1. This appeal filed by the assessee involves only one issue viz.
whether the receipt of Rs. 8 crores by the assessee from The Gillette Company of U.S.A. (hereinafter called "Gillette") would constitute his income or will have to be treated as capital receipt.
2. The Assessing Officer discusses in the assessment order that the Balance-sheet of the assessee disclosed an amount of Rs. 8,00,00,000 as receivable from Gillette. In response to the query raised by the Assessing Officer, the assessee filed details and stated that by virtue of a non-compete agreement dated 18-1-1996 between the assessee and Gillette, the sum of Rs. 8 crores became receivable by the assessee from Gillette. The facts of the case as may be culled from the orders of the authorities below, arc being narrated as under.
The assessee had earlier collaborated with Gillette to set up an Industrial Unit in India for manufacturing and marketing shaving blades and other shaving products manufactured by Gillette in U.S.A. The Indian Company known as M/s. Indian Shaving Products Limited (hereinafter referred to as "I.S.P.") was formed thereby of which the assessee remained as a Non- Executive Chairman. However, Gillette continued to remain the major and dominant shareholder of ISP and had full powers to appoint managerial personnel including Managing Director or Chief Executive Officer of ISP. Between 1982 to 1986, the assessee acquired considerable knowledge and expertise in the field of manufacture of shaving blades and other products with special reference to the manufacturing process, sources of raw-materials and the marketing of the products of Gillette. The Assessing Officer discusses in this connection that the assessee was approached by some other concerns to assist and associate with them in setting up a rival unit in India for manufacture of similar products. In fact, the papers produced on our record show that the offer came from one Shri Udayan Bose, Chairman of a London based Company called Credit Capital Finance Corporation Limited (hereinafter referred to as "Credit") under a private and confidential letter dated 15-12-1994 addressed to the assessee, in which it was stated that 'Credit' had been approached by Warner Lambert, manufacturers of 'SCH1CK' brand blades to set up a joint venture in India. Shri Bose confided in the expertise of the assessee in this field and also the successful experience in working with Gillette and wanted the assessee to consider a similar arrangement with SCHICK. Thereafter, the assessee thought it fit on moral grounds to inform Gillette of the position. Gillette requested and prevailed upon the assessee not to assist or associate with any new unit or entrepreneur to produce in Indian products similar to those made by Gillette. Gillette entered into a non-compete agreement with the assessee dated 18-1-1996 wherein the facts relating to the assessee having earned considerable expertise in the field of manufacturing and marketing shaving blades and other products by virtue of his position as Chairman of ISP, the assessee having been approached by a rival concern and the desire of the Gillette of retaining the assessee's support in relation to its international shaving products business outside India were narrated. Thereafter, the actual Clause of the agreement entered into between the two parties was as below : 'In consideration of the premises and Gillette making a payment of Rs. 80 (eighty) million as stated in Clause 3 below, the Covenantor (e.i. the assessee) undertakes that he shall not at any time during continuance of his office as Chairman of I.S.P. or for three years thereafter engage himself whether directly or indirectly and whether as owner, substantial shareholder (at least 5%), Director, Manager, Consultant or in any other manner in any business which undertakes or is engaged in the manufacture marketing or distribution of razors, razor blades, shaving systems or shaving preparations.' 3. The entitlement of the assessee to the abovementioned amount of Rs. 80 (eighty) million (Rs. 8 crores) arose out of the aforesaid agreement with Gillette. The assessee initially claimed before the Assessing Officer that the abovementioned amount of Rs. 8,00,00,000 stood as Capital receipt in his hands since the same had arisen from assessee's intellectual rights, which should be considered as a self-generating asset. The assessee relied on the judgment of the Supreme Court in the case of CIT v. B.C. Srinivasa Setty  128 ITR 294 and also a number of other decisions of different Courts in support of his contention that since the cost of acquisition of the abovementioned intellectual rights was nil, the receipt in the hands of the assessee could not be subjected to capital gains tax.
4. The Assessing Officer, however, referred to the provisions of section 2(24) of the Income-tax Act, 1961 and discussed that the definition of "income" as given therein was merely inclusive and not exhaustive. He furthermore stated that income need not necessarily arise from any business activity, investment, outlay or any enforceable obligation to pay but may even arise out of voluntary payments. The Assessing Officer, after discussing the observations made by the Privy Council in the case of CIT v. Shaw Wallace & Co. AIR 1932 PC 138 to the effect that ordinarily compensation for loss of office is to be regarded as capital receipt, however, held that this rule is subject to exception and that the payments received for termination of office would be revenue in nature in a case where the agency/office was one of the many which the assessee held and its termination did not impair income earning structure of the assessee.
