The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that payment received as Non compete fees are taxable under the head of income from the business & Profession section.
Dandvati Investments & Trading Company Pvt. Ltd, the assessee is a Private Limited Company engaged in the business of investments. The assessee filed its return of incomefor Assessment Year 2006-07 declaring a total income of Rs.69,99,52,184/-. In scrutiny assessment, the Assessing Officer vide assessment order dated 31/12/2008 made addition/disallowances.
The CIT(A) vide impugned order granted part relief to the assessee by deleting some of the additions/disallowances. Further, the CIT(A) issued an enhancement notice dated 29/07/2011 to tax Non-compete fees under the head “Income from Business and Profession”.
The assessee challenged the enhancement of total income by the CIT(A). During the period relevant to the assessment year under appeal, the assessee had received Non-compete fees which were offered to tax by the assessee as “capital gains”. The same was accepted by the Assessing Officer in scrutiny assessment proceedings.
The CIT(A) observed that in the case of the assessee’s group company M/s. Harshit Finlease and Investments Ltd.(supra) for the same Assessment Year the Assessing Officerunder the same facts had held Non-compete fees as “Income from Business and Profession”.
The assessee contended that enhancement is based on a new source of information viz. decision in the case of the assessee’s group concern Harshit Finlease & Investments Ltd. The CIT(A) cannot make enhancementstoa new source of income.
The Assessing Officer after examining the details completed the assessment accepting the treatment given by the assessee to the non-compete fee forming part of the transaction. The assessee offered a non-compete fee under the head “Capital Gains”.
The CIT(A) was of the view that a non-compete fee is taxable under the head “Profits from Business & Profession” which resulted in the enhancement of taxable income.
A Coram comprising of Shri Vikas Awasthy, Judicial Member & Shri Gagan Goyal, Accountant Member observed that in the case of Harshit Finlease & Investment Pvt. Ltd. vs. Addl. CIT (supra), it was concluded that the Assessing Officer/CIT(A) were right in bringing to tax the amount of non-compete fee under section 28(va) of the Act.
The Tribunal upheld the action of CIT(A) in bringing to tax non-compete fee under the head, “Income from Business & Profession”, resulting in the enhancement of taxable income of the assessee and dismissed the appeal of the assessee.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
