Soumitra Pal, J. - (1.) The instant IT Appeal preferred by the Revenue under Section 260A of the IT Act, 1961, against the order passed by the learned Tribunal, Calcutta for the asst. yr. 1989-90 was admitted on 19th Dec., 2000 on the following questions : "(a) Whether, in the facts and circumstances of this case and according to the proper view of the law, the sum of Rs. 1.75 crores received by the assessee for entering into a restrictive covenant of not entering into a competing business with--United Breweries group for a period of five years was receipt by the assessee in the nature of a capital receipt or whether it was a revenue receipt ? (b) Whether in law the said receipt of Rs. 1.75 crores is not capital gain chargeable to capital gains tax but merely capital receipt not chargeable to any tax whether tax or capital gains tax at all ? (c) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition of Rs. 1,74,95,000 made by the AO as per provision of Section 10(3) of the IT Act, 1961 ?"
(2.) The facts found by the learned Tribunal are that the assessee promoted a partnership firm called M/s Western India Erectors (P) Ltd. Later another company known as Western India Erector (P) Ltd. (WIEL) was promoted in 1970 and most of the contracts were taken over by the company but the firm continued. Subsequently, this company was converted into a limited company. Most of the shares were held by the assessee and his close relatives. The company made public issues. The assessee through good offices of his friends and in terms of agreement dt. 28th Oct., 1988 negotiated the sale of all the shares to United Breweries Ltd. (for short "UBL"). The agreement was between the assessee acting for himself and his associates and the UBL. The agreement also had authorised the assessee to enter into the agreement on behalf of the other shareholders who were his relatives, friends and associates. There was also an agreement or reconstitution of WIEL and how after the sale of shares the affairs of WIEL would be managed. The agreement also provided that the assessee would continue on the board of directors as chairman. The assessee agreed to sign such documents and carry out acts and things as would be reasonably required to give effect of the terms of that agreement. The UBL, however, thought it expedient to bind the assessee by written agreement refraining him from undertaking any business similar to the business of the said company as the assessee was carrying on before and could have carried on in future as in the past once he was free from WIEL. Therefore, the assessee and the UBL entered into another agreement whereby the assessee undertook not to engage himself directly or indirectly for a period of five years from the date of agreement in any activity industrial, commercial or otherwise, which in any manner competes or comes into conflict with the existing business and activity of WIEL. In consideration of such undertaking, the UBL agreed to pay to the assessee a sum of Rs. 175 lakhs. The said sum was duly paid by UBL and its associate companies. It was in this background that the assessee had received the aforesaid amount of Rs. 175 lakhs.
(3.) The AO held that the receipt was of casual and non-recurring nature subject to exemption prescribed under Section 10(3) of the IT Act, 1961. Being aggrieved the assessee preferred an appeal. The CIT(A) allowing the appeal held as under : "In the present case, WIEL was public limited company in which even the public financial institutions held substantial stakes. The amount in question as paid to the appellant not by WIEL but by persons who purchased the WIEL's shares from the appellant, his associates and friends. The amount in question was paid in terms of the aforesaid agreement and almost immediately after the same was executed. The appellant continued to remain managing director of WIEL till he resigned on 1st Aug., 1989. It is far-fetched to say that the amount in question was paid to the appellant by the employer by way of compensation on termination of his employment, when in fact, the same was not in any way connected or related thereto.... The amount was specifically paid for the restrictive covenant and for no other consideration. I have already held that the said receipt was a capital receipt and was not synonymous with income. The same was also not casual in nature. I, therefore, hold that the said sum of Rs. 175 lakhs or any portion thereof was not taxable as income of the appellant and was also not taxable as income of the appellant and was also not covered by the provisions of Section 10(3) of the Act. The addition of Rs. 74,95,000 made by the Asstt. CIT is, therefore, deleted.";