The Assessing Officer thereafter discussed that it was very clear that the assessee had not sold or transferred any asset, tangible or intangible, in any form to the payer of the money, viz, Gillette and hence, there was no question of treating the amount payable under the agreement as profit arising out of transactions in capital assets. The Assessing Officer furthermore discussed that there was no evidence to prove that the assessee relinquished its right to manufacture shaving products in favour of Gillette. The Assessing Officer states in this connection that the right, if any, remained with the assessee even after the execution of the non-compete agreement. The Assessing Officer also discussed in this connection that no major source of income had dried up on account of the said agreement, or in other words, the restraint agreement did not in any way affect the profit making structure of the assessee, nor did it involve a loss of an enduring trading asset. Ultimately, therefore, the Assessing Officer came to the conclusion that it could not be said that the receipt under consideration was a compensation towards loss of source of income.
The Assessing Officer furthermore stated in this connection that the assessee could not produce any evidence that he had received any offer from any other Company engaged in manufacture of shaving products in India to join that organization. The Assessing Officer thus held the entire arrangement to be a colourable device to claim the amount as capital receipt. He relied on the judgment of the Supreme Court in the case of McDowell & Co. Ltd. v. CTO  154 ITR 148 in this connection. The Assessing Officer furthermore mentioned in this connection that the assessee himself had never associated with the day-to-day working of I.S.P., for which purpose there were other qualified personnel engaged separately. The Assessing Officer thus failed to understand how the assesses could generate enough competition as apprehended by the Foreign Company. Ultimately taking into consideration the totality of the facts and circumstances of the case, the Assessing Officer held that the abovementioned sum of Rs. 8 crores was not a capital receipt but was of the nature of income from profession. He thus added back the entire amount as revenue income of the assessee.
5. In the first appeal, the ld. CIT(A) discussed that even if a receipt is not shown as trading receipt in the books of the assessee, there is no bar on the Assessing Officer to treat it so. He stated that the true nature and the quality of the receipt is required to be taken into consideration. By relying on certain decisions of different Courts, he ultimately confirmed the addition of the amount under consideration to the total income of the assessee.
6. When the matter came up before us for hearing, the ld. counsel for the assessee strongly contended that the assessee was never engaged as an Executive of I.S.P. and also did not draw any remuneration from that Company on any account. He thus argued that it could not be said in that way that the amount received from Gillette represents his professional income, inasmuch as, the assessee has never earned any income by exercising his expertise in the field of manufacturing and marketing shaving blades and other related products. He also pointed out that even after execution of the non-compete agreement, the assessee was not put into the charge of any executive operation in I.S.P. He also pointed out that the non-compete agreement does not at all speak of rendering any positive services by the assessee but merely puts a restrain on the activities of the assessee in taking active part in a rival enterprise. Lastly, the ld. counsel for the assessee relied on a number of decisions of different Courts to argue that any receipt made by the assessee in terms of a restraining agreement would constitute capital receipt in his hands not subject to taxation.
7. On the other hand, the ld. D.R. pointed out that the assessee had taken up a completely different stand before the Assessing Officer about relinquishment of his intellectual right to manufacture blades and similar other products. The ld. D.R. stated in this connection that the copy of the letter dated 15-12-1994 of Shri Udayan Bose was not produced before the Assessing Officer or CIT(A). On the other hand, the ld. counsel for the assessee has proved that the copy of the said letter was actually produced before the CIT(A).
The ld. D.R. also reiterated all the arguments taken up by the Assessing Officer in the assessment order. He relied on a judgment of the Supreme Court in the case of CIT v. G.R. Karthikeyan  201 ITR 866 to reiterate the Departmental claim that the definition of income as finding place in section 2(24) is merely inclusive and not exhaustive and hence, receipt not falling within the ambit of any specific clause under that subsection may still be income of the assessee.
8. We feel that the issue is required to be tackled by us by caking into consideration too different and at the same time connected matters. Firstly, the purport of the non-compete agreement under consideration is required to be analysed. The ld. D.R. has tried to point out by referring to Clause (B) of the said agreement with Gillette that Gillette was interested in retaining the support of the assessee in relation to the international shaving products business of Gillette outside India and the payment was made in that view. The Departmental contention in this connection is that since the payment relates to retention of the services of the assessee, the payment has got to be considered as forming income in the hands of the assessee arising out of rendering services to Gillette.
