ORDER All these appeals are filed by Revenue, directed against separate but identical orders of CIT(A)-I, Visakhapatnam, camp Hyderabad, and relate to asst. yr. 1998-99. As issues arising in all these appeals are common, for sake of convenience, at request of both parties, appeals are clubbed and heard together and disposed of by way of this common order. 2. grounds of appeal raised by Revenue read as under : "1. CIT(A) erred on facts and in law. 2. CIT(A) ought not to have held that provisions of s. 28(ii) are not applicable to consideration received on termination of contracts. 3. CIT(A) ought to have appreciated that restrictive covenant is ruse adopted by assessee to reduce incidence of taxation. 4. CIT(A) ought to have appreciated that in assessee company line of business goodwill does not exist. 5. Any other ground that may be urged at time of hearing." Brief facts of case are as follows. 3. assessee was engaged in business of distribution of soft drinks like Coca Cola, Thums Up, Limca, Maaza, etc., which were produced by Spectra Bottling Co. Ltd. (hereinafter referred to as Spectra). Spectra was franchisee of Coca-Cola Co., USA (hereinafter referred to as TCCC). assessee states that it had developed distribution network marketing soft drinks produced by Spectra and that it has its own line of vehicles which are sent to various distribution points as per requirements. It further states that assessee, during course of its business distribution, had built and developed distribution network as it was also responsible for proper conduct of business of Spectra. franchisee agreement given to Spectra was terminated by business agreement by TCCC and business was purchased by Bharat Coca- Cola South East (P) Ltd. (hereinafter referred to as BCC). BCC purchased business of Spectra as going concern. Pursuant to business agreement between Spectra and BCC, latter entered into agreement with assessee to takeover distribution activity by paying certain consideration for acquisition of goodwill for non-compete agreement. Two separate agreements were drawn up'one for taking over of goodwill and other for non-compete agreement. assessee has reflected amount received by it under these two agreements, in its reserves and surpluses account by treating receipt as capital receipt. 4 . During course of scrutiny proceedings under s. 143(3), on enquiry made by AO, assessee contended that receipts in question were capital receipts and that amount received in pursuance of non-compete agreement was for restrictive covenant and thus capital receipt and that amount towards sale of goodwill had been offered to tax as capital gain and that exemption was claimed under s. 54EA. AO rejected contentions of assessee and grounds for rejection are contained in paras 37 and 38 at pp. 12 and 13 of his order, which are reproduced below for ready reference : "37. To sum up, amount received by assessee for loss of income/ earnings is revenue receipt. Any amount received in lieu of profits which would have been earned if business in said products had remained with assessee, would partake same character as profits. It is held accordingly also for reasons as follows : (a) amount received in guise of compensation for restrictive covenant is in course of business of assessee, therefore, liable to be taxed as such. (b) It is well known fact that in this line of business (soft drink industry), it has been practice to change transactions and therefore, amount received by assessee is in course of business and therefore, is revenue receipt. (c) In present case, there was not even threat of competition, much less there was competition at all as business was being carried on by assessee independently. (d) so-called competition is only imaginary and make belief arrangement and it is incomprehensible that assessee who is distributing agent of Spectra Bottling Co. Ltd., who is also licensed to deal in products in question by BCC, would be in position to compete with BCC in very same line of business. When there was no competition in business and cannot be any restrictive covenant and agreements are as self-serving colourable devices to claim revenue receipt as capital receipt in guise of compensation over restrictive covenant. (e) assessee did not at any stage have any enforceable or otherwise agreement/understanding/contract with BCC. (f) In books of account, principal company (BCC) treated amounts paid as revenue expenditure and where as assessee claimed as received on capital account. This is nothing but planned tax evasion tactics attempted by principal company and assessee company, working in tandem. 38. In view of above discussion, and also for reason that principal company i.e., M/s BCC has treated entire amount paid as revenue expenditure, I hold that receipt of Rs. 4 crores in hands of assessee company constitutes revenue receipt and is exigible to tax." 5 . Alternatively, AO held that amount is liable to tax as compensation for termination of agency under s. 28(ii) of IT Act, 1961. detailed discussions are contained in paras 40 to 64 of assessment order. Further, alternative contention was put up by AO that if receipt is to be considered as capital receipt and not receipt towards compensation for termination of agency, it should be viewed as sale of business as going concern and thus it would attract short-term capital gains tax under s. 50(2) of Act. As he had taken view that entire consideration of Rs. 4 crores is revenue receipt, he has not separately worked out capital gain. 6 . On appeal, first appellate authority, after considering in details submissions of assessee, which are reproduced by him at p. 2 para 4 to p. 7, para 7, came to conclusion that'(a) Invoking provisions of s. 28 and discussing various case law by AO from para 42 onwards is not relevant as appellant is not management agent nor agreement with Spectra was agency agreement and thus provisions of s. 28 do not apply to agreement entered into by assessee with BCC; (b) AO's observation that assessee company did not have any goodwill is not acceptable; (c) amount received by way of non-compete agreement was not amount received as sale price for selling of its business as going concern and by this agreement, assessee was prevented from doing business in similar line and also prevented in disclosure of information to any other person, particularly rival, and assessee had to change its registered name also and as such it is capital receipt. learned CIT(A) relied on judgments of Hon'ble Supreme Court in cases of Kettlewell Bullen & Co. Ltd. vs. CIT (1964) 53 ITR 261 (SC), and Gillanders Arbuthnot & Co. Ltd. vs. CIT (1964) 53 ITR 283 (SC), as well as in case of CIT vs. Best & Co. (P) Ltd. (1966) 60 ITR 11 (SC), and held that assessee had lost entire source of income from this business activity and receipt consequent to termination of business is to be treated as capital receipt only. He directed AO that amount received by way of goodwill should be subjected to tax under head 'Capital gain' and claims of assessee as per provisions of s. 54EA have to be allowed and amount received by assessee under non-compete agreement is not liable to tax as it is capital receipt. Aggrieved by his orders, Revenue is in appeal. 7 . learned Departmental Representative submitted that BCC had taken over number of bottling companies as going concerns in entire country, which involved few hundred crores of rupees and that when company had taken over Hyderabad Bottling Co. Ltd. as going concern for consideration of Rs. 43 crores, amount of Rs. 17 crores was paid to four directors of Hyderabad Bottling Co. and there was no payment whatsoever to distribution company connected with Hyderabad Bottling Co., either towards goodwill or towards non-compete agreement though both groups have more volume of business as compared to Spectra. With this background, learned counsel submitted that first appellate authority was wrong in holding that there was certain confidential information that distribution company possessed. He vehemently contended that there was no confidential information whatsoever and amount received in guise of compensation for non- competition is actually amount received in course of business of assessee and therefore, liable to tax. He took this Bench through order of AO and relied on same. In brief, propositions are : (a) receipt in question is revenue receipt; (b) That terms and conditions stipulated in agreement between assessee company and Spectra while appointing it as distribution agency clearly demonstrate that sale is undertaken by manufacturers i.e., Spectra and role of distributor is only to collect goods from manufacturer from their yard and make delivery at retailers and district dealers; (c) It was manufacturer who would decide all important aspects and distributor was merely to transport products from bottler to assigned dealer network; (d) From this agreement, it was clear that assessee company did not have any confidential information of any sort which could be used against bottlers or his principal and it has no control over product, strategy for marketing, choice of dealership or