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

Sundaram Traders Ltd. wants to restrain a rival's former partner from competing and pays Rs 8 lakh under an agreement for not carrying out any activity in relation to a business. For the recipient, under section 26 of the Income-tax Act, 2025, how is this sum generally treated, unless it is received on transfer of the right to carry on business chargeable as capital gains?

The sum is business income of the recipient. Section 26 includes sums received under an agreement for not carrying out any activity in relation to a business, with narrow exceptions such as transfer of the right to carry on business taxed as capital gains.

  1. ABusiness income of the recipientCorrect
  2. BExempt as a capital receipt
  3. CIncome from other sources
  4. DCapital gains in every case

Explanation

Section 26(2)(h)(i) includes any sum received under an agreement for not carrying out any activity in relation to a business, except sums on transfer of the right to carry on business that are chargeable as capital gains and the Montreal Protocol compensation. Hence it is business income of the recipient.

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