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2019 (11) TMI 367

..... res in SIPL - Income taxable in India - there is no business connection or PE in India for the assessee - HELD THAT:- Claim of the assessee seeking treaty benefit should not be entertained as assessee had not made any claim by way of valid return by placing reliance on the decision of the Hon’ble Supreme Court in the case of Goetze India Ltd. [2006 (3) TMI 75 - SUPREME COURT] had categorically observed that the said restriction is applicable only to the Assessing Officer and not to the appellate authorities. Moreover, we find that the decision of the Hon’ble Jurisdictional High Court in the case of Pruthvi Brokers and Shareholders Pvt. Ltd. [2012 (7) TMI 158 - BOMBAY HIGH COURT] had categorically held that any claim eligible to the assessee shall be made at any point in time which had been rightly appreciated by the ld. CIT(A) while entertaining the claim of the assessee in the instant case before us. Moreover, we find that though the claim of exemption from tax pursuant to Article 7 of DTAA was made by the assessee during the course of assessment proceedings, we find that the ld AO had duly adjudicated the same on merits in the assessment order itself and hence there i .....

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..... ees of ₹ 7,50,58,469/- was not taxable as the assessee was not having any permanent establishment in India under Article 5 read with Article 7 of India-Qatar DTAA. v. On the facts and in the circumstances of the case and in law, the CIT(A) has erred by holding that the receipt of non-competition and non-solicitation fees by the assessee was not taxable in India without taking into account that the assessee is a Promoter in the Indian company Sievert India Pvt Ltd (SIPL) and Recital C of the India Share Purchase Agreement mentions that he is in the management and control of SIPL and thus has a permanent establishment in India under Article 5 of the India-Qatar DTAA; vi. On the facts and in the circumstances of the case and in law, the CIT(A) has erred by holding that the receipt of non-competition and non-solicitation fees by the assessee was not taxable in India without taking into account that the assessee has a business presence in India and got his books of accounts for the business audited in India and thus has a permanent establishment in India under Article 5 of the India-Qatar DTAA; The Appellant craves leave to amend or alter any ground or add a new ground which may b .....

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..... e assessee placed reliance on the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd. reported in 349 ITR 336; the decision of Hon ble Supreme Court in the case of National Thermal Power Corporation Ltd. vs. CIT reported in 229 ITR 383 (SC); and CBDT Circular No.14 (XL-35) dated 11/04/1955. The assessee also pleaded that the decision relied upon by the ld. AO in the case of Goetze India Ltd. vs. CIT reported in 284 ITR 323 (SC) does not apply to appellate authorities. The assessee had filed the Tax Residency Certificate of State of Qatar to prove the fact of it being a resident of that country. This fact is not in dispute. The assessee also submitted that first the shares of SIPL were transferred to BVCPL for certain consideration, on which, the eligible long term capital gains had been duly offered to tax in the return of income. Later, a separate Non-compete and Non-solicitation Fee Agreement was entered into by the assessee with BVCPL pursuant to which, the assessee received Non-compete fees of ₹ 7,50,58,469/- from BVCPL for not carrying out the business in India for a period of 10 years. This non-compete fees .....

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..... Gains on shares in the return of income and the same is also taxed by the AO and there is no dispute regarding the same. The appellant has submitted that initially while filing the return of income both original and revised, he has offered the amount received towards noncompetition and non-solicitation as business income as per provisions of sec.28(va) of the I.T. Act, 1961. Since the amount offered to tax was later realized to be not taxable in view of DTAA with State of Qatar and the appellant being NRI, letter was filed before the AO to treat the same as not taxable income and thereby reduce the returned income since by then, the time limit for filing revised return of income had expired. 5.2.2 Therefore the first issue to be considered is whether the appellant is justified in making a claim of exemption (non-taxability of income) by way of letter in course of assessment proceedings and not by way of revised return of income and whether the assessed income can be below the returned income. In this regard, the appellant has relied upon several decisions in the submission filed, which in effect concludes that new claim can be made and entertained by the appellate authorities sinc .....

