TMI Blog2020 (6) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... t has to be treated as such and in view of Article 16 of DTAA, the same is taxable in U.S. It was inter alia held that where the payments are in nature of salary, the payer need not approach the appropriate authority u/s 195(2) of the Act. Held that amount paid to the employees of the assessee being in the nature of salary is not taxable in India in view of Article 16 of DTAA between India and United States and therefore, the assessee was not under an obligation to deduct at source. The assessee, therefore, cannot be deemed to be an assessee in default under Section 201(1) of the Act. It was also held that since, the assessee has not been held to be an assessee in default, therefore, the interest under Section 201(1A) of the Act is not leviable. Accordingly, the appeal was allowed. From perusal of the substantial questions of law, on which the appeal has been admitted, we find that the findings of fact recorded by the tribunal have not been assailed as perverse. Even in the memo of appeal neither any grounds have been urged nor any material has been placed on record to demonstrate that findings of fact recorded by the tribunal are perverse. Therefore, the substantial quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the explanation and agreements stated to have been entered into between the assessee and Mr.Madan S.Kumark Mr.Kevin Koenig were only sham transactions entered into between the parties to avoid tax, which was not appreciated by the tribunal? FACTUAL BACKGROUND: 2. Twin issues arise for consideration in this appeal viz., (a) whether the remittance of amounts to employees under non compete agreements are chargeable to tax under Section 5(2) of the Act, (b) if so, the head of income under which it is liable for taxation under the Act and issue of its taxability under Double Taxation Avoidance Agreement (hereinafter referred to as 'the DTAA' for short) also needs to be determined. The relevant facts in order to appreciate the issues involved in the appeal are set out hereinafter: 3. Admittedly, two employees viz., M.S.Kumar and Mr.Kevin Koenig were in employment of M/s SNSL a subsidiary company of the assessee and were employed as Chief Executive Officer and Chief Operating Officer respectively with effect from 01.04.2004. The aforesaid subsidiary company merged with the assessee on 01.04.2005. The assessee therefore offered employment to the aforesaid tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from employment or treated as profits in lieu of salary within the meaning of Section 17(3) of the Act. The Commissioner of Income Tax (Appeals) also held that non compete fees paid to the two employees by the assessee is taxable under Article 23(3) of DTAA and the appellant has not been able to show that the two employees have paid taxes voluntarily or otherwise to the United States Government. Accordingly, the order of the Assessing Officer on the aforesaid aspect was upheld. 6. Being aggrieved, the assessee filed appeals against the order passed under Section 201(1) and Section 201(1A) read with Section 195 of the Act before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The tribunal by an order dated 25.02.2011 allowed the appeals preferred by the assessee. The tribunal inter alia held that amount paid to the employees by the assessee under the Non Compete Agreements would fall under the term 'salary' or 'profit in lieu of salary'. It was further held that since, no business is being carried on by the employees in India, therefore, the same cannot be treated as business income. The income cannot fall under res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable to tax in India under the Act. Alternatively, it is submitted that under the DTAA, the tax, if any, has to be levied in United States. In this connection, learned counsel has invited the attention of this court to Section 5, Section 9 and Section 17 of the Act. It is further submitted that the employees have not rendered any services in India and on the basis of meticulous appreciation of evidence on record, the findings of fact have been recorded and there is neither any pleading nor any material placed on record to show that the findings recorded by the tribunal are perverse. It is argued that in fact, no substantial questions of law arise for consideration in this appeal and the matter stands concluded by findings of fact. It is further submitted that the provisions of DTAA would override the provisions of the Act in a matter of ascertainment of chargeability to income tax and ascertainment of total income to the extent of inconsistency between the two. It is also pointed out that it has rightly been held by the tribunal that Non Disclosure Agreement and Non Compete Agreement are different inasmuch as the former applies in case of an employee who is in employment wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India; Thus it is evident that an income shall be treated as salary if it is earned in India and for services rendered in India. 11. Section 17 of the Act defines the expression 'salary, perquisites and salary in lieu of salary', The relevant extract of Section 17(1) of the Act reads as under: 17. Salary perquisite and profits in lieu of salary defined 3For the purposes of sections 15 and 16 and of this section,- (1) Salary includes- (i) wages; (ii) any annuity or pension; (iii) any gratuity; (iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; Thus, from perusal of aforementioned provision it is clear that definition of the expression 'salary' is inclusive and it includes any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages. 12. Section 17(3) of the Act defines the expression 'profits in lieu of salary'. The relevant extract of Section 17(3) reads as under: 17(3) profits in lieu of salary includes- (iii) any amount due to or received, whether in lump sum or otherwise, by any assessee from any perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. In 'HERO VINOTH (MINOR) VS. SESHAMMAL', (2006) 5 SCC 545 while dealing with the scope of Section 260A of the Act, it was held that this court will not interfere with findings of the court, unless the courts have ignored material evidence or acted on no evidence or have drawn wrong inferences from proved facts by applying the law erroneously or the decision is based on no evidence. The aforesaid decisions were referred to with approval in VIJAY KUMAR TALWAR supra as well as in 'UNION OF INDIA V. IBRAHIM UDDIN', (2012) 8 SCC 148 and has been followed by a division bench of this court in 'CIT VS. SOFT BRANDS (P.) LTD.,' (2018) 406 ITR 513. In G.E.TECHNOLOGIES supra, it has been held that the payer is bound to deduct tax at source if the tax is assessable in India. 16. In the backdrop of aforementioned statutory provisions and the well settled legal principles, we may advert to facts of the case in hand. The tribunal in para 7.2 of its order has formulated 10 questions of fact and after detailed appreciation of material available on record has answered the same in favour of the assessee. The tribunal has noticed that admittedly, the two employees were in e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the appeal was allowed. 18. From perusal of the substantial questions of law, on which the appeal has been admitted, we find that the findings of fact recorded by the tribunal have not been assailed as perverse. It is also pertinent to mention here that even in the memo of appeal neither any grounds have been urged nor any material has been placed on record to demonstrate that findings of fact recorded by the tribunal are perverse. Therefore, the substantial questions of law as framed by a bench of this court, in fact, do not arise for consideration in this appeal, as the matter stands concluded by findings of fact. The amount paid to the employees under the non compete agreement is covered by the expression 'salary / profits in lieu of salary', which is not taxable in India in view of Article 16 of DTAA. 19. So far as reliance placed by the learned counsel for revenue on the cases in PERFORMING RIGHTS SOCIETY LTD., AND PILCOM supra is concerned, it is pertinent to mention that a non resident company in the former case was granted performing rights in western music to be broadcast by the All India Radio. Since, broadcasting had taken place in India, therefore, it wa ..... 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