volume of business, etc.; in sum, it had no control over conduct of business of Spectra; (e) That formula of concentrate supplied by TCCC, which is base material, is not known to distributor; (f) That confidential information comprised in or derived from manuals, instructions, catalogues, booklets, data disks, tapes, source codes, formula cards and flow charts relating to business was all available with BCC and TCCC as it was those companies which had supplied them and thus that information cannot be used against TCCC; (g) That period of restraint is only five years whereas bottlers and TCCC had taken two decades to build up market brand : in brief, Revenue's case is that agreement in question is tailor-made agreement wherein parties have joined to execute self-serving document with view to avoiding payment of tax; (h) That assessee was neither manufacturer of specific brand of products which has generated certain goodwill over period of years nor is having any trademark for any of products and thus question of goodwill does not arise and that agreement regarding goodwill is also edifice. assessee is one among several distributors in State of Andhra Pradesh for these products and as brand name is Coca Cola, there is no influence of distributor over sales, either positively or negatively; (i) That assessee company has no technical competence or financial strength to compete with multi-national giant like BCC and thus, so-called competition is only imaginary and receipt in question being termed as non- compete fee is only guise; (j) That ratio of judgment of Hon'ble Supreme Court in case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), applies as this is colourable device; (k) That if it is not accepted that receipt in question was revenue receipt, then, alternatively, receipt is taxable under sub-cl. (a) of cl. (iv) of s. 28. For this proposition, learned Departmental Representative took this Bench through findings of AO and relied on same. learned Departmental Representative emphasized that Revenue relies more on provisions of s. 28(ii) and that transaction falls within ambit of provisions, making it liable to tax. He also relied on following case law : (i) Kettlewell Bullen & Co. Ltd. vs. CIT (supra) (ii) Vadilal Soda Ice Factory vs. CIT (1971) 80 ITR 711 (Guj) (iii) CIT vs. Dr. R.L. Bhargava (2002) 174 CTR (Del) 50 : (2002) 256 ITR 42 (Del) (iv) K. Ramasamy vs. CIT (2003) 182 CTR (Mad) 640 : (2003) 261 ITR 358 (Mad) (v) Chemplant Engineers (P) Ltd. vs. CIT (1997) 143 CTR (Mad) 75 : (1998) 234 ITR 23 (Mad) (vi) Blue Star Ltd. vs. CIT (1996) 131 CTR (Bom) 387 : (1996) 217 ITR 514 (Bom) (vii) CIT vs. Manna Ramji & Co. 1973 CTR (SC) 210 : (1972) 86 ITR 29 (SC) He therefore, requested that order of CIT(A) be set aside. 8. learned counsel for assessee, on other hand, reiterated contentions raised by him before first appellate authority. He took this Bench through para 4 at pp. 2 to 6 of order of CIT(A), wherein first appellate authority has reproduced written submissions made by assessee before him. He pointed out that CIT(A) has dealt with nature of restrictive covenant at p. 10 of his order and also reproduced certain portions of agreement and relied on observations. salient features of his submissions are as follows : (a) AO's finding is that assessee did not have any written agreement with TCCC while commencing its business and that distribution agreement was with Spectra. (b) restrictive covenant in question was not empty formality as TCCC was aware that over period of years assessee had established wide distribution network and developed outlets which increased turnover of product and confidential information related to such efforts made by assessee for setting up distribution network. (c) TCCC's interest was to neutralise assessee for benefit of its business and prevent it from helping its rivals. (d) AO has no material in his possession to doubt genuineness of averments in agreement. (e) receipt was in pursuance of restrictive covenant and thus capital receipt. He relied on following case law : (1) Kettlewell Bullen & Co. Ltd. vs. CIT (supra) (2) Gillanders Arbuthnot & Co. vs. CIT (supra) (3) CIT vs. Best & Co. (P) Ltd. (supra) (4) CIT vs. Saraswathi Publicities (1981) 132 ITR 207 (Mad) (5) CIT vs. Automobile Products of India Ltd. (1982) 26 CTR (Bom) 116 : (1983) 140 ITR 159 (Bom) (6) Addl. CIT vs. Dr. K.P. Karanth (1983) 139 ITR 479 (AP) (7) CIT vs. Late G.D. Naidu by LRs (1986) 51 CTR (Mad) 256 : (1987) 165 ITR 63 (Mad) (8) V.C. Nannapaneni vs. Asstt. CIT (2005) 95 TTJ (Hyd) 687 : (2005) 94 ITD 309 (Hyd) 9. On issue of goodwill, learned counsel submitted that AO was wrong in inferring that there is no scope for goodwill in this line of business. He relied on judgment of Hon'ble Supreme Court in case of Rustam Cavasjee Cooper vs. Union of India (1970) 40 Comp. Cas. 325, and submitted that goodwill is intangible asset and profits earned for asst. yrs. 1996-97, 1997-98 and 1998-99 show that vast improvement in business of assessee. He submitted that TCCC was aware of this position and came forward t o make substantial payment by acquisition of goodwill. He relied on observations of CIT(A) in para 9 of his order. Alternatively, learned counsel submitted that if it is held that this amount was not received for goodwill, then it partakes nature of capital receipt similar to consideration received for restrictive covenant. 1 0 . On application of s. 28(ii), learned counsel submitted that agreement falls within effect of new cl. (v)(a) of s. 28 introduced w.e.f. 1st April, 2003 and that it does not come within purview of s. 28(ii)(a), (b), (c) and (d). He took this Bench through s. 28(ii) and submitted that Spectra had nothing to do with arrangement between assessee and TCCC and that s. 28(ii) as it stood at material time does not cover this type of cases. He relied on judgment of Hon'ble Supreme Court in case of CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC) and submitted that new provision, s. 28(ii)(v)(a), is not declaratory and retrospective in nature. He further argued that reliance placed by AO on judgment of Hon'ble Andhra Pradesh High Court in case of J.R. Kimtee & Sons vs. CIT (1978) 115 ITR 190 (AP) is misplaced, for reason that facts of that case are quite distinguishable as that was not case of termination of agreement. He vehemently contended that person paying compensation was never associated with transactions involving creation of agency of assessee or in its termination and s. 28(ii) does not apply. He further relied on decision of Tribunal in case of N. Sandeep Reddy vs. Asstt. CIT (ITA No. 70/Hyd/2004) [reported as (2005) 96 TTJ (Hyd) 315'Ed.] as well as in case of Ambica Chemical Products vs. Dy. CIT (ITA No. 238/V/2003, dt. 26th May, 2005) and distinguished case law relied upon by learned Departmental Representative. 1 1 . After closure of hearing on 2nd Dec., 2005, learned CIT (Departmental Representative) filed detailed written submissions as in his opinion written submissions of assessee's counsel before Tribunal contain certain issues which remain to be answered. While submitting that he had orally agreed before Tribunal, Hyderabad Bench 'B', that he had no objection to treat ITA Nos. 534, 533 and 532/Hyd/2002 as heard along with ITA Nos. 537 and 601/Hyd/2002, as issues are same, he would like Bench to consider his written arguments. issues in arguments are same as argued in Court and they pertain to : (a) That assessee is only transport contractor and not distributor and that it does not have any confidential information. (b) That assessee could continue to distribute and transport other (b) That assessee could continue to distribute and transport other products than soft drinks. (c) That assessee did not have any agreement with TCCC while commencing its business and distribution agreement was in fact with Spectra and that it could not be understood as to how assessee could be said to be in possession of confidential information. (d) That though business compulsions of both parties who had entered into agreement have to be considered, it is for assessee to prove before AO to his satisfaction as to how business of TCCC is to be adversely affected by cancelling distribution agreement and in absence of proof to effect that business of TCCC would suffer adverse effect if assessee continues to be in business of distribution of soft drinks, AO was right in arriving at conclusion. Further, that it is for assessee to prove that TCCC claimed above expenditure as capital expenditure and not as revenue expenditure. (e) That assessee's contention that restrictive covenant is not empty formality is not supported by agreement entered into between Spectra and assessee and that in respect of each and every aspect of work relating to sales, it was only manufacturer, i.e., Spectra, which took care. He reiterated contention on confidential information and as to whether it can be said that assessee has any goodwill. In other part of written submissions, he reiterated contentions raised before Bench, trying to distinguish case law. 12. We have heard rival contentions. On careful consideration