COMMISSIONER OF INCOME TAX Vs. NARENDRA D. DESAI

JUDGEMENT

(1.) The Revenue has preferred this appeal against the order dt. 28th May, 2002. The issue for consideration before the learned Tribunal was whether the receipt received by the assessee from the General Electric Company USA (GE) for agreeing to refrain from carrying on competing business under a restrictive covenant is income exigible to tax After going through the various facts the Tribunal noted that the amount received is capital receipt and is not liable to tax. Before the Tribunal, the contention of the Revenue was that the amount in question cannot be considered to be capital receipt because existing income earning apparatus was not destroyed or impaired. In para 11 of the judgment, the learned Tribunal has referred to the amendment of Section 28 by Finance Act, 2002 . Sub-clause (va) was introduced w.e.f. 1st April, 2003. The relevant portion reads as under:

(2.) After considering these aspects, the Tribunal held that this amendment is operative from 1st April, 2003. It was not made retrospective. As such it can be said that in the year under consideration the amount received under an agreement for not carrying out any activity in relation to business was not exigible to tax.

(3.) As to whether it will attract capital gains, reliance was placed on instruction No. 1964 dt. 17th March, 1999 issued by CBDT. It was stipulated in the said instruction that where the capital asset transferred is in the nature of a right to manufacture, produce or process an article or thing, recourse to Section 55(2) can be made only from asst. yr. 1998-99 in respect of any consideration received for the transfer thereof which includes extinguishments or curtailment of such right. Section 55(2)(a) was amended w.e.f. 1st April, 1998. Considering that it was held in the year under consideration, it would not be applicable and since the cost of acquisition was nil it was not exigible to capital gains tax. In the light of that, the issue was decided in favour of assessee and against the Revenue.