SHIV RAJ GUPTA versus COMMISSIONER OF INCOME-TAX, DELHI-IV

Citation: [2020] 5 S.C.R. 874 · Decided: 22-07-2020 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · cites 8 · see the full citation network in Lexace

Judgment (excerpt)

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SUPREME COURT REPORTS
[2020] 5 S.C.R.
SHIV RAJ GUPTA
v.
COMMISSIONER OF INCOME-TAX, DELHI-IV
(Civil Appeal No. 12044 of 2016)
JULY 22, 2020
[R. F. NARIMAN, NAVIN SINHA AND B. R. GAVAI, JJ.]
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
[2020] 5 S.C.R. 874
874
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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.
Allowing the appeal, the Court
HELD: 1.1 It can be seen that the substantial question of
law that was 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 Section 28(ii)(a) of the Income Tax Act, 1961.
Without giving an opportunity to the parties followed by reasons
for framing any other substantial question of law as to the taxability
of such amount as a capital receipt in the hands of the assessee.
[Para 14][888-B-C]
1.2 Without any recorded reasons and without framing any
substantial question of law on whether the said amount could be
taxed under any other provision of the Income Tax Act, the High
Court went ahead and held that the amount of INR 6.6 crores
received by the assessee 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 under Section 28(ii)(a) of the Income Tax Act. Nor is it
exempt as a capital receipt being non-compete fee, as it is taxable
as a capital gain in the h

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