of facts and circumstances of case and study of case law relied upon by both parties as well as arguments advanced, we are of considered opinion that order of first appellate authority has to be upheld for more than one reason. entire edifice on which AO based assessment was that agreements in question are not bona fide transactions and that these are make-believe or colourable device and thus sham transactions. AO's finding is that these agreements are dubious methods and subterfuge to avoid tax. We find that these conclusions arrived at by AO are based on mere presumptions and conjectures and are not supported by any evidence whatsoever. AO had applied his perception and understanding of business transaction between assessee and BCC and ultimately seems to have come to conclusion that BCC need not have paid any money at all to assessee company, on facts of case as understood by him. first appellate authority has rightly observed that BCC had not done charity. In this context, following observations of this Bench of Tribunal in case of N. Sandeep Reddy (supra) at p. 65, para 32, are relevant : "Threat perceptions should be viewed from angle of NATCO and V.C. Nannapaneni and not from angle of revenue collections. Huge sum of money is not parted by NATCO just like that to unconnected and unrelated person. NATCO recognised rights of assessee as well as his capacity to compete by himself or joining or teaming up with somebody else." Now, we consider each of findings of AO. 13. AO came to conclusion that only function of distributor company is to transport soft drinks from bottlers i.e., Spectra to assigned dealers. In other words, function of assessee company is that of transporter simpliciter. At para 18 on p. 5 of assessment order, AO extracted terms and conditions of agreement between assessee and Spectra which is dt. 1st Aug., 1994. agreement was entered into much before non-compete and goodwill agreements were ever thought of. We reproduce some of terms and conditions of distribution agency agreement, which demonstrate that AO had preconceived notion and wrong understanding of function of assessee company while coming to conclusion that it was just agreement for transporting goods and not agreement for distributorship : Clause 1 of agreement : "The goods i.e., soft drinks bottled by manufacturer will be supplied to distributor who in turn will sell products to retailers or district dealers. In event rates are changed manufacturer will inform distributor with written notice." Clause 2 : "The manufacturer will prescribe rates at which retailer has to sell to consumer and it is responsibility of distributor to regulate and supervise retailer and make sure that product is made available to majority of consumers at suggested retail price." Clause 4 : "The distributor has to service retail outlets at least once in three days and district dealer at least once in week during off season. During peak season service frequency will have to be more often and will be determined by market needs." Clause 6 : "The distributor has to work for business improvement and should take all responsible care to keep up image of manufacturer and Coca Cola Company." Clause 7 : "Sales generation assets such as bottle coolers, hand trolleys, push carts, fountain machine, etc., shall be provided by manufacturer. However, it is responsibility of distributor to place them in ideal location with or without security deposit. It is responsibility of distributor to see that these assets are not misused." Clause 9 : "Distributor has to pay Rs. 10,00,000 towards trade deposit on glass bottles on behalf of manufacturer and details of such transactions will be furnished from time to time by distributor by raising credit/debit note to manufacturer." These terms and conditions clearly demonstrate that assessee's agreement with Spectra in 1994 was not that of transporter simpliciter. In fact, all distributors have substantial sales accounted by them for all these years. Thus, we are unable to persuade ourselves to agree with factual finding of AO that there was no requirement whatsoever for BCC to pay goodwill or any other amount to assessee company for reason that agreement between assessee company and Spectra is one which has no commercial value as it was simple transportation of soft drinks contract and not agreement wherein distributor had number of obligations along with rights and duties to perform. plain reading of these covenants in agreement would lead no prudent person to come to reasonable inference that all that assessee-companies were doing was to transport soft drinks from point to point and nothing else. All acts of assessee, which had been subject-matter of assessment and for disclosed sales and not transport charges, do not support finding of AO and, on contrary, they support stand of assessee. Thus, they have to necessarily conclude that finding of fact by AO was perverse as assessee was distributor and not transporter. 14. second finding of AO is that non-compete agreement dt. 19th Sept., 1997 between assessee company and BCC and agreement for purchase of goodwill dt. 19th Sept., 1997 are dubious device and subterfuges to avoid tax. BCC and assessee company are separate and independent entities totally unconnected and unrelated to each other. BCC has purchased all fixed assets as per balance sheet of assessee company at agreed price. transactions in question can be termed as transactions within group of connected persons. AO has not brought any evidence whatsoever to prove that these agreements are bogus agreements. As stated earlier, all that AO wanted to say that "If I were to decide matter by getting into shoes of BCC, then I would not have made this payment". To hold that transaction is colourable device, there should be something more than mere surmises and conjectures. fact remains that BCC has paid assessee certain amounts in pursuance of agreement entered into between them and taxability or otherwise of these amounts has to be considered by applying settled law to these agreements. Merely saying that we do not believe these agreements, without iota of evidence, cannot be countenanced. Even if it is to be held that assessee had arranged its affairs in such manner as to minimise its tax liability, then it has to be held that citizen has freedom to act in manner according to his requirement, his wishes in manner of doing n y trade, activity or planning his affairs with circumspection within framework of law. 1 5 . Heavy reliance was placed by CIT who represented Department before us, on judgment of Hon'ble Supreme Court in case of McDowell & Co. Ltd. (supra). Courts have considered this judgment of Hon'ble Supreme Court on number of occasions and it has been held that one is unable to read into aforesaid decision that any act of assessee, which results in reduction of his tax liability or expediting tax benefit in future, amounts to colourable device, dubious method or subterfuge to avoid tax. When acts are unambiguous or bona fide, apparent has to be treated as real unless contrary is proved. 1 6 . ratio laid down by Hon'ble Supreme Court in case of McDowell & Co. Ltd. (supra) has been explained by apex Court in case of Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) as follows : "We may in this connection usefully refer to judgment of Madras High Court in M.V. Valliappan vs. ITO (1988) 67 CTR (Mad) 289 : (1988) 170 ITR 238 (Mad), which has rightly concluded that decision in McDowell (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has effect of reducing tax burden of assessee, must be looked upon with disfavour. Though Madras High Court has occasion to refer to judgment of Privy Council in IRC vs. Challenge Corporation Ltd. (1987) 2 WLR 24, and did not have benefit of House of Lords' pronouncement in Craven's case (1988) 3 All ER 495 (HL) : (1990) 183 ITR 216 (HL), view taken by Madras High Court appears to be correct and we are inclined to agree with it. We may also refer to judgment of Gujarat High Court in Banyan & Berry vs. CIT (1996) 131 CTR (Guj) 127 : (1996) 222 ITR 831 (Guj) at p. 850 where referring to McDowell's case (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), Court observed : 'The Court nowhere said that every action or inaction on part of taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as device for avoidance of tax irrespective of legitimacy or genuineness of act; inference which unfortunately, in our opinion, Tribunal apparently appears to have drawn from enunciation made in McDowell's case (1985) 47 CTR (SC) 126 : (1958) 154 ITR 148 (SC). ratio of any decision has to be understood in context it has been made. facts and circumstances which lead to McDowell's (supra) decision leave us in no doubt that principle enunciated in above case has not affected freedom of citizen to act in manner according to his requirements, his wishes in manner of doing any trade, activity or planning his affairs with circumspection, within framework of law, unless same falls in category of colourable device which may properly be called device or dubious method or subterfuge clothed with apparent