED BY THE LEARNED D.R. THAT ON AN ANALYSIS IT WAS FOUND THAT THE SAID LOSS WAS THE NET ADJUSTED F IGURE OF THE PROFIT/LOSS IN THE SHARE/UNITS OF MUTUAL FUNDS. WHEN THE DETAILS WERE CALLED FOR IT WAS NOTICED THAT THE ASSESSEE HAD NOT DRAWN UP ANY PROFIT & LOSS ACC OUNT FOR ARRIVING AT THE TRADING LOSS THE OPENING/CLOSING STOCK HAD NOT BEE N VALUED AND THE TRANSACTION OF THE ASSESSEE WAS CONFINED TO 61 SHARES SCRIPS AN D UNITS OF 12 MUTUAL FUNDS. IN RESPECT OF 51 SHARES SCRIPS THE ASSESSEE HAD SUB STANTIAL CLOSING BALANCE AT THE END OF THE YEAR AND THE PERIOD OF HOLDING OF THE SH ARES OF MUTUAL FUNDS RANGE ON I.T.A. NO. 1871/MDS/2008 4 AN AVERAGE 6 MONTHS. IT WAS THE FURTHER SUBMISSION THAT APART FROM RECEIVING BONUS IN SHARES THE ASSESSEE HAD EARNED DIVIDEND FR OM SHARES AND MUTUAL FUNDS AMOUNTING TO RS. 64 15 229/- WHICH WAS MORE THAN TH E TRADING LOSS CLAIMED. THE AO HAD TREATED THE TRANSACTION OF PURCHASE AND SALE OF THE SHARES AND UNITS AS AN INVESTMENT AND HAD CONSEQUENTLY TREATED THE S TOCK-IN-TRADE AS DISCLOSED AS CAPITAL ASSET AND CONSEQUENTLY THE AO HAD DISALL OWED THE CLAIM OF THE ASSESSEE OF THE BUSINESS LOSS ON ACCOUNT OF THE STO CK-IN-TRADE. IT WAS THE SUBMISSION THAT THE LEARNED CIT(A) HAD DELETED THE ADDITION MADE BY THE AO BY HOLDING THAT THE ASSESSEE HAD ALREADY CONVERTED HIS SHARES AND SECURITIES AS STOCK-IN-TRADE WAY BACK IN 1984-85. HE HAD BEEN T RADING IN SHARES AND HAD SHOWN THE PROFIT/LOSS AS ARISING OUT OF THE BUSINES S AND IN THE BALANCE SHEET OF EACH ASSESSMENT YEAR RIGHT FROM 1984-85 THE SHARES AND SECURITIES HAD BEEN SHOWN AS STOCK-IN-TRADE. IT WAS FURTHER SUBMITTED THAT THE LEARNED CIT(A) HAD ALSO HELD THAT THE REVENUE HAS ACCEPTED THAT THE SH ARES AND SECURITIES WAS STOCK-IN-TRADE RIGHT FROM THE ASSESSMENT YEAR 1984- 85 TILL 2004-05. IT WAS THE FURTHER SUBMISSION THAT DURING THE YEAR THE ASSESSE E HAD PURCHASED SHARES WORTH RS. 4 41 03 199/- AND HAD SOLD SHARES WORTH R S. 4 56 85 153/-. CONSEQUENTLY THE LEARNED CIT(A) HAD HELD THAT THE ASSESSEE HAS BEEN TRADING IN SHARES AND SECURITIES AS BUSINESS AND THE LOSS WAS LIABLE TO BE HELD AS BUSINESS LOSS. IT WAS THE FURTHER SUBMISSION BY THE LEARNED D.R. THAT NO PROFIT & LOSS ACCOUNT HAD BEEN DRAWN UP IN RESPECT OF THE BUSINES S OF THE PURCHASE AND SALE OF SHARES. NO BOOKS OF ACCOUNTS WERE PRODUCED IN R ESPECT OF THE BUSINESS OF I.T.A. NO. 1871/MDS/2008 5 TRADING IN SHARES. IT WAS THE FURTHER SUBMISSION T HAT EVEN NO AUDIT REPORT NECESSARILY REQUIRED U/S. 44AB OF THE INCOME TAX AC T 1961 HAD BEEN PRODUCED IN RESPECT OF THE BUSINESS OF PURCHASE AND SALE OF SHARES. IT WAS ALSO THE SUBMISSION THAT THE FACT THAT THE ASSESSEE HAD PURC HASED SHARES WORTH RS. 4 41 03 199/- AND SOLD THE SAME TO AN EXTENT OF RS. 4 56 85 153/- AND HAD ALSO EARNED DIVIDEND OF RS. 64 15 229/- AND HAD STILL IN CURRED A BUSINESS LOSS OF RS. 21 42 154/- WAS A PRACTICAL IMPOSSIBILITY. IT WAS ALSO THE SUBMISSION THAT AS THE DETAILS WERE NOT AVAILABLE THE AO WAS ALSO UNABLE TO VERIFY THE APPLICABILITY OF THE PROVISIONS OF SECTION 94(7) IN RESPECT OF DIVID END STRIPPING. IT WAS THE SUBMISSION THAT HE HAD NO OBJECTION IF THIS ISSUE I S RESTORED TO THE FILE OF THE AO FOR EXAMINATION. IT WAS THE SUBMISSION THAT THE FI NDING OF THE LEARNED CIT(A) THAT IN THE BALANCE SHEET OF EACH ASSESSMENT YEAR T HE SHARES AND SECURITIES WHERE APPLICABLE HAD BEEN SHOWN AS STOCK-IN-TRADE W AS CONTRARY TO THE FACTS INSOFAR AS THE AO HIMSELF HAS CATEGORICALLY OBSERVE D THAT THE PROFIT & LOSS ACCOUNT HAS NOT BEEN DRAWN UP NOR HAS AN OPENING AN D CLOSING STOCK BEING VALUED. HE VEHEMENTLY SUPPORTED THE ORDER OF THE A O. IT WAS THE SUBMISSION THAT THE ORDER OF THE LEARNED CIT(A) WAS LIABLE TO BE REVERSED. 