2020 (4) TMI 823 - AT - Income Tax

Nature of expenditure - treatment of non-compete fee - capital or revenue expenditure - assessee has raised that in case expenditure is held to be capital in nature then depreciation is to be allowed on the same - HELD THAT - Payment of non-compete fee was capital expenditure in the hands of the assessee, on which the assessee is not entitled to claim depreciation u/s 32 of the Act. The Tribunal had relied on the decision of Jurisdictional High Court in the case of Sharp Business System vs CIT 2012 (11) TMI 324 - DELHI HIGH COURT and applied the same. We decide both the main issues and alternate grounds against the assessee. Disallowance of expenses incurred on ice boxes provided to dealers - whether expenditure incurred towards ice boxes and dealer sign board provided to hawkers/dealers carrying on brand names of the assessee was capital in nature? - HELD THAT - The assessee explained that since the product sold by it were to be sold on particular temperature, the ice boxes were used by the hawkers for selling the items at aforesaid temperature. As in CIT vs Honda Siel Power Products Ltd. 2007 (8) TMI 251 - DELHI HIGH COURT while deciding the issue of advances made for ownership of tools and dies which remained with the manufacturer, had allowed the same as revenue expenditure as it facilitated the trading operations of the assessee. Despite the non-allowance of expenditure in Assessment Year 2002-03, the Assessing Officer himself has allowed the expenditure in Assessment Year 200-3-04,2004-05 and 2005-06. In the totality of the above said facts and circumstances and following the consistency approach, we are of the view that the expenditure incurred on ice boxes, merits to be allowed as deduction in the hands of the assessee. Hence, the claim of the assessee is allowed in entirety. - Decided in favour of assessee.

Summary

Issues:
1. Treatment of non-compete fee as capital expenditure.
2. Disallowance of expenditure incurred on ice boxes.

Analysis:

Issue 1: Treatment of non-compete fee as capital expenditure
The assessee claimed a deduction for non-compete fee paid to bottlers to prevent disclosure of confidential information and competition in their territories for five years. The Assessing Officer disallowed the claim, stating it was capital expenditure. The CIT(A) upheld this decision. The Tribunal referred to a previous case and held the non-compete fee as capital expenditure, denying depreciation under section 32 of the Income-tax Act. The Tribunal dismissed all grounds related to this issue, noting pending adjudication in the High Court.

Issue 2: Disallowance of expenditure on ice boxes
The Assessing Officer disallowed expenditure on ice boxes provided to dealers, considering it capital expenditure. The CIT(A) allowed this expenditure as revenue in a previous case. The Tribunal found a discrepancy in treatment of different types of expenditures. The assessee argued that since they did not own the ice boxes, the expenditure should be revenue. Referring to a High Court case, the Tribunal allowed the expenditure on ice boxes, noting consistency in allowing similar expenditures in previous years. Consequently, the Tribunal allowed the claim on ice boxes, stating it as revenue expenditure.

In conclusion, the Tribunal partly allowed the appeal, dismissing grounds related to the non-compete fee but allowing the claim on expenditure for ice boxes provided to dealers.