dignity.' This accords with our own view of matter." At p. 762 of report, it was observed : "If Court finds that notwithstanding series of legal steps taken by assessee, intended legal result has not been achieved, Court might be justified in overlooking intermediate steps, but it would not be permissible for Court to treat intervening legal steps as non est based upon some hypothetical assessment of 'real motive' of assessee. In our view, Court must deal with what is tangible in objective manner and cannot afford to chase will-o'-the wisp." (Emphasis, italicised in print, supplied by us) Hon'ble Supreme Court in case of CIT vs. Motor & General Stores (P) Ltd. (1967) 66 ITR 692 (SC), at 699, observed : "In absence of any suggestion of bad faith or fraud true principle is that taxing statute has to be applied in accordance with legal rights of parties to transaction. When transaction is embodied in document liability to tax depends upon meaning and content of language used in accordance with ordinary rules of construction. In Bank of Chettinad Ltd. vs. CIT, it was pointed put by Judicial Committee that doctrine that in revenue cases 'substance of matter' may be regarded as distinguished from strict legal position, is erroneous. If person sought to be taxed comes within letter of law he must be taxed, however great hardship may appear to judicial mind to be. On other hand, if Crown seeking to recover tax cannot bring subject within letter of law, subject is free, however apparently within spirit of law case might otherwise appear to be." This judgment was followed in case of CIT vs. B.M. Kharwar (1969) 72 ITR 603 (SC), and also applied in case of Bombay Burmah Trading Corpn. Ltd. vs. CIT (1971) 81 ITR 777 (Bom). We have, therefore, to examine transactions as embodied in document and liability to tax depends on true meaning and context of language used in agreements between parties. 1 7 . In case on hand, agreement between Spectra and assessee company was distribution agreement and all these years, assessee had been purchasing soft drinks from Spectra and selling same. In none of previous assessment years Revenue had taken contention that only income that assessee got was transportation charges and not sales. On contrary, all balance sheets indicate that turnover of company was only sales of soft drinks, which included element of transport, but not mere and simple transportation charges. Thus, contention of Revenue mere and simple transportation charges. Thus, contention of Revenue fails. There is no suggestion from Revenue that this agreement was colourable device or subterfuge. 18. Coming to next contention of Revenue that treatment of payment in hands of TCCC has to be considered for purpose of ascertaining whether receipt in question is capital receipt or revenue receipt, we find that it is against settled propositions of law. To give example of case of real estate businessman, sites and buildings are his stock-in-trade and sale of same is revenue receipt. But, if buyer buys it as capital asset, then it would be capital expenditure in hands of buyer and just because real estate dealer treated it as revenue receipt, buyer cannot claim same as his revenue expenditure. Similarly, on contra, if company or individual has fixed asset being land and building, which it holds for number of years as investment/fixed asset and sells same to real estate agent who deals in property, then in hands of seller it is capital receipt and in hands of buyer, who is real estate agent, it is revenue expenditure. legal propositions in this regard are fairly well- settled. 19. Hon'ble Supreme Court in case of Empire Jute Co. Ltd. vs. CIT (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC), held : "It is not universally true proposition that what may be capital receipt in hands of payee must necessarily be capital expenditure in relation to payer. fact that certain payment constitutes income or capital receipt in hands of recipient is not material in determining whether payment is revenue or capital disbursement qua payer." In case of CIT vs. Vazir Sultan & Sons (1959) 36 ITR 175 (SC), Hon'ble Supreme Court observed : "While thus indicating that agency could be treated as capital asset of business this Court guarded itself against its being understood as deciding that compensation paid for cancellation of agency contract must always and as matter of law be held to be capital receipt and it made following pertinent observations : 'Such conclusion will be directly opposed to decision in Kelsall's case and CIT vs. South India Pictures Ltd. fact is that agency contract which has character of capital asset in hands of one person may assume character of trading receipt in hands of another, as for example, when agent is found to make trade of acquiring agencies and dealing with them'." [Emphasis, italicised in print, is ours] apex Court went on to observe : "The agency agreements in fact formed capital asset of assessee's business worked or exploited by assessee by entering into contracts for sale of Charminar cigarettes manufactured by company to various customers and dealers in respective territories. This asset really formed part of fixed capital of assessee's business. It did not constitute business of assessee but was means by which assessee entered into business transactions by way of distributing those cigarettes within respective territories. It really formed profit-making apparatus of assessee's business of distribution of cigarettes manufactured by company. If it was thus neither circulating capital nor stock-in-trade of business carried on by assessee it could certainly not be anything but capital asset of its business and any payment made by company as and by way of compensation for terminating or cancelling same would only be capital receipt in hands of assessee." (Emphasis, italicised in print, is ours) Thus, we hold that manner in which TCCC had treated payment in its books of account does not in any way help in coming to conclusion as to whether receipt in question was capital receipt or revenue receipt. 20. Now, we consider terms of agreements and tax effect. In non-compete agreement dt. 19th Sept., 1997, it was mentioned as follows : "1. Scope of agreement (a) In consideration of amount set forth below, covenantor covenants and agrees that, for five (5) years from execution hereof covenantor shall not at any time disclose to any person for any purpose or use n y confidential information in any business or venture, either directly or indirectly through any person, firm, company or other body corporate in which covenantor owns equity or otherwise, in and around State of Andhra Pradesh. (b) Covenantor further agrees that after execution hereof it shall use all reasonable endeavours to prevent publication or disclosure of any confidential information. (c) For purposes of this agreement, confidential information shall mean all information (including that comprised in or derived from manual instructions, catalogues, booklets, data disks, tapes, source codes, formula cards and flow charts) relating to business of covenantor and that of BCC, if any, in possession or control of covenantor and services provided. (d) At any time after execution hereof, covenantor shall not do anything which might prejudice carrying on by BCC of business of bottling and distribution of TCCC trademarked products. 2. Each covenant contained in this agreement shall be construed as separate covenant and if one or more of covenants is held to be against public interest or unlawful or in any way unreasonable restraint of trade, remaining covenants shall continue to bind covenantor. 3........ 4. covenantor shall promptly refer to BCC all enquiries relating to business of covenantor as existing prior to this agreement and assign to BCC (so far as it is able) all orders relating to business which covenantor may in future receive. 5...... 6. covenantor shall not during subsistence of this agreement whether directly or indirectly, engage or acquire or continue to maintain investment interest in any other entity engaged whether directly or indirectly in t h e business of distribution or transportation of soft drink beverages. Notwithstanding anything contained in this section, covenantor may continue to distribute or transport any product or provide services in respect of any product other than soft drink beverages." plain reading of these covenants contained in agreement clearly indicate that there was impairment of capital structure or profit-making apparatus to extent of products specified in agreement. assessee had specialised knowledge, business control and expertise and experience along with reputation and goodwill in field of distribution of soft drinks as is evident from activities carries on and returns filed by assessee for last several years and in pursuance of above referred agreement, assessee was prohibited from distributing soft drink beverages. He is also prevented from disclosing to any person any confidential information and it is provided that it shall be endeavour of assessee to prevent publication or disclosure of any confidential information. assessee is also prevented from doing anything which might prejudice BCC's business of bottling and distribution for period of five years and shall also promptly refer to BCC all enquiries relating to business of distribution of soft drinks. In agreement for purchase of goodwill, in cl. 5 at p. 3, assessee is required to even change its registered name within 60 days. distribution agreement with Spectra formed capital asset of assessee's business, and this distribution agreement was means with which assessees entered into business transactions and that which assessees worked or exploited. distribution agreement constituted or formed part of fixed capital of assessees' business and it was neither stock-in-trade nor circulating capital of assessees. It really formed profit-making apparatus of assessees' business. 21. It is necessary to bear in mind following principles enunciated by various Courts, including Hon'ble Supreme Court : (A) In case of Blue Star Ltd. (supra), Hon'ble Bombay High Court observed that if payment is made to compensate person for cancellation of contract which does not affect trading structure of recipient's business nor deprive recipient of what in substance is source of income, termination of contract being normal incident of business, and such cancellation leaving recipient of amount free to carry on his trade, receipt is 'revenue'. However, whereas by cancellation of agency, trading structure of assessee is impaired and such cancellation results in loss of what may be regarded as source of assessee's income, payment made may be regarded as one made for loss of source of assessee's income, and such payment made to compensate for such cancellation of agency is normally 'capital receipt'. (B) In case of CIT vs. Dr. R.L. Bhargava (supra), Hon'ble Delhi High Court extracted following observations of Hon'ble Bombay High Court in case of CIT vs. Ralliwolf Ltd. (1983) 32 CTR (Bom) 79 : (1983) 143 ITR 720 (Bom), to come to conclusion that if there had been no absolute parting by assessee with technical know-how and consideration was received for imparting know-how, not in association with disposal of capital asset, such receipt should be treated as revenue receipt : "The legal opposition on these authorities, therefore, is that know-how is not strictly fixed asset and nature of receipts from know-how would essentially depend upon transactions out of which receipts arise and context in which receipts are received. If imparting of know-how is really in nature of services rendered without anything more, receipt must be treated as revenue receipt. But, when consideration is received for imparting in association with disposal of capital asset, then receipt will have to be treated as capital receipt." (C) In case of Vadilal Soda Ice Factory vs. CIT (supra), Hon'ble Gujarat High Court observed that if amount was received as compensation for loss of profit, it was revenue receipt liable to tax. (D) In case of K. Ramasamy vs. CIT (supra), Hon'ble Madras High Court observed that if purpose of deed of compensation in reality was only to screen payment made under that deed from liability to income in hands of assessee, it should be treated as revenue receipt. (E) In case of Ram Kumar Agarwalla & Bros. vs. CIT (1967) 63 ITR 6 2 2 (SC), Hon'ble Supreme Court observed that if consideration was received towards remuneration for services rendered and not for refraining from competing in purchase of controlling interest, receipt must be regarded as revenue receipt. (F) In case of CIT vs. Manna Ramji & Co. (supra), Hon'ble Supreme Court observed that in order to resolve controversy as to whether receipt is of revenue character or capital in nature, one must try to ascertain true nature and character of payment. In borderline cases, controversy has to be resolved on facts and circumstances of individual case. If payment is received on account of sterilisation and destruction of capital asset and if assessee was permanently deprived of source of income, it could be held as capital receipt; otherwise, it is revenue receipt. (G) In case of CIT vs. Shamsher Printing Press (1960) 39 ITR 90 (SC), Hon'ble Supreme Court observed that if amount was received for injury to assessee's capital assets including goodwill, it would be treated as capital receipt, and if it was received as compensation for loss of profit, it was revenue receipt liable to tax. (H) In case of Gillanders Arbuthnot & Co. Ltd. vs. CIT (supra), apex Court observed that there is no immutable principle that compensation received on cancellation of agency must always be regarded as capital. If by cancellation of agency trading structure of assessee is impaired, payment should be treated as capital receipt. In this regard, Court followed its earlier decision in case of Kettewel Bullen & Co. Ltd. (supra). Further, having regard to vast area of business done by assessee as agent, it was held that acquisition of agency was in normal course of business and determination of individual agencies normal incident not affecting or impairing trading structure and, therefore, amount received for cancellation of such agency did not represent price paid for loss of capital asset. However, if compensation was for agreeing to refrain from carrying on competitive business in commodities in respect of agency terminated, or for loss of goodwill, such receipt was held to be in nature of capital receipt. (I) In case of Godrej & Co. vs. CIT (1959) 37 ITR 381 (SC), apex Court observed that although language used in resolution was not decisive and question had to be determined by consideration of all attending circumstances, it could not be ignored altogether but had to be taken into consideration along with other relevant circumstances. It was further observed that if compensation was for deterioration or injury to managing agency, receipt is capital in nature. (J) In case of P.H. Divecha vs. CIT (1963) 48 ITR 222 (SC), apex Court observed that if payment was not received to compensate for loss of profit of business, it cannot be described as income. To constitute income, profits or gains, there must be source from which particular receipt has arisen, and connection must exist between quality of receipt and source. If payment is by another person, it must be found out why that payment has been made. It is not motive of person who pays that is relevant. More relevance attaches to nature of receipt in hands of person who receives it. Whether amount involved was large or was periodic in character has no decisive bearing. description of payment is not determinative of its quality. In that case, firm which was conducting business in electrical goods entered into agreement with company under which firm was given exclusive rights to purchase and sell electric lamps manufactured by company. Upon termination of such agreement, company paid compensation. Court observed that agreement secured to firm advantage of enduring nature and was not ordinary trading agreement and thus receipt is capital in nature. (K) In case of Addl. CIT vs. Dr. K.P. Karanth (supra), assessee having technical know-how for manufacture of drugs, had given up his right to manufacture drugs and such receipt was held to be capital in nature. (L) In case of CIT vs. G.R. Karthikeyan (1993) 112 CTR (SC) 302 : (1993) 201 ITR 866 (SC), Hon'ble Supreme Court observed that expression "income" should be given wider meaning and though income is casual in nature, it can nevertheless be treated as income assessable to tax. (M) In case of Elegant Chemicals Enterprises (P) Ltd. vs. Asstt. CIT (2004) 85 TTJ (Hyd) 441 : (2004) 271 ITR 56 (Hyd)(AT), this Bench had occasion to consider issue as to whether amount received by assessee is capital or revenue in nature. In that case, Bench observed that surrounding circumstances have to be taken into consideration to find out reality of recitals made in documents, and by applying test laid down by apex Court, it was held that particular receipt was revenue receipt liable for taxation. Bench observed that totality of circumstances indicate that trading structure of assessee was not impaired and it was normal incident of business, i.e., loss of future profits. (N) In Kettlewell Bullen & Co. Ltd. vs. CIT (supra) and Gillanders Arbuthnot & Co. Ltd. vs. CIT (supra), Hon'ble Supreme Court has laid down principles that are applicable in case of receipts on account of restrictive covenants. In Gillanders Arbuthnot & Co.'s case (supra), it was observed : "It cannot seriously be disputed that compensation paid for agreeing to refrain from carrying on competitive business in commodities in respect of which agency was terminated or for loss of goodwill as prima facie being of nature of capital nature." (O) Visakhapatnam Bench of Tribunal in case of Ambica Chemical Products (supra) considered at length case law on restrictive covenant as well as effect of insertion of cl. (va) of s. 28(ii) w.e.f. 1st April, 2003, and taxability under s. 55. As that order of Tribunal was available to both parties and as it has been relied upon at length, for sake of brevity, we do not reproduce extracts from order. Suffice it to say that decision is in line with pleadings of assessee before us. (P) order of Hyderabad Bench 'B' of Tribunal, in case of V.C. Nannapaneni (supra) supports case of assessee. Both assessee and Revenue placed reliance on that order. As regards number of other cases cited by both parties, we observe that propositions in those cases are applicable to peculiar facts of those cases only. Suffice it to say, each case turns on peculiar facts of that case, general propositions of law remaining t h e same, i.e., law as enunciated by Hon'ble apex Court in various judgments. Thus, amount has been received by assessee for covenants which have caused impairment to income earning apparatus of assessee, and for sterilisation and destruction of capital asset as it is not to carry on particular line of business i.e., distribution of soft drinks for particular period due to which assessees herein were deprived of source of income. covenants affect or impair trading structure itself of assessees before us and thus, it is capital receipt. 