2005 (11) TMI 496 - AT - Income Tax

Issues Involved:
1. Disallowance of Rs. 61,807 under Rule 6B.
2. Taxability of Rs. 14,00,000 received on termination of agency.
3. Disallowance of Rs. 1,14,117 under Rule 6D.
4. Disallowance of Rs. 2,65,002 being expenses on guest house.
5. Taxability of Rs. 80,288 received from Digital Equipment Corporation.

Detailed Analysis:

1. Disallowance of Rs. 61,807 under Rule 6B:
The revenue contended that the CIT(A) erred in deleting the disallowance of Rs. 61,807, arguing that the expense was not for business purposes and exceeded the limits prescribed under Rule 6B. The Tribunal noted that the Assessing Officer (AO) did not provide any findings on whether the presentation articles carried the company's logo. Citing precedents, the Tribunal held that without such findings, the disallowance could not be upheld. Thus, the Tribunal confirmed the CIT(A)'s order and rejected the revenue's ground.

2. Taxability of Rs. 14,00,000 received on termination of agency:
The revenue argued that the CIT(A) erred in treating the Rs. 14,00,000 received on the termination of the agency as a capital receipt. The Tribunal examined the agreement between the assessee and HTIPL, noting that the compensation was for transferring intangible assets like trained personnel and customer lists. The Tribunal reviewed various case laws and concluded that the compensation was a revenue receipt because the business apparatus was not impaired, and the assessee continued to earn income from other sources. The Tribunal allowed the revenue's ground, treating the receipt as taxable revenue.

3. Disallowance of Rs. 1,14,117 under Rule 6D:
The revenue contended that the CIT(A) erred in directing the AO to delete the disallowance of Rs. 1,14,117. The Tribunal referred to the decisions of the Bombay High Court, which held that conveyance and travel expenses incurred by employees on tour for business purposes are not covered under Rule 6D. Following these decisions, the Tribunal confirmed the CIT(A)'s order and rejected the revenue's ground.

4. Disallowance of Rs. 2,65,002 being expenses on guest house:
The revenue argued that the CIT(A) erred in deleting the disallowance of Rs. 2,65,002 incurred on guest houses. The Tribunal noted that the issue was covered against the assessee by the decision of the Special Bench in Eicher Tractors Ltd. v. Dy. CIT, which held that guest house expenses are disallowable under section 37(3). However, the Tribunal remanded the issue to the AO to verify the recovery of expenses from employees and directors and exclude such recovery from the disallowance. The Tribunal partly allowed the revenue's ground.

5. Taxability of Rs. 80,288 received from Digital Equipment Corporation:
The revenue contended that the CIT(A) erred in treating Rs. 80,288 received from Digital Equipment Corporation as a capital receipt. The Tribunal noted that the payment was made under a non-competition agreement, preventing the assessee from competing with the sister concern of Digital Equipment Corporation. Citing relevant case laws, the Tribunal held that compensation received for agreeing to refrain from competition is a capital receipt. Thus, the Tribunal confirmed the CIT(A)'s order and rejected the revenue's ground.

Cross Objection by Assessee:

1. Disallowance of Rs. 61,807 under Rule 6B:
The Tribunal allowed this ground, aligning with its decision in the departmental appeal.

2. Taxability of Rs. 14,00,000 received on termination of agency:
The Tribunal rejected this ground, consistent with its decision in the departmental appeal, treating the receipt as taxable revenue.

3. Taxability of Rs. 80,288 received from Digital Equipment Corporation:
The Tribunal allowed this ground, confirming that the receipt was a capital receipt as decided in the departmental appeal.

Conclusion:
The Tribunal partly allowed the revenue's appeal and the assessee's cross-objection appeal, providing a detailed examination of the issues and applying relevant case laws to reach its conclusions.

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