5. IN REPLY THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE DID MAINTAIN A PROFIT & LOSS ACCOUNT FOR T HE BUSINESS OF TRADING IN SHARES AND UNITS OF MUTUAL FUNDS. HE PLACED BEFORE US COPY OF THE RETURN AS ORIGINALLY FILED. IT WAS THE SUBMISSION THAT ALONG WITH THE RETURN A STATEMENT SHOWING THE PURCHASE AND SALE OF THE SHARES AND THE UNITS OF THE MUTUAL FUND I.T.A. NO. 1871/MDS/2008 6 WAS ENCLOSED. HE DREW OUR ATTENTION TO SCHEDULE D OF THE COMPUTATION OF INCOME WHICH WAS THE STATEMENT OF THE PURCHASE AND SALE OF THE STOCK-IN-TRADE REPRESENTING THE SHARES AND THE MUTUAL FUNDS. HE F URTHER DREW OUR ATTENTION TO THE ORDER OF THE LEARNED CIT(A) FOR THE ASSESSMENT YEAR 1984-85 DATED 28-12- 1989 WHEREIN THE CIT(A) HAS UPHELD THE ACTION OF TH E ASSESSEE IN CONVERTING THE SHARES HELD BY THE ASSESSEE INTO STOCK-IN-TRADE AS ON 1.4.1983. IT WAS THE FURTHER SUBMISSION THAT NO OTHER EXPENSES HAD BEEN CLAIMED AND THEREFORE NO SPECIFIC PROFIT & LOSS A/C HAD BEEN PREPARED. IT WAS ALSO THE SUBMISSION THAT THE NON-PREPARATION OF THE PROFIT & LOSS ACCOUNT AN D THE BALANCE SHEET HAS NOT BEEN SHOWN AS DEFECT IN RESPECT OF THE RETURN FILED BY THE APPLICABILITY OF THE PROVISIONS OF SECTION 139(9) OF THE ACT. HE VEHEME NTLY SUPPORTED THE ORDER OF THE LEARNED CIT(A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT THE AO HAS DIRECTED THE AS SESSEE TO PROVIDE THE DETAILS OF THE CLAIM OF LOSS ON ACCOUNT OF THE STOCK-IN-TRA DE AND THE SAME WAS SUBMITTED. ON SCRUTINY OF THE DOCUMENTS FILED THE AO HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT DRAWN UP THE P ROFIT & LOSS ACCOUNT OR VALUED THE OPENING AND CLOSING STOCK. A PERUSAL OF THE ORDER OF THE LEARNED CIT(A) FOR THE ASSESSMENT YEAR 1984-85 CLEARLY SHOW S THAT THE ASSESSEE HAS CONVERTED THE SHARES HELD BY HIM AS ON31.3.1983 INT O STOCK-IN-TRADE AS ON 1.4.1983. THIS ORDER OF THE LEARNED CIT(A) FOR THE ASSESSMENT YEAR 1984-85 HAS ATTAINED FINALITY. THUS IT CANNOT BE SAID THAT THE STOCK-IN-TRADE AS HELD BY THE I.T.A. NO. 1871/MDS/2008 7 ASSESSEE IN THE FORM OF SHARES IS AN INVESTMENT BY THE ASSESSEE. THUS THE CLAIM OF THE ASSESSEE THAT HE IS DOING THE BUSINESS IN PU RCHASE AND SALE OF SHARES AND UNITS OF MUTUAL FUND STANDS SUBSTANTIATED. ONCE IT IS ACCEPTED THAT HE IS DOING THE BUSINESS OF PURCHASE AND SALE OF SHARES AND UNI TS OF MUTUAL FUNDS THEN AS PER THE PROVISIONS OF SECTION 44AA(2) HE HAS TO MAI NTAIN SUCH BOOKS OF ACCOUNTS AND OTHER DOCUMENTS AS MAY ENABLE THE AO TO COMPUTE HIS TOTAL INCOME IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. IF THE TURNOVER OF THE ASSESSEE EXCEEDS RS. 40 LAKHS IN THE BUSINESS HE HAS TO GET HIS ACCOUNTS AUDITED BY AN ACCOUNTANT BEFORE THE SPECIFIED DATE AND FURNISH TH E SAME AS PER THE PROVISIONS OF SECTION 44AB. THE COPY OF THE RETURN AS FILED B Y THE ASSESSEE SHOWS THAT THE ASSESSEE HAS FILED TWO AUDIT REPORTS ALONG WITH THE RETURN. THE FIRST AUDIT REPORT IS IN RESPECT OF SHRI BADRASHYAM H. KOTHARI PROPRI ETOR M/S. TRANS WORLD INDIA ENTERPRISES AND THIS AUDIT REPORT DOES NOT TALK OF T HE BUSINESS OF PURCHASE AND SALE OF SHARES AND MUTUAL FUNDS. THE SECOND AUDIT REPORT IS IN RESPECT OF M/S. KOTHARI & KOTHARI AND THIS ALSO DOES NOT TALK OF TH E BUSINESS OF PURCHASE AND SALE OF SHARES AND MUTUAL FUNDS. A PERUSAL OF THE ORDER OF THE ORDER OF THE LEARNED CIT(A) CLEARLY SHOWS THAT THE ASSESSEE HAS PURCHASE S SHARES WORTH RS. 4 41 03 199/- AND HAS SOLD SHARES WORTH RS. 4 56 85 153/-. THUS THE TURNOVER OF THE ASSESSEE FAR EXCEEDS THE LIMIT OF RS. 40 LAKHS IN RESPECT OF THE BUSINESS OF PURCHASE AND SALE OF SHARES. THUS THE ASSESSEE IS BOUND TO COMPLY WITH THE PROVISIONS OF SEC. 44AB IN RESPECT OF HIS BUSINESS OF PURCHASE AND SALE OF SHARES