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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Location of Business

Meera Pharma Ltd receives Rs 50 lakh under an agreement with a competitor, under which it agrees not to carry on a particular business activity for five years. The sum is not for transfer of the right to carry on the business and is not Montreal Protocol compensation. How should the receipt be treated under the Income-tax Act, 2025?

The Rs 50 lakh is taxable as business income. Sums received under an agreement for not carrying out a business activity fall within profits and gains of business or profession, and neither exception, transfer of the right to carry on business nor Montreal Protocol compensation, applies.

  1. ACapital receipt, not taxable
  2. BCapital gains, as it relates to a right of the business
  3. CTaxable as profits and gains of business or professionCorrect
  4. DExempt, being compensation from a multilateral fund

Explanation

The Act includes under business income any sum received under an agreement for not carrying out any activity in relation to a business, except sums for transfer of the right to carry on business (capital gains) or Montreal Protocol compensation. Neither exception applies here.

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