The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) in the case of ITO v Prabhakar Raghavendra Rao held that non-compete fee money received independently by the assessee pursuant to an independent agreement, which was admittedly entered into after the sale of shares in SIPL, shall not be taxable in India as there is no business connection or PE in India for the assessee.
Assessee is an individual and a director and a shareholder in M/s Sievert India Pvt Ltd. (SIPL). The assessee offered long term capital gains of tax in the return of income of sale of shares of SIPL to Bureau Veritas Certification (Singapore) Pte Ltd. (BVCPL). The amount received from BVCPL towards non-competition and non-solicitation fees was originally offered to tax as business income for not carrying out the business pan India for a period of 10 years.
The issue before the present Tribunal was whether the receipt of non-competition and non-solicitation fees was taxable depending on whether the assessee was having a permanent establishment in India under Article 5 read with Article 7 of the India-Qatar DTAA.
The assessee submits that he is a non-resident in India and had not conducted any business activity in India and therefore, he has no permanent establishment in India.
The AO was of the view that the assessee pursuant to his investment in SIPL is in receipt of non-competition and non-solicitation fees has a business connection in India. While AO while ruled against the assessee, the CIT ruled that while the amount of non-competition and non-solicitation fees is taxable as business income as per provisions of Section 28(va) of the Income Tax Act, 1961, the appellant is an NRI and since the provisions of DTAA with the State of Qatar is beneficial to him, business income is to be taxed in that State and not in India.
On similar lines, the DR also relied on Section 9(1)(i) to submit that the fees received by the assessee shall be treated as income accruing or arising in India.
The Bench constituting of Shri Amarjit Singh and Shri M. Balaganesh as Judicial Member and Accountant Member respectively held that the non-compete fee money received independently by the assessee pursuant to an independent agreement, which was admittedly entered into after the sale of shares in SIPL, shall not be taxable in India as there is no business connection or PE in India for the assessee.
The Tribunal also considered that in the CIT(A)’s order, AO had nowhere brought on record that there is any business connection in India for the assessee or any PE in India. The tribunal which ruling the above upheld the decision of Kolkata Tribunal in the case of Transglobal Plc 158 ITD 230 (Kol).
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