Non compete fees

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jayant chandrachud (Querist)
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14 November 2013 A proprietory firm carrying on business enters in to Non Compete Agreement with a Pvt Ltd Company.Proprietory firm agrees to close down manufacturing activities and also not to compete in future against take over of its unsecured loan liability of Rs. 1.00 Cr. by Pvt Ltd Company. In this case since the Proprietory firm is not getting any actual amount as non compete fees, however there is only extinguishment of its Loan liability, whether the amount equal to liability extinguished will be treated as business income U/S 28(Va)or can be claimed exempt as capital receipt against extinguishment of loan liability.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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14 November 2013 The agreement spells out the fact related to the extinguishment of loan liability of the proprietory firm. To my view this is a consideration received in kind under the said agreement by the Prop. firm and the same will be treated as business income U/s 28(va).
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