AND MUTUAL FUNDS. CONSEQUENTLY THE ASSESSEE IS AL SO DUTY BOUND TO MAINTAIN I.T.A. NO. 1871/MDS/2008 8 HIS BOOKS OF ACCOUNTS ALONG WITH THE PROFIT & LOSS ACCOUNT AND BALANCE SHEET IN RESPECT OF THE BUSINESS OF PURCHASE AND SALE OF SHA RES AND MUTUAL FUNDS. A PERUSAL OF THE ORDER OF THE LEARNED CIT(A) SHOWS TH AT THE LEARNED CIT(A) HAS RECOGNISED THE EXISTENCE OF A BALANCE SHEET WHERE T HE STOCK-IN-TRADE IS SHOWN. A PERUSAL OF THE RETURN FILED BY THE ASSESSEE HOWEV ER DOES NOT SHOW SUCH BALANCE SHEET. A PERUSAL OF THE ASSESSMENT ORDER A LSO CLEARLY SHOWS THAT THE AO HAS CATEGORICALLY STATED THAT THE PROFIT & LOSS ACC OUNT WAS NOT AVAILABLE. IN THE CIRCUMSTANCES WE ARE OF THE VIEW THAT THIS ISSUE I N THE APPEAL SHOULD BE RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICATION AND VERIFICATION OF THE BOOKS OF ACCOUNTS AND THE BALANCE SHEET AND PROFIT & LOSS AC COUNT AND THE AUDIT REPORT IF ANY MAINTAINED BY THE ASSESSEE IN RESPECT OF H IS BUSINESS OF PURCHASE AND SALE OF SHARES AND MUTUAL FUNDS AND WE DO SO. IN T HE CIRCUMSTANCES THIS ISSUE IS RESTORED TO THE FILE OF THE AO FOR RE-ADJUDICATI ON AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBSTANTIATE HIS CLAIM. CO NSEQUENTLY GROUNDS NO.2.1 TO 2.4 OF THE REVENUES APPEAL STANDS ALLOWED FOR STAT ISTICAL PURPOSES. 7. IN RESPECT OF GROUNDS 3.1 TO 3.4 IT WAS SUBMITTE D BY THE LEARNED D.R. THAT THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS. 15 CRORES AS NON-COMPETE FEE RECEIVED FROM M/S. CHEMPLAST SANMAR LTD. IT WAS TH E SUBMISSION THAT THE ASSESSEE HAD CLAIMED THAT THE SUM OF RS. 15 CRORES WAS A CAPITAL RECEIPT CHARGEABLE TO TAX AT 20%. IT WAS THE SUBMISSION TH AT THE ASSESSEE HAD CLAIMED THAT HE WAS THE PROMOTER DIRECTOR OF M/S. KOTHARI P ETRO CHEMICALS LTD. WHICH WAS SUCCESSFULLY RUNNING A PLANT FOR THE MANUFACTUR E AND SALE OF CAUSTIC SODA. IT I.T.A. NO. 1871/MDS/2008 9 WAS THROUGH HIS INITIATIVE AND EFFORTS THAT THE COM PANY HAD IMPLEMENTED THE CAUSTIC SODA PRODUCTION AND GOT THE COMPANY LISTED IN THE STOCK EXCHANGES. DURING THE PERIOD 2002-03 AND 2003-04 FOR STRATEGIC REASONS SHRI B.H. KOTHARI WANTED TO EXIT THIS BUSINESS AT KARAIKAL AND PUT SI MILAR PLANTS ELSEWHERE IN OTHER PARTS OF TAMILNADU. CONSEQUENTLY THE CAUSTIC SODA PLANT WAS SOLD TO M/S. CHEMPLAST SANMAR LTD. VIDE AGREEMENT DATED 21-4-200 3. HOWEVER M/S. CHEMPLAST SANMAR LTD. SOUGHT TO RESTRAIN THE ASSESS EE FROM PUTTING UP A CAUSTIC SODA PLANT AS SUCH VENTURE BY HIM WOULD BE COMPETIT IVE TO THEIR BUSINESS AND THEY OFFERED TO COMPENSATE THE ASSESSEE BY WAY OF N ON-COMPETE FEE FOR HIS UNDERTAKING NOT TO CARRY ON THE CAUSTIC SODA BUSINE SS ANYWHERE IN INDIA DIRECTLY OR INDIRECTLY FOR A PERIOD OF 10 YEARS FROM 22-4-20 03. THIS WAS DONE BY WAY OF AN AGREEMENT DATED 22-4-2003. IT WAS THE SUBMISSIO N THAT THE AO HAD HELD THAT THE CONSIDERATION GIVEN TO THE ASSESSEE BY M/S. CHE MPLAST SANMAR LTD. WAS FOR THE RESTRAINT OF TRADE WHICH WAS COVERED BY SECTION 28(VA) OF THE INCOME TAX ACT 1961. IT WAS THE SUBMISSION THAT THE AO HAD H ELD THAT AS PER THE PROVISIONS OF SECTION 55(2)(A) OF THE ACT THE SUM RECEIVED OR RECEIVABLE ON ACCOUNT OF THE TRANSFER OF THE RIGHT TO MANUFACTURE PRODUCE OR PR OCESS ANY ARTICLE OR THING OR RIGHT TO CARRY ON ANY BUSINESS IS CHARGEABLE UNDER THE HEAD CAPITAL GAINS. THEREFORE FOR ANY CONSIDERATION TO BE TREATED AS C APITAL GAINS THE PRIMARY REQUISITE IS THAT THE RECIPIENT SHOULD HAVE AN EXCL USIVE RIGHT TO CARRY ON ANY BUSINESS. IN THE PRESENT CASE THE ASSESSEE WAS AN EMPLOYEE DIRECTOR OF THE COMPANY ENGAGED IN CAUSTIC SODA BUSINESS AND HE DID NOT OWN ANY PATENT COPY I.T.A. NO. 1871/MDS/2008 10 RIGHT AND TRADE MARK OR LICENCE OF THE BUSINESS OF MANUFACTURE AND SALE OF