22. To sum up, recent decision of Hon'ble Calcutta High Court in case of CIT vs. Saroj Kumar Poddar (2006) 200 CTR (Cal) 616 : (2005) 279 ITR 573 (Cal), wherein it has considered various High Court judgments as well as judgment of Hon'ble Supreme Court, is applicable to facts of this case. At pp. 576 to 578, Hon'ble High Court observed as follows : "In CIT vs. Best & Co. (P) Ltd. (1966) 60 ITR 11 (SC), respondent was company carrying on business including distribution of their explosives of Imperial Chemical Industries (Exports) to Glasgow. Imperial Chemical Industries (Exports) Ltd., Glasgow, decided that all its agencies in India should be taken over by Imperial Chemical Industries (India) Ltd., and gave notice to respondent terminating agency from 1st April, 1948. On termination of agency some compensation has been paid which includes compensation for undertaking of assessee, that assessee for five years shall refrain from selling or accepting any agency for explosives competitive with those covered by agency agreement. question before Their Lordships whether amount o f compensation for 'non-compete agreement' is revenue receipt. Their Lordships held that receipt is capital receipt and not taxable. At p. 22, their Lordships observed as under : 'In present case, covenant was independent obligation undertaken by assessee not to compete with new agents in same undertaken by assessee not to compete with new agents in same field for specified period. It came into operation only after agency was terminated. It was wholly unconnected with assessee's agency termination. We, therefore, hold that part of compensation attributable to restrictive covenant was capital receipt and hence not assessable to tax.' (Emphasis, italicised in print, supplied) In Gillanders Arbuthnot & Co. Ltd. vs. CIT (1962) 46 ITR 847 (Cal), issue before this Court was that compensation received on termination of several agencies as consideration for termination, whether receipt in form of compensation should be treated as capital receipt. This Court held that as undertaking not to engage in competitive business was not given, no part of compensation money was received by assessee on condition not to carry on competitive business in explosives, consequently, no part thereof was exempted from IT Act. In CIT vs. Bombay Burmah Trading Corporation (1986) 58 CTR (SC) 144 : (1986) 161 ITR 386 (SC), issue before Their Lordships was what should be nature of compensation received against termination of lease of cutting and removing timber. Their Lordships held that amount of compensation receipt is capital receipt. In CIT vs. Saraswathi Publicities (1981) 132 ITR 207 (Mad), issue b e f o r e Madras High Court was what should be nature of compensation received under agreement to refrain from carrying on competitive business. Madras High Court, following decision of Their Lordships of Supreme Court in case of CIT vs. Best & Co. (P) Ltd. (1966) 60 ITR 11 (SC), has taken view that amount of compensation is capital receipt and not liable to income-tax. In CIT vs. Automobile Products of India Ltd. (1982) 26 CTR (Bom) 116 : (1983) 140 ITR 159 (Bom), assessee was manufacturing diesel engines in collaboration with foreign company. Due to paucity of foreign exchange assessee has transferred its undertaking and given up licence for manufacture of engines to some other company. giving up of licence has affected profit-making structure of assessee's business for that he received payment against loss of opportunity to make profits under collaboration agreement taken in conjunction with industrial licence. Court held that amount received as compensation is capital receipt. In CIT vs. Late G.D. Naidu by LRs (1986) 51 CTR (Mad) 256 : (1987) 165 ITR 63 (Mad), dispute before Madras High Court was that compensation received by assessee for not carrying on bus business for five years, whether payment was 'restrictive covenant' is revenue receipt. deceased and his son with others were partners in five different firms carrying on business. During year 1963-64 relevant for asst. yr. 1964-65, all old partners of firms retired in stages so that by 1st April, 1964 all various firms were composed of entirely new groups of partners. deceased and his son were paid varying amounts by various firms to ward off competition from them in regard to bus service business. firms in their assessments claimed this amount as revenue expense. assessee (deceased and his son) claimed that amount received from various firms towards restrictive covenant is not taxable as it is capital asset. Madras High Court has taken view that amount of compensation is not liable to tax either as income or capital gains. From decisions referred above it is made clear that if amount of compensation has been received not to compete in business from person who paid amount, amount received cannot be taxed as income." 23. main contention of Revenue as per learned Departmental Representative is that receipt in question is compensation in connection with termination of agency, for which reliance has been placed on s. 28(ii). Sec. 28(ii) as it stood for impugned assessment year reads as follows : "28. Profits and gains of business or profession.'The following income shall be chargeable to income-tax under head 'Profits and gains of business or profession',' (i)..........; (ii) any compensation or other payment due to or received by,' (a) any person, by whatever name called, managing whole or substantially whole of affairs of Indian company, at or in connection with termination of management or modification of terms and conditions relating thereto; (b) any person, by whatever name called, managing whole or substantially whole of affairs in India of any other company, at or in connection with termination of his office or modification of terms and conditions relating thereto; (c) any person, by whatever name called, holding agency in India for any part of activities relating to business of any other person, at or in connection with termination of agency or modification of terms and conditions relating thereto; (d) any person, for or in connection with vesting in Government, or in any corporation owned or controlled by Government, under any law for time being in force of management of any property or business;" new clause, cl. (va), was introduced w.e.f. 1st April, 2003, which was not in statute during impugned assessment years, reads as follows : "(va) any sum, whether received or receivable, in cash or kind, under agreement for' (a) not carrying out any activity in relation to any business; or (b) not sharing any know-how, patent, copyright, trademark licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in manufacture or processing of goods or provision for services : Explanation.'For 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 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;" first issue is whether provision of this clause is declaratory or retrospective in nature, as this clause was not in Act during impugned assessment year. We do not think so. provision introduced is of substantive character. legislature has not made this amendment retrospective either expressly or by necessary implication. On contrary, it is specifically stated that it is w.e.f. 1st April, 2003. Hon'ble Supreme Court in case of P. Mahendran vs. State of Karnataka (1990) 1 SCC 411, has laid down : "Every statute or statutory rule is prospective unless it is expressly or by necessary implication made to have retrospective effect. Unless there are words in statute or in rules showing intention to effect existing rights, rule must be held to be prospective. If rule is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only. In absence of any express provision or necessary intendment, rule cannot be given retrospective effect in matter of procedure." (para 1) In coming to conclusion that cl. (va) of s. 28, which was introduced w.e.f. 1st April, 2003, is not retrospective or retroactive nature, we draw strength from following case law : (i) Shyam Sunder & Ors. vs. Ram Kumar & Anr. (2001) 8 SCC 24; (ii) Gem Granites vs. CIT (2004) 192 CTR (SC) 481; (iii) S.S. Gadgil vs. Lal & Co. (1964) 53 ITR 231 (SC); (iv) K.M. Sharma vs. ITO (2002) 174 CTR (SC) 210 : (2002) 254 ITR 772 (SC); (v) National Agricultural Co-operative Marketing Federation of India Ltd. vs. Union of India & Ors. (2003) 181 CTR (SC) 1 : (2003) 260 ITR 548 (SC); (vi) A.P. Civil Supplies Corpn. Ltd. vs. Dy. CIT (2003) 78 TTJ (Hyd) 988 : (2002) 83 ITD 398 (Hyd); (vii) Sri Chaitanya Educational Committee vs. CIT [ITA No. 887/Hyd/2004, Tribunal, 'B' Bench, Hyderabad]. 