THE ACIT CIR-18(3), Mumbai v. MR. ACHUTHA S. SHETTY, Mumbai

ITA 2826/MUM/2004 | 2001-2002
Pronouncement Date: 09-03-2011 | Result: Dismissed

Appeal Details

RSA Number 282619914 RSA 2004
Assessee PAN AAQPS0145L
Bench Mumbai
Appeal Number ITA 2826/MUM/2004
Duration Of Justice 6 year(s) 10 month(s) 20 day(s)
Appellant THE ACIT CIR-18(3), Mumbai
Respondent MR. ACHUTHA S. SHETTY, Mumbai
Appeal Type Income Tax Appeal
Pronouncement Date 09-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted G
Tribunal Order Date 09-03-2011
Date Of Final Hearing 04-11-2010
Next Hearing Date 04-11-2010
Assessment Year 2001-2002
Appeal Filed On 19-04-2004
Judgment Text
ITA NO. 2826/MUM/04 MR. ACHUTA S. SHETTY 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI PRAMOD KUMAR A.M. AND SHRI V. DURGA RA O J.M. ITA NO. 2826/MUM/2004 ASSESSMENT YEAR: 2001-02 ASSTT. COMMISSIONER OF INCOME TA APPELLANT CIRCLE 18(3) PIRAMAL CHAMBERS 2 ND FLOOR LALBAUG PAREL MUMBAI 400 012 VS. MR. ACHUTA S. SHETTY RESPONDENT 1 DINKAR 486-A BHAGOJI KEER MARG MAHIM (W) MUMBAI 400 016 (PAN AAQPS0145L APPELLANT BY : MR. A.K. NAYAK RESPONDENT BY : MS. VASANTI PATEL ORDER PER V. DURGA RAO J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)- XXVIII MUMBAI PASSED ON 05/02/2004 FOR TH E ASSESSMENT YEAR 2001-02 WHEREIN THE REVENUE HAS RAISED THE FOL LOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE CIT(A) HAS ERRED IN: I) DELETING THE ADDITION OF RS. 55 00 000/- BEING C OMPENSATION RECEIVED FOR NOT ENGAGING IN ANY BUSINESS EITHER DI RECTLY OR INDIRECTLY IN COMPETITION WITH M/S ORION INTERNATIO NAL SUPPORT SERVICES PVT. LTD. TREATING IT AS CAPITAL RECEIPT N OT CHARGEABLE TO TAX. II) IGNORING THE FACT THAT THE RATIO OF DECISION LA ID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. BEST & CO. LTD. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE HAD FILED HIS RETURN OF INCOME ON 11/09/2001 DECLARING TOTAL INCO ME OF RS. ITA NO. 2826/MUM/04 MR. ACHUTA S. SHETTY 2 17 11 730/- WHICH WAS PROCESSED U/S 143(1) OF THE ACT AND SUBSEQUENTLY ASSESSMENT WAS MADE U/S 143(3) OF THE ACT. THE ASSESSEE HAD BEEN IN THE BUSINESS OF CATERING AND H OSPITALITY SERVICES SINCE 1986. DURING THE PERIOD 1986 TO 1998 THE ASS ESSEE CARRIED ON HIS BUSINESS IN PARTNERSHIP IN THE NAME AND STYLE OF ORION CATERERS ORION SUPPORT SERVICES AND A PRIVATE LTD. COMPANY ORION CATERING AND SERVICES PVT. LTD. THROUGH OUT THE PERIOD FROM 1986 TO 1998 THE ASSESSEE HAD BEEN EARNING INCOME FROM HIS BUSINESS BY WAY OF SHARE OF PROFIT AND PARTNERS REMUNERATION FROM THE PARTN ERSHIP FIRMS ORION CATERERS AND ORION SUPPORT SERVICES