Law:

Section:

Section 56 of the Income-tax Act, 1961 (Corresponding to section 12 of the Indian Income-tax Act, 1922) - Income from other sources - Chargeable as - Assessee by means of a registered deed, transferred his interest in business to some other person and latter agreed to pay him a fixed sum every month during his lifetime in consideration of sale of his trade marks - sale deed further said that liability that to pay tax in respect of payment was that of vendor and, thus, parties to sale deed did contemplate payment of income-tax in respect of those amounts - Whether circumstance negatived contention that those payments were to be made as compensation for restriction placed on assessee - Held, yes - Whether, therefore, payment received by assessee under terms of agreement was a revenue receipt in hands of assessee - Held, yes FACTS The assessee carried on the business of manufacture and sale of bidis under certain trade marks and trade names. Those trade marks were his exclusive properties. Subsequently, by means of a registered deed of agreement, he transferred his interest in the business in question along with the goodwill as well as the stock-in-trade to someone else. From the sale deed, it was clear that the purchaser agreed to pay to the vendor every month a fixed sum during his lifetime, in consideration of the sale of this trade marks. If the vendor committed breach of any of the convents in the deed, it was open to the purchaser, as per the terms of the sale deed, not to pay the said sum. The ITO came to the conclusion that those monthly payments were annuities, and as such, were liable to be taxed as 'income'. On appeal, the Commissioner agreed with the view taken by the ITO. On second appeal the ITAT came to the conclusion that the purchaser had agreed to pay to the vendor a fixed sum every month as compensation for his agreeing not to manufacture or trade in biris either in India or Pakistan. On reference : HELD The sale deed plainly stated that the said sums were made payable in consideration for the transfer of his trade marks by the vendor. The sale deed further stated that the liability to pay tax in respect of those payments was that of the vendor.…

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