2015 (1) TMI 968 - HC - Income Tax

Dis-allowance of the sum paid to outgoing Chairman - ITAT deleted the addition - Held that - Object of making payment was to derive an advantage by eliminating the competition over a period of three years and the said period cannot be considered as sufficiently long period so as to ward off competition from Mr. Kapadia for a long time in future or forever so as to hold that benefit of enduring nature is received from such payment. The Tribunal has recorded a finding that exit of Mr. Kapadia would have immediate impact on the business of the assessee- company and in order to protect the business interest the assessee had paid the said amount to ward off the competition. Thus the decision of the Tribunal is based on finding of facts and therefore, first question cannot be entertained. - Decided against revenue. Bad debts claim - whether after the amendment to Sec. 36(1)(vii) of the Act it is no longer required for the respondent to prove that the debt has become bad for claiming the deduction? - Held that - The said question stands answered against the revenue by the decision of the Apex Court in the case of T.R.F. Ltd. v. Commissioner of Income Tax reported in (2010 (2) TMI 211 - SUPREME COURT).- Decided against revenue.

Summary

Issues:
1) Whether the ITAT was correct in deleting the disallowance of the sum paid to the outgoing Chairman as a capital expenditure?
2) Whether the ITAT was correct in relying on a specific judgment to uphold the finding that the debt did not need to be proven bad for claiming deduction?

Analysis:

Issue 1:
The case involved a payment of Rs. 67,50,000 made by the assessee to its outgoing Chairman to prevent competition in the business. The revenue contended that this payment was capital in nature. The ITAT found that the payment was made to eliminate competition for a period of three years, which was not long enough to constitute an enduring benefit. The Tribunal concluded that the payment was made to protect the business interest, and thus, it was a revenue expenditure. The High Court agreed with the Tribunal's factual findings and dismissed the first question raised by the revenue.

Issue 2:
Regarding the second question, the revenue argued that a specific judgment by the Apex Court supported their position. However, the High Court noted that the second question could not be entertained as it had already been answered against the revenue in a previous decision. Therefore, the High Court dismissed the appeal, upholding the ITAT's decision on both issues.