The Madras High Court while dismissing the appeal of the revenue held that the Compensation received for refraining from carrying on competitive business was a capital receipt is not taxable during the assessment year 2002-03.
The revenue has challenged the order of Appellate Tribunal in allowing compensation received for refraining from carrying on competitive business as a capital receipt and not taxable during the assessment year 2002-03.
The other issue raised was whether the Appellate Tribunal was right in dismissing the Department Appeal observing that the Finance Act, 2002 brought to tax the capital receipts under Section 28 (va) with effect from March 1, 2003.
The question that requires to be answered is whether this receipt of money by the assessee is liable to be treated as a capital receipt or revenue receipt. It is not in doubt that, for the relevant assessment year, if the income is to be treated as capital receipt, it cannot suffer the incidence of taxation, whereas, if it were to be treated as a revenue receipt, the order of assessment as affirmed by the CIT(A) has to be upheld.
Mr.M.Kaushik, learned counsel appearing for the respondent, the assessee submitted that in view of the judgment of the Division Bench of this Court made in Commissioner of Income Tax, Chennai Vs. TTK Healthcare Ltd., the appeal may be dismissed.
The division bench of Justices M.Duraiswamy and T.V. Tamilselvi held that compensation received for refraining from carrying on competitive business was a capital receipt and that payment received as a non-competitive fee under a negative contract was always treated as a capital receipt till the assessment year 2003-2004, i.e. till the introduction of Section 28 (va) by way of an amendment to the Act with effect from March 1, 2003.