CAUSTIC SODA. CONSEQUENTLY IT COULD NOT BE CONCLUD ED THAT THE ASSESSEE HAD HELD A SELF-GENERATED CAPITAL ASSET IN THE FORM OF A RIG HT TO CARRY ON CAUSTIC SODA BUSINESS. IT WAS THE SUBMISSION THAT CONSEQUENTLY T HE AO HAD HELD THE RECEIPT OF RS. 15 CRORES BY THE ASSESSEE AS A BUSINESS INCOME. IT WAS THE SUBMISSION THAT THE LEARNED CIT(A) HAD ACCEPTED THE CONTENTION OF T HE ASSESSEE THAT THE NON- COMPETE FEE RECEIVED BY THE ASSESSEE WAS LIABLE TO BE TREATED AS A LONG TERM CAPITAL GAINS. IT WAS THE SUBMISSION THAT THE LEAR NED CIT(A) HAD HELD THAT THE ASSESSEE NEED NOT HAVE ANY RIGHT TO CARRY ON THE CA USTIC SODA BUSINESS AND HIS TECHNICAL KNOWLEDGE IS SUFFICIENT TO ENTER INTO THE NON-COMPETE AGREEMENT. IT WAS THE FURTHER SUBMISSION THAT THE PROVISIONS OF S ECTION 28(VA) HAD BEEN INTRODUCED IN TO THE INCOME TAX ACT BY THE FINANCE ACT 2002 W.E.F. 1.4.2003. IT WAS THE SUBMISSION THAT AS PER THE PROVISIONS OF SE CTION 28(VA)(A) CLEARLY SHOWED THAT ANY SUM RECEIVED OR RECEIVABLE IN CASH OR KIND FOR NOT CARRYING OUT ANY ACTIVITY IN RELATION TO ANY BUSINESS WAS LIABLE TO BE TREATED AS INCOME CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFITS AN D GAINS OF BUSINESS. IT WAS THE SUBMISSION THAT THE PROVISO TO THE SAID SECTION CARVED OUT THE EXEMPTION FOR THE TREATMENT OF THE SUM RECEIVED AS BEING CHARGEAB LE UNDER THE HEAD CAPITAL GAINS ONLY WHERE THE SUM IS RECEIVED ON ACCOUNT OF THE TRANSFER OF THE RIGHT TO MANUFACTURE PRODUCE OR PROCESS ANY ARTICLE OR THIN G OR THE RIGHT TO CARRY ON ANY BUSINESS. IT WAS THE SUBMISSION THAT THE ASSESSEE DID NOT HAVE ANY RIGHT TO MANUFACTURE OR PRODUCE OR PROCESS ANY ARTICLE OR TH ING NOR DID HE HAVE THE RIGHT I.T.A. NO. 1871/MDS/2008 11 TO CARRY ON ANY BUSINESS AND ALL THAT WAS BEING RES TRICTED BY THE AGREEMENT WAS THE ACTIVITY IN RELATION TO THE BUSINESS OF MANUFAC TURE AND SALE OF CAUSTIC SODA. CONSEQUENTLY THE CONSIDERATION RECEIVED BY THE ASS ESSEE WAS LIABLE TO BE HELD TO BE BUSINESS INCOME AS RIGHTLY DONE BY THE AO. 8. THE LEARNED D.R. FURTHER RELIED UPON THE FOLLOWI NG DECISIONS : I) JOHN DSOUZA V. CIT AND ANOTHER (226 CTR 540) (BOM) - TO SUPPORT HIS CONTENTION THAT THE ASSESSEE WAS NOT THE OWNER OF THE ASSET ON THE FIRST PLACE AND THAT THERE WAS NO TRANSFER OF A CAPITAL ASSET D URING THE PREVIOUS YEAR FOR THE APPLICABILITY OF SECTION 55(2)(A) ; II) DCIT V. RAM KUMAR GIRI ( 103 TTJ 352) WHER EIN IT HAS HELD AS FOLLOWS IT IS OBSERVED THAT THE INFORMATION/KNOW-HOW IN R ESPECT OF BOTTLING OF COCA COLA PRODUCTS WAS POSSESSED BY THE ASSESSEES IN THEIR CAPACITIES AS DIRECTORS OF THE M/S.MANASAROVAR BOTTLING COMPANY. WHICH WAS EARLIE R DOING THE BOTTLING WORK FOR HCC. AFTER THE CLOSURE OF THE UNIT OF M/S. MANSAROVAR BOTTLING CROSS OBJECTION BY THE ASSESSEE. AND TAKING OVER OF THE SAME BY HCC IT WA S AGREED BY THE ASSESSEES NOT TO USE THE SAID TECHNOLOGY/INFORMATION FOR PRODUCTION OF THE SIMILA R PRODUCTS NOR TO DISCLOSE THE SAID INFORMATION TO AN Y OTHER PARTY FOR A PERIOD OF FIVE YEARS AND SINCE THE SAID AGREEMENT FOR A CONSIDERATION OF RS. 1.5 CRORES PAI D TO EACH OF THE ASSESSEES WAS FOR THE PURPOSE OF AVOIDI NG IMMEDIATE COMPETITION THE SAME WAS IN THE NATURE O F I.T.A. NO. 1871/MDS/2008 12 NON-COMPETE FEES. IT CLEARLY SHOWS THAT THE ASSESS EE HAD NOT GIVEN AWAY ANY A RIGHT TO MANUFACTURE AS CONTEMPLATED EVEN IN THE AMENDED PROVISIONS OF S.55(2)(A) AND IN ANY CASE THE SAID AMENDMENT HAV ING BEEN SPECIFICALLY MADE FOR THE PURPOSE OF SS. 48 AN D 49 DEALING WITH THE COST IN RELATION TO A CAPITAL ASSE T FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN WE ARE OF T HE VIEW THAT THE SAME WERE NOT ATTRACTED TO TREAT THE INFORMATION POSSESSED BY THE ASSESSEE AS RIGHT TO MANUFACTURE IN