Budget 2016: The existing provision of clause (va) of section 28 of the Act includes within the scope of “profit and gains of business or profession” any sum received or receivable in cash or in kind under an agreement for not carrying out activity in relation to any business; or not to share any know how, patent, copyright, trade mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services and is chargeable to tax as business income. Further, the provisions clarify that receipts for transfer of right to manufacture, produce or process any article or thing or right to carry on any business, which are chargeable to tax under the head “Capital gains”, would not be taxable as profits and gains of business or profession. Under section 45 of the Act, any capital receipt arising out of transfer of any business or commercial rights is taxable under the head “Capital gains”. The amount of “Capital gains” is computed according to section 48 of the Act. For this purpose, ‘cost of acquisition’ and ‘cost of improvement’ are defined under section 55. However, non-compete fee received/receivable in relation to carrying out of profession are not covered under these provisions.
It is proposed to amend clause (va) of section 28 of the Act to bring the non-compete fee received/receivable( which are recurring in nature) in relation to not carrying out any profession, within the scope of section 28 of the Act i.e. the charging section of profits and gains of business or profession. Further, it is also proposed to amend the proviso to clarify that receipts for transfer of right to carry on any profession, which are chargeable to tax under the head “Capital gains”, would not be taxable as profits and gains of business or profession. It is also proposed to amend section 55 so as to provide that the ‘cost of acquisition’ and ‘cost of improvement’ for working out “Capital gains” on capital receipts arising out of transfer of right to carry on any profession shall also be taken as ‘nil’
These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.
Clause 12 of Finance Bill 2016
Clause 12 of the Bill seeks to amend section 28 of the Income-tax Act relating to “Profits and gains of business or profession”.
Clause (va) of the aforesaid section, inter alia, provides that any sum, whether received or receivable, in cash or kind, under an agreement for not carrying out any activity in relation to any business, is chargeable to tax as business income for business entities.
It is proposed to amend the said clause so as to provide that any sum received or receivable, in cash or kind, under an agreement, for not carrying out any activity in relation to any profession, shall also be income chargeable to income-tax under the head “Profits and gains of business or profession”.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
Clause 33 of Finance Bill 2016
Clause 33 of the Bill seeks to amend section 55 of the Income-tax relating to meaning of “adjusted”, “cost of improvement” and “cost of acquisition”.
Sub-clause (1) of clause (b) of sub-section (1) of the aforesaid section provides that the cost of improvement in relation to a capital asset, being goodwill of a business or a right to manufacture, produce or process any article or thing or right to carry on any business, shall be taken to be nil.
Further, clause (a) of sub-section (2) of the aforesaid section provides that the cost of acquisition in relation to a capital asset, being goodwill of a business or a trademark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, state carriage permits or loom hours, shall be taken to be the amount of the purchase price in case the asset is purchased by the assessee, and in any other case such cost shall be taken to be nil.
It is proposed to amend the said sub-clause (1) of clause (b) of sub-section (1) and clause (a) of sub-section (2) of the said section so as to include the right to carry on the profession also under its scope.
These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017- 2018 and subsequent years.