WHICH ARE THE BUSINESS INCOME AND ALSO DIRECTORS REMUNERATION FROM HIS CO MPANY. THUS FROM 1986 THE ASSESSEE WAS DOING BUSINESS THROUGH 2 PARTNERSHIP FIRMS AND ONE PRIVATE LTD. COMPANY AND ALSO HAD INC OME FROM BUSINESS. IN THE YEAR 1995-96 THE ASSESSEE AND HIS PARTNER WERE APPROACHED BY CCG CONTRACTING INTERNATIONAL LTD. A UK BASED COMPANY WHO DESIROUS TO ENTER BUSINESS IN INDIA AN D TO FORM A JOINT VENTURE COMPANY WITH THE OBJECT OF PROVIDING PROJEC T SUPPORT SERVICES TO PROJECT SITES IN INDIA. AFTER NEGOTIATIONS A JO INT VENTURE COMPANY NAMELY ORION CCG SERVICES PVT. LTD. HAS BEEN FOR MED BETWEEN THE CCG GROUP AND ORION CATERING SERVICES PVT. LTD. (AS SESSEES PVT. LTD. COMPANY) WHEREIN 50% OF SHARES HELD BY CCG GROUP AN D 50% BY THE ASSESSEES PVT. LTD. COMPANY. THE NAME OF THE JOINT VENTURE COMPANY SUBSEQUENTLY CHANGED TO ORION INTERNATIO NAL SUPPORT SERVICES PVT. LTD. WHEN THEY STARTED JOINT VENTU RE COMPANY THERE WAS NO RESTRICTIONS IMPOSED ON THE ASSESSEE IN CARR YING THE EXISTING BUSINESS. SUBSEQUENTLY THE ASSESSEES PARTNERSHIP FIRM MERGED WITH HIS PVT. LTD. COMPANY I.E. ORION CATERING AND SUPPO RT SERVICES PVT. LTD. WITH EFFECT FROM 01/04/1998 AND SUBSEQUENTLY W ITH EFFECT FROM 01/04/2000 THE ASSESSEES BUSINESSES WERE TRANSFER RED TO JOINT VENTURE COMPANY (ORION INTERNATIONAL SUPPORT SERVIC ES P. LTD.). AFTER TAKING OVER THE ASSESSEES BUSINESS THE JOINT VENT URE COMPANY (ORION INTERNATIONAL SUPPORT SERVICES P. LTD.) ENTERED WIT H THE ASSESSEE NON- ITA NO. 2826/MUM/04 MR. ACHUTA S. SHETTY 3 COMPETE AGREEMENT. THE OPERATIVE PORTION OF THE AGR EEMENT REPRODUCED AS UNDER: 1. ORION INTERNATIONAL SUPPORT SERVICES P. LTD (OIS SP) IS A JOINT VENTURE COMPANY BETWEEN ORION CATERING AND SERVICES PRIVATE LTD. (HEREINAFTER REFERRED TO AS OCSP) AND CCG CONT RACTING INTERNATIONAL LTD. A UK BASED COMPANY (HEREINAFTER REFERRED TO AS CCGIL) HELD TO THE EXTENT OF 50% EACH BY OCSP AN D CCGIL PURSUANT TO JOINT VENTURE AGREEMENT ENTERED INTO ON SEPTEMBER 26 1996 (HEREINAFTER REFERRED TO AS THE JV AGREEM ENT). 2. OISSP IS ENGAGED INTER ALIA IN THE BUSINESS OF P ROVIDING TOTAL FACILITIES MANAGEMENT IN INDIA WHICH ENCOMPASSES PR OVISION OF ACCOMMODATION GUEST HOUSE AND CAMP MANAGEMENT SERV ICES CATERING HOUSE KEEPING AND LAUNDRY SERVICES HEALT H CARE AND MEDICAL SERVICES WASTE MANAGEMENT MANPOWER SERVIC ES LOGISTICS SUPPORT AND SAFETY MANAGEMENT. 3. MR. ACHUTA SHETTY IS THE PROMOTER AND DIRECTOR O F OCSP WHICH IS ENGAGED INTER ALIA IN THE BUSINESS OF CATERING S ERVICES HOUSE- KEEPING AND SPACE MANAGEMENT SERVICES. 