ORDER TO TREAT IT AS A CAPITAL ASSET . MOREOVER BY THE AGREEMENT IN QUESTION ENTERED INTO WITH HCC THE ASSESSEE HAD MERELY AGREED NOT TO USE THE SAME FOR MANUFACTURING FOR A LIMITED PERIOD OF FIVE YEARS. IN THOSE CIRCUMSTANCES IT CANNOT BE SAID THAT THER E WAS EITHER ANY EXTINGUISHMENT OF RIGHTS WHICH ENVISAGES INVOLUNTARY ACT IN RESPECT OF SUCH TECHNOLOGY/INFOR MATION OR ANY RELINQUISHMENT OF RIGHTS IN FAVOUR OF HCC SI NCE RELINQUISHMENT DOES NOT CONTEMPLATE A MERE RESTRICT ION FOR NON-USE OF SUCH RIGHT FOR A LIMITED PERIOD OF F IVE YEARS. IT IS THUS CLEAR THAT THE AGREEMENT BETWEEN THE ASSESSEES AND HCC DID NOT GIVE RISE TO ANY TRANSFER OF CAPITAL ASSET WITHIN THE MEANING OF S. 2(47) READ W ITH THE AMENDED PROVISIONS OF S. 55(2)(A) AND THE ORDERS PA SSED BY THE AO IN TREATING THE AMOUNT OF RS. 1.5 CRORES RECEIVED AS CONSIDERATION BY EACH OF THE FOUR ASSES SEES AS PER THE SAID AGREEMENT AS CAPITAL RECEIPT NOT LI ABLE TO CAPITAL GAINS TAX WERE IN ACCORDANCE WITH LAW. A SUBSEQUENT INTRODUCTION OF SUB-CL. (VA) TO S. 28 BY THE FINANCE ACT 2002 MAKING THE RECEIPT OF AN AMOUNT OF I.T.A. NO. 1871/MDS/2008 13 THE NATURE INVOLVED IN THE PRESENT CASE LIABLE TO T AX AS BUSINESS INCOME W.E.F. 1 ST APRIL 2003 FURTHER FORTIFIES OUR CONCLUSION BECAUSE IF SUCH AMOUNT WAS ALREADY CHARGEABLE TO CAPITAL GAINS TAX AS HELD BY THE LEAR NED CIT THERE WOULD HAVE BEEN NO OCCASION/NECESSITY TO MAKE THE SAME LIABLE AGAIN SPECIFICALLY AS BUSINES S INCOME BY INTRODUCING THE SAID PROVISIONS. WE MAY ALSO OBSERVE HERE FOR THE SAKE OF CLARITY THAT THE CASE LAWS RELIED UPON BY THE LEARNED CIT IN HIS IMPUGNED ORDE RS AS WELL AS CITED BY THE LEARNED DEPARTMENTAL REPRESENT ATIVE BEFORE US INVOLVE DIFFERENT TYPE OF ASSETS LIKE MIN ING LEASE RIGHT TO MANAGE OWN BUSINESS ETC. WHICH CAN NOT BE EQUATED WITH THE SORT OF RIGHTS POSSESSED BY THE ASSESSEES IN THE PRESENT CASE AND IN ANY CASE THERE BEING NO TRANSFER OF THE SAME AS DISCUSSED HEREINAB OVE THE AGREEMENT BETWEEN THE ASSESSEES AND HCC DID NOT GIVE RISE TO ANY CAPITAL GAIN LIABLE TO TAX. AS SU CH CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE WE HOLD THAT THE ORDERS PASSED BY THE AO UNDER S. 143(3) ACCEPTING THE AMOUNTS OF RS. 1.5 CRORES EACH RECEIVED BY THE ASSESSEES AS CAPITAL RECEIPTS NOT L IABLE TO TAX WERE IN ACCORDANCE WITH LAW AND AS HELD BY HON' BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL COMPANY. LTD. AND BY HON'BLE BOMBAY HIGH COURT IN T HE CASE OF GABRIAL INDIA LTD. THE LEARNED CIT WAS NOT JUSTIFIED IN INVOKING THE POWERS CONFERRED ON HIM U NDER S. 263 TO REVISE THE SAME. WE THEREFORE SET ASID E HIS IMPUGNED ORDERS PASSED UNDER S. 263 AND RESTORE THE ORDERS OF THE AO PASSED UNDER S. 143(3). I.T.A. NO. 1871/MDS/2008 14 III) CIT V. EICHER LTD. (302 ITR 249) (DEL) TO SU PPORT HIS CONTENTION THAT THE RESTRICTION BEING NEITHER PERMANENT NOR EP HEMERAL WITH NO ENDURING ADVANTAGE OR ACQUISITION OF CAPITAL ASSET THE CONS IDERATION RECEIVED AS NON- COMPETE FEE WAS NOT A CAPITAL RECEIPT. IV) CIT V. AMOL NARENDRA DALAL (318 ITR 429) (BOM) WHEREIN IT HAS BEEN HELD AS FOLLOWS : AFTER HEARING ADVOCATES OF THE PARTIES AND PERUSIN G THE IMPUGNED ORDER WE ARE OF THE VIEW THAT THE TRIBUNAL HAS TAKEN A CORRECT VIEW THAT THE SAID AMO UNT OF RS. 11 LAKHS HAS BEEN RECEIVED BY THE ASSESSEE F OR HAVING UNDERTAKEN NOT TO CARRY ON ANY BUSINESS IN FUTURE IN COMPETITION WITH M/S. AASIA INDUSTRIAL TECHNOLOGIES PVT. LTD. (PURCHASER) WITHIN THE TERRI TORY OF MUMBAI SUBURBS. THE FINDING OF THE TRIBUNAL THA T THERE IS NO EVIDENCE THAT THE SAID AGREEMENT IS SHA M IS ACCEPTED BY THE REVENUE. THE DEPARTMENTS ARGUMENT BEFORE THE TRIBUNAL AND BEFORE US THAT AFTER HAVING TRANSFERRED HIS CLIENTELE BY THE FIRST