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TMI Blog2001 (6) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... n 40A(2)(b). e. Addition of Rs. 1,71,412 for national interest on advance to M/s R.R. Holding Pvt. Ltd. f. Compensation paid for loss of office to Directors at Rs. 1,29,26,601. Ground No. 2(a) 4. If may be seen that while completing the assessment, the Assessing Officer noted that as per tax audit report an amount of Rs. 28,266 had been worked out and added under Rule 6D. According to Assessing Officer it was clear from Annexures B1 and B2 that other expenses relating to local conveyance and telephone amounting to Rs. 19,467 had not been considered in the light of rule 6D(2)(b). Accordingly the Assessing Officer disallowed this amount along with Rs. 58,266. In appeal the CIT(A) confirmed the action of the Assessing Officer. 5. The learned counsel for the assessee submitted that amount on local conveyance and telephone etc. are not subject of disallowance under rule 6D as held by Hon'ble Bombay High Court in the case of CIT v. Chemet [1999] 240 ITR 624. The learned counsel also placed reliance on the order of ITAT Special Bench Madras in the case of Sundaram Finance Ltd v. IAC [1984] 7 ITD 845 for this very purpose. 6. The learned D.R. placed reliance on the order of Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; ---------- 9. The Assessing Officer rejected the claim of the assessee that 50% of the amount of entertainment expenses and hotel bills for lunch, dinner, etc. be allowed for participation of staff members. The Assessing Officer also did not allow the claim for club expenses and treated the amount of Rs. 46,192 as amount relating to sales promotion and all these amounts were made subject to disallowance under section 37(2A) of the Act. 10. Before the CIT(A) it was submitted that 50% of the expenditure out of entertainment expenses and in respect of hotel bills, etc. be allowed for participation of employees and reference was also made to the decision of Jurisdictional High Court in the case of CIT v. Expo Machinery Ltd. [1991] 190 ITR 576 (Delhi). Considering all these facts the CIT(A) allowed 25% of the expenditure for participation of employees. About fees of membership of clubs the CIT(A) allowed the claim of the assessee in view of the decision of Hon'ble Bombay High Court in the case of OTIS Elevator Co. (India) Ltd. v. CIT [1992] 195 ITR 682 . About expenses relating to Rs. 46,192 the contention of the assessee was that assessee- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee which assessee remitted to Ashok Leyland (P.) Ltd. and claimed the same as business expenditure and the same was wrongly treated as advertisement expenses. Our attention was invited to page No. 109 which is copy of transfer voucher and page No. 110B is copy of letter of Ashok Leyland dated30-3-1989in which it was mentioned that Rs. 20,500 was share of the assessee for taking part in conference atKathmandu. On the basis of this it was submitted that this expense was purely a business expenses and should have been allowed. 17. The learned D.R. placed reliance on the order of Assessing Officer. After considering all the facts and circumstances as mentioned above the Assessing Officer and CIT(A) were not justified in treating the amount as incurred on account of foreign advertisements but it was the amount incurred by the assessee for participation in the conference held by its principal company Ashok Leyland (P.) Ltd. and expenses incurred to attend conference/seminars is held to be allowable expenses by different Bench of the Tribunal and we direct the Assessing Officer to allow the same. Ground No. 2(d) 18. While completing the assessment the Assessing Officer made disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxman 285 (Delhi) (Mag.) and D.S. Construction (P.) Ltd. v. ITO [1987] 29 TTJ (Delhi) 22. Accordingly we direct the Assessing Officer to delete the disallowance. Ground No. 2(e) 21. At the time of hearing the, learned counsel mentioned that in the last year the CIT(A) had restored, this issue to the file of Assessing Officer for further verification as is evident from page No. 11 of order of CIT(A) for assessment year 1988-89 appearing in the paper book of the assessee and submission was that same view be taken. The learned DR was fair enough to concede the aforesaid preposition. Accordingly matter stands restored to the file of Assessing Officer who will decide the issue afresh keeping in view the guidelines given by the CIT(A)for assessment year 1988-89 in the case of assessee itself. Ground No. 2(f) 22. Relevant facts giving rise to this ground of assessee are that assessee-company had claimed Rs. 1,29,26,601 as allowable revenue expenditure which was paid to Ramesh Suri (Rs. 1,29,26,500) and Lalit Suri (Rs. 101) erstwhile directors of the assessee-company on account of compensation for loss of their office as directors. It was submitted by the assessee that Mr. Rames ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cheques etc. Ramesh Suri filed a Suit before the Hon'ble High Court on7-3-1988in his individual capacity and as Karta of HUF against G. Sagar Suri and his family members, Roshan Lal Suri, Lalit Suri and four companies including assessee-company and also sought ad interim injunction to restrain the defendants from operating different bank accounts of different companies of Suri Companies. Main relief sought by Ramesh Suri was for equalisation of his shareholding in four companies arrayed as defendant Nos. 8 to 11 including assessee-company. A declaration was also sought to the effect that Board Meeting held after 4-12-1987 were null and void It appears further as noted by Assessing Officer that application of settlement moved under Order 23 Rule 3 of the CPC was moved by Ramesh Suri and defendants on 24-3-1988 giving out the terms of settlement and as per settlement Ramesh Suri and his group handed over their shareholdings in other group after receiving the amount including that of Rajdhani Cold Storage Pvt. Ltd. and para No. 6 of Settlement application provided that Ramesh Suri was to be given an amount of Rs. 1,29,26,500 for his past services as well as his undertaking not