4. OCSP HAD BEEN CARRYING OUT ITS BUSINESS THROUGH ITS TWO DIVISIONS NAMELY ORION SUPPORT SERVICES AND ORION CATERERS (HEREINAFTER REFERRED TO AS THE BUSINESS DIVISIONS ). 3. AS A CONSIDERATION FOR THE RESTRICTIVE COVENANTS THE ASSESSEE WAS PAID COMPENSATION OF RS. 55.00 LAKHS AND THE SA ME WAS TREATED BY THE ASSESSEE AS CAPITAL RECEIPT. ON BEING ASKED BY THE AO TO EXPLAIN AS TO WHY THE RECEIPT OF RS. 55 LAKHS SHOUL D NOT BE TAXED AS INCOME OF THE AY 2001-02 I.E. THE YEAR IN WHICH THE AMOUNT WAS RECEIVED. IN REPLY THE ASSESSEE FILED HIS EXPLANAT ION VIDE LETTER DATED 23/10/2002 WHICH WAS EXTRACTED BY AO AT PAGE 2 IN HIS ORDER IS REPRODUCED BELOW:- THE ASSESSEE HAS RECEIVED THIS AMOUNT OF RS. 55 LAK HS AS COMPENSATION IN TERMS OF THE NON-COMPETITION AGREEM ENT ENTERED INTO WITH ORION INTERNATIONAL SUPPORT SERVICES PVT. LTD. (OISSPL). IN TERMS OF THE SAID AGREEMENT (COPY OF WHICH HAS ALREADY BEEN FILED WITH YOU ON 3.10.2002) THE ASSESSEE IS BOUND BY THE RESTRICTIVE CONVENANTS CONTAINED IN THE SAID AGREEM ENT NOT TO ENGAGED IN ANY BUSINESS/ACTIVITY OR SOLICIT BUSINE SS OR TAKE UP EMPLOYMENT WHICH IS ANY WAY MAY BE DEEMED TO BE IN COMPETITION WITH THE BUSINESS OF THE SAID OISSPL. ITA NO. 2826/MUM/04 MR. ACHUTA S. SHETTY 4 THE RESTRICTIONS IMPOSED BY THE SAID AGREEMENT ON T HE ASSESSEE ARE MORE SPECIFICALLY SET OUT IN PARA 3 TO 6 OF THE SAID AGREEMENT. THE COMPENSATION PAID TO MR. ACHUTHA SHETTY IS TOWA RDS HIS GIVING UP HIS LINE OF BUSINESS AND NOT ENGAGING IN BUSINESS ACTIVITY IN WHICH HE HAS CONSIDERABLE EXPERTISE AND EXPERIENCE. AS SUCH THE COMPENSATION RECEIVED IS A CAPITAL RECE IPT AND DOES NOT FALL UNDER THE DEFINITION OF INCOME. BEING A CA PITAL RECEIPT THE AMOUNT OUGHT NOT TO BE TAXED AS INCOME. THE COMPENSATION RECEIVED BY THE ASSESSEE IS FOR HA VING GIVEN UP HIS RIGHT TO DO BUSINESS OR SEEK EMPLOYMENT IN THE AREA OF HIS SKILL AND EXPERIENCE. AS SUCH THE COMPENSATION RECE IVED HAS TO BE CONSIDERED AS A CAPITAL RECEIPT. COMPENSATION RE CEIVED FOR ACCEPTING RESTRICTIVE COVENANTS HAS TO BE TREATED A S A CAPITAL RECEIPT. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E THE AO HELD AS UNDER:- 1. THAT BY VIRTUE OF RESTRICTIVE AND NEGATIVE COVEN ANTS THE ASSESSEE HAS NOT LOST ANY INCOME-EARNING APPARATUS BECAUSE HE DID NOT HAVE ANY APPARATUS AT ALL OF HIS OWN. IN VI EW OF THIS FACT IT IS CLEAR THAT THE COMPENSATION PAID TO THE ASSES SEE IS NEITHER FOR THE INJURY TO THE TRADING OPERATION NOR HAS IT BEEN PAID TO THE FOR A LOSS OF ASSET OF ENDURING NATURE. THE COMPENS ATION PAID IS THEREFORE NOT CAPITAL IN NATURE AND HENCE CHARGEABL E TO TAX AS INCOME FROM OTHER SOURCES. 