Guffic Chem P. Ltd vs. CIT (Supreme Court)
Pre s. 28(va) inserted w.e.f AY 2002-03, non-compete compensation is a capital receipt
In AY 1997-98 the assessee received Rs. 50 Lakhs from Ranbaxy as a fee for agreeing not to compete for 20 years in the territory of India. The AO assessed the receipt as income though the CIT (A) & Tribunal upheld the assessee’s claim that the receipt was for loss of a source of income and capital in nature. On appeal by the department, the High Court reversed the Tribunal and held the receipt to be revenue in nature. On appeal by the assessee, HELD reversing the High Court:
(i) The position in law is clear and well settled that 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. While the former is a revenue receipt, the latter is a capital receipt. On facts, as the amount was received for a non-compete covenant, it was capital in nature;
(ii) Payment received as non-competition fee under a negative covenant was always treated as a capital receipt till AY 2003-04. It is only by s. 28(va) inserted by FA 2002 w.e.f. 1.4.2003 that the said capital receipt is now made taxable. S. 28(va) is amendatory and not clarificatory.
Related Judgements
CIT vs. Eicher Ltd (Delhi High Court) Non-compete compensation paid to an employee for an indefinite period is business expenditure and not capital expenditure as no capital asset or benefit of enduring benefit came into existence. While the lenght of the period of the covenant is important, it is not decisive. What is more important is…
Rohitsava Chand vs. CIT (Delhi High Court) Non-compete compensation received by an employee-director for agreeing not to carry on any business activity relating to software development for a period of 18 months constitutes a capital receipt as it is for loss of a source of income. See also: CIT vs. Narendra Desai (Bom) and Saurabh Srivastava…
CIT vs. Narendra Desai (Bombay High Court) Receipt for agreeing to refrain from carrying on a competing business under a restrictive covenant is a capital receipt and is not chargeable to tax either as a revenue receipt or as a capital gain as ss. 28(va) and 55(2)(a) are prospective and do not apply to the year…
Related Judgements
CIT vs. Eicher Ltd (Delhi High Court) Non-compete compensation paid to an employee for an indefinite period is business expenditure and not capital expenditure as no capital asset or benefit of enduring benefit came into existence. While the lenght of the period of the covenant is important, it is not decisive. What is more important is…
Rohitsava Chand vs. CIT (Delhi High Court) Non-compete compensation received by an employee-director for agreeing not to carry on any business activity relating to software development for a period of 18 months constitutes a capital receipt as it is for loss of a source of income. See also: CIT vs. Narendra Desai (Bom) and Saurabh Srivastava…
CIT vs. Narendra Desai (Bombay High Court) Receipt for agreeing to refrain from carrying on a competing business under a restrictive covenant is a capital receipt and is not chargeable to tax either as a revenue receipt or as a capital gain as ss. 28(va) and 55(2)(a) are prospective and do not apply to the year…
Pre s. 28(va) inserted w.e.f AY 2002-03, non-compete compensation is a capital receipt
In AY 1997-98 the assessee received Rs. 50 Lakhs from Ranbaxy as a fee for agreeing not to compete for 20 years in the territory of India. The AO assessed the receipt as income though the CIT (A) & Tribunal upheld the assessee’s claim that the receipt was for loss of a source of income and capital in nature. On appeal by the department, the High Court reversed the Tribunal and held the receipt to be revenue in nature. On appeal by the assessee, HELD reversing the High Court:
(i) The position in law is clear and well settled that 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. While the former is a revenue receipt, the latter is a capital receipt. On facts, as the amount was received for a non-compete covenant, it was capital in nature;
(ii) Payment received as non-competition fee under a negative covenant was always treated as a capital receipt till AY 2003-04. It is only by s. 28(va) inserted by FA 2002 w.e.f. 1.4.2003 that the said capital receipt is now made taxable. S. 28(va) is amendatory and not clarificatory.
Related Judgements
CIT vs. Eicher Ltd (Delhi High Court) Non-compete compensation paid to an employee for an indefinite period is business expenditure and not capital expenditure as no capital asset or benefit of enduring benefit came into existence. While the lenght of the period of the covenant is important, it is not decisive. What is more important is…
Rohitsava Chand vs. CIT (Delhi High Court) Non-compete compensation received by an employee-director for agreeing not to carry on any business activity relating to software development for a period of 18 months constitutes a capital receipt as it is for loss of a source of income. See also: CIT vs. Narendra Desai (Bom) and Saurabh Srivastava…
CIT vs. Narendra Desai (Bombay High Court) Receipt for agreeing to refrain from carrying on a competing business under a restrictive covenant is a capital receipt and is not chargeable to tax either as a revenue receipt or as a capital gain as ss. 28(va) and 55(2)(a) are prospective and do not apply to the year…
Related Judgements
CIT vs. Eicher Ltd (Delhi High Court) Non-compete compensation paid to an employee for an indefinite period is business expenditure and not capital expenditure as no capital asset or benefit of enduring benefit came into existence. While the lenght of the period of the covenant is important, it is not decisive. What is more important is…
Rohitsava Chand vs. CIT (Delhi High Court) Non-compete compensation received by an employee-director for agreeing not to carry on any business activity relating to software development for a period of 18 months constitutes a capital receipt as it is for loss of a source of income. See also: CIT vs. Narendra Desai (Bom) and Saurabh Srivastava…
CIT vs. Narendra Desai (Bombay High Court) Receipt for agreeing to refrain from carrying on a competing business under a restrictive covenant is a capital receipt and is not chargeable to tax either as a revenue receipt or as a capital gain as ss. 28(va) and 55(2)(a) are prospective and do not apply to the year…
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