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Until now receipts of such nature were treated as capital in nature by the Courts. . In one such case of Automobile Products of India Ltd. (140 ITR 159) the assessee was carrying on business in assembling cars, which was subsequently discontinued. The licence was also cancelled. Subsequently the assessee obtained an industrial licence to manufacture diesel engines in collaboration with Meadows, a foreign company. Even though the assessee was well established in its venture, there was a change in the Government policy whereby licences were to be granted to the automobile industry where the same person should manufacture both engines as well as tractors. Due to lack of foreign exchange, it was not possible for the assessee to secure such a licence. Under the circumstances, it entered into an agreement with Premier Automobiles Limited for the transfer of its undertaking pertaining to the manufacture of Meadows engines. This is a clear case where the assessee had not only stopped its business, but its profit-making apparatus was transferred to another company. The Bombay the High Court held that the amount received by the assessee from Premier Automobiles Limited by way of compensation was a capital receipt.

The Budget however proposes to tax all such receipts under the head business. Henceforth any non-compete fees would be charged to tax as business income. Hence the assessing officer would show keen interest in every such agreement or arrangement in a transaction of sale/acquisition of a business or undertaking.

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