2. THAT THE ASSESSEES MAIN SOURCE OF INCOME WAS NO T BUSINESS INCOME BUT SALARY INCOME AND INCOME FROM OTHER SOU RCES. 3. THAT A CONTRACT FOR NOT DOING ANY PARTICULAR ACT IVITY ITSELF IS A SERVICE RENDERED BY THE ASSESSEE AND IT CAN THEREFO RE VERY WELL BE SAID THAT THE COMPENSATION IS PAID FOR SERVICES RENDERED BY THE ASSESSEE IN THE FORM OF RESTRAINING HIMSELF FOR NOT DOING ANY ACTIVITY. 4. THAT THERE IS NO CLAUSE IN THE AGREEMENT FOR PAY MENT OF FINE PENALTY OR LIQUIDATED DAMAGES FOR BREACH OF CONTRAC T IF ANY. 5. OCSP HAS BEEN MERGED WITH OISSPL AND THERE HAS B EEN EXPANSION OF BUSINESS ON GLOBAL LINES. 6. THE ASSESSEE IS DERIVING HANDSOME SALARY FROM THE COMPANY AND THEREFORE NO SOURCE OF INCOME IS IMPAI RED OR LOST BY VIRTUE OF THE AGREEMENT WITH OISSPL. 5. IN VIEW OF THE ABOVE THE AO FINALLY HELD THAT O N A CAREFUL CONSIDERATION OF THE FACTS OF THE CASE THE AMOUNT OF RS. 55 LAKHS ITA NO. 2826/MUM/04 MR. ACHUTA S. SHETTY 5 RECEIVED BY THE ASSESSEE IS A REVENUE RECEIPT AND N OT A CAPITAL RECEIPT AS CLAIMED BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF AO THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 6. BEFORE THE CIT(A) THE ASESSSEE SUBMITTED THAT T HE ASSESSEE WAS CARRYING ON CATERING AND HOSPITALITY BUSINESS FOR M ORE THAN 12 YEARS AND WAS EARNING BUSINESS INCOME FROM THE PARTNERSHI P FIRMS AND DRAWING REMUNERATION FROM THE PRIVATE LIMITED COMPA NY WITHOUT ANY RESTRICTION. HIS SKILL AND EXPERIENCE IN THE BUSINE SS WAS RECOGNIZED. IT WAS ONLY BECAUSE OF THE NEGATIVE AND RESTRICTIVE CO VENANTS WHICH WERE IMPOSED ON THE ASSESSEE THAT HIS RIGHT TO CAR RY ON BUSINESS WAS DESTROYED. HE WAS RESTRAINED FROM ENTERING THE BUSI NESS OF CATERING AND HOUSEKEEPING DIRECTLY AND INDIRECTLY. AS A RESU LT THEREOF THE INCOME EARNING APPARATUS/PROFIT MAKING APPARATUS OF THE ASSESSEE WAS DESTROYED THEREFORE THE COMPENSATION WHICH W AS PAID TO THE ASSESSEE WAS FOR INJURY OR LOSS OF ASSET OF ENDURI NG NATURE AND THE SAME HAS TO BE TREATED AS CAPITAL RECEIPT. IN SUPPO RT OF HIS CONTENTIONS THE ASSESSEE RELIED UPON VARIOUS CASE LAWS BEFORE THE CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE THE CIT(A) TREATED THE AMOUNT OF RS. 55 LAKHS RECEIVED BY THE ASSESSEE AS CAPITAL RECEIPT BY HOLDING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE AR AN D THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE. IN MY OP INION THE ISSUE IS ALREADY SETTLED BY A NUMBER OF CASE LAWS. IN FACT RECENTLY THE LEARNED ITAT MUMBAI B BENCH IN THE IR ORDER DATED 27/09/2000 IN THE CASE OF DINSHAW F. PANDOLE VS. JCIT IN ITA NO. 639 AND 640 OF 2000 FOR AY 1996-97 AND 1997 -98 HAD OCCASION