Monday, July 11, 2011

Prior to 1-4-2003 payment under a negative covenant agreement for not to co

Prior to 1-4-2003 payment under a negative covenant agreement for not to compete was a capital receipt

Income-tax : There is a dichotomy between receipt of compensation by an assessee for the loss of agency and receipt of compensation attributable to the negative/restrictive covenant; the compensation received for the loss of agency is a revenue receipt whereas the compensation attributable to a negative/restrictive covenant is a capital receipt [Section 4 of the Income-tax Act, 1961 - Income-Chargeable as]

l Payment received as non-competition fee under a negative covenant was always treated as a capital receipt till the assessment year 2003-04; it is only vide Finance Act, 2002 with effect from 1.4.2003 that the said capital receipt is now made taxable - [2011] 10 taxmann.com 105 (SC)

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