to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Keeping in view the above ratio the Assessing officer examined the sequence of the events under which Ramesh Suri filed the suit against G. Sagar Suri and his family members impleading assessee-company and three other companies as defendants and concluded that irresistible conclusion was that payment was not made for purpose of business of the assessee but for the settlement of the family dispute. In this connection the Assessing Officer also noted that the objection filed by G. Sagar Suri against the application moved by Ramesh Suri for compromise go to show that G. Sagar Suri opposed the same on the ground that compromise was not going to adjust the suit and ultimately new compromise application was filed to decide the whole of the controversy involved in that suit and that goes to reveal that amount paid to Ramesh Suri was for settling of the issues involved in the suit of Ramesh Suri. He also noted that after verification of compromise Ramesh Suri stands satisfied and got the amount in question. Further Ramesh Suri had not claimed any other right in the remaining business concerns of the group. Not only this Assessing Officer gave out two tables in the assessment order at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to two different situations "wholly' refers to quantum and second adverb "exclusive" has reference to the motive or object behind the expenditure. Unless such motive or object is exclusively i.e. solely for promoting the business, the expenditure will not qualify for deduction. On the basis of facts and circumstances discussed earlier, Assessing Officer was of the view that the plea of the assessee that amount in question was exclusively for promoting the business was not convincing but the amount was for settlement of the family dispute. 27. In the end, the Assessing Officer after examining the law on the point concluded that expenditure was capital in nature. For this Assessing Officer discussed the case laws referred to by the learned counsel for the assessee. The first case was Bowrisankara Steam Ferry Co. other cases were R.S. Munshi Gulab Singh & Sons v. CIT [1946] 14 ITR 66 (Lahore); V Damodaran and Champion Engineering Works Ltd. and distinguished the same. 28. On the other hand the Assessing Officer placed reliance on the decision of Madras High Court in the case of Chelpark Co. Ltd v. CIT [1991] 191 ITR 249 in which an amount of Rs. 1 lakh was paid as compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh Suri and his brothers and suit was filed in respect of this. Apart from it, it was submitted that Ramesh Suri effectively stopped the business of the assessee-company by filing a suit and obtained ad-interim injunction. Through negotiations the matter was settled and assesseecompany paid Rs. 1,29,26,500 in view of para 6 of compromise application in which it was specifically mentioned and agreed to by the parties to the suit that the amount was in consideration of the past services rendered by Ramesh Suri to defendant No. 8 (assessee-company) and for his agreeing not to indulge in future for a period of twenty years, in the business of ordinary bus body building in which line Shri Ramesh Suri is an expert so as to enable the assessee-company to retain its monopoly in that business and to avert jeopardy to its resources. The contention was that running of the business of assessee was stopped by Ramesh Suri who was in a position to take away substantial business of the company if came into same business that is why this sum was paid to avoid any adverse impact on the business of the assessee. The submission is that payment in question was made to enable the assessee-company to car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 705 (Delhi) in which amount paid by assessee to its two directors for agreeing not to carry on any similar business was held as incidental to the assessee's business and concluded that it was laid wholly and exclusively for the purpose of business. Another case relied upon by the learned counsel is that of CIT v. Raja Ram Bandekar [1994] 208 ITR 503. 34. About legal preposition the learned counsel was fair enough to admit that each case is to be decided on its own facts and merits inspite of the fact that different courts includingApex Courthad been seized with such controversy from time to time. It was also submitted that there are definite tests to arrive at the conclusion whether any expenditure is revenue or capital. If no new asset was acquired or no new business was acquired nor any enhancement of profit generating apparatus then it will be revenue expenditure. The learned counsel submitted that amount in question was revenue expenditure and for that he has placed reliance on different case laws including the case law referred to before Assessing Officer and CIT(A). The first case cited by the learned counsel is Bowrisankara Steam Ferry Co.'s case. Other decisions relied up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompartment so as to confine in a straight jacket. The test merely means that the court will place itself in the position of businessman and find out whether the expenses incurred could be said to have been laid out for the purpose of business or the transaction was merely a subterfuge for the purpose of sharing or dividing the profits. The learned counsel pointed out that in this case if court put itself to the position of a businessman then there can be no other conclusion except that the amount in question was for purpose of business. 39. The learned counsel also pointed out that Assessing Officer and CIT(A) were swayed by the quantum of expenditure while quantum is not the relevant factor to decide as to whether the money paid was a revenue expenditure or a capital expenditure. It is also the legal preposition that mere fact that payment was capital receipt in payee's hands will not be a relevant factor. It was also submitted that payment made in lump sum does not necessarily make the payment a capital one. As per counsel of the assessee no doubt the assessee was going to get benefit out of this payment for a period of twenty years but term "advantage of enduring nature' was pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer. In this connection the learned counsel pointed out that in the case of Coal Shipments (P.) Ltd. facts were quite different. The same is in respect of the decision of Chelpark Co. Ltd. 