Consideration received by an assessee for agreeing not to compete constitutes a capital receipt even though (i) the period of restraint is only 18 months and (ii) the assessee continued service with the payer-company as Managing Director.

s. 68 does not apply to an assessee who does not maintain books of account. Balance sheet/statement of affairs and bank pass book do not constitute ‘books of account’. In considering the genuineness of the “gifts”, it must be borne in mind that in the case of a “political figure who was working for the welfare of the downtrodden in a missionary manner and on account of this social work”, it is not uncommon for donors to part away with their properties by giving the same as gift to her. “No probe can easily be made into such aspects of human psychology and the best persons to explain such feelings and desires are those who advance and execute the same.” The fact that there is”lack of occassion” to make the gifts, that the donors are unrelated to the donee and that the donors borrowed funds to make the gifts are irrelevant circumstances.

Note: See also CIT vs. Mohankala (SC) on the test of pre-ponderence of probabality.

For purposes of s. 80HHC, the direct cost attributable to the earning of the DEPB license (equal to the value of the license on the date of receipt) has to be reduced from the direct cost of trading goods on the basis that the license is a reimbursement of the costs. The difference between the realisation proceeds of the DEPB license and its cost (i.e. the profit) will fall within s. 28(iiid) and 90% of that will have to be reduced from the profits of the business.

Note the principle laid down in Hero Exports (SC) was followed.