Non Compete Fees

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Chintan Shah (Querist)
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08 December 2009 Non Compete Fees received by a Promoter and M.D. of a Private Ltd. co. from incoming shareholder for non compiting the said business, for this he reduced his shareholding also, he entered in Non Compete Agreement with the incoming shareholder, can this non compete fees received is treated as capital receipt as per section 55(2)(a), but section 28(va) contradict the provision of section 55(2)(a)?
Please give any recent case laws related to this.
I'm waiting for the response from your side.
Thanks.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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08 December 2009 There was a controversy about the taxability of the non-compete fee. The controversy was put to an end by the amendment to Section 28 of the Income-Tax Act made by Finance Act, 2002 w.e.f. April 1, 2003.

Under Section 28 (va), such non-compete fee is taxable as profits and gains of business or profession.

Sunil

Sunil (Expert)
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08 December 2009 It is profits and gains of business or profession. TDS is applicable under Section 194 J for making this kind of payment by the company.