However, in this connection, we are of the view that the main Clause of the agreement (as reproduced above) is required to be taken into consideration for the purpose of ascertaining the true nature of the payment made by Gillette. The earlier Clauses (A), (B), (C), (D) merely state the background of the issue. As per the abovementioned main Clause, the assessee undertook that he shall not at any time during the continuance of his office as Chairman of I.S.P. or for three years thereafter engage himself in a rival activity. It is thus clear that the agreement imposes a restraining duty on the assessee and does not expect any positive activity towards rendering of any services by the assessee to Gillette. There is no other clause in the agreement which may lead to a converse decision. From a plain reading of the agreement, therefore, one has got to be come to the conclusion that the payment under consideration is merely for the assessee undertaking the restraining obligations.
The ld. counsel for the assessee has relied on a judgment of the Supreme Court in the case of Union of India v. Gosalia Shipping (P.) Ltd  113 ITR 307 at page 311. The Supreme Court held in this case that one must have regard to the substance of the matter and, if necessary, tear the veil in order to see whether the true character of a payment was something other than what, by a clever device of drafting, it was made to appear. So far as the instant case is concerned, the provisions of the non- compete agreement are clear enough to convince any one about the real intention of the parties.
Neither any where does the agreement spell out any positive services to be rendered by the assessee in favour of Gillette or even ISP, nor are there anything on record to show that after execution of the said agreement, the assessee started performing such services. On the other hand, the facts of the case are clear enough that the position of the assessee with reference to ISP and Gillette remained the same, even after execution of the non-compete agreement - the assessee remained to continue as the Non-Executive Chairman of ISP not taking part in the day- to-day activities of the said Company, which fact has been acknowledged by the Assessing Officer himself.
Reliance has also been made by the ld. counsel for the assessee on a judgment of the Karnataka High Court in the case of CIT v. Motor industries Co. Ltd.  223 ITR 112 at page 124. The Karnataka High Court discussed in this case as below : 'It cannot be disputed that the surrounding circumstances and the conduct of the parties in regard to a particular transaction the terms whereof are reduced to writing can be helpful for purposes of determining the true intention of the parties but, it is equally true that reference to or reliance upon any such attendant circumstances or conduct would be justified only in cases where the terms of the document are found to be vague or indefinite.' So far as the present case is concerned, the language used in the non-compete agreement is certainly not vague. There is no room even to suspect that in the guise of a restraining clause, what Gillette wanted from the assessee is actual performance of any service of professional nature.
In view of the above position, we must come to the conclusion that the provision towards receipt of the amount under consideration from Gillette being a part of the non-compete agreement and the non-compete agreement merely providing certain restrictions on the assessee in the line of non-undertaking any competitive enterprise hampering with the interests of Gillette, the receipt under consideration must be considered to be directly related to the said restrictive activities and cannot be stretched to be pertaining to any other duties of the nature of active performances.
9. After coming to the conclusion that the receipt represents the compensation for not undertaking any rival activities and in that way is towards restrictive purposes, the next issue for us would be to consider whether the receipt, in the circumstances, can be considered to be of the nature of capital receipt or a revenue one. A large number of decisions have been cited by the ld. counsel for the assessee in support of his argument that a receipt in view of a restrictive clause would be capital in nature. Firstly, reliance has been placed on a judgment of the Chief Court of Sindh in the case of CIT v. Mills Store Co.  9 ITR 642. In that case, that assessee, besides selling its business and goodwill also undertook a restrictive covenant preventing it from carrying on business in the said line for a particular period.
Certain separate payment of Rs, 10,000 per annum for 10 years was made to that assessee in view of the said restrictive covenant. The Court held that the abovementioned sum of Rs. 10,000 was not the direct result of profits or gains accruing to the assessees as a result of business actually carried on by it, and that on the other hand, it was the direct consequence of no business being transacted and, therefore, it did not fall under the head 'profits and gains of business, etc'.
The judgment of the House of Lords in the case of Beak (Inspector of Taxes) v. Robson  11 ITR (Suppl.) 23 is also relied upon in this connection. In that case, it was held that the payment made to the Director for not competing after termination of service had come into effect only when the service was concluded and hence, the said payment could not constitute the revenue income of that assessee.
The ld. counsel for the assessee also relied on a judgment of the Supreme Court in the case of CIT v. Best & Co. (P.) Ltd  60 ITR 11 at page 12, In that particular case also, the assessee-company carrying on business in innumerable lines, had acquired, in the course of its business, selling agencies from manufacturers both in and outside India. In respect of termination of one of such agencies, compensation was paid to that assessee during the three successive years after the said termination. As a condition of paying the compensation, that assessee undertook for a period of five years to refrain from selling or accepting any agency for goods covered by the earlier agency agreement. It was held by the Supreme Court that the compensation agreed to be paid was not only in lieu of the loss of the agency but also for the assessee accepting restrictive covenant for a specific period, which was an independent obligation coming into operation only when the agency was terminated and hence, that part of the compensation which was attributable to the restrictive covenant was a capital receipt and hence, not taxable.
