The Mumbai bench in Dr. Nayan C Shah v. Dy CIT (2011) 14taxmann.com 155 held that section 28(va) would lack application only in a situation where the agreement for non competition cause ‘complete cessation of business’. The Mumbai bench interpreted the meaning of clause (a) out of their reading of the proviso whereas ordinary it is the other way round. For a convenient reference, the relevant portion of the section with the proviso is reproduced below:
“(va) any sum, whether received or receivable in cash or kind, under an agreement for–
(a) not carrying out any activity in relation to any business ; or
(b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services.
Provided that sub-clause (a) shall not apply to—
(i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head ‘Capital gains’ ;
(ii) any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone Layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India.
Explanation.–For the purposes of this clause,–
(i) “agreement” includes any arrangement or understanding or action in concert,–
(A) whether or not such arrangement, understanding or action is formal or in writing ; or
(B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings ;
(ii) ‘service’ means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging.” (unquote)
The proviso operate as an exception to the main provision and