April 2012
(A) ITAT: Jurisdiction: Power and scope: Decision on a matter not arising in appeal: AO not disputing genuineness of transaction: Not questioned genuineness before CIT(A) or Tribunal: Tribunal treating transaction sham is erroneous. (B) Non-competition fee received by assessee prior to 1-4-2003 is capital receipt and not taxable.
By K. B. Bhujle
Advocate
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The relevant assessment year is A.Y. 1997-98. The assessee was one of the promoters and a director of Gaghra Sugar Ltd. which had a factory for manufacture of sugar. The assessee was also the director of Ganges Sugar Mills (P) Ltd. which had applied for and received licence to set up new sugar factory in the same region. In such circumstances Gaghra Sugar Ltd. negotiated with the assessee and entered into an agreement with the assessee preventing the assessee from competing with the sugar business of the company directly or indirectly for a period of five years for a consideration or Rs.25 lakh. In the assessment proceedings the assessee claimed the said amount received for ‘non-competition’ as capital receipt not liable for tax. The Assessing Officer however taxed the said amount under the head ‘Other Sources’. The CIT(A) accepted the assesses contention and allowed the appeal. In the appeal filed by the Revenue, the Tribunal held that the claim of the assessee of ‘non-competition’ fee was not genuine and allowed the appeal of the Assessing Officer.
In the appeal filed by the assessee the Calcutta High Court reversed the decision of the Tribunal and held as under:
“(i) The Assessing Officer having assessed the noncompetition fee as revenue receipt without disputing the genuineness of the transaction and not questioned the genuineness even in the appeal either before the CIT(A) or before the Tribunal, order passed by the Tribunal treating the receipt of non-competition fees as a sham transaction is erroneous.
(ii) Non-competition fees received by the assessee prior to 1-4-2003 has to be treated as capital receipt and it is not taxable.”
