Law on taxing non-compete fee u/s 28(va) & 55(2)(a) explained

ACIT vs. Dr. B.V. Raju (ITAT Hyderabad Special Bench)

In AY 2000-01, the assessee received Rs. 11 crores pursuant to a non-compete agreement which was for 5 years. The AO held that there was a “transfer” by way of relinquishment of the assessee’s “right to manufacture” and that the same was chargeable to capital gains by taking Nil cost u/s 55(2)(a). This was reversed by the CIT (A) on the ground that the personal skills of the assessee were placed under restraint and as the said personal skills were not a “capital asset”, capital gains was not chargeable. On appeal to the Tribunal, the matter was referred to the Special bench. HELD by the Special Bench: