THE COMMR OF INCOME TAX vs. SRI PRAKASH LADHANI

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ITA/238/2007HC KarnatakaKAHC01018453200708 April 2013Bench: B.MANOHAR,N.KUMAR7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the non-competition fee received by the assessee was considered a capital receipt and not taxable under the Income Tax Act, 1961, until the assessment year 2003-04. This position was affirmed by the Apex Court in Guffic Chem (P) Ltd. v. CIT & another, which stated that the Finance Act, 2002, with effect from April 1, 2003, made such receipts taxable. The Court further relied on its own judgment in Commissioner of Income Tax and another v. K. Chandrakanth Kini, which held that the amendment brought about by the Finance Act, 2002, was amendatory, not clarificatory. Therefore, prior to April 1, 2003, such income was not taxable. The substantial question of law was answered in favour of the assessees.

What were the facts?

These four appeals were filed by the Commissioner of Income-Tax and the Deputy Commissioner of Income-Tax against orders of the Income Tax Appellate Tribunal, Bangalore Bench. The appeals concern assessment years 1998-99 and 1999-2000. The assessees are Sri Prakash Ladhani and Sri Sachnand Ladhani. The core issue revolves around the taxability of non-competition fees received by the assessees. The Revenue is challenging the Tribunal's decision that such fees are not capital gains and thus not liable to income tax.

What were the issues?

1. Whether the Appellate Tribunal was right in holding that non-computation fee received by the Assessee is not a Capital gain and not liable to pay Income-tax for that amount though such amount could be taxed under `any other source’ under Section 28 of the Act? Assessee's Contention: The judgment does not record specific arguments made by the assessee. Revenue's Contention: The Revenue contended that the non-computation fee received by the assessee is taxable. The judgment does not explicitly detail the Revenue's arguments beyond what is implied by the question of law.

Which sections of the Income-tax Act were involved?

Section 28,Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 8th DAY OF APRIL 2013

PRESENT

THE HON’BLE MR. JUSTICE N.KUMAR AND THE HON’BLE MR. JUSTICE B.MANOHAR

I.T.A. NO.237/2007 c/w. I.T.A. Nos.238/2007, 247/2007 & 264/2007

In I.T.A. No.237/2007

BETWEEN :

1.

The Commissioner of

Income-Tax, C.R.Building, Queens Road, Bangalore.

2.

The Deputy Commissioner

Of Income-Tax, Circle-8(1),

C.R.Building, Queens Road,

Bangalore. ...APPELLANTS

(By Sri.K.V.Aravind, Adv.)

AND :

Sri.Prakash Ladhani, No.5/1, I Main Road, Jayamahal Extension, Bangalore – 46. …RESPONDENT

(By Sri.A.Shankar, Adv. & Sri.M.Lava, Adv.) . . . .

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This I.T.A. is filed under Section 260A of the Income Tax Act, 1961 praying to (i) formulate the substantial questions of law stated therein, (ii) allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore Bench in I.T.A. No.174/Bang/2005 dated 07.07.2006 and confirm the order passed by the Commissioner of Income Tax-IV, Bangalore, in the interest of justice and equity.

In I.T.A. No.238/2007

BETWEEN :

1.

The Commissioner of

Income-Tax, C.R.Building, Queens Road, Bangalore.

2.

The Deputy Commissioner

Of Income-Tax, Circle-8(1),

C.R.Building, Queens Road,

Bangalore. ...APPELLANTS

(By Sri.K.V.Aravind, Adv.)

AND :

Sri.Prakash Ladhani, No.5/1, I Main Road, Jayamahal Extension, Bangalore – 46. …RESPONDENT

(By Sri.A.Shankar, Adv. & Sri.M.Lava, Adv.) . . . .

This I.T.A. is filed under Section 260A of the Income Tax Act, 1961 praying to (i) formulate the substantial questions of law stated therein, (ii) allow the appeal and set-aside the order passed by the Income

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Tax Appellate Tribunal, Bangalore Bench in I.T.A. No.175/Bang/2005 dated 07.07.2006 and confirm the order passed by the Commissioner of Income Tax-IV, Bangalore, in the interest of justice and equity.

