Case Law Details
CIT Vs Saeed Mustafa Shervani (Delhi High Court)
Conclusion: Compensation received for non-carrying of business was capital in nature as the operation of non- compete agreement was for 10 years and for the period in which the non-compete agreement was to operate, assessee’s source of income had been clamped.
Held: Assessee in his individual capacity filed his Return of Income (ROI). In the ROI, assessee declared his income as Rs.23,24,590/-. An intimation with regard to ROI was served on assessee under Section 143 (1). The record disclosed that assessee was served with a notice for assessment and consequently an order was passed under Section 143(3) read with Section 147. AO concluded that Rs.8 crore received by assessee from an entity going by the name, Wilkinson Swords India Ltd. (WSIL) under a non-compete agreement was taxable as revenue receipt. Being aggrieved, assessee filed an appeal before the CIT (Appeals). CIT(A) sustained the assessment order. It was in this background that assessee approached the Tribunal. It was held that assessee had executed a non-compete agreement with WSIL, the conversation the CIT(A) had with the assessee could not be used to vary, add or subtract from the obligations contained in the said agreement. As noticed, assessee had been restrained both directly and indirectly from undertaking any business which would compete with the business of WSIL. Clearly, for the period in which the non-compete agreement was to operate, which in this case was 10 years, assessee’s source of income had been clamped and, therefore, compensation received by him could only be treated as capital receipt. Thus, the conclusion arrived at by the Tribunal was correct.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. These appeals concern Assessment Year (AY) 1999-2000.
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