24. That leaves us with issue as to whether receipt in question falls within cls. (a) to (d) of s. 28(ii). case of Revenue is that receipt falls specifically within ambit of s. 28(ii)(c). Before dealing with this issue, we once again, at cost of repetition, state facts to extent they are relevant for determination of this particular issue. 25. agreement of distribution was entered into between Spectra and assessee company on principal-to-principal basis in year 1994. It was neither agency agreement nor agreement for managing whole or substantially whole affairs of any company. There is nothing on record to show that this distribution agreement was terminated either by Spectra or by assessee. There is no agreement between BCC and assessee which can be termed as agency agreement. BCC has paid amount to assessee on its own and document does not show that it was paid for termination of any agency, nor was payment made at instance or on behalf of Spectra. 26. Thus, on plain reading of s. 28(ii) and applying same to facts of this case, we are unable to persuade ourselves to agree with contentions of learned Departmental Representative (CIT). What s. 28(ii) specifically deals with is with reference to compensation for general termination of agency or modification of terms and conditions relating thereto. These provisions were brought in only in context of managing agency agreements. assessee in its own right distributed products bottled by Spectra in pursuance of distribution agreement, which definitely is not agency agreement. first appellate authority, in case of Kode Enterprises (P) Ltd. in his order dt. 11th March, 2002, observed at para 8, p. 9, as follows : "I agree with appellant's submissions. Invoking provisions of s. 28 and discussing various case law by AO from para 43 onwards is not relevant as appellant is not management agent nor agreement with Spectra was agency agreement. So, I hold that provisions of s. 28 do not apply to agreement entered into by appellant with that of BCC." We agree with findings of first appellate authority at para 8 on p. 11 of his order that receipt in question does not fall within ken of s. 28(ii) of Act. Thus, receipt in question was for restrictive covenant inasmuch as assessee had carried on business in soft drinks and had established distribution network and market for itself and this business was discontinued at instance of TCCC who started their own network of distribution of soft drinks manufactured by them and had entered into agreement whereby assessee was restrained from carrying on its business in soft drinks any longer for particular period time, i.e., 5 years, and assessee had even to change for particular period time, i.e., 5 years, and assessee had even to change its name and if it so desired to start separate and distinct line of business in compliance with agreement. This resulted in entire business structure of assessee in line of soft drinks distribution being impaired or destroyed. This is no compensation received for termination of agency. Thus, what assessee received was compensation for loss of its source of business and no compensation for loss of income or profit and thus it was capital receipt not exigible to tax. 2 7 . This brings us to issue of goodwill. As already discussed, perception of AO that there is no requirement for BCC to pay goodwill to assessee company as it was mere transporter and not distributor and dealer in soft drinks is not borne out by record or evidence. On contrary, assessee submitted following statistics which show that they were marketing products of Spectra as distributors and there was substantial improvement in business of assessee : Assessment Particulars year 1996-97 1997-98 1998-99 Sales 5,31,24,821 11,43,03,420 11,29,28,752 Other 3,20,186 2,74,825 13,51,296 income Profit for 23,71,844 88,19,305 1,04,42,471 year agreement of goodwill clearly shows that BCC acknowledged fact that assessee company had goodwill and had agreed to pay for same. basis on which such goodwill is to be quantified is given in agreement itself. We do not understand as to how Revenue contends that there is no goodwill whatsoever in this case, especially when assessees have developed distribution network and have achieved sales figures in crores of rupees. AO cannot simply state that he disbelieves agreement, as in his perception there is no goodwill whatsoever, that too, without any rhyme or reason. We are dismayed at observations made by AO which are without iota of evidence that agreement in question is make-believe agreement. 2 8 . Hon'ble Supreme Court, in Rustam Cavasjee Cooper's case (supra) observed that "Goodwill of business is intangible asset; it is (supra) observed that "Goodwill of business is intangible asset; it is whole advantage of reputation and connections formed with customers together with circumstances making connections durable. It is that component of total value of undertaking which is attributable to ability of that concern to earn profits over course of years or in excess of normal amounts because of its reputation, location and other features. Goodwill of undertaking, therefore, is value of attraction to customers arising from name or reputation for skill, integrity, efficient business management or efficient service." (p. 385). 29. At para 9 on p. 8 of order of CIT(A) in case of Sri Kode Enterprises (P) Ltd., first appellate authority held as follows : "I also do not agree with AO's observation that appellant-company did not have any goodwill. Goodwill is intangible asset and valuation of which is of little cumbersome procedure. Even according to AO appellate-company cannot compete with giant like Coca-Cola. Then why should Coca-Cola pay large sums of amount to appellant. Certainly, this is n o t charity. Unless, Coca-Cola finds importance of appellant- company in damaging its business interest in India, there is no necessity to pay any amounts to appellant-company. As there are two agreements with which appellant was first prevented in undertaking same business and next in disclosing information in its possession and also for purchase of goodwill. goodwill was offered to tax so observation of AO that it did not offer same to taxation in para 2 was not correct. What appellant did was to claim exemptions under capital gains provisions which was permitted under statute. AO is not correct to analyse issue of goodwill as this issue is in purview of two companies and they have entered into these agreements after analysing issues and negotiations with various bottlers and agents. Hence, amount of goodwill received by appellant-company is to be treated as goodwill alone and as appellant-company disclosed this and offered to tax as goodwill, there is no need to treat this as revenue receipt. Moreover, even Coca-Cola treated them as goodwill only and claimed depreciation thereon. Hence, I direct AO to treat it as goodwill to be taxed under capital gains." We fully agree with his view and uphold same. Thus, this ground of Revenue is dismissed. 30. Though there is no specific ground taken by Revenue, AO had invoked provisions of s. 50(2) at para 65 of his order and learned CIT (Departmental Representative) has referred to same. Firstly, this issue cannot be gone into by Tribunal as not even additional ground is taken by Revenue. Tribunal's powers are strictly confined to subject-matter in appeal, as held in'(1) CIT vs. Krishna Mining Co. (1977) 107 ITR 702 (AP); (2) CIT vs. Late Begum Noor Banu Alladin (1993) 115 CTR (AP) 448 : (1993) 204 ITR 166 (AP); (3) Hukumchand Mills Ltd. vs. CIT (1967) 63 ITR 232 (SC); and (4) Pathikonda Balasubba Setty vs. CIT (1967) 65 ITR 252 (Mys). Thus, mere mention by way of reading order of AO does not empower us to go into issue. Even otherwise, s. 50(2) refers to block of assets ceasing to exist as such by reason of transfer of entire "block of assets". term "block of assets" is defined in s. 2(11) of Act and comprises of certain tangible assets as well as intangible assets, but primary requirement is that rate of depreciation has to be prescribed i.e., in other words, asset should be depreciable asset. E.g., "land" does not fall in "block of assets" though it is tangible asset. Thus, amount received for restrictive covenant cannot be said to have been received for transfer of asset which forms "part of block of assets". AO has not stated as to how he considers these receipts as those which are received for transfer of "block of assets" nor has he given any finding that in fact, after transaction, there are no more assets left in block. Without factual finding