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This appeal in ITA No.3985/Mum/2018 for A.Y.2014-15 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-24, Mumbai in appeal No.CIT(A)-24/DCIT-15(3)(2)/IT-626/2016-17 dated 09/03/2018 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 19/12/2016 by the ld. Dy. Commissioner of Income Tax-15(3)(1), Mumbai (hereinafter referred to as ld. AO).
2. The revenue has raised the following grounds of appeal.
i. On the facts and circumstances of the case and law, the Ld. CIT(A)'s order is contradictory to the provisions of section 119(2)(b) of the Income-tax Act by allowing the appeal of the assessee without appreciating the legal position that, if the return was not selected for the scrutiny assessment 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 IndiaQatar DTAA.
v. On the facts and in the circumstances of the case and in law, the CIT(A) has erred by holding that the receipt of non-competition and non-solicitation fees by the assessee was not taxable in India without taking into account that the assessee is a Promoter in the Indian company Sievert India Pvt Ltd (SIPL) and Recital C of the India Share Purchase Agreement mentions that he is in the management and control of SIPL and thus has a permanent establishment in India under Article 5 of the India-Qatar DTAA;
vi. On the facts and in the circumstances of the case and in law, the CIT(A) has erred by holding that the receipt of non-competition and non-solicitation fees by the assessee was not taxable in India without taking into account that the assessee has a business presence in India and got his books of accounts for the business audited in India and thus has a permanent establishment in India under Article 5 of the India-Qatar DTAA; The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
3. The brief facts of this issue are that the assessee is an individual and a Director and shareholder in M/s. Sievert India Pvt. Ltd.(SIPL). The assessee filed his original return of income on 26/09/2014 declaring total income of Rs.91,39,36,820/-, which was revised on 25/03/2016 declaring total income of Rs.91,41,56,500/-. 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) and /or to its nominees. The assessee originally offered to tax as business income in respect of amount received from BVCPL towards non-competition and non-solicitation fees of Rs.7,50,58,469/- for not carrying out the business pan India for a period of 10 years as pe separate non-competition and non-solicitation agreement entered into. During the course of assessment proceedings, the assessee filed submissions dated 03/10/2016 stating that he is a non-resident in India and had not conducted any business activity in India during the assessment year under consideration and in subsequent years and therefore, he has no permanent establishment (PE) in India and accordingly the non-competition and non-solicitation fees of Rs.7,50,58,469/- received from BVCPL is not taxable in India in terms of Article 7 of India- Qatar treaty. Against 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 nontaxability 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 336; the decision of Hon’ble Supreme Court in the case of National Thermal Power Corporation Ltd. vs. CIT reported in 229 ITR 383 (SC); and CBDT Circular No.14 (XL-35) dated 11/04/1955. The assessee also pleaded that the decision relied upon by the ld. AO in the case of Goetze India Ltd. vs. CIT reported in 284 ITR 323 (SC) does not apply to appellate authorities. The assessee had filed the Tax Residency Certificate of State of Qatar to prove the fact of it being a resident of that country. This fact is not in dispute. The assessee also submitted that first the shares of SIPL were transferred to BVCPL for certain consideration, on which, the eligible long term capital gains had been duly offered to tax in the return of income. Later, a separate Non-compete and Non-solicitation Fee Agreement was entered into by the assessee with BVCPL pursuant to which, the assessee received Non-compete fees of Rs.7,50,58,469/- from BVCPL for not carrying out the business in India for a period of 10 years. This non-compete fees admittedly is taxable as business income in terms of Section 28(va) of the Act. The assessee had offered the same to tax as such in the original return as well as in the revised return of income. But since the assessee is a non-resident in India and had not carried out any business activity in India during the year under consideration as well as in subsequent years and more particularly in view of the fact that assessee is restrained to carry out any business for a period of 10 years pursuant to the non-competition agreement, it could be safely concluded that