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TMI Blog2005 (11) TMI 385X X X X Extracts X X X X X X X X Extracts X X X X ..... y it on Motorola products to the customers of the assessee. Initially the agreement was to remain enforce for a period of one year i.e. up to 31-12-1989 and before the expiry of the Representative Agreement it was extended upto 31st December 1991. 4. Meanwhile, Motorola Inc. decided to enter into Indian market partly by setting up manufacturing and other facilities for distribution of a variety of their products and consequently did not renew the said Representative Agreement. It was provided in the said agreement that assessee shall not be entitled for any compensation, damages, loss of profit etc. as a result of such termination. As such, the assessee did not claim or receive any compensation for termination of the agreement. 5. In the meantime, the assessee and another Indian company named Arya Dhoot Transport Co. (P.) Ltd. and Motorola Inc. entered into Shareholder Agreement to set up a new company which was set up and was called Motorola Blue Star Ltd. in which assessee had a 40 per cent interest. 6. By an Agreement dated 31-3-1992 the assessee assigned to Motorola Blue Star Ltd. its Wide Area Network (WAN) business i.e. dealing with the sale, distribution and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt by Motorola Inc. to the assessee. In fact, the amount was received for substitution of the source from which the assessee could have earned income by setting up a new business of WAN and other Data Communication Equipment in India or any neighboring countries. It was argued that giving up a right to set up a new business, effects the framework of the business of the assessee and the consideration received for the same was a capital receipt. 10. The ld. CIT(A) after dealing with the arguments of the assessee, held that the amount received in pursuance of Non-compete-covenant in effect constitute business receipt in connection with the termination of the agency/office or modification of the terms and conditions relating thereto. He came to the conclusion that assessee was effectively functioning as agent of M/s. Motorola Inc. India thus the receipt pertaining to the Non-compete-covenant would be taxable in terms of the provisions of section 28( ii )( b )( c ). He upheld the addition made by the Assessing Officer. It is against the said order of ld. CIT(A) that the assessee has filed further appeal before the Tribunal. 11. The ld. Counsel for the assessee Shri F.A. Anthyar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. DCIT ( 85 ITD 455 ) (Del) the Tribunal has already held that such expense was of capital nature and as such it will be capital receipt in the hands of recipient. 14. We have heard both the parties and gone through the factual position and case law referred. The case law referred by the assessee is mainly on the issue that the Non-compete-fee received is a capital receipt. The position in this case is different as the lower authorities have record clear finding that the compensation received for non-compete-covenant is for the termination of agency and as such covered by section 28( ii )( b )/( c ). It is also noted that while deciding the issue for assessment year 1991-92 the decision of Hewlett Packard, cited supra, was already considered by the Tribunal. The Tribunal also, reproduced observation of Tribunal for assessment year 1990-91 in ITA Nos. 4323 4176/Bom/1994, which are as under : "19. We have perused the agreement. The assessee did receive commission for the services rendered to HPA. The mere fact that the assessee was restrained from entering into a competitive business with HPI cannot be construed as permanent loss of business or the very source from whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the period to which it is agreed that it would not compete with Motorola. 19. The ld. Counsel for the assessee stated that only the agreement was signed during the year but the income did not accrue during the year. The assessee was entitled to the said amount of Rs. 80 lakhs after the end of the 4 years period from 1st January, 1992. The learned DR supported the order of lower authorities. 20. We have heard the rival submissions. No doubt that the assessee was to receive the amount in three instalments in the later years but the agreement was signed and the terms were settled during the year under consideration and as such the income had accrued to the assessee during the year under consideration. It is only the receipt of money, which was deferred to be paid in three instalments at a later date. The stipulation in the agreement that the compensation would not be paid to the assessee if it were to engage in any competitive business, also does not mean that the income had not accrue to the assessee during the year under consideration. 21. In view of the above discussion, we agree with the finding of ld. CIT(A) that the entire income had accrued on 30th March 1992 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on surrender of Tenancy rights in respect of Flat No. 28 Alxendra Court, Chowranghee Road, Calcutta vide agreement dated 25-1-1992. The Assessing Officer held that it cannot be believed that assessee has got Tenancy rights in the said premises and taxed the same under section 10(3). He also relied on the case of CIT v. Gulabchand reported in 192 ITR 495 (All.). On appeal the CIT(A) relied on the decision of Special Bench of the Tribunal in the case of Cadell Weaving Mill Co. Pvt. Ltd. reported in 80 ITD 79 (Mum.) (SB) and upheld the view of the Assessing Officer. 28. The ld. Counsel for the assessee Shri F.A. Anthyarujina relied on the decision of jurisdictional High Court in the case of Cadell Weaving Mill Co. Pvt. Ltd. reported in 241 ITR 265 (Bom.) and stated that the issue has been decided in favour of the assessee by the jurisdictional High Court and the judgment of Allahabad High Court in the case of Gulabchand has been dissented from. 29. We have heard both the parties. The copy of the agreement dated 25-1-1992 clearly shows that the assessee was in possession, on tenancy basis of Flat No. 28 Alxendra Court, Chowranghee Road, Calcutta and had received Rs. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th ground is partly allowed. 33. The 11th ground is with regard to disallowance out of expenses on food beverages etc. during conferences at clubs being treated as entertainment expenditure. The ld. CIT(A) treated 20 per cent of such expenses being incurred on the employees and as such held that the same were not entertainment expenses. The Tribunal in the assessee s own case for assessment years 1994-95, 1995-96 has not treated 25 per cent of such expenses as entertainment. Following the same we hold that the 25 per cent to be considered to have been spent on the employees and the balance should be treated as entertainment. The Assessing Officer is directed to recompute the disallowance. the 11th ground is partly allowed. 34. The 2nd Ground relates to disallowance of expenditure on canteen facilities. 35. The assessee has incurred expenses of Rs. 5,29,592 on sweets, canteen, coffee, electronics, lunch etc. which is claimed to have been spent to staff welfare. The Assessing Officer found that the assessee had spent Rs. 40,26,385 at its Thane office and other locations under the said head which also includes said amount of Rs. 5,29,592 as stated above. The Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered by the lower authorities. The 15th ground is not pressed by the assessee and as such the same is dismissed. 43. Ground No. 16 is with regard to deduction under section 80HH. It is admitted by both the parties that the issue has been remanded to the file of the Assessing Officer by the ITAT for assessment year 1991-92. The issue for this year is also restored back to the file of the Assessing Officer to decide the same in the light of the directions given by the Tribunal for assessment year 1991-92, as such 16th ground is allowed for statistical purpose. 44. The 17th ground is with regard to deduction under section 80-I allowable on profits without reducing therefrom deduction under section 80HH. Admittedly, the issue is covered in favour of the assessee by the decision of jurisdictional High Court in the case of CIT v. Nima Specific Family Trust ( 248 ITR 29 ) (Bom.) and also by the latest decision of Punjab Haryana High Court in case of CIT v. S.B. Oil Ind. (P.) Ltd. ( 274 ITR 495). The Tribunal has also decided the issue in favour of the assessee for assessment years 1994-95 and 1995-96 after following the said decision of the Hon ble Bombay High Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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