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By Vijay Kumar

Income Tax

Takeover of assessee's software company - non-compete fees paid in addition to payments for shares - Since it is payment for restrictive covenant to compete against same business it is capital in nature but not taxable to capital gains as there is no transfer of capital assets in this case : ITAT Special Bench

GIVEN the growing trend of takeovers of companies in the global corporate world, payments like non-compete fees have become an integral part of the overall multi-tier pricing structure. It is very obvious that when a company is built by a professional who creates a value-chain in the market, a stronger and moneyed company which is keen to take over such a value-adding company also has to pay non-compete fees so that the professionals with established skills and experience do not compete against the same company either on their own or by joining their competitors. In this background, what should be the treatment to such a receipt - Whether it is a capital or income receipt? This was the issue before the Special Bench which found that the nature and character of the non- compete fee received by the assessee was for undertaking restrictive covenant to compete with the business of the assessee directly or indirectly. These are not at all linked with the services rendered in the past or to be rendered in future. Such payments did not spring from relationship of an employer and employee. The nature and scope of activities spelt out in the new services agreement was different and independent from the non-compete agreement. Therefore, the payment cannot be linked directly or indirectly with the employment of the assessee as Managing Director of the Company. Therefore, the non-compete fees is not taxable under the head 'Income from salary'. The non-compete fee is also not taxable under section 28(ii) and 28(iv) of the Act because the assessee was not carrying on any business or profession. Such receipt is also not liable to tax under the head 'Capital Gains' or 'Income from other sources'. The non- compete fees for undertaking restrictive covenants was capital in nature and hence, not liable to tax under any head of income mentioned u/s 14 of the Act. The receipt of a non-compete fees under an agreement has been specifically made taxable under clause ( va ) of section 28 inserted by the Finance Act, 2002 w.e.f . 1.4.2003. The legislature has thought of making such amendment applicable from assessment year 2002-2003. Therefore, the same is not applicable to the assessment year under consideration.

Central Excise

Transfer of Cenvat Credit upon shifting factory - Non-availability of manufacturing facility cannot be bar : Tribunal

IN this interesting case, the department was so attached to the assessee and his assets that they did not want him to shift his factory elsewhere. Probably because the assessee was a manufacturer of aromatic chemicals, essential oils etc.

Any way, the problem started when the assessee applied for transfer of the Cenvat credit lying in his account in terms of rule 8 of the CCR , 2002. They intimated the department regarding shifting of factory and also intimated the detailed stock of inputs/packing materials & the balance lying in the cenvat & account current. Incidentally, a credit of Rs.1 ,01,581 /- was also raised against the inputs lying at job worker's premises.

Central Excise - Kerosene used for extraction of paraffin – retrospective exemption to returned kerosene – no unjust enrichment – refund entitled: Madras High Court

THE writ petitioner, a company incorporated under the Companies Act, 1956 and holder of Central Excise Registration Certificate for the manufacture of Linear Alkyl Benzene ( LAB ) falling under Chapter Heading No.3817.00 of the Central Excise Tariff Act, 1985. Kerosene from which paraffin was extracted, the main raw material for the manufacture of LAB was drawn from the adjacent Madras Refineries Ltd ( MRL ) by pipe line transfer basis. The petitioner extracted paraffin from the kerosene supplied by MRL which in turn was used for the manufacture of LAB . The kerosene so received by the petitioner after being subjected to the process of hydro-generation for extraction of paraffin was returned to MRL through another pipe line. The kerosene received back by MRL was supplied to the Indian Oil Corporation under bond without payment of duty. IOC sold the kerosene so received on payment of duty at the price applicable to kerosene supplied under the Public Distribution System.

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