TMI Blog2016 (4) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... pted that the provisions of section 28(v)(a) of the Act will apply to this non-compete section 28(va) premium being business income but that will be taxed in UK being assessee a non-resident British Company having no permanent establishment in India in term of Article-7 of DTAA. Thus we hold that the above said non-compete premium received by assessee is a business receipt assessable u/s. 28(va) of the Act but in term of Article- 7 of DTAA any business income arising to the enterprise of a contracting state is taxable only in that state, assessee being a non-resident company and does not have a permanent establishment in India, liable to tax in UK only. Accordingly, the assessment framed by AO is neither erroneous nor prejudicial to the interest of revenue and hence, the revision order passed by DIT(IT) is without any basis and quashed. - Decided in favour of assessee - IT APPEAL NO. 943 (KOL.) OF 2013 - - - Dated:- 16-3-2016 - MAHAVIR SINGH, JUDICIAL MEMBER AND M. BALAGANESH, ACCOUNTANT MEMBER JJ. For the Respondent : R.N. Bajoria, For the Appellant : A.K. Gupta ORDER Mahavir Singh, Judicial Member - This appeal by assessee is arising out of revision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is seen that as per the 'Sale Purchase Agreement'(in short, SPA) dated 18.01.2007, the purchaser was to pay the seller (the assessee) an advance for Non-compete Premium of British 7,50,000 (para 5.6 of page 19 of SPA) and the said Non-compete premium was to be paid within seven (7) days of the effective dated (18.01.2007). Thus, the aforesaid amount in Pound Sterling was paid or accrued to you in January, 2007. 4. As per Clause 6.3.1(f) at page 22 of the SPA, the seller (the assessee) was required to execute a Non-Compete Agreement with the purchaser (M/s. Mcleod Russel India Ltd.) and the balance Non- compete Premium, after adjustment of the advance, was to be paid through wire transfer to the bank account of the seller maintained with the ICICI Bank in accordance with the terms and conditions of the Non-Compete Agreement. Reason for this notice 5. The aforementioned amount of Non-Compete Premium is chargeable to tax under the head 'income from Capital Gains' in accordance with the provisions of section 55(2)( a ) of the Act. In the case under review, it is found that there was an agreement Not- To-Compete with the purchaser according to the speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... va ) of the Act read with Article 7 of DTAA, this amount was not taxable. In accordance to this reply, the AO issued another show cause letter rebutting the challenge of the assessee of the revision proceedings and holding that - To sum up, the assessee transferred shares of MTCIL thereby transferring the controlling interest in the business of the said company. The resultant receipt was disclosed as capital gains. The assessee received a non-compete premium of British 750000 by surrendering/transferring its right to carry on any business for five years in five countries. However, this sum was not disclosed in the return of income as income under the head capital gains. The above sum is considered taxable under the head capital gains in accordance with the proviso to section 55(2)( a ) read with proviso to section 28( va ) of the Act. The assessee also replied and reiterated the same submissions. But the DIT(IT) finally directed the AO to revise the assessment and tax the non-compete premium under the head capital gains u/s. 55(2)( a ) read with proviso ( i ) to section 28( va ) of the Act by observing in para 19 and 20, which read as under: '19. The assessee, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal gains under Section 55(2)( a ) read with proviso ( i ) to Section 28( va ) of the Act.' Aggrieved, now assessee is in appeal before Tribunal. 6. We have Ld. Sr. counsel Shri R. N. Bajoria and gone through facts and circumstances of the case. Before us, the issue is limited whether the receipt of non-compete premium is taxable as capital gains u/s. 55(2)( a ) read with proviso (1) of section 28( va ) of the Act, when the assessee is a non-resident company of UK in term of Article-7 of Double Taxation Avoidance Agreement (DTAA) with UK. Admittedly, the assessee is a non-resident British Company liable to tax in UK only and does not have a permanent establishment in India. The assessee received non-compete premium during the relevant AY 2008-09 and claimed that the amount received on account of non-compete fee is not for transfer of any right to carry on any business or for transfer of any right to manufacture. According to assessee, this non-compete fee premium is a mere refraining from carrying on activity, which can be taxed u/s. 28( va ) of the Act as amended by the Finance Act, 2002 w.e.f. 01.04.2003. The assessee also pleaded that this can be assessed as business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of Hon'ble Supreme Court in the case of Gufic Chem (P.) Ltd. v. CIT[2011] 332 ITR 602 , wherein it is held as under: 7. Two questions arose for determination, namely, whether the amounts received by the appellant for loss of agency was in normal course of business and therefore whether they constituted revenue receipt? The second question which arose before this Court was whether the amount received by the assessee (compensation) on the condition not to carry on a competitive business was in the nature of capital receipt? It was held that the compensation received by the assessee for loss of agency was a revenue receipt whereas compensation received for refraining from carrying on competitive business was a capital receipt. This dichotomy has not been appreciated by the High Court in its impugned judgment. The High Court has misinterpreted the judgment of this Court in Gillanders ' case ( supra ). In the present case, the Department has not impugned the genuineness of the transaction. In the present case, we are of the view that the High Court has erred in interfering with the concurrent findings of fact recorded by the CIT(A) and the Tribunal. One more aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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