AGREEMENT DA TED NOVEMBER 25 1994 THE ASSESSEE HAD NOTHING LEFT WI TH HIM TO MAKE ANY FURTHER TRANSFER UNDER THE SECOND AGREEMENT AND THEREFORE THE SECOND AGREEMENT WAS ONLY FOR TRANSFER OF THE GOODWILL FOR WHICH THE ASS ESSEE RECEIVED RS. 11 LAKHS AND WHICH OUGHT TO BE TAXED I S UNTENABLE AND BASELESS. IT IS VERY CLEAR THAT UNDE R THE I.T.A. NO. 1871/MDS/2008 15 FIRST AGREEMENT THE ASSESSEE TRANSFERRED HIS ENTIRE CLIENTELE (BUSINESS) TO M/S. AASIA INDUSTRIAL TECHNOLOGIES PVT. LTD. (PURCHASER) FOR A CONSIDERAT ION OF RS. 12 50 000/- AND UNDER THE SECOND AGREEMENT UNDERTOOK NOT TO COMPETE WITH THE SAID COMPANY IN FUTURE IN THE SUBURBS FOR A CONSIDERATION OF RS. 11 LAKHS WHICH AMOUNT ADMITTEDLY CANNOT BE MADE TAXABLE UNDER THE HEADING CAPITAL GAIN. HE FURTHER DREW OUR ATTENTION TO THE ADVANCED LAW L EXICON BY P. RAMANATHA AIYAR 3 RD EDITION OF 2005 WHEREIN THE TERM ASSET HAS BEEN D ESCRIBED THAT THE RIGHT TO TRADE FEELY AND TO COMPETE IN THE MARKET P LACE IS NOT AN ASSET. IT WAS ALSO THE SUBMISSION THAT THE ORDER OF THE LEARNED C IT(A) WAS LIABLE TO BE REVERSED AND THAT OF THE AO RESTORED. 9. IN REPLY THE LEARNED AUTHORIZED REPRESENTATIVE S UBMITTED THAT THE ASSESSEE IS A PROMOTER OF M/S. KOTHARI PETROCHEMICALS LTD. THE ASSESSEE HAD ENTERED INTO A NON-COMPETE AGREEMENT WITH M/S. CHEMPLAST SANMAR LTD. AND AS PER THE NON- COMPETE AGREEMENT THERE WAS A CLEAR RESTRAINT ON TH E ASSESSEE NOT TO DO THE CAUSTIC SODA BUSINESS FOR A PERIOD OF 10 YEARS. IT WAS THE SUBMISSION THAT AS PER THE DEFINITION OF TRANSFER IN SECTION 2(47) EXTIN GUISHMENT OR RELINQUISHMENT OF A RIGHT WAS A TRANSFER. IT WAS THE SUBMISSION THAT O NCE THIS IS READ WITH SECTION 28(VA)(A) AND THE PROVISO THEREOF WHAT THE ASSESSE E HAS RELINQUISHED IS THE RIGHT TO DO THE BUSINESS IN CAUSTIC SODA FOR A PERI OD OF 10 YEARS AND IT IS FOR THIS THE ASSESSEE HAS RECEIVED RS. 15 CRORES OVER A PERI OD OF 10 YEARS AND THIS WAS A I.T.A. NO. 1871/MDS/2008 16 CAPITAL ASSET THE RELINQUISHMENT OF WHICH GAVE RIS E TO CAPITAL GAINS. IT WAS THE SUBMISSION THAT RIGHT TO DO BUSINESS IS A CONSTITUT IONAL RIGHT AND THIS RIGHT CANNOT BE TRANSFERRED AND THERE HAS BEEN ONLY A RELINQUISH MENT OF SUCH RIGHT. HE FURTHER DREW OUR ATTENTION TO THE PROVISIONS OF SEC TION 55(1)(B) TO SUBMIT THAT THE RIGHT TO MANUFACTURE PRODUCE OR PROCESS ANY AR TICLE OR THING OR THE RIGHT TO CARRY ON ANY BUSINESS WAS TO BE TAKEN AT NIL. HE DREW OUR ATTENTION TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT V. MRS. GRACE COLLIS AND OTHERS (248 ITR 323) TO SUPPORT HIS CONTENTION THAT EXTINGUISHMENT OF ANY RIGHT IN A CAPITAL ASSET REPRESENTING THE RIGHT OF A HOLDER OF SHARES IN AMALGAMATING COMPANY BY ALLOTMENT OF SHARES IN AMAL GAMATED COMPANY WAS TRANSFER OF CAPITAL ASSET . IT WAS THE SUBMISSION THAT THE ASSESSEE AS PER NON- COMPETE AGREEMENT HAS UNDERTAKEN NOT TO ENGAGE IN A NY BUSINESS IN INDIA DIRECTLY COMPETING OR INDIRECTLY COMPETING WITH THE CAUSTIC SODA BUSINESS OF M/S. CHEMPLAST SANMAR LTD. IT WAS THE SUBMISSION THAT T HE RIGHT OF TRANSFER BY THE ASSESSEE WAS IN THE CAPITAL FIELD AND CONSEQUENTLY WAS LIABLE ONLY TO CAPITAL GAINS. IT WAS THE SUBMISSION THAT THE ASSESSEE WAS IN THE BUSINESS OF PROMOTION OF COMPANIES AND AS A CONSEQUENCE OF THE NON-COMPET E AGREEMENT THE ASSESSEE WAS ALSO BARRED FROM PROMOTING ANY COMPANIES TO DO THE BUSINESS OF CAUSTIC SODA. HE RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF OBEROI HOTEL PVT. LTD. V. CIT (236 ITR 903) TO SUPP ORT HIS CONTENTION THAT THE AMOUNT WAS RECEIVED FOR GIVING UP AN OPTION TO STAR T A COMPETING BUSINESS IN I.T.A. NO. 1871/MDS/2008 17 CAUSTIC SODA AND CONSEQUENTLY IT WAS A LOSS OF A SO URCE OF INCOME AND WAS THUS A CAPITAL RECEIPT WHICH