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TMI Blog2019 (11) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... ent u/s. 143 of the Income tax Act, the possible remedy to make such a claim lied only with the CBDT. ii. On the facts and circumstances of the case and law, the CIT(A) has erred in applying the decision of the Hon'ble Gujarat High Court in the case of Gujarat Gas Ltd ( 245 ITR 84), since in the said case, the AO had concluded that the assessed income was lower than the returned income but he denied the refund to the assessee by relying on the CBDT circular 549 dated 31.10.1989; iii. On the facts and circumstances of the case and law, the CIT(A) has erred in applying the decision of Hon'ble Bombay High Court in the case of M/s. Pruthvi Brokers and shareholders P Ltd (349 ITR 336), since in the said case, the claim of deduction is otherwise allowable to the assessee u/s. 43B of the Act, but the same was denied by the AO as it was not made in the return of income; iv. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that the receipt of non-competition and non-solicitation fees of Rs. 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-Q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this claim of the assessee, the ld. AO observed that assessee was shareholder of SIPL pursuant to having investment in India and accordingly has business connection by virtue of holding share in SIPL. He observed that therefore, by virtue of holding shares in SIPL and by virtue of provisions of Section 9(1) of the Act, the amount received towards non-competition and non-solicitation fees is deemed to accrue or arise in India and thus taxable in India. The ld. AO also observed in his order that in any case, this claim of exemption was not made by the assessee even in the revised return of income filed on 25/03/2016 and hence, the claim of the assessee could not be entertained. 3.1. The assessee before the ld. CIT(A) pleaded that since the time limit for filing the revised return of income had expired, the claim of non-taxability of non-compete and non-solicitation fees received from BVCPL was made by the assessee by filing a letter dated 03/10/2016 before the ld. AO during the course of assessment proceedings. The 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 33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No. 1, the appellant has objected to the AO's action in not treating the amount received of Rs. 7,50,58,469/- towards non-competition and non-solicitation fees as not taxable in India. The AO has observed that that appellant himself has offered this amount as business income in the return of income as well as revised return of income and only by way of letter in course of assessment proceedings, claim is made that the same is not taxable. The AO has held that the appellant was having business connection by virtue of holding shares in Sievert India P. Ltd. and therefore the amount received is deemed to accrue or arise in India in terms of sec.9(1) of the I.T. Act. 5.2.1 The contention of the appellant is that he is an NRI and is resident of State of Qatar and in support of which Tax Residence Certificate (TRC) of State of Qatar is filed. The appellant was shareholder of Sievert India P. Ltd. and has sold the shares to Bureau Veritas Certification (Singapore) Re. Ltd. and has offered the Long Term Capital 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to a claim of deduction but due to his ignorance or for some other reason could not claim the same in the return of income, but has raised his claim before the appellate authority, the appellate authority should have looked into the same. The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the tax payers. They are not there to punish the tax payers for their bonafide mistakes. Hence, in view of the above, I hold that the claim made by the appellant is justified and needs to be entertained. 5.2.3. Coming to the merits of the claim, it is an undisputed fact that the appellant herein is NRI and has also filed the return of income and computation of total income in the status of NRI. It is also not in dispute that the appellant is resident of State of Qatar and Tax Residence Certificate is duly filed to the AO as well as before me. The appellant was promoter and shareholder 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that since the appellant was holding shares in Sievert India P. Ltd. and by virtue of holding the shares, there is business connection and therefore the income is deemed to accrue or arise in India as per provisions of sec.9(1) of the Income Tax Act has no force. The AO has not brought any evidence on record to even remotely suggest that the appellant was having any business connection in India or was having any permanent establishment in India vis-a-vis business activity or was carrying on any business activity in India after the effective date as per the agreement for non-competition and non-solicitation with Bureau Veritas Certification (Singapore) Re. Ltd. The AO has looked into only the provisions of Income tax Act without considering the provisions of sec. 90(2) of the Act and provisions contained in DTAA with the State of Qatar. It is also pertinent to note here that the AQ has not disputed the fact that the appellant has sold the shares in the Indian Company i.e. Sievert India P. Ltd, and has thereafter 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ", accordingly, he argued that the non-compete fees received by the assessee shall be treated as income accruing or arising in India in terms of Section 9(1)(i) of the Act also. 7. Per contra, the ld. AR vehemently relied on the order of the ld. CIT(A) and relied on the Co-ordinate Bench decision of Kolkata Tribunal in the case of Trans Global PLC vs. Director of Income Tax International Taxation reported in 158 ITD 230 (KOL) wherein on the similar facts to that of assessee, the Tribunal had held that non-compete fees was business receipt assessable as such and since the assessee thereon was a non-resident company having no permanent establishment in India, the said non-compete fees was not liable to tax in India. The ld. AR also placed reliance on the decision of Authority of Advance Rulings, New Delhi in the case of HM Publishers Holdings Ltd. in AAR No.1238/Mum/2012 dated 06/06/2018 which in turn had placed reliance on the Co-ordinate Bench decision of Kolkata Tribunal supra. 8. We have heard rival submissions 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 brevi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atar DTAA, the business income derived by a non-resident could be brought to tax only if it is established that the said non-resident assessee is having any business connection or has any PE in India. 8.1. From the aforesaid observations of ld. CIT(A)'s order, we find that the ld. AO had nowhere brought on record that there is any business connection in India for the assessee or any PE in India. Hence, 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. Our understanding of this law is also endorsed by the Co-ordinate Bench decision of Kolkata Tribunal in the case of Trans Global Trans Global PLC reported in 158 ITD 230 (KOL) wherein it was held as under:- "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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7. In view of the above facts, we are of the view that a perusal of non-compete agreement clearly shows that by any stretch of imagination it cannot be held that there is a transfer within the meaning of section 2(47) of the Act resulting in assessment being erroneous and prejudicial to the interest of revenue for not assessing non-compete premium as capital gains. The assessee clearly accepted 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. 8. Before us, Ld. Counsel for the assessee having relied on the decision of Hon'ble Supreme Court in the case of Gufic Chem (P.) Ltd. v. CIT [2011] 332 ITR 602/198 Taxman 78/10 taxmann.com 105, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to specifically tax such receipts under non-competition agreement with effect from 1.4.2003." 9. In view of the above facts and circumstances and case law of Hon'ble Supreme Court in the case of Guffic Chem (P.) Ltd., supra, 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. 8.2. We find that the revenue had also raised the ground that the 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. 284 ITR 323. We find that on perusal of decision of Goetze India, the Hon'ble Supreme Court in the last paragra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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