Nalini Mahajan Vs ACIT (ITAT Delhi)
ITAT Delhi held that received towards undertaking restrictive covenant of non imparting service to any other person and not to share associated goodwill of medical practice being in the nature of non compete fee is a capital receipt and not taxable under provision of the Income Tax Act.
Facts- The assessee is an individual and doctor by profession and was running a hospital under the name and style of Mother and Child New Delhi. A ‘Service Agreement’, was executed between Nova Pulse IVF Clinic Pvt. Ltd. and the assessee, Nalini Mahajan. As per the agreement company engaged the assessee as a consultant, and the assessee has agreed to be exclusively engaged with the company for providing her professional services.
AO noted that the fee payable to the assessee by the company is to be decided by the sub-clause 2 ‘Fees’ of the service agreement executed on October 28, 2012 between Nova Pulse IVF Clinic Pvt. Ltd. and the assessee. Thereafter, reproducing certain portion of the agreement, the AO found that the assessee has provided her professional services to Nova Pulse IVF Clinic Pvt. Ltd. during the relevant assessment year. The assessee received professional income during the year, along with Rs. 3,20,00,000/-.
AO noted that the assessee has increased her capital by Rs. 3,20,00,000/- on account of a payment receipt from the said company, the payment of which is said to be exclusive for engagement goodwill. AO was of the opinion that the assessee had provided professional services to the company. The assessee explained that the company has paid the amount of Rs. 3,20,00,000/- because the assessee has transferred her practice and associated goodwill to the company, which cannot be taxed as profits and gains of business or profession.
However, the AO was not in agreement and he held that the amount was taxable in the hands of the assessee u/s 28(va) being value of any benefit or perquisite, arising from business or the exercise of a profession.
CIT(A) confirmed the addition u/s 28(i). Being aggrieved, the present appeal is filed.
Conclusion- We are of the opinion that a sum of Rs.3.2 cores received towards undertaking restrictive covenant of non imparting service to any other person and not to share associated goodwill of medical practice being in the nature of non compete fee is a capital receipt and not taxable under provision of the Act. Hence, assessment by the AO u/s 28(va) as noted above is not sustainable and similarly the order of the Ld. CIT(A) whereby he changed the head from section 28(va) to section 28(1) without confronting the assessee is also not sustainable and the ld. CIT(A)’s view that the same is taxable under the normal professional income is also not sustainable in the background of the aforesaid discussion, the agreement and the case law referred above. In these circumstances, in the background of aforesaid discussion and precedent, we set-aside the orders of the authorities below and delete the addition.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is directed against the order of ld. CIT (Appeals)-20, New Delhi, dated 31.03.2018 and pertains to Assessment Year 2014-15.
2. The grounds of appeal reads as under:-
“1) The learned CIT (A) has grossly erred in law in holding that Rs. 3.2 Crore received by the assessee form NOVA IF Clinic Pvt. Ltd as consideration for exclusive arrangement and goodwill for closing down her hospital are taxable Under section 28(1) of Income Tax Act, 1961 instead section 28(IV) as done by the AO without confronting the assessee about change of taxable head in income tax Act, 1961.
2) The Learned CIT (A) has grossly erred in Law in holding that Rs.189,00,000/- received by the assessee consideration for not carrying out independently the professional activities in future which is exempt Us 28 (IVA) of Income Tax Act, 1961 as a professional income and is taxable U/s 28(1) of Income Tax Act, 1961
3) The Learned CIT (A) has grossly erred in law and on the facts of the case that the consideration of Rs. 1.31 crore received as goodwill for her expertise and knowledge and also for closing down her hospital Mother and Child is not Tax Free as per section 55(2) of Income Tax act, 1961 but is a Business Income earned by the assessee form profession and taxable U/s 28(1) Of the Act..
4) The assessee seeks leave to add or amend any additional grounds of appeal if it is necessary in the interest of justice.”
3. Brief facts of the case are that the assessee is an individual and doctor by profession and was running hospital under the name and style of Mother and Child New Delhi. A ‘Service Agreement’, was executed on 28.10.2012, between Nova Pulse IVF Clinic Pvt. Ltd. and assessee Smt. Nalini Mahajan. As per the agreement company (Nova Pulse IVF Clinic Pvt. Ltd.) engaged the assessee as a consultant, and the assessee has agreed to be exclusively engaged with the company (Nova Pulse IVF Clinic Pvt. Ltd.) for providing her professional services. The AO noted that the fee payable to assessee by the company is to be decided by the sub-clause 2 ‘Fees’ of the service agreement executed on 28.10.2012 between Nova Pulse IVF Clinic Pvt. Ltd. and assessee. Thereafter, reproducing certain portion of the agreement, the AO found that the assessee has provided her professional services to the Nova Pulse IVF Clinic Pvt. Ltd. during the relevant assessment year. The assessee has received professional income during the year, along with Rs.3,20,00,000/- detail of which is described here:-
