Case Law Details
RELEVANT PARAGRAPHS:
16. Coming to the merits of the case, facts in detail have been narrated above. The crucial facts, which are clear on the record are as under:
(i) Said non compete agreement has been accepted by the department while framing the assessments u/s 143(3) where the expenses claimed by the firm payable to assessee as non compete commission has been allowed on mercantile basis.
(ii) Consequent to survey in the premises of the firm, no action u/s 148 or Section 263 had been undertaken in firm’s case to hold adifferent view about the acceptability of the agreement.
(iii) Even in the case of the assessee, the department is accepting the earning of income albeit on a different footing i.e. claiming the same to be salary income in contra distinction to assessee’s claim being business income by virtue of Section 28(va). Though reference is made to colourable devise in the hands of the assessee following Supreme Court judgment in the case of McDowell &. Co. (supra), the same confine only to the issue about business income or salary income as the revenue has chosen to treat the same as salary and not business income. In our view, once these are clear facts, the controversy before us is limited to “whether the income is asses sable under the head “business income” as claimed by the assessee or taxable under the head “salary income” as held by the department; or (b) whether this attempt on the part of the assessee is a colourable device. Coming to the issue about tax ability of the head, it is clear that CIT(A) has held that there is no quarrel to dual capacities of assessee and the assessee’s right by choosing cash system. First we will take the issue about colourable device. In our view, consequent to Hon’ble Supreme Court judgement in the case of Azadi Bachao Aandolan (supra), McDowell & Co.’s case does not have the same force by holding that the arrangements made by the assessee within four coroners of law it reduces taxes, is colourable device. Section 28(va) clearly postulates a specific treatment to the sum received consequent to agreement not to carry out any activity in relation to any business. The assessee’s contention is that this being a specific provision, the income is taxable under this head i.e. business income, it further gives a right to choose one of the acceptable methods of accounting – mercantile or cash method. In our view, once there is a specific provision which assessee consider to be applicable, it will not be a |colourable device to offer the same to tax under that head. Similarly, if assessee has right to choose between cash and mercantile system, it will not be a colourable device on the part of the assessee to choose one of them. The action of the assessee cannot be called colourable merely because it reduces the incidence of tax. The assessee had no intention to fabricate a colourable device is clear from the fact that in computation of incomes, assessee stated these facts, therefore, this arrangement can not be held as colourable device.
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