TO DEAL WITH THIS ISSUE ON IDENTICAL FACTS . THE LEANED ITAT FOLLOWING THE DECISIONS OF THE HONBLE APEX CO URT IN THE CASE OF KETTLEWELL BULLEN & CO. LTD. 53 ITR 261 AND BES T & CO. P. LTD. 60 ITR 11 HELD THAT SUCH RECEIPTS ARE TREATED AS CA PITAL RECEIPT NOT CHARGEABLE TO TAX. FROM THE FACTS OF THE APPEL LANTS CASE IT IS CLEAR THAT THE SUM OF RS. 55 LAKHS RECEIVED BY THE APPELLANT AS COMPENSATION FOR RESTRUCTURE AND NEGATIVE CONVENATS IS CAPITAL RECEIPT AS CLAIMED BY THE APPELLANT. 7. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE IS IN APPEAL BEFORE THE ITAT. ITA NO. 2826/MUM/04 MR. ACHUTA S. SHETTY 6 8. BEFORE US THE LEARNED DR BESIDES RELYING UPON T HE ORDER OF THE AO SUBMITTED THAT THE ASSESSEE WAS A DIRECTOR OF T HE PVT. LTD. COMPANY WHICH WAS MERGED WITH THE FOREIGN COMPANY EVEN AFTER MERGE THE ASSESSEE IS CONTINUING AS A DIRECTOR THE REFORE THERE IS NO LOSS OF EARNING AND THE RECEIPT OF RS. 55.00 LAKHS HAS TO BE TREATED AS REVENUE RECEIPT AND NOT A CAPITAL RECEIPT AS HELD B Y THE CIT(A). THE LEARNED DR HAS RELIED ON THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF GILLANDERS ARBUTHNOT & CO. LTD. VS. CIT 5 3 ITR 283 (SC). 9. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE A SESSEE HAS STRONGLY RELIED UPON THE ORDER OF THE CIT(A) AND SU BMITTED THAT THE ASSESSEES PARTNERSHIP FIRM AS WELL AS PVT. LTD. CO MPANY MERGED WITH THE INTERNATIONAL COMPANY AND AS PER THE NON-COMPET E AGREEMENT THE ASSESSEES RIGHT TO CARRY ON BUSINESS WAS CURTAILED AND HE WAS RESTRAINED FROM ENTERING THE BUSINESS OF CATERING AND HOUSEKEEPING DIRECTLY AND INDIRECTLY AS A RESULT OF WHICH THE INCOME EARNING APPARATUS/PROFIT-MAKING APPARATUS OF THE ASSESSEE W AS DESTROYED. THE LEARNED COUNSEL FURTHER SUBMITTED THAT COMPENSA TION PAID TO THE ASESSEE WAS FOR INJURY OR LOSS OF ASSET OF ENDURING NATURE AND THE SAME HAS TO BE TREATED AS CAPITAL RECEIPT. THE LEAR NED COUNSEL HAS CANVASSED THAT THE ISSUE INVOLVED IN THIS APPEAL IS COVERED BY THE SPECIAL BENCH IN THE CASE OF SAURABH SRIVASTAVA VS. DCIT [2008] 113 TTJ (DEL)(SB) 1. 10. IN THE REJOINDER THE LEARNED DR HAS SUBMITTED THAT THE CASE RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE I.E. SAURABH SRIVASTAVA (SUPRA) IS NOT APPLICABLE TO THE FACTS O F THE CASE AS IN THAT CASE THE ASSESSEE LEFT THE COMPANY WHEREAS IN THE P RESENT CASE THE ASSESSEE IS CONTINUING WITH THE JOINT VENTURE COMPA NY AND IT IS ONLY A MUTUAL BENEFIT TO THE ASSESSEE AS WELL AS COMPANY. ITA NO. 2826/MUM/04 MR. ACHUTA S. SHETTY 7 11. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSE THE RECORD AS WELL AS GONE THROUGH THE ORDER S OF THE AUTHORITIES BELOW. THE ISSUE INVOLVED IN THIS APPE AL IS WHETHER THE NON-COMPETITION FEES RECEIVED BY THE ASSESSEE IS A CAPITAL RECEIPT OR REVENUE RECEIPT. WE FIND THAT THE ASSESSEE RECEIVED AN AMOUNT OF RS. 55 LAKHS AS PAYMENT FOR NON-COMPETITION IN TERMS OF NON-COMPETITION AGREEMENT WITH ORION INTERNATIONAL SUPPORT SERVICES PVT. LTD. FOR RESTRICTIVE COVENANTS UNDER THE SAID AGREEMENT FROM ENGAGING IN ANY BUSINESS EITHER DIRECTLY OR INDIRECTLY IN COMPETITI ON WITH THAT OF THE SAID ORION INTERNATIONAL SUPPORT SERVICES PVT. LTD. WHICH WAS CLAIMED AS CAPITAL RECEIPT. TO THIS EFFECT THE NON -COMPETE AGREEMENT FILED BEFORE THE AO THE CONTENTS OF WHICH WERE EXT RACTED BY THE AO IN HIS ORDER AT PAGE 3 & 4. WHEREIN INTER-ALIA IT WA S CLEARLY MENTIONED THAT OISSP AGREES TO PAY TO THE PROMOTER A SUM OF RS. 5 5 00 000/- IN RESPECT OF ALL THE RESTRICTIONS IMPOSED ON HIM HERE IN TO BE PAID ON 5 TH JULY 2000 OR A LATER DATE MUTUALLY AGREED BY AND BETWEEN THE PARTIES HERETO. WITH THIS AGREEMENT THE ASSESSEES RIGHT TO DO BUSINESS/INCOME EARNING ASSET WAS IMPAIRED/DESTROYE D. AS A CONSIDERATION FOR THESE RESTRICTIVE COVENANTS THE ASSESSEE WAS RECEIVED THE COMPENSATION OF RS. 55 LAKHS. THE CIT( A) GAVE A CATEGORICAL FINDING THAT THE ASSESSEE WAS PROHIBITED FROM ENTERING BUSINESS IN THE FIELD OF CATERING AND HOUSEKEEPING BY THE RESTRICTIVE COVENANTS IMPOSED ON HIM AND THAT THE S AID COMPENSATION WAS PAID FOR EXTINGUISHMENT OF THE ASS ESSEES SOURCE OF INCOME. THEREFORE FOLLOWING THE RATIOS A ND APPLICABILITY OF DECISIONS OF THE SUPREME COURT IN THE CASE OF KETTLEWELL BULLEN & CO. VS. CIT 53 ITR 261 AND TH E DECISION OF ITAT IN THE CASE OF DINSHAW F. PANDOLE VS. JCIT I HOLD THAT THE RECEIPT OF RS. 55 LAKH BY VIRTUE OF RESTRICTIVE COV ENANT IS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX.. THE CIT(A) CAME TO CONCLUSION THAT THE AMOUNT RECEIVED BY THE ASESSSEE TOWARDS NON- COMPETE FEE AS CAPITAL RECEIPT AFTER GOING THROUGH THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KETTLEWELL BUL LEN & CO. AND THE ITA NO. 2826/MUM/04 MR. ACHUTA S. SHETTY 8 DECISION OF ITAT IN DINSHAW (SUPRA) AND APPLYING TH E RATIO LAID DOWN THE SAID DECISIONS TO THE CASE OF THE ASSESSEE. 12. IN SO FAR AS THE ARGUMENT OF THE LEARNED DR IS CONCERNED IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS RECEIVED THE AMOUNT AFTER ENTERING INTO NON-COMPETE AGREEMENT WITH THE FOREIG N COMPANY AND IN THE LIGHT OF SPECIFIC FINDING GIVEN BY THE CIT(A) I N HIS ORDER WE REJECT THE ARGUMENTS ADVANCED BY THE LEARNED DR. IN SO FA R AS CASE LAW RELIED UPON BY THE LEARNED DR I.E. GILLANDERS