Non-compete fee is not a Business Income; Delhi HC quashes re-assessment proceedings [Read Judgment]
bail – fraud – Bail Chartered Accountant – Tax dues – Delhi High Court – Taxscan
bail – fraud – Bail Chartered Accountant – Tax dues – Delhi High Court – Taxscan
While allowing the writ petition filed by Priya Desh Gupta and Abha Gupta, the division bench of Delhi High Court has held that, non compete fees cannot be assessed as business income.
The Petitioners had filed these petitions challenging separate notices issued under Section 148 of the Income Tax Act, 1961 seeking to reopen their respective assessments for Assessment Year 2007-08. The Petitioners also impugn orders dated 18th March 2013 rejecting their respective objections against the assumption of jurisdiction under Section 147 of the Act.
The Petitioners along with other promoter shareholders held 36.63% of the paid-up share capital of M/s Phoenix Lamps Limited, a public listed company engaged in the business of manufacturing, selling and marketing of automotive lamps, compact fluorescent lamps, and other general lighting lamps. The Petitioners sold their shares in PLL in terms of a warrant subscription and share purchase agreement and the gains therefrom were assessed to tax under the Act as Capital Gains. According to the Revenue, part of the consideration received by the Petitioner – Rs. 38 per share – is the non-compete fee and is assessable as business income. This is the principal reason recorded by the Assessing Officer (AO) for believing that the income of the Petitioners for AY 2007-08 had escaped assessment.
The Petitioners contended that the entire transaction was examined in detail by the AO during the assessment proceedings which culminated in assessment orders under Section 143(3) of the Act. They submit that in the given facts, the impugned notices are occasioned by a mere change of opinion and AO does not have any fresh tangible material which would provide him a reason to believe that their respective incomes for AY 2007- 08 have escaped assessment.
The division bench comprising of Justices Vibhu Bakhru and S.Muralidhar also quashed all the re-assessment proceedings against the petitioners.
Read the Full text of the Judgment below.
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