INCOME TAX ACT, 1961

During relevant accounting year, assessee received an amount on transfer of its textile dyes business and Said sum was bifurcated into two parts, viz., receipt on assignment of marketing rights at certain sum and receipt of non-compete fees at Rs. 2.006 crores -Assessee treated first item of Rs. 5.010 crores as receipt arising from transfer of long-term capital assets -Second item of Rs. 2.006 crores being non-compete fees was claimed to be a capital receipt not liable to tax -Assessing Officer disallowed assessees claim -On appeal, Commissioner (Appeals) agreed with view point of assessee to extent of Rs. 5.010 crores as receipt from transfer of long-term capital assets -Second amount of Rs. 2.006 crores was declared to be of same nature as consideration received on account of assignment of marketing rights and was, accordingly, held to be chargeable to tax under head capital gains -Whether on assignment of marketing rights, main source of assessees income, viz., from marketing of products manufactured by it was impaired -Held, yes -Whether, therefore, amount received by assessee on assignment of its marketing rights was a capital receipt -Held, yes -Whether non-compete fees of Rs. 2.006 crores was not a consideration for transfer of a particular business but restricted assessee from starting competing business and, therefore, amount received by assessee on assignment of marketing rights and amount received as non-compete fees could not be described as of same character -Held, yes -Whether, therefore, claim of assessee for treating amount of non-compete fees as capital in nature and, hence, not liable to tax at all, merited acceptance -Held, yes

Basf India Ltd. v. Addl. CIT