WOULD RESULT IN THE LEVY OF CAPITAL GAINS TAX. 10. ON A QUERY FROM THE BENCH IT WAS SUBMITTED BY T HE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE THAT M/S. KOTHARI PE TROCHEMICALS LTD. HAD BEEN IN THE CAUSTIC SODA BUSINESS FOR MORE THAN 20 YEARS BE FORE THE TRANSFER OF ITS BUSINESS IN 2003 AND THE ASSESSEE WAS THE MANAGING DIRECTOR OF KOTHARI GROUP OF COMPANIES. THE EDUCATIONAL QUALIFICATION OF THE ASSESSEE WAS NOT KNOWN. IT WAS THE SUBMISSION THAT THE RIGHT TO DO BUSINESS WA S A CAPITAL ASSET AND THE TRANSFER OF THE SAME WAS WITHIN THE EXEMPTION CARVE D OUT IN THE PROVISO TO SECTION 28(VA)(A) AND THE CONSIDERATION RECEIVED WA S LIABLE TO BE HELD TO BE ONLY CAPITAL GAINS AS HELD BY THE LEARNED CIT(A). 11. IN REPLY THE LEARNED D.R. SUBMITTED THAT THE PR OHIBITION FOR A PERIOD OF TIME DOES NOT MAKE IT AN EXTINGUISHMENT OF ANY RIGH T NOR WAS IT A RELINQUISHMENT OF A RIGHT. NO EVIDENCE HAD BEEN PRODUCED TO SHOW THAT THE ASSESSEE HAD ANY SPECIFIC RIGHT WHICH COULD BE TRANSFERRED. IT WAS THE SUBMISSION THAT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF OBEROI HOTEL PVT. LTD. REFERRED TO SUPRA DID NOT APPLY INSOFAR AS IN THE SAID DECISIO N THE ASSESSEE THEREIN HAD A POSITIVE RIGHT BEING THE FIRST OPTION OF PURCHASE O R LEASE OF THE HOTEL. IT WAS THE SUBMISSION THAT IN THE PRESENT CASE THE PROHIBITION FROM DOING SOMETHING IS NOT A TRANSFERABLE RIGHT NOR IT COULD BE TREATED AS A TRA NSFERABLE ASSET. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PE RUSAL OF THE NON-COMPETE AGREEMENT CLEARLY SHOWS THAT M/S. CHEMPLAST SANMAR LTD. HAD ACQUIRED FROM I.T.A. NO. 1871/MDS/2008 18 M/S. KOTHARI PETROCHEMICALS LTD. ITS CAUSTIC SODA B USINESS AS A GOING CONCERN VIDE AGREEMENT DATED 21-4-2003. AFTER NEARLY ONE Y EAR I.E. 22.4.3004 M/S. CHEMPLAST SARNMAR LTD. HAS ENTERED INTO THE NON-COM PETE AGREEMENT WITH THE ASSESSEE TO RESTRAIN THE ASSESSEE FROM ENTERING INT O THE CAUSTIC SODA BUSINESS IN INDIA FOR A PERIOD OF 10 YEARS. THE ASSESSEE IS A P ROMOTER-DIRECTOR OF M/S. KOTHARI PETROCHEMICALS LTD. IT HAS BEEN AGREED THA T M/S. KOTHARI PETROCHEMICALS LTD. HAD BEEN DOING THE BUSINESS OF CAUSTIC SODA FO R MORE THAN 20 YEARS BEFORE IT WAS SOLD. IN 2004 WHEN THE ASSESSEE ENTERED INT O THE NON-COMPETE AGREEMENT THE ASSESSEE WAS 42 YEARS OLD. THUS WHEN THE CAUSTIC SODA BUSINESS WAS STARTED BY M/S. KOTHARI PETROCHEMICALS LTD. TH E ASSESSEE WOULD HAVE BEEN 20-21 YEARS OLD. WHAT COULD BE THE EDUCATIONAL QUAL IFICATION OF THE ASSESSEE WHEN THIS BUSINESS OF CAUSTIC SODA WAS STARTED BY M /S. KOTHARI PETROCHEMICALS LTD? ADMITTEDLY THE ASSESSEE IS THE PROMOTER OF M /S. KOTHARI PETROCHEMICALS LTD. THE ASSESSEE BEING BORN IN A BUSINESS FAMILY WOULD HAVE TAKEN OVER THE REIGNS OF THE BUSINESS FROM HIS FATHER. HE WOULD B E THE MANAGING DIRECTOR OR THE PROMOTER OF THE COMPANY OR THE GROUP OF COMPANI ES ON ACCOUNT OF HIS SHAREHOLDING. THE GROUP OF COMPANIES OR EVEN THE A SSESSEE COULD BE COMPETENT TO START NEW BUSINESSES OR START NEW COMPANIES. TH E ASSESSEE WOULD BE QUITE COMPETENT TO RUN A BUSINESS EFFICIENTLY. BUT THAT DOES NOT MEAN THAT HE HAS A RIGHT WHICH IS TRANSFERABLE IN RESPECT OF THE BUSIN ESS OF CAUSTIC SODA. ONE SHOULD KEEP IN KIND THAT STARTING A COMPANY OR DOING A BUS INESS IS NOT A SMALL ACT. IT REQUIRES THE TAKING OF LICENCES PREPARING PROJECT REPORTS SO ON AND SO FORTH. I.T.A. NO. 1871/MDS/2008 19 NOTHING HAS BEEN SHOWN TO EVEN HINT THAT THE ASSESS EE HAD ANY INTENTION OR HAD MADE PREPARATORY PLANS FOR STARTING ANOTHER COMPANY OR FOR ASSISTING ANOTHER COMPANY OR FOR SETTING UP A BUSINESS OF THE MANUFAC TURE PROCESS OR PRODUCTION OF CAUSTIC SODA. THUS IT CANNOT BE SAID THAT THE A SSESSEE HAD ANY RIGHT PER SE TO DO THE BUSINESS