NDLI: Shiv Raj Gupta Vs. Commissioner of Income-tax, Delhi-iv

Content Provider	Supreme Court of India
e-ISSN	30484839
Language	English
Access Restriction	NDLI
Subject Keyword	Income Tax Act
Content Type	Text
Resource Type	Law Judgement
Jurisdiction	India
Act(s) Referred	Income Tax Act, 1961 (43 of 1961)
Case(s) Referred	Referred Case 0 Referred Case 1 Referred Case 2 Referred Case 3 Referred Case 4 Referred Case 5 Referred Case 6 Referred Case 7 Referred Case 8 Referred Case 9
Case Type	Appeal
Court	Supreme Court of India
Disposal Nature	Appeal Allowed
Headnote	Income Tax Act, 1961 – ss.28(ii)(a) and 260-A – Payment made as non-competition fee – Taxability of – Appellant was the chairman and Managing director of a Company-CDBL – A SWC group entered into a MOU with the appellant and paid the entire sale consideration to the appellant for the said Company-CDBL – Consequent to which, appellant handed over physical possession, management and control of the said brewery and distillery of CDBL – By a deed of Covenant, Rs. 6.6 crores was paid by SWC to the appellant as non-competition fee for not carrying on directly or indirectly any manufacturing or marketing activities relating to Indian Made Foreign Liquor for a period of 10 years – The Assessing Officer held that the deed of covenant was a colourable device to evade tax payable u/s. 28(ii)(a) of the Income Tax Act, 1961 – The appeals before the Commissioner of Income Tax (appeals) were dismissed – However, the Income Tax Appellate Tribunal allowed the appeals by majority of 2:1 – The revenue preferred an appeal u/s.260-A of the 1961 Act – The High Court held that the said sum of Rs. 6.6 crores could not be brought to tax u/s. 28(ii)(a), but would have to be treated as a taxable capital gain in the hands of the appellant, being part of the full value of the sale consideration paid for transfer of shares – On appeal, held: The substantial question of law raised by the High Court did not contain any question as to whether the non-compete fee could be taxed under any provision other than s.28(ii)(a) of the 1961 Act – Without recording any reason and without framing any substantial question of law regarding the same, the High Court held that the amount of Rs. 6.6 crores was received as part of the full value of sale consideration paid for transfer of shares and not for handing over management and control of CDBL and is consequently not taxable u/s. 28(ii)(a) – Nor is it exempt as a capital receipt being non-compete fee, as it is taxable as a capital gain in the hands of assessee as part of the full value of sale consideration paid for transfer of shares – This finding is in teeth of s. 260-A(4), requiring the judgment to be set aside on this score – Also, the reasons given by the Assessing Officer and the minority judgment of the Appellate Tribunal are all reasons which transgress the lines by the Supreme Court Judgments, which state that the revenue has no business to second guess commercial or business expediency of what parties at arms-length decide for each other – Further, it was correctly held by the majority judgments of the Appellate Tribunal, inter alia, that the withholding of Rs. 3 crores out of Rs. 6.6 crores for a period of two years by way of a public deposit with the SWC group for the purpose of deduction of any loss on account of any breach of MOU, was akin to a penalty clause, making it clear thereby that there was no colourable device involved in having two separate agreements for two entirely separate and distinct purposes – Besides, the judgment of the Supreme Court in Guffic Chem (P) Ltd. v. CIT was followed – Consequently, the impugned judgment of the High Court was set aside.
Judge	Hon'ble Mr. Justice R.F. Nariman
Neutral Citation	2020 INSC 461
Petitioner	Shiv Raj Gupta
Respondent	Commissioner Of Income-tax, Delhi-iv
SCR	[2020] 5 S.C.R. 874
Judgement Date	2020-07-22
Case Number	12044

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