In I.T.A. No.247/2007

BETWEEN :

1.

The Commissioner of

Income-Tax, C.R.Building, Queens Road, Bangalore.

2.

The Deputy Commissioner

Of Income-Tax, Circle-8(1),

C.R.Building, Queens Road,

Bangalore. ...APPELLANTS

(By Sri.K.V.Aravind, Adv.)

AND :

Sri.Sachnand Ladhani, No.5/1, Main Road, Jayamahal Extension, Bangalore – 46. …RESPONDENT

(By Sri.A.Shankar, Adv. & Sri.M.Lava, Adv.) . . . .

This I.T.A. is filed under Section 260A of the Income Tax Act, 1961 praying to (i) formulate the substantial questions of law stated therein, (ii) allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore in I.T.A. No.178/Bang/2005 dated 07.07.2006 and confirm the order passed by the Commissioner of Income Tax-IV, Bangalore, in the interest of justice and equity.

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In I.T.A. No.264/2007

BETWEEN :

1.

The Commissioner of

Income-Tax, C.R.Building, Queens Road, Bangalore.

2.

The Deputy Commissioner

Of Income-Tax, Circle-8(1),

C.R.Building, Queens Road,

Bangalore. ...APPELLANTS

(By Sri.K.V.Aravind, Adv.)

AND :

Sri.Sachnand Ladhani, No.5/1, Main Road, Jayamahal Extension, Bangalore – 46. …RESPONDENT

(By Sri.A.Shankar, Adv. & Sri.M.Lava, Adv.) . . . .

This I.T.A. is filed under Section 260A of the Income Tax Act, 1961 praying to (i) formulate the substantial questions of law stated therein, (ii) allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore in I.T.A. No.179/Bang/2005 dated 07.07.2006 and confirm the order passed by the Commissioner of Income Tax-IV, Bangalore, in the interest of justice and equity.

These I.T.As. coming on for hearing, this day, N.Kumar J., delivered the following:

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JUDGMENT

In all these four appeals, a common question of law arises for consideration. They are taken up for consideration together and disposed of by this common order.

2.

The assessee in ITA Nos. 237/2007 and 238/2007 are one and the same whereas in I.T.A. Nos. 247/2007 and 264/2007, the assessee are one and the same. The relevant assessment years are 1998-99 and 1999-2000. These appeals were admitted to consider the following substantial question of law: Whether the Appellate Tribunal was right in holding that non-computation fee received by the Assessee is not a Capital gain and not liable to pay Income-tax for that amount though such amount could be taxed under `any other source’ under Section 28 of the Act?

3.

The Apex Court in the case of Guffic Chem (P) Ltd., V/s. CIT & another reported in (2011) 332 ITR 602(SC) has held that payment received as non-

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competition fee under a negative covenant was always treated as a Capital receipt till the assessment year 2003-04. It is only vide the Finance Act, 2002 with effect from 1st April, 2003 that the said Capital receipt is now made taxable. The Finance Act, 2002 itself indicates that during the relevant assessment year, compensation received by the assessee under non- competition agreement was a capital receipt, not taxable under the 1961 Act. It became taxable only with effect from 1st April, 2003. It is well-settled that a tax liability cannot be created retrospectively.

4.

Following the aforesaid judgment, this Court in the case of Commissioner of Income Tax and another V/s. K.Chandrakanth Kini reported in (2012) 347 ITR 388(Kar.) held that the amendment brought about in 2002 with effect from 1st April, 2003 is not clarificatory but amendatory. Therefore, when the said provision is held to be not clarificatory, but amendatory, it follows earlier to the said provision, the said amount was not taxable. The said provision was not inserted by way of clarification. It was introduced only by way of

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amendatory and to tax such income with effect from 1st April 2003.

5.

In the light of the aforesaid law declared by the Apex Court and this Court, the substantial question of law in these appeals are answered in favour of the Assessees and against the Revenue. Hence, there is no merit in these appeals.

Appeals are dismissed.

Sd/- JUDGE

Sd/- JUDGE

SPS

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