$~42
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 18th March, 2014
+ ITA 112/2014
COMMISSIONER OF INCOME TAX-XVI ..... Appellant
Through Ms Suruchi Aggarwal, sr. standing
counsel
versus
SHRI ATUL KUMAR SWAMI ..... Respondent
Through Mr Salil Aggarwal, Adv.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V.EASWAR
S. RAVINDRA BHAT, J.: (OPEN COURT)
The revenue is in appeal aggrieved by the order dated 20.9.2013 of
the Income Tax Appellate Tribunal (ITAT) whereby the assessee's appeal
was allowed.
2. The assessee had in respect of assessment year 1999-2000 in the
note filed together with the accounts and the returns disclosed that he
received a sum of Rs.88 lakhs as one-time non-compete fee. He
concededly paid advance tax of Rs.27,60,600/- on the same. He states
that this was a one-time capital receipt; the return was processed under
section 143(1). The revenue sought to reopen the assessment recording
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reasons for doing so as follows by its notice dated 09.01.2002:
"The income tax return for asstt. year 1999-2000 was filed
on 29th July, 1999 claiming a refund ofRs.2674420/-. The
assessee was the promoter of overseas Cargo Service
Private Limited and had entered into as Asset Transfer
Agreement with M/s Bax Global India Pvt. Ltd. for transfer
of assets of OCS to BAX. As agreed under the ATA the
assessee had entered into a Non Competition Agreement
with BAX. Under the terms of NCA, the assessee had
undertaken not to engage directly or indirectly, either alone
or in association with any person or persons in any activity,
which will be in competition with the current business of
BAX and for observing the restrictions specified in NCA, a
consideration amounting to Rs.8 lacs was payable to the
assessee by BAX. "
"The assessee had paid advance tax of Rs.27, 60,000/- on the
above mentioned amount of Rs. 88 lacs and is now claiming
refund of Rs.30, 74,254/- on the contention that as it is
capital receipt, it should not be chargeable to tax. However,
the income of the assessee of Rs. 88 lacs received by him
should be chargeable to tax as it is not a capital receipt but
is to be charged to income tax under the head "Profit &
Gains of Business of Profession". In terms of section 28 of
the IT Act, 1961, section 28 is reproduced hereunder to
bring the assessee in net of this provision. "
'any compensation or other payment due to or received by;
a) any person by whatever name called managing the of an
Indian company at or in connection with the termination of his
management or the modification of the terms and conditions
relating thereto. In the light of the above facts, income ofRs.88
lacs has escaped assessment and the very fact that the assessee
has already paid advance refund on it on after thought,
substantiates the contention of the revenue that the above
mentioned amount is chargeable to income tax. Hence notice
u/s 148 issued."
3. The assessee objected to the reopening of the assessment
ITA 112/2014 Page 2 of 4
contending that there was no fresh or tangible material discerned by the
revenue for notice for reassessment. This objection was overruled and
the AO added back the said amount as business income observing that the
nature of the consideration receipt having regard to the terms of the
agreement was such that it was income and not capital receipt. The
assessee preferred an appeal but without success to the Commissioner
(Appeals). The Commissioner (Appeals) had during the pendency of the
appeal called for remand report and after discussing its contents rejected
the appeal.
4. The Income Tax Appellate Tribunal after considering the decision
of the Supreme Court in CIT vs. Kelvinator (India) Ltd. (2010) 320 ITR
561 as well as the later rulings of the Supreme Court and this Court held
that there was no tangible material and that the mere circumstance that
advance tax to the tune of Rs.27.6 lakhs was paid did not amount to
admission by him. The learned counsel for the revenue contends that
having regard to the Explanation 1 of section 147 read with section
143(1), the reopening of the assessment in this case was justified. She
also argued that the agreement entered into by the assessee under which
the amount was paid had not been filed during the assessment stage. This
according to the revenue justified the reassessment proceedings.
5. As to what constitutes valid "reasons to believe" is no longer a
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matter of debate. So long as the law declared in Kelvinator (supra)
stands, a valid reopening of assessment has to be based only on tangible
material to justify the conclusion that there is escapement of income. In
the present case the note forming part of the return clearly mentioned and
described the nature of the receipt under a non-compete agreement. The
reasons for the notice under section 147 nowhere mentioned that the
revenue came up with any other fresh material warranting reopening of
assessment. In these circumstances, the Court is of the opinion that mere
conclusion of the proceedings under section 143(1) ipso facto does not
bring invocation of powers for reopening the assessment. We are
satisfied that the Tribunal's reasons are justified and do not call for any
interference.
The appeal is accordingly without merit and is dismissed.
S. RAVINDRA BHAT
(JUDGE)
R.V. EASWAR
(JUDGE)
MARCH 18, 2014
vld
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