that block of assets ceased to exist, s. 50(2) cannot be invoked. Even if it is taken as capital asset, then, on merits, assessee relied on decision of Visakhapatnam Bench of Tribunal in case of Ambica Chemical Products (supra) for asst. yr. 1996-97, order dt. 26th May, 2005. issue of levy of capital gains has been discussed at length from p. 39 onwards in that order. For ready reference, we reproduce below relevant portion of order : "19....... Thus, main question before us is whether for agreeing to such covenant to chargeable capital gains under s. 45 of IT Act. For levy of capital gains under s. 45, three ingredients should co-exist : (1) there should be capital asset; (2) there should be transfer of such capital asset; and (3) profit or gain must arise from transfer of such capital asset. So far as first two ingredients were concerned, there is no dispute on assessee's side that right to manufacture or agreeing not to manufacture whole would constitute capital asset within meaning of s. 2(14) and further that aforesaid clause in agreement constituted transfer of capital asset as per definition contained under s. 2(47). However, with regard to third ingredient regarding capital gains arising from agreeing to not to manufacture scented Agarbatti and not to compete with AAA directly or indirectly for period of 20 years, provisions concerning computation of capital gains as contained under s. 48 which contain three elements, viz., cost of acquisition and cost of improvement as well as date of acquisition for working out capital gains are not applied as these essential ingredients are not ascertainable and, therefore computation provisions would be incapable for computing capital gains. charging section and computation provisions too constitute integrated fiscal code. In present case computation provisions contained under s. 48 failed and, therefore consideration received for agreeing not to manufacture would not fall within purview of charging section. 20. Sec. 45 is charging section. For purpose of imposing charge, Parliament has enacted detailed provisions in order to compute profits or gains under that head. No existing principal provision at variance with them can be applied for determining chargeable profits and gains. All transactions encompassed by s. 45 must fall under governance of its computation provisions transaction to which those provisions cannot be applied must be regarded as never intended by s. 45 to be subject of charge. This inference flows from general arrangement of provisions in Act where under each head of income charge provision is accompanied by set of provisions for computing income subject to that charge. 21. In case of Sunil Siddharthbhai vs. CIT (1985) 49 CTR (SC) 172 : (1985) 156 ITR 509 (SC) : (1985) 23 Taxman 14W (SC), Supreme Court has observed that provision of s. 48 is fundamental to computation machinery incorporated in scheme relating to determination of charge provided in s. 45 and where s. 48 cannot be effectuated, such case must be regarded s falling outside scope of capital gains taxation altogether. Right to manufacture has been generated over period since assessee was engaged in this business. It would not be possible to conceptualise cost of acquisition of such right as well as date of acquisition thereof. If cost of acquisition and/or cost of acquisition of asset cannot be determined, then it cannot be brought within purview of s. 45 for levy and computation of capital gains. Looking to nature and character of capital asset being right to manufacture/or carrying on particular business in instant case, consideration realized by assessee would be outside purview of capital gains under s. 45. 22. Regarding date of acquisition and cost of acquisition, essential fact was truly unascertainable and understandable, no attempt had been made by AO to identify same. AO had sought to overcome difficulty by treating consideration as if colourable device has been adopted by assessee to evade taxes. Even AO went on by observing it is some sort of long-term lease ignoring fact that 'right to manufacture or right to carry on business' is capital asset. Thus, in our opinion, computation provisions failed and no capital gain would be chargeable under s. 45. If law fails to bring subject within letter, Department cannot succeed with argument that subject falls within spirit of law. It is settled law that if computational provisions contained under s. 48 cannot be satisfied, no capital gain is leviable on transfer of capital assets in view of following decisions : (1) CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) (2) Evans Fraser & Co. Ltd. (In liquidation) vs. CIT (1981) 25 CTR (Bom) 128 : (1982) 137 ITR 493 (Bom) (3) Addl. CIT vs. Ganapathi Raju Jogi, Sanyasi Raju (1979) 119 ITR 715 (AP) (4) Addl. CIT vs. Ganpathi Raju Jogi (1993) 200 ITR 612 (SC) (5) Bawa Shiv Charan Singh vs. CIT (1985) 47 CTR (Del) 12 : (1984) 149 ITR 1 (Del) (6) CIT vs. Markapakula Agamma (1987) 63 CTR (AP) 108 : (1987) 165 ITR 386 (AP) (7) CIT vs. Chive Mills Co. Ltd. (In liquidation) (1983) 36 CTR (Cal) 300 : (1986) 148 ITR 14 (Cal) (8) CIT vs. Suman Tea & Plywood Industries (P) Ltd. (1997) 140 CTR (Cal) 454 : (1997) 226 ITR 34 (Cal) (9) Sri Krishna Dairy & Agricultural Farm vs. CIT (1987) 65 CTR (AP) 44 : (1988) 169 ITR 291 (AP) (10) Addl. CIT vs. K.S. Sheikh Mohideen (1979) 8 CTR (Mad)(FB) 84 : (1978) 115 ITR 243 (Mad)(FB) (11) Voltas Ltd. vs. Dy. CIT (1998) 64 ITD 232 (Mumbai) legislature was also fully aware of this legal position and therefore it has amended s. 55(2)(a) and consequently incorporated definition of 'cost of acquisition' in respect of number of all assets and profit for taking cost of such assets to be nil. Initially, amendment was made to take cost of goodwill to be nil with effect from asst. yr. 1988-89. Thereafter, with effect from asst. yr. 1995-96, cost of acquisition of tenancy rights to be nil. With effect from asst. yr. 1998-99, cost of acquisition of right to manufacture, produce and process any article or thing was taken to be nil and thereafter from asst. yr. 2002-03, cost of trademarks associated with business was taken to be nil. Finally, with effect from asst. yr. 2003-04, it has been provided that cost of acquisition of right to carry on any business is taken to be nil. Till said amendments no capital gain is leviable on transfer of any of above assets for simple reason that computation provisions of s. 48 failed. They were all capital assets and technically, taxes under head 'Capital gains' are chargeable on transfer in terms of s. 45, but only because their cost of acquisition and their cost of improvement in terms of s. 48 were not ascertainable in respect of these assets no capital gain tax was chargeable on transfer of these assets. We find that case of assessee relates to asst. yr. 1996-97. amendment in s. 55(2)(a) in respect of 'right to manufacture, produce or process any article or thing' came w.e.f. 1st April, 1998 and therefore prior to asst. yr. 1998-99, no cost can be assigned to such asset. There does not seem to be any decided case where provisions of s. 55(2)(a) are held to be retroactive. provision of s. 55(2)(a) is to be regarded only as substantive provision. So, it has only prospective operation. computational requirements of s. 48 are not satisfied, and so, no tax is leviable in terms of s. 45 on consideration received on agreeing not to manufacture scented Agarbatties and consequently not to compete with AAA on these agarbatties. judgment of Hon'ble Supreme Court in case of CIT vs. B.C. Srinivasa Setty (supra) is fully applicable." We fully agree with same. As there is no sale of asset in "block of assets" which gave rise to this receipt, s. 50(2) has no application. Further, we specifically find that impugned agreement, from which receipt in question flowed, falls within ambit of cl. (va) of s. 28 and as this clause is not applicable to impugned assessment year, no tax is leviable. Similar view was taken by Hyderabad Bench 'B' of Tribunal in case of Dy. CIT vs. Era Software Systems (P) Ltd., ITA No. 439/Hyd/2003 for asst. yr. 1999-2000, order dt. 27th Sept., 2005. 31. In case of K.V.D. Prasad Rao, Hyderabad vs. Asstt. CIT, ITA No. 336/Hyd/1999 for asst. yr. 1995-96, order dt. 31st Dec., 2001, which is specifically relied upon by Revenue, specific finding was given that circumstantial evidence proved stand of Revenue that assessee resorted to tax-saving ruse. There was abundant material before Tribunal to come to such conclusion, unlike in case on hand. In this case, there is no material to question genuineness of covenant in agreement dt. 19th Sept., 1997. order in that case turns on peculiar facts of that case and it was specifically held that non-compete fee received therein was only part of sale consideration. In our view, that decision does not come to rescue of Revenue. 3 2 . Thus, looking at issue from any angle, for reasons slated above, we uphold orders of first appellate authority in all these cases. 33. In result, these appeals of Revenue are dismissed. *** DEPUTY COMMISSIONER OF INCOME TAX v. SRI K.S.N. ENTERPRISES (P) LTD. & ORS.