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TMI Blog2020 (6) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, as held by the assessing officer? (ii) Whether the tribunal was correct in holding that payment made by the assessee of Rs. 4,93,07,540/- paid to Mr.Madan S.Kumar & Mr.Kevin Koenig is income which has arisen or accrued to the recipients in USA as provided under Article 16 of the DTAA between Indian and USA? (iii) Whether the assessing officer as well as the appellate Commissioner were correct in holding that the assessee was bound to deduct tax at source in respect of Rs. 4,93,07,540/- paid to Mr.Madan S.Kumar & Mr. Kevin Koenig and having failed to do so, provisions of Section 201(1) of the Act was ordered and mandatory interest under Section 201(1A) of the Act was correctly levied, which was not appreciated by the Tribunal? (iv) Whether the assessing officer as well as the appellate commissioner were correct in holding 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 remitta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t matter of challenge before the Commissioner of Income Tax (Appeals). 5. The Commissioner of Income Tax (Appeals) by an order dated 30.01.2009 inter alia held that place of execution of Non Compete Agreements is not specified for the reasons best known to the assessee. It was further held that under the agreement the employees have been prohibited from taking employment with the competitors of the assessee based in India and the prohibition from taking employment will operate in India with regard to 7 companies mentioned in Non Compete Agreement. It was also held that rights and obligations of the parties under the non compete agreement were to take effect in India. It was held that income under the Non Compete Agreement arises in India under Section 5(2) of the Act and the payments cannot be treated as arising 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 Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be treated as salary. It is also pointed out that the assessee has entered into sham transactions with its employees for the purposes of tax evasion. It is further submitted that the tribunal grossly erred in holding that Non Disclosure and Non Compete Agreements are different and the income ought to have been treated as income from other sources and Article 23(2) of the DTAA is applicable in the fact situation of the case. In support of aforesaid submissions, reliance has been placed on decisions of the supreme court in 'PERFORMING RIGHT SOCIETY LTD. VS. COMMISSIONER OF INCOME-TAX', (1977) 106 ITR 11 (SC) and 'PILCOM VS. CIT WEST BENGAL-VII', CIVIL APPEAL NO.5749 OF 2012. 8. On the other hand, learned counsel for the assessee submitted that the amount paid to the employees is not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erived which-- (a) xxxxx (b) accrues or arises or is deemed to accrue or arise to him in India during such year. 10. Section 9 of the Act defines the expression income deemed to accrue or arise in India. The relevant extract of clause (ii) appended to explanation 7 of Section 9(1) is reproduced below for the facility of reference: (ii) income which falls under the head" Salaries" if it is earned in India. Explanation.- For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for- (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, (c) shall be regarded as income earned 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H BEEDI WORKS VS. CIT', 378 ITR 640 (SC) @ 648]. A three judge bench of the Supreme Court in 'SANTOSH HAZARI VS. PURSHOTTAM TIWARI', (2001) 3 SCC 179 while dealing with the expression 'to be a question of law involving in the case' held that 'to be a question of law involving in the case', there must be first a foundation for it laid in pleadings and the questions emerged from sustainable findings of fact arrived at by courts of fact and it must be necessary to decide that question of law for a just and proper decision of the case. It has been held that entirely a new point raised for the first time before the High Court is not a question involved in a case unless, it goes to the root of the matter. 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 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under Section 195(2) of the Act. It was further 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. 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 ques ..... X X X X Extracts X X X X X X X X Extracts X X X X
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