THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM vs. SJRO.CHANDRASEKHAR BALAGOPAL TC-IX/1323

ITA/47/2012HC KeralaKLHC01023969201213 October 2017Author: HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU,HONOURABLE MR.JUSTICE ANTONY DOMINIC10 pages
AI SummaryDismissed

What were the facts?

The Revenue filed an appeal against an order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 2000-2001. The assessee, Shri. Chandrasekhar Balagopal, was a promoter and Managing Director of M/S Peninsula Polymers Limited. His shares, along with another promoter's, were acquired by Terumo Corporation of Japan. As part of this acquisition, a non-competition agreement was executed on June 21, 1999, wherein the assessee and the other promoter received a total payment of Rs. 5.2 crores for their commitments. The assessee received Rs. 3.9 crores. The Assessing Officer treated this amount as a revenue receipt, a view upheld by the Commissioner of Income Tax (Appeals). However, the ITAT set aside this order, holding the receipt to be a capital receipt.

What did the High Court hold?

The High Court held that the payment received by the assessee was a capital receipt and not a revenue receipt. The Court examined the non-competition agreement dated June 21, 1999. Clause 4.01 stated that Terumo Corporation agreed to pay Rs. 5.2 crores on the Effective Date in consideration of the commitments of the Promoter Group. Clause 3.02 of the agreement clearly prohibited the Promoter Group, including the assessee, from directly or indirectly carrying on or being engaged in any business similar to or competing with the business of the company in India or elsewhere. The Court found that the payment of Rs. 5.2 crores was made for these non-competition commitments. The existence of a separate employment agreement for the assessee's continuation as Managing Director did not alter the nature of the payment received under the non-competition agreement. The Tribunal's conclusion that the payment was towards a non-competition fee and therefore a capital receipt was found to be legally sound. The questions of law were answered in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the amount received by the assessee under a compromise agreement styled as a non-compete agreement is assessable as compensation or other payment due to or received under Section 28(ii)(a) of the Income Tax Act? 2. Whether the amount received by the assessee under the non-compete agreement is a revenue receipt? Assessee's Contention: The assessee argued that the payment received was a capital receipt. The counsel for the assessee contended that the payment was a non-competition fee, and cited the Apex Court judgments in Gillanders Arbuthnot and Co. Ltd. v. CIT (1964) 53 ITR 283 (SC) and Guffic Chem Pvt. Ltd. v. Commissioner of Income Tax (2011) (4) SCC 254, which held such payments to be capital receipts. Revenue's Contention: The Revenue contended that the payment received by the assessee pursuant to the non-competition agreement dated June 21, 1999, was a revenue receipt and thus taxable.

Which sections of the Income-tax Act were involved?

Section 28(ii)(a)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU FRIDAY, THE 13TH DAY OF OCTOBER 2017/21ST ASWINA, 1939 ITA.No. 47 of 2012 ------------------- AGAINST THE ORDER IN ITA 1309/2004 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 29-07-2011 APPELLANT/APPELLANT: -------------------- THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM

BY ADV. SRI.P.K.R.MENON, SC FOR INCOME TAX RESPONDENT/APPELLANT: --------------------- SHRI.CHANDRASEKHAR BALAGOPAL, TC-IX/1323 SREEPOORNAM, SASTHAMANGALAM, THIRUVANANTHAPURAM-695 010. R BY ADV. SRI.ABRAHAM GEORGE JACOB R BY ADV. SRI.VIKRAM RAMAKRISHNAN R BY ADV.SRI.D.ANAND THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13-10-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A.47 OF 2012 APPENDIX PETITIONER'S ANNEXURES: ANNEXURE A:OF THE ORDER OF THE ASSESSING OFFICER 143(3) DATED 15.3.2004. ANNEXURE B:OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 6.12.2004. ANNEXURE C:OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 28.4.2006. ANNEXURE D:OF JUDGMENT OF T

The order continues below.

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