9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2011 (7) TMI 401 - AT - Income TaxDisallowance - Non Competition Fee - revenue expenditure or capital expenditure - Held that - expenditure claimed by the assessee in pursuance of non-compete agreement are capital expenditure, the deduction of which cannot be granted to the assessee as revenue expenditure - issue is squarely covered against the assessee and in favour of the Revenue by recent decision of the Special Bench of the Tribunal in Tecumseh India (P.) Ltd. V/s Addl.CIT (2010 -TMI - 205282 - ITAT, DELHI) Amortization of Trade Licence Fee - held that - the payments are staggered over the period of seven years. The rights granted to PGG are non-exclusive rights to use the trademarks. In a sense, the assessee paying the installment as he uses them, which shows that it is in the nature of Revenue only. Accordingly, the same is allowed. Payment on termination of Joint Venture Agreement and other agreements - Held that - keeping in view indemnification clause No.19 of the Agreement and in the absence of any documentary evidence in support of the Article published in the magazines, we respectfully following the order of the Tribunal in Procter and Gamble Home Products Ltd. Versus JCIT (2010 -TMI - 207147 - ITAT, Mumbai) hold that the expenditure of Rs.12,26,40,000/- is in the nature of capital expenditure not allowable as revenue expenditure under section 37(1) of the Act.
Issues Involved:
1. Disallowance of Non-Competition Fee 2. Disallowance of Amortization of Trade Licence Fee 3. Addition on account of Advertisement Expenses in Foreign Currency 4. Disallowance of Payment on Termination of Joint Venture Agreement 5. Disallowance of Write Back of Provisions for Excise Duty 6. Disallowance of Provision for Leave Encashment 7. Disallowance of Obsolete Material Written Off 8. Addition under Section 37(2A) of the Act 9. Disallowance of Write Back of Provision for Contractual Liability Detailed Analysis: 1. Disallowance of Non-Competition Fee: The assessee's claim of Rs.7.25 crores as Non-Competition Fee was disallowed. The Tribunal upheld this disallowance, referencing the Special Bench decision in Tecumseh India Pvt. Ltd vs Addl. CIT, which held such fees as capital expenditure. The Tribunal cited the Supreme Court's judgment in CIT vs Coal Shipment Pvt. Ltd., emphasizing that payments to eliminate competition over a period constitute capital expenditure. 2. Disallowance of Amortization of Trade Licence Fee: The assessee's claim of Rs.25 lakhs for Trade Licence Fee was initially disallowed by the AO, treating it as capital expenditure. The Tribunal reversed this, following its own decision in the assessee's earlier case, where it was held that staggered payments for non-exclusive trademark rights are revenue in nature. The Tribunal allowed the claim under section 37(1) of the Act. 3. Addition on Account of Advertisement Expenses in Foreign Currency: The AO added Rs.20,39,899/- for advertisement expenses paid to Asia Today Ltd., as the assessee failed to deduct tax at source. The Tribunal restored the issue to the AO for fresh adjudication, as it had done in earlier years, instructing the AO to pass a speaking order and consider the Tribunal's decision in Satellite Television Asia Region Ltd. 4. Disallowance of Payment on Termination of Joint Venture Agreement: The AO disallowed Rs.12,26,40,000/- paid to Godrej Soaps Ltd. for termination of the Joint Venture Agreement, treating it as capital expenditure. The Tribunal upheld this disallowance, referencing its decision in M/s Procter and Gamble Home Products Ltd., where it was held that such payments, related to restructuring and reorganization of the profit-earning apparatus, are capital in nature. 5. Disallowance of Write Back of Provisions for Excise Duty: The assessee's ground regarding the write-back of provisions for excise duty was not pressed, as the Tribunal had already granted relief for the relevant assessment years. Consequently, this ground was rejected. 6. Disallowance of Provision for Leave Encashment: The AO disallowed Rs.11,99,828/- for leave encashment provision. The Tribunal upheld the CIT(A)'s decision to allow the claim, following the Supreme Court's ruling in Bharat Earth Movers Ltd. v. CIT, which held that provisions for leave encashment are not contingent liabilities and are allowable as expenditure. 7. Disallowance of Obsolete Material Written Off: The AO disallowed Rs.73,42,784/- for obsolete material written off. The Tribunal upheld the CIT(A)'s decision to allow the claim, referencing its own decision in the assessee's earlier case and the decision in DCIT v. Bardma of India Ltd., where it was held that obsolete materials due to technological advancements and market changes are allowable as expenditure. 8. Addition under Section 37(2A) of the Act: The AO disallowed Rs.2,50,000/- under section 37(2A), estimating it as entertainment expenditure. The Tribunal upheld the CIT(A)'s decision to delete this disallowance, following its own decision in the assessee's earlier case. 9. Disallowance of Write Back of Provision for Contractual Liability: The AO added Rs.18,14,08,561/- written back by the assessee for contractual liability on a protective basis. The Tribunal upheld the CIT(A)'s decision to reduce this amount from the income, to avoid double taxation, as the same amount had been disallowed in the relevant assessment years. Conclusion: The Tribunal provided a detailed analysis and upheld or reversed the AO's and CIT(A)'s decisions based on precedents, principles of commercial expediency, and consistency in judicial decisions. The assessee's appeal was partly allowed for statistical purposes, and the Revenue's appeal was dismissed.
|