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..... holder of Sievert India P. Ltd. and the said company was incorporated in the year January 2001 The appellant has in the year 2013 entered into agreement with Bureau Veritas Certification (Singapore) Pte. Ltd. for sale of shares held in the company Sievert India P. Ltd. in tranches over a period of time. Similarly, all shareholders have agreed to sell their holdings in Sievert India P.Ltd to Bureau Veritas Certification (Singapore) Pte. Ltd. The appellant has entered into separate agreement with Bureau Veritas Certification (Singapore)Ltd. dated 14,03.2013 for non-competition and non-solicitation of business in India for a period of 10 years from the date when the majority of shares are transferred / purchased by Bureau Veritas Certification (Singapore) Re. Ltd. or its nominees as per the definition of 'Effective date' given in the agreement dated 14.03.2014. By virtue of this, the effective control and shareholding in the company Sievert India P. Ltd. will be with Bureau Veritas Certification (Singapore) Pte. Ltd. Since the appellant herein was having control over business activities, in order to curtail competition of same business and solicitation of the clients in India, .....

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..... ter entered into non-competition agreement with Bureau Veritas Certification (Singapore) Pte. Ltd. This fact proves that the appellant was not having control over the Indian company, which was by virtue of sale of shares taken over by Bureau Veritas Certification (Singapore) Pte. Ltd. It was natural for the foreign company thereafter to restrict the promoters including the appellant not to carry on similar business in India and therefore entered into non-competition and non-solicitation agreement restricting the appellant for a period of 10 years. As the appellant herein is NRI, he has pressed the provisions of sec. 90(2) of the I.T. Act and thereby Article 7 of DTAA with State of Qatar according to which, the business income is taxed in the country of residence, which in the present case is State of Qatar. In view of the same, the appellant is right in contesting that the amount received towards noncompetition and non-solicitation fees is not taxable in India. " 5. Aggrieved, the revenue is in appeal before us. 6. The ld. DR before us drew our attention to the non-competition and non-solicitation agreement and more particularly to certain recitals stated therein in page 2 of .....

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..... and perused the materials available on record. The primary facts stated hereinabove remain undisputed and hence, the same are not reiterated herein for the sake of brevity. We find that assessee had first transferred the shares held by him in SIPL to BVCPL and derived the long term capital gains thereon, which has been duly offered to tax in the return of income filed by the assessee on which fact there is absolutely no dispute. Subsequent to this sale of shares, the assessee had independently entered into a separate non-compete and non-solicitation fees agreement with BVCPL and had received a consideration of ₹ 7,50,58,469/- for not carrying on similar business for a period of 10 years in India. Hence, this consideration was received by the assessee for restraint of trade in order not to compete with BVCPL in India for a period of 10 years. Hence, this gets squarely taxed as business income u/s.28(va) of the Act. Since the assessee herein, is a non-resident and is eligible for treaty benefit in terms of Section 90(2) of the Act, (India Qatar DTAA), in terms of Article 7 of the said treaty, the business income could be taxed in the hands of the assessee in India only if it is .....

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..... ceipt 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 income but assessee being a non-resident having no permanent establishment in India and accordingly, in term of Article-7 of DTAA with UK any business income arising to the enterprise of a contracting state is taxable only in that state unless the enterprise is carrying on business in the other contracting s .....

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..... 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 aspect needs to be highlighted. Payment received as non-competition fee under a negative covenant was always treated as a capital receipt till the assessment year 2003-04. It is only vide Finance Act, 2002 with effect from 1.4.2003 that the said capital receipt is now mad .....

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..... on ble Supreme Court in the case of Goetze India Ltd. 284 ITR 323. We find that on perusal of decision of Goetze India, the Hon ble Supreme Court in the last paragraph had categorically observed that the said restriction is applicable only to the Assessing Officer and not to the appellate authorities. Moreover, we find that the decision of the Hon ble Jurisdictional High Court in the case of Pruthvi Brokers and Shareholders Pvt. Ltd. reported in 349 ITR 336(Bom) had categorically held that any claim eligible to the assessee shall be made at any point in time which had been rightly appreciated by the ld. CIT(A) while entertaining the claim of the assessee in the instant case before us. Moreover, we find that though the claim of exemption from tax pursuant to Article 7 of DTAA was made by the assessee during the course of assessment proceedings, we find that the ld AO had duly adjudicated the same on merits in the assessment order itself and hence there is no question of said claim of assessee getting rejected for not claiming the same by way of a valid return. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we do not .....

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