Ramesh D. Tainwala (ITAT Mumbai)- For proviso(i) to Sec.28(va)(a) to apply there must be transfer of the right to carry on any business. The Assessee in the present case was not carrying on any business on his own but was the promoter and director of the company whose shares were purchased by the Acquirer. Clause-6 of the share purchase agreement dt. 13.3.2006 does not transfer any right to carry on any business but merely provides that the Asssessee shall not carry out any activity in relation to business of the Assessee. We may also add that the provisions of Sec.45 of the Act would get attracted only when there is a capital gain arising as a result of transfer of a capital asset. The definition of transfer is given in sec.2(47) of the Act.
In the present case, the agreement by which the Assessee agrees to refrain from indulging in a business competing with another is independent by itself though it is included in the agreement for transfer of shares. In such agreements there can be no transfer in any of the modes set out in Sec.2(47) of the Act. Agreement to refrain from carrying on competing business does not fall within any of the modes of transfer as given in the definition of transfer u/s.2(47) of the Act. If the agreement to refrain from indulging in competition is part and parcel of the agreement for transfer of a business and the transfer-or agrees not to indulge in competition, then it can be said that right to carry on same or similar business was transferred along-with the business. In the present case what was transferred was shareholding by the promoters. In such a situation there is no question of transfer of a right to carry on business. Therefore payments on account of non-compete fees cannot be brought to tax u/s.45 of the Act. We therefore hold that in the present case the proviso(i) to Sec.28(va)(a) of the Act will not apply. The provisions of Sec.28(va)(a) would apply and consequently the receipt in question would be chargeable to tax as business income and not under the head capital gain. We do not find any grounds to interfere with the order of the CIT(A). Consequently the appeal by the Assessee is dismissed.