Case Law Details

Case Name : Pr. CIT Vs M/s. Monsanto India Ltd. (Bombay High Court)
Appeal Number : Income Tax Appeal No. 1868 of 2016
Date of Judgement/Order : 11/03/2019
Related Assessment Year : 2007-08
Courts : All High Courts (5746) Bombay High Court (1036)

Pr. CIT Vs M/s. Monsanto India Ltd. (Bombay High Court)

Tribunal recorded that the Non ­Compete Agreement was part of the agreement for the sale of the business. Under this Agreement, the Assessee could be seen to have transferred the right to manufacture the product in question. The Tribunal, therefore, was of the opinion that such receipt would not be covered by Section 28(va) of the Act. The Tribunal further held that the Assessee was in the business since the year 1997 and that, therefore, the transfer of the capital asset would give rise to long term capital gain.

In our opinion, the Tribunal was right on both counts. The Non-­Compete Agreement was part and parcel of the sale of the business and cannot be seen in isolation. Further, the Assessee was in the business of producing and selling wheat herbicides since the year 1997 and therefore, while selling the business, the Assessee also executed a Non­-Compete Agreement, which was part of the sale of assets held by the Assessee in excess of 36 months.

FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT

The Revenue has filed this Appeal raising following questions for our consideration :

1. Whether in law and on the facts and circumstances of the case, was the Tribunal correct in treating its commercial income of the sale of hybrid seeds, as agricultural income exempt under Section 10(1) of the Act ?

2. Whether in law, and on the facts of the instant case was the Tribunal in error in holding that the receipt of non­compete fee from the sale of the business assets was not assessable as profits of business under Section 29(va), but as long term capital gain ?

2. The Respondent – Assessee is a limited company. The issues relate to the assessment year 2007-2008. The company is engaged in manufacture and sale of hybrid seeds for agriculture. In relation to the income arising out of such sale of seeds, the company claims exemption under Section 10(1) of the Income Tax Act, 1961 (for short, ‘the Act’). The Revenue contends that the activity of the Assessee company cannot be categorized as agricultural operation. The Assessing Officer, therefore, disallowed the exemption claimed by the Assessee. The Tribunal, by the impugned Judgment, held in favour of the Assessee upon which the Revenue has filed this Appeal raising the first question noted above.

3. This issue has come before this Court on several occasions, concerning the same Assessee. For the Assessment Year 1993-1994 to the Assessment Year 2004-2005, group of Income Tax Appeals being Income Tax Appeal No.633 of 2010 and connected Appeals, were rejected by this Court by common order dated 5th August, 2011. Once again, same issue was raised by the Revenue in Income Tax Appeal No.1618 of 2016. The said appeal was dismissed on 23rd January, 2019. In that view of the matter, Question No.1 is not entertained.

4. The second question relates to the receipts in respect of the Assessee under a Non­-Compete Agreement. A few facts may be noted.

5. Under an Agreement dated 31/08/2006, the Assessee sold its business of manufacturing wheat herbicides for a sale consideration of Rs.30.13 Crores (rounded of). This included a sum of Rs.2 Crores towards non­-compete fee. The Assessing Officer was of the view that this amount was Assessee’s income and taxed it accordingly. The Assessee carried the matter in Appeal before the Commissioner (Appeals) who held that the receipt was capital in nature but that it would give rise to a short term capital gain. Both sides went in Appeal before the Tribunal. The Tribunal held that the receipt was capital and it gave rise to long term capital gain. Thereupon, the Revenue has filed this Appeal.

6. Having heard the learned Counsel for the parties, we note that the Tribunal recorded that the Non ­Compete Agreement was part of the agreement for the sale of the business. Under this Agreement, the Assessee could be seen to have transferred the right to manufacture the product in question. The Tribunal, therefore, was of the opinion that such receipt would not be covered by Section 28(va) of the Act. The Tribunal further held that the Assessee was in the business since the year 1997 and that, therefore, the transfer of the capital asset would give rise to long term capital gain.

7. In our opinion, the Tribunal was right on both counts. The Non-­Compete Agreement was part and parcel of the sale of the business and cannot be seen in isolation. Further, the Assessee was in the business of producing and selling wheat herbicides since the year 1997 and therefore, while selling the business, the Assessee also executed a Non­-Compete Agreement, which was part of the sale of assets held by the Assessee in excess of 36 months.

8. No question of law arises.

9. Appeal is dismissed.

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