's case as their existing business was discontinued and another business was taken up while in the case in hand the same business was going on. A decision in the case of Patna High Court in the case of Indian Copper Corporation Ltd. v. CIT [1977] 110 ITR 434 was also referred to in which Their Lordships concluded that Tribunal was justified in holding that there was a capital element in 50% of the litigation expenses referable to the suit filed by the company and 5096 of the litigation expenses was not admissible deduction. The contention is that 50% was allowed and Their Lordships allowed the litigation expenses as business expenditure in case of Dalmia Jain & Co. Ltd v. CIT [1971] 81 ITR 754 (SC). The contention is that this amount was incurred by the assessee out of settlement of the suit and is allowable. 42. We have considered the rival submissions and perused the record carefully and gone through the case laws referred to before us. It is to be noted that facts are not indispute. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced as below: "6. That in consideration of the past services rendered by Shri Ramesh Suri to Defendant No. 8 and for his agreeing not to, in future for a period of 20 years, indulge in the business of 'Ordinary Bus Body Building' in which line Shri Ramesh Suri is an expert, so as to enable Defendant No. 8 to retain its monopoly in that business and to avert jeopardy to its resources, the Defendant No. 8 has agreed to and hereby pays to Shri Ramesh Suri a sum of Rs. 1,29,26,500 (Rupees one crore twenty-nine lakhs twenty-six thousand and five hundred only). It is, clarified that this restriction operates only in respect of the future and does not in any way restrict or interfere with any business already being carried on by Mr. Ramesh Suri." The contention of the learned counsel for the assessee is that amount was given to Ramesh Suri for past services as well as to restrain him from carrying on the business of 'Bus Body Building' for twenty years. So far as element of consideration for past services is concerned, the Assessing Officer has rightly taken note of the fact that it was not possible for G. Sagar Suri group to recognise the past services of Ramesh Suri as already bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is interesting to note as to what is criterion of assessee-company to arrive at this figure of Rs. 1.29 crores is not explained. 45. Next plea of the assessee is that amount in question was given to ward off competition from Ramesh Suri which he may cause in the coming years in the bus body building activities of the assessee. It may be pointed out that legal position on this point is against assessee. First case on the point is that of Apex Court In the case of Coal Shipments (P.) Ltd. The facts of that case were that assessee was one of the company which exported coal toBurmabefore Second World War. H.V. Low & Co. was another exporter. During Second World War export of coal was suspended. Afterwards it became possible to resume the export of coal toBurmain 1946 and assessee as well as H.V. Low & Co. were two of the major members of an association formed to overcome difficulties in the conduct of the coal trade following the war. When H.V. Low & Co. learnt of the resumption by the assessee of coal export toBurma, they also expressed an intention to export coal resulting into an agreement whereby H.V. Low & Co. agreed not to export coal toBurmaduring the period of agreement and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale thereof or any other business similar or competitive to the business carried on by the company and certain other incidental action. Their Lordships discussed the case law and decided that it was a capital expenditure. Their Lordships have also discussed the case law relied upon by the assessee and distinguished the same. Further we may refer the decision of same High Court in the case of Late G.D. Naidu by LRS in which payment by firms to assessee and son for not carrying on its business for five years was held to be capital expenditure and not allowable. 47. Another case is that of Hon'ble Madhya Pradesh High Court in the case of Grover Soap (P.,) Ltd. It is again on the same pattern involving same type of facts as before us and Their Lordships concluded that expenditure to ward; off competition for fifteen years was capital expenditure. In arriving at such conclusion that Hon'ble High Court had relied upon the decision ofApex Courtin the cases of Coal Shipments (P.) Ltd. and that of Chelpark Co. Ltd. and distinguished the case laws relied by assessee and most of the cases are the same which had been relied by learned counsel before us. 48. Ratio of the case law referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to it G. Sagar Suri group did not make any counter claim in the suit filed by Ramesh Suri but they got the shareholdings of Ramesh Suri and group members. They got payment of Rs. 30 lakhs from the member of Ramesh Suri group and ultimately total and absolute control over the five companies to the total exclusion of Ramesh Suri group. The amount in question cannot be said that the same was not associated with the terms of the compromise but was particularly in respect of terms and conditions given in para 6 of compromise application. These facts go to show that this amount was paid in lump sum to Ramesh Suri so that G.S. Suri group may get rid off Ramesh Suri and his group from effective control of all the five companies including four mentioned in the plaint. It is also 'relevant that suit filed by Ramesh Suri was not in respect of assessee-company alone but three other companies were evolved and compromise had taken into consideration another 5th company of this group. It will not be in the fitness of things to conclude that the amount was relevant to assessee-company alone when compromise application read as a whole go to show the very intention of the parties. Mere mentioning th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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