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IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL NO. 950 OF 2009

Neville Tuli

….Appellant

V/s.

The ITO 3(2)(4), Mumbai

…Respondent

ALONGWITH

WRIT PETITION NO. 602 OF 2011

Neville Tuli

….Petitioner

V/s.

Income Tax Appellant Tribunal,

Mumbai Bench

…Respondent

----

Mr. Porus Kaka, Senior Advocate a/w Mr. Aditya Vora i/b Mr. Atul K. Jasani

for Appellant/Petitioner.

Mr. Sham V. Walve for Respondent-Revenue.

----

CORAM : K.R. SHRIRAM &

N. J. JAMADAR, JJ.

DATED : 4^th FEBRUARY, 2022

P.C. :

INCOME TAX APPEAL NO. 950 OF 2009

1.

On 29^th July, 2009 the following substantial questions of law

were framed.

a) Whether, on the facts and the circumstances of the

case, the Tribunal erred not treating that the amount

received under the Deed for restrictive covenant as a

Capital Receipt not liable to tax ?

b) Whether, on the facts and the circumstances of the

case, and in law, the finding of the Tribunal that the

Appellant could not be viewed as a threat to the Company’s

business is perverse, contrary to the material on record and

ought to be set aside ?

Purti Parab

PURTI

PRASAD

PARAB

Digitally signed by

PURTI PRASAD

PARAB

Date: 2022.02.16

15:38:50 +0530

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c) Whether the failure on the Tribunal to follow the

decision of a Special Bench by citing cases never cited by

either party nor raised nor argued during the course of

hearing, and contrary to the principle of natural justice and

without the issue being put to the Appellant renders the

decision bad in law and liable to be set aside ?

d) Whether the Tribunal sitting as Division Bench ought

to have either followed the larger Special Bench decision or

in accordance with judicial propriety and practice referred

the matter to the President to constitute a larger Bench ?

The facts in brief are as under :

2.

Osian’s – Connoisseurs of Art Private Limited (hereinafter

referred to as the Company) which was incorporated on 22^nd June, 2000

appointed appellant as its whole time Director on 10^th July, 2000 for a salary

of Rs.1,00,000/- per month with effect from 1^st July, 2000. In view of his

capabilities and knowledge and in order to ensure that appellant did not

act/harm the interest of the company upon termination of his employment,

the company entered into non-compete agreement dated 7^th August, 2000

termed as “Deed for Negative Covenants” (hereinafter referred to as

agreement) imposing certain restriction on appellant from carrying out

certain professional activities over a period of 10 years after the termination

of his employment. Some relevant provisions of the agreement are :

i)

not directly or indirectly engage in or be

concerned or connected with any business which is

similar to and/or competitive with the business of the

company in the metro cities of Bombay, Delhi,

Ahmedabad and Bangalore.

ii)

not directly or indirectly control or operate or

cause to controlled or operated or participate in any

Purti Parab

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similar business in the metro cities.

iii)

not associate himself or be an advisor, employee

or be a partner in any similar business as aforesaid;

iv)

to cease and desist from participating in similar

business activities as aforesaid and not to use his good

will or expertise in respect of similar business as

aforesaid;

In lieu of appellant agreeing not to compete with the company

for a period of 10 years after termination, under Article 2 of the agreement

the company agreed to pay Rs.2 Crores to appellant. The company satisfied

such payment by allotting 20,00,000 Equity Shares of the nominal face

value of Rs.10 each to appellant. Articles 3 and 4 of the agreement which

contain various further restrictions and obligations are reproduced below :

“3.

In the event that Nevile breaches any covenants

herein the company shall be entitled to recover and

Nevile shall be liable to reimburse the amount