IN CAUSTIC SODA WHICH WAS TRANSFERR ED RELINQUISHED OR EXTINGUISHED AS A CONSEQUENCE OF THE NON-COMPETE AG REEMENT. FURTHER A READING OF THE AGREEMENT CLEARLY SHOWS THAT THERE I S NO EXTINGUISHMENT NOR RELINQUISHMENT INSOFAR AS THE AGREEMENT IS ONLY A P ROHIBITION FOR A LIMITED TIME OF 10 YEARS. BY EXTINGUISHMENT THERE SHOULD BE AN ASS ET AND SUCH ASSET SHOULD DIE OUT. BY RELINQUISHMENT THERE SHOULD BE AN ASSET AN D IT SHOULD BE SURRENDERED OR TAKEN AWAY. BY TRANSFER THERE SHOULD BE AN ASSET W HICH CAN BE GIVEN AWAY. A READING OF THE AGREEMENT SHOWS THAT IT IS A NEGATIV E ACT WHICH IS BEING DONE INSOFAR AS THE ASSESSEE HAS ACCEPTED A BAR FOR A PE RIOD OF 10 YEARS FROM DOING ANY ACTIVITY IN CONNECTION WITH THE BUSINESS OF CAU STIC SODA. THOUGH IN THE AGREEMENT IT IS SAID THAT THE ASSESSEE IS CONTEMPLA TING SETTING UP OR PLANNING TO BE ASSOCIATED WITH A CAUSTIC SODA UNIT IN INDIA NO EVIDENCE TO SUBSTANTIATE SUCH CONTEMPLATION OR PLANNING HAS BEEN BROUGHT OUT. 13. A PERUSAL OF THE DECISION OF THE HON'BLE SUPREM E COURT IN THE CASE OF OBEROI HOTEL PVT. LTD. REFERRED TO SUPRA CLEARLY SHOWS THAT IN THE SAID DECISION THE ASSESSEE WAS IN THE BUSINESS OF OPERATING MANA GING AND ADMINISTERING MANY HOTELS BELONGING TO OTHERS FOR A FEE AT SEVERA L PLACES AND AS PER THE AGREEMENT THE BUSINESS WAS TO RUN FOR AN INITIAL PE RIOD OF 10 YEARS AND THE I.T.A. NO. 1871/MDS/2008 20 ASSESSEE HAD THE OPTION TO ASK FOR RENEWAL OF THE S AID AGREEMENT FOR TWO FURTHER PERIODS OF 10 YEARS EACH BY MUTUAL AGREEMENT AND AS PER THE AGREEMENT THE ASSESSEE HAD A RIGHT TO EXERCISE THE OPTION OF PURC HASING THE HOTEL IN CASE ITS OWNERS DESIRED TO TRANSFER THE SAME DURING THE CURR ENCY OF THE AGREEMENT. IT WAS THIS RIGHT BEING THE OPTION OF PURCHASING THE H OTEL IN CASE THE OWNERS DESIRED TO TRANSFER THE SAME DURING THE CURRENCY OF THE AGREEMENT THAT WAS GIVEN UP BY THE ASSESSEE THEREIN. THUS IN THE SAID DECISION IT WAS A POSITIVE RIGHT BEING THE RIGHT TO ACQUIRE SOMETHING BEING TH E HOTEL WHICH WAS GIVEN UP AND THE CONSIDERATION FOR WHICH WAS TREATED AS CAPI TAL RECEIPT. IN THE PRESENT CASE THE ASSESSEE IS HOLDING NO RIGHTS. HE HOLDS N O AGREEMENT. EVEN ASSUMING THAT THE ASSESSEE WAS CONTEMPLATING THERE WAS NO G UARANTEE THAT SUCH CONTEMPLATION WOULD FRUCTIFY INTO A POSITIVE ACTION . THUS IT CANNOT BE SAID THAT THE ASSESSEE HAD ANY RIGHT TO MANUFACTURE PRODUCE OR PROCESS ANY ARTICLE OR THING OR THE RIGHT TO CARRY ON ANY BUSINESS WHICH H AS BEEN TRANSFERRED. THE ASSESSEE HAS RECEIVED THE CONSIDERATION OF RS. 15 C RORES FOR NOT CARRYING OUT ANY ACTIVITY IN RELATION TO THE BUSINESS OF CAUSTIC SOD A. A PERUSAL OF THE PROVISIONS OF SECTION 28(VA)(A) SHOWS THAT IT IS SUCH NEGATIVE NO N-COMPETE CONSIDERATION WHICH HAS BEEN TREATED AS A BUSINESS INCOME INSOFAR AS THE WORD USED IN SEC. 28(VA)(A) IS NOT CARRYING OUT ANY ACTIVITY WHEREA S IN THE PROVISO THERETO THE WORDS ARE ON THE TRANSFER OF A RIGHT. HERE THE A SSESSEE DOES NOT HAVE ANY RIGHT AND HE HAS ONLY RECEIVED THE CONSIDERATION FO R NOT CARRYING OUT ANY ACTIVITY IN RELATION TO THE BUSINESS OF CAUSTIC SODA WHICH H AS BEEN RIGHTLY HELD TO BE THE I.T.A. NO. 1871/MDS/2008 21 BUSINESS INCOME OF THE ASSESSEE BY THE APPLICABILIT Y OF SEC. 28(VA)(A) BY THE AO. IN THE CIRCUMSTANCES THE FINDING OF THE LEARNED CI T(A) STANDS REVERSED AND THAT OF THE AO RESTORED. CONSEQUENTLY GROUNDS NO.3.1 TO 3.4 IN THE REVENUES APPEAL STAND ALLOWED. 14. IN THE RESULT APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15. THE ORDER WAS PRONOUNCED IN THE COURT ON 23-07- 2010. SD/- SD/- (ABRAHAM P. GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI DATED THE 23 RD JULY 2010. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE