Non-compete fee taxation under the India-Qatar DTAA depends on business connection or permanent establishment in India.

A legally tenable claim that non-compete and non-solicitation fee was not taxable could be entertained in assessment and appellate proceedings even though it was not made by revised return, because the restriction in Goetze India applied only to the Assessing Officer. The fee received by a non-resident under the India-Qatar DTAA was not taxable in India where the Revenue failed to establish any business connection or permanent establishment in India. Although the receipt was treated as business income under section 28(va), treaty protection under section 90(2) and Article 7 confined taxation to Qatar in the absence of attributable Indian presence.

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Issues: (i) whether a claim that non-compete and non-solicitation fee was not taxable could be entertained in assessment/appellate proceedings though not made by revised return, and (ii) whether such fee received by a non-resident under the India-Qatar DTAA was taxable in India in the absence of a permanent establishment or business connection.

Issue (i): whether a claim that non-compete and non-solicitation fee was not taxable could be entertained in assessment/appellate proceedings though not made by revised return

Analysis: The claim was raised by letter during assessment after the time for filing a revised return had expired. The appellate authority could entertain a legally tenable claim even if it was not made in the return, and the restriction noticed in Goetze India was confined to the Assessing Officer. The claim was also examined on merits in assessment proceedings.

Conclusion: The claim was rightly entertained and could not be rejected merely because it was not made by revised return.

Issue (ii): whether such fee received by a non-resident under the India-Qatar DTAA was taxable in India in the absence of a permanent establishment or business connection

Analysis: The receipt was treated as business income under section 28(va) of the Income-tax Act, 1961, but treaty protection under section 90(2) was available. The Revenue did not establish any business connection or permanent establishment in India. The non-compete fee arose under a separate agreement after the share sale, and under Article 7 of the India-Qatar DTAA business income of a resident of Qatar was taxable in India only if attributable to a permanent establishment in India. The allegation under section 9(1)(i) was unsupported by material.

Conclusion: The non-compete and non-solicitation fee was not taxable in India and was taxable only in the State of Qatar.

Final Conclusion: The Revenue's appeal failed, and the relief granted by the appellate authority in favour of the assessee was sustained.

Ratio Decidendi: A non-resident's non-compete fee is taxable in India only if the Revenue establishes a business connection or permanent establishment in India, and an appellate authority may entertain a legally allowable claim not made in the return.

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