Non compete fees received is assessable to tax under the head business income and section 28 is applied

IN THE INCOME TAX APPELLATE TRIBUNAL

"D" Bench, Mumbai

Before Shri D. Manmohan, Vice President

and Shri Rajendra Singh, Accountant Member

ITA No.3221/Mum/2011

(Assessment Year: 2007-08)

Shri Rakesh Dungarmal Tainwala

Vile Parle (W), Mumbai 400049

PAN - AAAPT 9300 J

 Appellant

Vs.

DCIT, Range 8(3) 71, Kalpataru,

Nutan Laxmi Aayakar Bhavan, M.K. Road

Mumbai 400020

Respondent

Appellant by: Shri J.P. Bairagra

Respondent by: Shri C.G.K. Naik

Date of Hearing: 19.06.2012

Date of Pronouncement: 19.06.2012

O R D E R

Per D. Manmohan, V.P.

This appeal, filed by the assessee, is directed against the order dated 24.03.2011 passed by the CIT(A) – 18, Mumbai and it pertains to assessment year 2007-08.

2. The following grounds were urged by the assessee: -

“1. The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in holding that consideration of Rs.2 Crores received as Non-Compete fees is revenue receipt and accordingly chargeable under section 28(va) of Income Tax Act, 1961 as against returned by the appellant as long term capital gain under Sec. 55(2) of the Income Tax Act.

2. The learned Commissioner of Income Tax (Appeals) further erred in confirming the action of the Assessing Officer in not allowing deduction of Rs.2 crores under section 54F of the Income Tax Act against the long term capital gain taxable under section 55(2) of the Income Tax Act.”

3. Assessee is a promoter and shareholder of Tainwala Polycontainers Ltd. (TPL). Assessee received a sum of `2 crores by way of non-compete fees from M/s. Time Packaging Ltd. In the return filed for the assessment year under consideration assessee claimed exemption under section 54F of the Act by purchasing a residential property. It was contended that the noncompete fees received is a capital receipt assessable to tax under the head ‘Capital Gains’. The AO as well as the CIT(A) were of the opinion that provisions of section 28(va) are applicable to the instant case and the impugned sum is assessable to tax as revenue receipt and accordingly the AO completed the assessment, which was affirmed by the CIT(A).

4. At the time of hearing the learned counsel for the assessee fairly submitted that identical issue has come up in the case of Ramesh D. Tainwala in ITA No. 3853/Mum/2010 wherein the ITAT “D” Bench Mumbai concluded that provisions of section 28(va)(a) would apply and consequently the amount received by that assessee would be chargeable to tax as business income and not under the head capital gains. The learned counsel for the assessee admitted that despite the case of the assessee that non-compete fees is assessable to tax under the head ‘Long Term Capital Gains’, in the light of the aforesaid decision the issue stands covered against the assessee.

5. On the other hand, the learned D.R. relied upon the orders passed by the tax authorities as well as the decision of the ITAT (supra)

6. In the light of the order passed by the ITAT “D” Bench Mumbai in the case Ramesh D. Tainwala (supra) we hold that the order passed by the learned CIT(A) is in accordance with law and accordingly the appeal filed by the assessee is dismissed.

Order pronounced in the open court on 19th June 2012.

                                                             Sd/-                   Sd/-

                                                  (Rajendra Singh)   (D. Manmohan)

                                               Accountant Member  Vice President

Mumbai, Dated: 19th June 2012

Copy to:

1. The Appellant

2. The Respondent

3. The CIT(A) – 18, Mumbai

4. The CIT– 8, Mumbai City

5. The DR, “D“ Bench, ITAT, Mumbai

//True Copy//

By Order

Assistant Registrar

ITAT, Mumbai Benches, Mumbai

n.p.