Case Law Details
ACIT Vs. Dr. B.V. Raju (ITAT Hyderabad Special Bench)- What was transferred by Mr.B.V.Raju under the agreement dt. 27.10.1999 for which he was paid a sum of Rs. 11 crores by ICL. One should also read the above covenants in the non-compete agreement in the light of the preamble to the agreement which gives the background as to why the agreement was being entered into.
The preamble to the non-compete agreement refers to the fact that Mr.B.V.Raju during the course of his employment with Cement Corporation of India, RCL and SVCL acquired a corpus of knowledge, skill, expertise, and experience related to the production, distribution, marketing, running and managing of cement plants and has also acquired or otherwise come in possession of various secret information, know-how and trade secrets relating to the Cement line of business. The preamble refers to India Cements Ltd. and its associate companies having acquired RCL from the original promoters during April, 1998. There is also a reference to the fact that Mr.B.V.Raju together with his family members thereafter continued their business in Cement line with SVCL till October, 1999, when SVCL was proposed to be taken-over by India Cements Ltd., and its associate companies. The preamble further refers to the fact that Mr.B.V.Raju along with other persons entered into an agreement with ICL by which they sold the shares held by them in SVCL. The preamble further declares that with the acquisition of SVCL, the core family promoters of RCL & SVCL were out of Cement business. It is thereafter that ICL with a view to ward off competition desired that Mr.B.V.Raju should be restrained from starting a fresh cement unit, lest it should have a bearing on their business. With that object in view, ICL entered into a Non-Compete Agreement with Mr.B.V.Raju.
The consideration of Rs. 11 crores received by BVRaju was not for sale of any business nor was it for not carrying on any business which he was carrying on, which he had transferred. It was also not a payment for a “right to manufacture, produce or process any article or thing”. As explained earlier, the sum in question was not paid for transfer of any intangible right in respect of manufacture, production or process of cement. The provisions relating to capital gains are therefore not attracted. The amount was paid for “not carrying out any activity in relation to any business” and would fall within the ambit of Sec.28(va)(a) of the Act. The payment in question clearly falls under the category of a payment for “not carrying out any activity in relation to any business” which at the relevant point of time of accrual in the hands of B.V.Raju, viz., 27.10.1999, was a capital receipt not chargeable to tax. Such receipts became taxable on and from 1-4-2003. As held by the Hon’ble Suprme Court in the case of Guffic Chemical Industries (supra), the provisions of Sec.28(va)(a) are not clarificatory and were applicable only prospectively from 1-4-2003. For AY 00-01, they were not applicable. Therefore the receipts in question were capital receipts and not chargeable to tax in AY 00-01.
INCOME TAX APPELLATE TRIBUNAL, HYDERABAD
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