9911796707
|
Home
Issues Involved:
1. Nature of receipt from US Vitamins Ltd. 2. Addition of interest on overdue sundry debtors. 3. Disallowance of interest on deposit given to the Managing Director. 4. Disallowance of interest on borrowed funds used for acquiring property. 5. Ad hoc disallowance of miscellaneous expenses. Issue-wise Detailed Analysis: 1. Nature of Receipt from US Vitamins Ltd.: The primary issue was whether the sum of Rs. 6 crores received by the assessee from US Vitamins Ltd. for transferring marketing information and clinical data and agreeing to a non-compete clause was a capital or revenue receipt. The assessee argued it was a capital receipt, citing several judgments including Gillanders Arbuthnot & Co. Ltd. v. CIT and CIT v. B.C. Srinivasa Setty. However, the Assessing Officer (AO) considered it a revenue receipt, emphasizing that the agreement was not for a one-time complete transfer but for a limited period and that the assessee's trading structure remained unaffected. The Tribunal concluded that the imparting of marketing information for a limited period did not amount to a transfer of a capital asset and was therefore a revenue receipt. However, the payment related to the non-compete clause was deemed a capital receipt, as it resulted in a loss of source of income for five years. The case was remitted to the AO to bifurcate and apportion the composite receipt accordingly. 2. Addition of Interest on Overdue Sundry Debtors: The assessee had switched from the mercantile system to the cash system of accounting for interest on overdue sundry debtors, leading to a loss of Rs. 1,70,22,528. The AO added this amount back, considering the change inconsistent. The CIT(A) upheld this addition, noting that post-amendment of section 145, only mercantile or cash systems could be followed, and hybrid systems were not permissible. The Tribunal agreed, emphasizing that different methods for different parts of income were not allowed under the amended provisions. 3. Disallowance of Interest on Deposit Given to the Managing Director: The assessee had given an interest-free deposit of Rs. 75 lakhs to the Managing Director for providing rent-free accommodation. The AO disallowed the interest on this deposit, but the CIT(A) allowed it for Rs. 30 lakhs, disallowing the interest on the remaining Rs. 45 lakhs. The Tribunal, following its earlier decisions, ruled in favor of the assessee, allowing the entire interest deduction. 4. Disallowance of Interest on Borrowed Funds Used for Acquiring Property: The assessee had capitalized the interest on borrowed funds used to acquire property but claimed it as a deduction under section 36(1)(iii). The AO disallowed this, but the CIT(A) allowed it, stating that capitalization did not change the nature of the expenditure. The Tribunal upheld the CIT(A)'s decision, citing its previous ruling in the assessee's favor for the earlier assessment year. 5. Ad hoc Disallowance of Miscellaneous Expenses: The AO made an ad hoc disallowance of Rs. 2,00,000 out of total miscellaneous expenses of Rs. 5,35,969. The CIT(A) deleted this addition, noting that the AO had not pointed out any defects and the accounts were audited. The Tribunal found no infirmity in the CIT(A)'s order and upheld the deletion. Conclusion: The appeal of the assessee was partly allowed, with the Tribunal ruling in favor of the assessee on the issues of non-compete fee, interest on deposit to the Managing Director, and interest on borrowed funds for property acquisition. The revenue's appeal was dismissed, with the Tribunal upholding the CIT(A)'s decisions on the nature of receipt and ad hoc disallowance of miscellaneous expenses.
|