In this connection, the ld. counsel for the assessee has also referred to discussions made by the Calcutta High Court in the case of Gillanders Arbuthnot & Co. Ltd. v. CIT  46 ITR 847 at page 857.
The Calcutta High Court expressed its clear view on the issue under consideration in the following language : "There is no dispute in this case and in view of the authorities there is little room for it that if compensation is paid to an agent on consideration of an undertaking not to engage in any rival business the same would be treated as a capital receipt not liable to income-tax." The judgment of the Madras High Court in the case of CIT v. Saraswathi Publicities  132 ITR 207 has also been tried to be relied upon by the ld. counsel for the assessee. In that case also, it was held that compensation for agreeing to refrain from carrying on competitive business constituted capital receipt not liable to income-tax.
The Supreme Court's decision in the case of CIT v. Bombay Burmah Trading Corpn.  161 ITR 386 at page 401 has also been relied upon in this case. In that particular case, that assessee was prevented from carrying on business of logging and felling trees upon the nationalisation of the forest resources and the consequential acquisition of the residuary rights and assets pertaining to the forest leases belonging to that assessee. It was held that compensation paid to that assessee for residuary rights under the leases in the shape of logs - timber receipt was capital in nature. However, the facts of this case do not seen to have much relevance to those of the present case before us, inasmuch as, in this particular case, the compensation did not relate to any restrictive covenant.
Further reliance has also been placed on the judgment of the House of Lords in the case of Higgs (H.M.) Inspector of Taxes v. Olivier  33 Tax Cases 136. In that particular case, it was held that the payment relating to the restrictive covenant on the activity of the assessee was to be treated as capital receipt.
Finally, the ld. counsel for the assessee has also placed strong reliance on a recent judgment dated 31 -3-2000 in ITA No. 2875/Cal. of 1992 in the case of A.S. Wardekar as decided by I.T.A.T. 'C' Bench, Calcutta. It has been pointed out that in the said case also, almost in similar circumstances, the Tribunal has held that payment pertaining to a restrictive covenant of not engaging himself (the assessee) directly or indirectly for a period of five years from the date of the agreement not only constituted capital receipt in the hands of the assessee but also could not be assessed to tax even as casual and non-recurring receipt.
10. We have already held as above that the receipt under consideration must be considered to be directly related to the restrictive covenant under the non-competing agreement. Under the said agreement, the assessee was not required to render any service at all either to Gillette or to ISP. Hence, the question of treating the receipt amount as professional income of the assessee cannot arise at all. All the judgments as discussed above are clearly in favour of the assessee's contention that a receipt of this nature constitutes capital receipt in the hands of the assessee not being subject to taxation. The assessee might have taken the plea of transfer of intellectual rights before the Assessing Officer but at the stage of the appeal before the Tribunal, the assessee has argued that the receipt pertaining to a restrictive covenant is non-taxable. There is no bar on the assessee taking up this new legal line before the Tribunal. In addition to all the judgments as cited by the ld. counsel for the assessee and as discussed by us as above, we also take guidance from a recent judgment of I.T.A.T., Mumbai Bench--'A' in the case of ITO v. Anilkumar Rudra  71 ITD 96. In that case it was held by L.T.A.T. that the payment received by that assessee after termination of his employment, in terms of a covenant not to accept employment with any other employer could not be held to have been received under the terms of the employment and hence, could not be considered to be of the nature of profits in lieu of salary. The Tribunal also held in that case that the receipt was to be treated as a capital receipt and not assessable in the hands of that assessee.
11. A capital receipt may be of various nature. When a capital asset is transferred, the receipt arising thereby is of the nature of capital receipt. Such receipt would, however, be taxable by way of being capital gains from transfer of capital assets. When there is a loss of the capital structure of a particular assessee or drying up of a source of income, any compensation received by the assessee for such loss would also have to be treated as capital receipt. A pure voluntary donation received by an assessee also constitutes a capital receipt in his hands. At the same time again, another type of capital receipt would be constituted by receipts arising out of restrictive covenants as in the present case. All the decisions with regard to this type of receipt go to hold that such a receipt cannot be treated as a revenue receipt or even as a casual receipt and hence, cannot be subjected to tax. On the other hand, the receipt being of capital nature would escape the provisions of taxation. So far as the present case is concerned, the receipt of Rs. 8 crores being of the nature of capital receipt, cannot be subjected to tax in the hands of the assessee. We, therefore, reverse the orders of the lower authorities and direct the Assessing Officer not to tax the assessee in respect of this amount of Rs. 8,00,00,000, which is being considered by us to be of the nature of non-taxable capital receipt.