ARBUT HNOT & CO. LTD. (SUPRA) IN THIS CASE THE HONBLE SUPREME COUR T HAS OBSERVED THAT THE PAYMENT RECEIVED BY THE ASSESSEE CANNOT BE REGARDED TRULY COMPENSATION FOR NON-CARRYING ON THE BUSINESS. THE ASSESSEE CARRYING ON AGENCY BUSINESS IN DIVERSE LINES RECEIVES COMPE NSATION FOR TERMINATION OF ONE OF ITS AGENCY. THE AMOUNT SO REC EIVED IS TRADING RECEIPT TAXABLE AS AN INCOME AS MUCH AS TERMINATIO N DOES NOT EFFECT THE EXISTING PROFIT MAKING STRUCTURE OF THE ASSESSE ES BUSINESS. IN THE PRESENT CASE THE ASSESSEE HAS CLOSED HIS PARTNERSH IP BUSINESS AND AS WELL AS PVT. LTD. COMPANY BUSINESS THEREFORE THE CASE RELIED UPON THE LEARNED DR IS NOT APPLICABLE TO THE FACTS OF TH E CASE UNDER CONSIDERATION. 13. IN THE CASE OF SAURABH SRIVASTAVA VS. DCIT [20 08] 113 TTJ (DEL)(SB) 1 THE SPECIAL BENCH OF ITAT HELD AS UNDE R(HEAD-NOTE):- INCOME CAPITAL OR REVENUE RECEIPT NON COMPETE FEE- ASSESSEE WAS THE PROMOTER FOUNDER AS WELL AS MANAGING DIRECTOR OF I IS LTD. AND HELD SUBSTANTIAL SHAREHOLDING IN THAT COMPANY FI GROUP OF UK TOOK OVER IIS LTD. AND 76 PER CENT OF THE SUBSCRIBED EQUITY SHARES WERE TRANSFERR ED IN FAVOUR OF UK COMPANY AS PER THE SHARES PURCHASE AGREEMENT BETWEEN THE UK CO MPANY AND THE SHAREHOLDERS OF IIS LTD. INCLUDING ASSESSEE AS PER THE TERMS OF THE SAID AGREEMENT FOUR DIRECTORS OF IIS LTD. INCLUDING ASSESSEE ENTERED INTO FRESH SERVICE AGREEMENTS WITH THE COMPANY BESIDES THE SHARE TRANSFER AGREE MENT FI GROUP ALSO ENTERED INTO A NON-COMPETE AGREEMENT WITH THE ASSESSEE AND OTHER THREE DIRECTORS WHEREBY THEY WERE RESTRAINED FROM CARRYING OUT ANY SOFTWARE DEVELOPMENT ACTIVITY FOR ANY PERSON WHO DIRECTLY COMPETED WITH FI GROUP AND ITS ASSOCIATE AND SUBSIDIARY COMPANIES FOR A PERIOD OF 18 MONTHS AND PAID THEM LUMP SUM NON-COMPETE FEE CONTENTION OF THE REVENUE THAT SINCE THE ASSESSEE W AS THE MANAGING DIRECTOR OF THE COMPANY PRIOR TO TAKE OVER AND CONTINUED TO BE EMPLOYED IN THE SAME POSITION ITA NO. 2826/MUM/04 MR. ACHUTA S. SHETTY 9 AFTER THE TAKE OVER THE NON-COMPETE FEE AMOUNTS TO PROFIT IN LIEU OF SALARY IS NOT SUSTAINABLE NON-COMPETE AGREEMENT WITH THE FOUR D IRECTORS INCLUDING ASSESSEE WAS AN INDEPENDENT DISTINCT AND SEPARATE AGREEMENT FROM THE SERVICE AGREEMENT IT WAS NEITHER DEPENDENT ON THEIR CONTINUING IN EMP LOYMENT WITH THE COMPANY OR IT AROSE FROM THEIR EMPLOYER-EMPLOYEE RELATIONSHIP THEREFORE THE PAYMENT OF COMPENSATION CANNOT BE REGARDED AS PROFITS IN LIEU OF SALARY AND BROUGHT TO TAX UNDER THE HEAD SALARIES BY ACCEPTING THE TERMS AN D CONDITIONS OF THE NON- COMPETE AGREEMENT ASSESSEE HAS RESTRAINED HIMSELF FROM SETTING UP ANY BUSINESS JOINING ANY EMPLOYMENT OR BECOMING DIRECTOR OF SOME OTHER CONCERN TO COMPETE WITH BUSINESS OF FI GROUP SUCH RESTRICTIONS HAVE ADVERSELY AFFECTED HIS INCOME EARNING POTENTIAL BY EXPLOITING HIS SKILLS KNOWLED GE EXPERIENCE ETC. THEREFORE THE NON-COMPETE FEE IS IN THE NATURE OF A CAPITAL R ECEIPT. INTENTION BEHIND ENTERING INTO NON-COMPETE AGREEMENT IS TO WARD OFF ANY COMPE TITION FROM THE DIRECTORS WHO CAN EXPLOIT THEIR KNOWLEDGE SKILL AND EXPERIEN CE TO THE DISADVANTAGE OF THE BUSINESS ASSESSEE HAS CONTINUED TO BE THE MANAGIN G DIRECTOR EVEN AFTER TAKE OVER THEREFORE THE PAYMENT OF NON-COMPETE FEE IS NOT IN ANY WAY DIRECTLY OR INDIRECTLY LINKED TO TERMINATION OF MANAGEMENT AND IS NOT COVERED UNDER S. 28(II) MOREOVER NON-COMPETE FEE DID NOT ARISE TO THE AS SESSEE FROM CARRYING ON OF BUSINESS OR PROFESSION THUS IMPUGNED RECEIPT IS NEITHER TAXABLE UNDER S. 28(II) NOR UNDER S. 28(IV) ASSESSEE HAS NOT TRANSFERRED ANY CAPITAL ASSET THUS THE NON COMPETE FEE IS NOT LIABLE TO TAX AS CAPITAL GAI NS NON COMPETE FEE HAS BEEN SPECIFICALLY MADE TAXABLE UNDER CL. (VA) OF S. 28 W .E.F. 1 ST APRIL 2003 SAME IS NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDE RATION. 14. AFTER CAREFUL CONSIDERATION OF THE FACTS AND CI RCUMSTANCES OF THE CASE WE FIND THAT THE FACTS OF THE CASE UNDER CONS IDERATION ARE IDENTICAL TO THAT OF THE CASE DECIDED BY THE SPECIA L BENCH IN THE CASE AFORESAID CASE AND IT SUPPORTS THE VIEW TAKEN BY TH E CIT(A). IN THE SPECIAL BENCH CASE AFTER MERGER THE ASSESSEE CONTIN UED AS A MANAGING DIRECTOR THEREFORE THE ARGUMENT OF THE LEARNED DR THAT THE ASSESSEE IS NOT CONTINUING AS A DIRECTOR IS NOT CORRECT. I N FACT THE ASSESSEE IS CONTINUING AS A MANAGING DIRECTOR AFTER TAKE OVER. 15. IN VIEW OF THE ABOVE DISCUSSION WE FIND NO IN FIRMITY IN THE ORDER OF CIT(A) IN TREATING THE AMOUNT RECEIVED BY THE ASSESSEE OF RS. 55 00 000/- AS CAPITAL RECEIPT NOT CHARGEABLE TO TA X. ACCORDINGLY WE UPHOLD THE ORDER OF THE CIT(A) ON THIS COUNT AND DI SMISS THE GROUND RAISED BY THE REVENUE. ITA NO. 2826/MUM/04 MR. ACHUTA S. SHETTY 10 16. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 9TH DAY OF MARCH 2011. SD/- SD/- (PRAMOD KUMAR) (V. DURG A RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI DATED: 9 TH MARCH 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE G BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. KV ITA NO. 2826/MUM/04 MR. ACHUTA S. SHETTY 11 S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 14/02/11 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 15/02/11 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER