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TMI Blog2010 (7) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of fee paid to Registrar of Companies - The contention of the assessee is that the increase in the share capital was to meet the needs for working capital - C.I.T.(A) has observed in his order that for the assessment year 1990-91 a similar issue had arisen and the claim for deduction of the assessee was disallowed – Appeal is allowed by way of remand to AO Since that payment was made to an Architect, the same was held to be capital expenditure and accordingly added to the income of the assessee - Ld. AR also did not submit any details before us as the same was specifically asked for and in the absence of such details, after hearing both the parties on this issue we decline to interfere in the findings of the CIT (A) vide which such addition has been upheld and benefit of depreciation is denied – Decided against the assessee - ITA No. 3759/Del/2003 - - - Dated:- 30-7-2010 - BEFORE SHRI G.E. VEERABHADRAPPA, HON BLE VICE PRESIDENT, SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER Assessee by : Shri V.S. Rastogi, Advocate Shri Tarandeep Singh, CA Revenue by : Smt. Suruchi Aggarwal, Sr. Standing Counsel, Shri Manish Gupta, Sr. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l-USA ). Through the MOU Whirlpool-India had decided to sell the compressor and related operations owned by it in Faridabad and Ballabgarh. Whirlpool-India is stated to be one of India s leading Refrigerator manufacturer and it is mentioned in the MOU that Tecumseh-USA being a leading global compressor manufacturer is interested in purchasing such compressor and related operation and entering the Indian Compressor Market and both the parties have come to an understanding that both of them will enter into an asset purchase agreement , whereby Tecumseh-USA through its to be an established local Indian entity shall purchase all compressor machinery, equipment and tooling located at Whirlpool-India s Faridabad facility as well as related compressor component assets located at Whirlpool-India s Ballabgarh facility (including laminations, Via Drawings, centralized tool room, overload protectors and relays). 4. It was also agreed in the MOU that Tecumseh shall also purchase all raw and work in progress inventory for the compressor division and component operation. It was agreed that all assets and machinery currently used in the compressor repair business shall also be included in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourcing Agreement with Tecumseh. However, Whirlpool shall be free to sell refrigerator compressors to service partners (purchased from Tecumseh subject to the provisions of sec. 6.1. 8. To implement the MOU, Tecumseh-USA, incorporated Tecumseh-India Pvt. Ltd. (for short Tecumseh India) which entered into an agreement on 2nd July, 1997 with Whirlpool- India. Copy of such agreement is placed at pages 1 to 27 of the paper book. 9. The total land owned by Whirlpool-India measuring 105983 sq. metres, was subject to transfer to Tecumseh-India and it was distributed into three parcels. Main parcel was free from acquisition proceedings and other two parcels, namely, Seven Acre Parcel and Five Acre Parcel were subject to acquisition proceedings. All the three parcels were agreed to be transferred on different agreed prices. An aggregate amount of Rs.49.85 crores was mentioned to be paid with respect to various assets. The detail of which described in the agreement is as follows:- Sl. No. Description Clause of the agreement Amount 1. The price payable for the sale and purchase of compressor division and related operations and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring, both the parties have submitted written synopsis. Arguments of Shri V.S. Rastogi, Advocate 14 According to ld. Counsel of the assessee, the admitted facts as per record are: - (i) That Tecumseh India was incorporated on 30.01.1997 and it is fully owned subsidiary of Tecumseh USA. (ii) As per agreement dated 2nd July, 1997 between Tecumseh India and Whirlpool India, Tecumseh India had purchased undertaking of Whirlpool India s compressor division and related operations as a running business. The copiy of the agreement is filed at pages 1 to 27 of paper book II. (iii) On 2nd July, 1997 Tecumseh India entered into an agreement styled as compressor supply agreement with Whirlpool India effective for 5 years from 14th July, 1997 under which Whirlpool India will make a long term commitment to purchase operation of its requirement of certain compressors from Tecumseh India and the volume forecast was mentioned in para 2.4 of the agreement. He submitted that para 9 of the said agreement gave an option to both the parties to terminate the agreement at any time by mutual agreement and if parties fails to agree then the agreement could be terminated upon written notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered to be the part of earlier agreements and the same has to be considered on stand alone basis for the following reasons:- 1) Both the AO CIT(A) have accepted the factual sub-stratum that the payment of Rs. 2.65 crore was towards non-compete fee and they have considered the allowability or otherwise of the said expenditure on that stand point. The cases relied upon by the AO and CIT(A) also related to the question whether non-compete fee is an expenditure by way of capital or revenue and there is no whisper in the order of AO and CIT(A) that there was any doubt that amount was not spent for non-compete fee but towards cost of acquisition. In fact the AO has written in his order that the expenditure was shown as deferred revenue expenditure in the books of account. 2) That compressor division and related operations were acquired by the assessee as running business vide agreement dated 2nd July, 1997. Therefore, it has to be appreciated that at the time of taking over a business, the question of entering into a non-compete agreement cannot arise. The person who is acquiring the business can enter into a non-competing fee only after the same has actually been acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. 66 ITR 692 (SC) it was held that in the absence of any suggestion of bad faith or fraud the true principle is that a taxing statute has to be applied in accordance with the legal rights of the parties to the transaction. When the transaction is embodied in a document the liability to tax depends upon the meaning and content of the language used in accordance with the ordinary rules of construction. In D.S. Bist Sons Vs. CIT 149 ITR 276 (Delhi) it was held by the Hon ble Jurisdictional High Court that the I.T. Act does not clothe the taxing authority with any power or jurisdiction to rewrite the term of an agreement entered into Under, the taxing system it is up to the assessee to conduct his business in his wisdom. The assessee may enter into commercial transactions with another party who is ad idem with the assessee as to the terms and conditions. In State Bank of India and another Vs. Mula Sahakari Sarkar Karkhana Ltd. [2006] Comp. Cases 565 (SC) it was held: A document, as is well known, must primarily be construed on the basis of the terms and conditions contained therein. It is also trite that while construing a document the court shall not supply and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent judgment of CIT Vs. Coal Shipments P. Ltd. 82 ITR 902 (SC) [pages 16 to 27 of the PB No. 6] at page 909 as under: The character of the payment can be determined, it was added (in case of Assam Bengal Cement Co. Ltd.), by taking at what is the true nature of the asset which has been acquired .. In Assam Bengal Cement Co. s case assessee had acquired from Govt. of Assam, lease of limestone quarries for the purpose of carrying on the manufacture of cement. In addition of rent and royalties, tow sums were paid as protection fees by which lessor agreed not to grant any lease, permit or prospecting licence to any other party without a condition that no limestone should be used for the manufacture of cement. On these facts the Court held thus at page 47 (P.B. page 14): The asset which the company had acquired in consideration of this recurring payment was in the nature of a capital asset, the right to carry on its business unfettered by any competition from outsiders within the area. It was a protection acquired by the company for its business as a whole. It was not a part of the working of the business but went to appreciate the whole of the capital asset and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances and the facts of each individual case. For the cases where the period was mentioned, the Court left the matter open, as the last line reproduced above would show. iii. Empire Jute Co. Ltd. Vs. CIT 124 ITR 1 (SC) dated 9.5.80 [pages 25 to 42 of PB VI] Wherefrom the case of Coal Shipment (supra) was left it was taken forward in this case. The question of advantage of enduring nature was considered in detail. At page 10 the Court stated thus: There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that bring the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee s trading operations or enabling the management and conduct of the assessee s business to be carried on more efficiently o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructure. The pipelines etc. which came into existence as a result of the expenditure did not belong to the assessee but to the municipality. v. Alembic chemical Works Ltd. Vs. CIT 177 ITR 377 (SC) dated 31.3.1989. Both the judgments in the case of Empire Jute Co. Ltd. (supra) [Pages 50 to 65 of PB VI] and Associated Cement Companies Ltd. (supra) were applied. vi. CIT Vs. Madras Auto Service (P) Ltd., 223 ITR 468 (SC) dated 12.08.98 (pages 73 to 79 of PB VI). Another contour of the term benefit of enduring nature was dealt with by the apex court in this case. One test which was propounded by the Supreme Court in Assam Bengal Cement Co. Ltd. Vs. CIT 27 ITR 34 (SC) was referred to as under: Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade . If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another foot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... citing the judgments in the cases of Alembic Chemical Works Ltd. (supra) and Madras Auto Service P. Ltd. (supra) the Hon ble Bench concluded by holding thus, (para 17, page 255): The assessee did not acquire any capital asset by making the payment of non-compete fee There is nothing to show that the amount of Rs. 4 crores was drawn out of the capital of the assessee. While the period during which the restrictive convenant was to last was not clear from the record, yet his Lordships held that the competition in the two wheeler business was eliminated for a while, holding that it was neither permanent nor ephemeral. This observation goes to show that the period of restrictive convenant was not held decisive, because as already held at page 252 in para 10, to quote at the cost of repetition, what is more necessary to appreciate is the purpose of the payment and its intended object and effect. Indubitably, in this regard the Court had earlier concurred with the arguments raised before the lower authorities viz., to quote again at the cost of repetition the payment is to project the assessee s business interests, its market position and profitably. 8. Finally it was submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was twofold. Firstly, by not competing with the manufacturing activity, the assessee s production increased and by appointing Whirlpool as strategic purchaser of compressors the sales increased. Both these advantages were advantages in commercial sense and not in capital field as these terms are sued in the judgment of Empire Jute Co. Ltd. (vi) The judgment of Assam Bengal Cement Co. Ltd. in fact helps the assessee. In that case payment of protection fee ensured that the very profit making apparatus, i.e., right to carry on its business continued to operate unfettered. Under these circumstances the payment was related to the profit earning apparatus and was thus, held in capital filed. In the case of the assessee, right to carry on the business of manufacture and sale of compressors was already acquired by purchasing the undertaking on 2.7.97. Later, when a non-compete agreement was executed on 10.7.97 it was for the purpose of carrying on the business more profitably and not for enabling the assessee to carrying on the business. Arguments of Shri Ajay Vohra in the case of Hindustan Coca Cola Beverages Pvt. Ltd. (Intervener). 20. Shri Vohra submitted that facts of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urts:- (a) Once and for all/enduring benefit : The House of Lords in Atherton v. Insulated and Helsby Cables (1925) : 10 TC 155 has held that where the expenditure is made once and for all and that such expenditure brings into existence an asset or advantage for the enduring benefit of trade, such expenditure would be of capital nature and not allowable as deduction (b) Fixed capital vs. Circulating capital: The house of Lords in Johns Smith Sons v. Moore (1921) : 12 TC 266 has held that if the expenditure is incurred out of fixed capital, then, such expenditure would be in the nature of capital expenditure. Conversely, if the expenditure is incurred out of circulating capital, then, such expenditure would be admissible revenue deduction. 23. It was submitted that since then there has been substantial change in the judicial thinking as Hon ble Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT, 124 ITR 1 after considering the aforesaid judgements of the House of Lords and the various tests discussed therein has held that in certain situations or circumstances the test of enduring benefit may fail and may not be applicable universally. Thus, it was submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee s trading operations or enabling the management and conduct of the assessee s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. But even if this test were applied in the present case, it does not yield a conclusion in favour of the revenue. Here by purchase of loom hours no new asset has been created. There is no addition to or expansion of the profit-making apparatus of the assessee. The income-earning machine remains what it was prior to the purchase of loom hours. The assessee is merely enabled to operate the profit making structure for a longer number of hours. And this advantage is clearly not of an enduring nature. It is limited in its duration to six months and, moreover, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrying on the business more efficiently and profitably, leaving the fixed assets untouched, the payment made to secure such advantage would be allowable business expenditure irrespective of the period for which the advantage may accrue to the assessee by incurring such expenditure. 28. Shri Vohra referred to the decision of Hon ble Supreme Court in the case of CIT v. Madras Auto Services 233 ITR 468 where the assessee tenant had incurred expenditure on demolition and construction of a new building which was to vest in the landlord and the assessee tenant was entitled to use the premises for 39 years at reduced rent. The cost was claimed as revenue expenditure and the Tribunal and High Court accepted the contention of the assessee and on further appeal Hon ble Supreme Court observed that the nature of expenditure has to be looked into from a commercial point of view. The assessee did not get any advantage in constructing a building which belonged to somebody else. The assessee only got a long lease of the building constructed which was suitable to the business of the assessee at a concessional rate. The expenditure was made in order to secure a long lease, a new and more suitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the capital field or revenue field. He submitted that considering the facts of the case of the assessee any expenditure to avoid competition or for the purpose of protecting the business already acquired by the assessee can only be classified as revenue expenditure since the non competition fees does not bring into existence any new asset/enduring advantage in the capital field, but only seeks to protect the already existing asset/advantage. 32. Shri Vohra further referred to the decision of Hon ble Supreme Court in the case of CIT vs. Coal Shipment Ltd. (supra) wherein the Apex Court has held that if the payment is made to ward off competition in business with an object of deriving advantage by eliminating competition over some length of time, the said expenditure would be in the nature of capital expenditure and it was also held that how long the period of contemplated advantage should be in order to constitute enduring benefit would depend upon the facts and circumstances of each case. Therefore, Ld. Counsel argued that the decision in the case of Coal Shipment Ltd. does not lay down any rigid rule that all expenditure relating to warding off competition would constitute ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (Cal) to contend that for allowability of an expenditure as revenue expenditure it must be an expenditure incurred in the accounting year, the expenditure must be in respect of a business which was carried on by the assessee in the accounting year and the profit of which are to be computed and assessed, it should not be in the nature of personal expenses of the assessee, it should not be in the nature of capital expenditure and it must have been laid out or expended wholly and exclusively for the purpose of such business. ii) Hon ble Bombay High Court decision in the case of Champion Engineering Works Ltd. vs. CIT 81 ITR 273 (Bom) wherein Rs.50,000/- paid by the assessee to one Shri P.V. Shah for restraining him from taking up private practice was held to be in the nature of revenue expenditure as the assessee did not acquire any asset or advantage of enduring nature by making such payment. iii) Hon ble AP High Court decision in the case of CIT vs. Bowrisankara Steam Ferry Co. (1973) 87 ITR 650 (AP) where a sum of Rs.21,600/- paid by the assessee to 16 individuals who were prospective bidders at an auction to prevent them from competing was held to be in the nature of revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit for limited period of five years only and such expenditure was to be spread over a period of five years and corresponding expenditure in every year was held to be allowed. 38. He further submitted that the decisions relied upon by Department are distinguishable both on facts and in law. 38.1 His submissions in that regard are described as below: Referring to the decision of Hon ble Supreme Court in the case of Assam Bengal Cement Ltd. vs. CIT (supra) on which reliance was placed by Sr. Standing Counsel that in that case the issue was whether the payment made by the assessee to the Government of Assam for ensuring that nobody else get the rights of mining in the quarries situated in Khashi and Jayanti Hills would be in the nature of revenue or capital expenditure and Hon ble Supreme Court in that case has rightly held that such expenditure eliminated any kind of competition and ensured monopoly rights of the assessee in that area. Therefore, such expenditure was capital in nature. As against that in the present case by making non-compete payments, the assessee did not acquire any monopoly rights in order to eliminate any competitor. The payment was made to protect an alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case since the Apex Court was required to decide whether expenditure incurred by the assessee for betterment of title in a piece of land owned by the assessee would be in the nature of capital or revenue expenditure. As against that non-compete fees in the present case is paid only to protect the profitability of the business already in existence. 38.7. The decision in the case CIT v. Hindustan Pilkington Glass Works (supra) supports the case of the assessee rather than supporting the case of the revenue. It was submitted that in that case the issue was whether the expenditure incurred by the assessee to prevent total annihilation of its business would be capital or revenue expenditure and Hon ble Calcutta High Court concurred with its earlier decision in the case of Assam Bengal Cement Ltd. It was submitted that in the present case by making non-compete payment the assessee has not eliminated any competitor and the claim of the assessee falls within the category for which the payment was held to be allowable by the Calcutta High Court. 39. The decision of Allahabad High Court in the case of Neel Kamal Talkies vs. CIT (supra) also could not be applied to the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the expenditure incurred over it, and not the method or the manner in which the payment is made, or the source of such payment. The length of time over which the competition is eliminated/benefit accrues is not the decisive factor in determining whether an expenditure is on capital or revenue account. [Refer Madras Auto (supra) and Eicher Ltd. (supra). In the present case the appellant had paid non-compete fees to the covenanter for not sharing their knowledge/know-how for a period of 5 years. It did not bring into existence any asset or benefit of enduring nature, in the capital field but merely facilitated the carrying on of business more efficiently and profitably. The payment for acquisition of asset/business was different from payment of non-compete/non-divulgence of information. The agreement was not indefinite and could be terminated by either of the parties. The gestation period of 5 years was necessary since the appellant had returned to the Indian markets after approx 20 years. The bottlers were free to carry on other businesses and, in fact, did carry on such business. No new profit earning apparatus wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Then, he referred to the decision of Hon ble Supreme Court in the case of CIT vs. Coal Shipments Pvt. Ltd. (supra) and contended that elimination of competition means complete elimination. 46. Concluding his arguments he submitted that in the first case the expenditure will be capital and in the second case it will depend upon the object of the payment and in the third case where it is contingent on profit, it is revenue. Arguments advanced by Mrs. Suruchi Aggarwal, Sr. Standing Counsel for revenue: - 47. It was submitted by ld. Standing Counsel that the arguments of revenue are two fold namely: (i) the entire transaction/contract resulting into payment of Rs. 2.65 crores as non-compete fee must be read as a whole. The payment of Rs. 2.65 crore cannot be treated in isolation. All the agreements/contracts executed between assessee and its parent company being on one part and M/s Whirlpool India and its parent company on the other part have to be read as part of the same transaction. She contended that from reading of all these agreements/contracts the payment of Rs. 2.65 crores is also a part of the payment made towards initial outlay and would constitute capital expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guage used in the contract. The nature and purpose of the contract should be the important guide in ascertaining the intention of the parties. Reference was made to the decision of Hon ble Supreme Court in the case of Bank of India Vs. K. Mohandas, 2009(5) SCC 313, in which it was observed by their lordships as under: - It is also a well-recognized principle of construction of a contract that it must be read as a whole in order to ascertain the true meaning of its several clauses and the words of each clause should be interpreted so as to bring them into harmony with the other provisions if that interpretation does no violence to the meaning of which they are naturally susceptible. [(The North Eastern Railway Company vs. L. Hastings) (1900 AC 260)]. 51. Referring to these observations it was submitted that while deciding the issue the below mentioned three agreements should be read together to arrive at the true character and import of the agreements and the nature of the transactions and payments made pursuant thereto: - a) Memorandum of Understanding dated 4.11.1996. b) Agreement dated 2.7.1997 between Whirlpool of India and Tecumseh India Pvt. Ltd. c) The non-compet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... morandum of Understanding for a non-compete agreement whereby Whirlpool agreed not to manufacture or repair compressors during the term of the global sourcing agreement with Tecumseh. A copy of the Memorandum of Understanding dated 4.11.1996 is annexed hereto as Annexure 1. 5. Agreement dated 2.7.1997 The significant clauses of the Agreement dated 2.7.1997 are as follows : i) The recital of the said agreement clearly states that Tecumseh India is a wholly owned subsidiary of Tecumseh Product Co. which had entered into Memorandum of Understanding with M/s Whirlpool of India Ltd. for the acquisition of the compressor Division of the said company. ii) The recital clause (e) that Whirlpool and Tecumseh India (a wholly owned subsidiary of Tecumseh Product Co.) have negotiated for the acquisition of the Compressor Division and related operations of Whirlpool, and that Tecumseh India would engage in the business of manufacture, sale and repair of compressors and further that Whirlpool would not compete with Tecumseh India in the manufacture, sale and repair of compressors as per clause 9(j) of the Agreement. iii) Clause 9(j) is extracted herein below : Whirlpool sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure made for the initial outlay and hence constitutes capital expenditure. It is submitted that the expenditure of Rs.2.65 crores ostensibly made towards non-compete fee agreement is in fact for the purpose of acquiring an appreciated capital asset which would no doubt make the capital asset more profit yielding. The period of five years as stipulated in the non-compete agreement does not make any difference to the nature of the acquisition as the acquisition was an advantage of enduring nature which endured not only for the benefit of whole business for full period of five years but was in perpetuity in view of the acquisition of the entire Compression Division along with the employees. The entire business of the Compressor Division of Whirlpool was eliminated as no manufacture of compressors could be carried out by Whirlpool India and the sale of such compressors by Whirlpool India was confined to the supply of such compressors by M/s Tecumseh India to Whirlpool. 53. Then ld. Standing Counsel referred to the various judicial pronouncements, wherein several tests have been laid down: - Analysis of the several tests laid down in the judgments of the Supreme Court as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture and to ask oneself the question, is it a part of companies working expenses; is it expenditure laid out as part of process profit earning ? (iii) Dixon, J., expressed a similar opinion in Sun Newspapers Limited and the Associated Newspapers Limited vs. The Federal Commissioner of Taxation (1938) 61 C.L.R. 337) at page 360: But in spite of the entirely different forms, material and immaterial, in which it may be expressed, such sources of income or consist in what has been called a 'profit yielding subject' the phrase of Lord Blackburn in United Collieries Ltd. v. Inland Revenue Commrs. 1930 SC 215 at p. 220. As general conceptions it may not be difficult to distinguish between the profit-yielding subject and the process of operating it. In the same way expenditure and outlay upon establishing, replacing and enlarging the profit yielding subject may in a general way appear to be of a nature entirely different from the continual flow of working expenses which are or ought to be supplied continually out of the returns of revenue. The latter can be considered, estimated and determined only in relation to a period or interval of time, the former as a point of time. For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not follow if there is no certainty of the duration of the advantage and the same can be put to an end at any time. How long the period of contemplated advantage should be in order to constitute enduring benefit would depend upon the circumstances and facts of each individual case. (c) The facts of the said case are however distinguishable from the facts of the present case. In the said case of Coal Shipment, as payments made to M/s. H. V.Low Co. Ltd. were related to the actual shipment of coal in the course of the trading activities of the respondent and had no relation to the capital value of the assets and the payments were not related to or tied up in any way to any fixed sum agreed to between the parties and hence were held to be revenue in nature. 54. Concluding her arguments it was submitted that capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source, whether it is drawn from the capital or the income of the concern is certainly in the nature of the capital expenditure. The asset which the company had acquired irrespective of the fact whether the consideration paid was a recurring payment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and repair of compressors, CFC and non-CFC: (iii) Whirlpool will not compete with Tecumseh India in the manufacture, sale or repair of compressors as provided in clause 9(j) herein 57. Shri Gupta submitted that as per agreement the purchase price of various items were stated as under which was capitalized in the books of account of the assessee company: - (i) Equipment: 19.50 Cr. (ii) Inventory: 5.25 Cr. (iii) Real Estate: 25.10 Cr. Total 49.85 Cr. 58. Then Sh. Gupta referred to clause 9(j) of the agreement dated 2nd July, 1997 which read as under:- Whirlpool shall sign and deliver to Tecumseh India, against the receipt of full consideration specified therein a Non-Compete agreement in the form as contained in Appendix M undertaking not to compete with Tecumseh India in the manufacture, sale or repair of compressors in India, except that Whirlpool shall be entitled to sell and install compressors purchased from Tecumseh India to persons under its service arrangements, subject to the provisions of the supply agreements. 59. It was submitted that this clause provides for non-compete agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation or other entity for any reason or purposes whatsoever and the Promisors will not make use of any such secrets, processes or information for their own benefit or the benefit of any other person or other entity under any circumstances. 62. Referring to these clauses it was submitted that while clause E (a) (pg.18) of Non-Competition Agreement, the erstwhile owners agreed not to compete for a period of 5 years with the Assessee, under Cl. (b) (pg. 19)they agreed not to disclose trade secrets, processes, and information to any party nor to use such trade secrets, processes or information for their own benefit under any circumstances without any time limit. This way again the non-compete agreement virtually became a perpetual non-compete agreement , notwithstanding time limit of 5 years provided in Cl.(a). 63. It was further submitted that as per settled law, the terms of agreement should be read as a whole in order to construe its proper meaning. Reference was made to Explanation to Section 91 of the Indian Evidence Act, 1872 to contend that when the contracts, etc. are contained in more than one document, all the documents containing the contract should be properly go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee has also capitalized the said expenses of Rs.46.25 crores in its books and, thus, applying the same logic the non-compete fees also shall have the character of initial outlay of the new undertaking and, therefore, should be capitalized. 67. He submitted that even if it is assumed that the Assessing Officer has not treated the payment of non-compete fee as part of the same transaction of initial outlay, the ITAT being highest fact finding authority is not debarred from going into the factual aspects of the matter brought before it and it will not be proper to overlook the facts which are clear from the record. To contend that ITAT has such power, Ld. DR has relied upon the following decisions:- (i) Kapur Chand Shrimal Vs. CIT 131 ITR 451 (SC) : It is well known that an appellate authority has the jurisdiction to correct all errors in the proceedings under appeal and issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by any statute . (ii) CIT Vs. Manohar Glass Works 232 ITR 302 (All) : The Appellate Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated the said expenditure as deferred revenue expenditure in its books of account and the expenditure has been spread over five years and 1/5th of the expenditure is debited to the Profit Loss Account in the year under consideration. 71. Reference was made to the following two decisions of the Hon ble Supreme Court:- (i) Assam Bengal Cement Co. Ltd v CIT:27ITR 34(SC) A decision rendered by 4-Judge Bench. (ii) CIT vs Coal Shipment Pvt Ltd: 82 ITR 902(SC) - A decision rendered by 3-Judge Bench. 73. It was submitted that in Assam-Bengal Cement Company s case the assessee had acquired from Government of Assam lease right of lime stone quarry for the purpose of carrying on manufacture of cement. In addition to rent and royalties two sums were paid as protection fees by the lessor, agreed not to grant any lease, permit or prospecting licence to any other party without a condition that no lime stone should be used for the manufacture of cement and on these facts the observations of Hon ble Court were as under:- The asset which the company had acquired in consideration of this recurring payment was in the nature of a capital asset, the right to carry on its business unfet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not specify the time period over which the payee would not engage in the asseesee s line of business. Decision of the High Court According to High Court, the payment is made towards protecting the assessee s business interests, its market position profitability. The assessee did not acquire any capital asset by making the payment of non-compete fee. From the record, it is not known how long the non-compete agreement was to last, hence the advantage is not enduring in nature. There was nothing to show that it was drawn out of the capital of the assessee. AFORESAID PROPOSITIONS AS APPLIED TO THE FACTS OF THE PRESENT CASE AND WHY THE SAME WOULD NOT BE APPLICABLE : a. Payment of Rs. 2.65 Crore was made by way of non- compete fees as per MOU and subsequent agreements. The time limit prescribed as per the agreement was for a maximum period of Perpetuity and a minimum period of 5 years as noted in the agreements. b. It is not the case of the Revenue that the assessee acquired any capital asset. Rather according to the Revenue, what the assessee has acquired was an enduring advantage ,as held in the cases of Assam Bengal Cement Co. Ltd v CIT:27ITR 34( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mental Paper Book) (iv) Chelpark Co. Ltd. Vs. CIT (1991) 191 ITR 249 (Mad.) (pg 43 of Departmental Paper Book) (v) Tamilnadu Diary Development Corpn. Ltd. Vs. CIT (1996) 239 ITR 142.(MAD) (pg 26 of Departmental Paper Book) 79. It was submitted that the decision of Hon ble Delhi High Court in the case of CIT vs. Eicher Ltd. (supra) shall not be applicable to the assessee s case since in that case the period of validity of the restrictive covenant was not specified whereas in the present case agreement shows it is either perpetual or effective at least for five years. 80. It was submitted that assessment year under consideration is assessment year 1998-99 and the assessee company has not been able to show any proof that the agreement has not lasted its full term of five years i.e., upto 2004. Mere claim that agreement could be terminated at will is in sharp contrast to Clause 4 of non-compete agreement which mentions the benefit and binding effect as under:- This Agreement shall be binding upon the promissors and their respective successors and the assigns and shall inure to the benefit of Tecumseh India and the respective successors and assigns. This agreement has been en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also referred to the decision of Hon ble Supreme Court in the case of Virtual Software Systems Ltd. vs. CIT (2007) 287 ITR 83 (SC) in which Hon ble Supreme Court has laid down a general proposition on precedent, holding that where the predominant majority of the High Courts have taken a certain view of the interpretation of a certain provision, the Supreme Court would lean in favour of the predominant view. The same view should be applied in this case as well since majority of High Courts have held non-compete fee to be capital in nature. 85. It was submitted that benefit derived by the assessee is in the capital field , since this amount is paid from the same capital out of which the payment for land, building, machinery, etc. of the Compressor Division and its related operations amounting to Rs.46.25 crore was paid for and duly capitalized in its books. 86. In rebuttal of the argument of Shri Ajay Vohra, Ld. DR submitted as follows:- 1. Shri Ajay Vohra, the Ld. Counsel for the Interveners, Hindustan Coca Cola Beverages Pvt. Ltd., has emphasised a lot in his arguments that there has been substantial change in the judicial thinking ever since the days of (1) Assam B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e chargeable under the head profits gains of business or profession , would become otiose. It is again a settled law that any interpretation which makes a section of statute otiose should be avoided. 2 The Counsel of the Intervener also relied on the decision of the Supreme Court in CIT V. Madras Auto Service : 233 ITR 468 (SC) to argue that in the current judicial thinking, the length of time over which the enduring advantage may enure, is not determinative of the nature of the expense as long as the advantage is not in the capital field. In this connection, it is brought to the notice of the Hon ble Bench that the decision in the above case related to the expenditure incurred by the assessee on a tenanted building which was to go back to the landlord at the end of the period of tenancy and the landlord allowed the benefit of reduced rent to the assessee. In those peculiar circumstances, the expense was held to be revenue in nature. Hence the ratio of the said case is not applicable to the present one. 3. Shri Vohra also relied on the decision of CIT Vs. Late G.D. Naidu (1987) 165 ITR 63(Mad.) But the said decision has been impliedly over ruled by the later decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not have stopped any other new cinema-hall to come up in that town through such non-compete agreement. Freedom to profess a business or profession is a fundamental right and any number of new theatres can come up in any town. Thus what the assessee got is reprieve from competition by an existing competitor, not complete monopoly status. Therefore, his argument that only in a case where a monopoly is created, such expense should be treated as capital expenditure otherwise not, falls flat. DECISION 87. We have carefully considered the rival submissions in the light of the material placed before us. The first contention of Ld. Counsel of the assessee is that non-compete agreement, for the purpose of allowability or otherwise of the non-compete amount, should be considered separately from what was paid by the assessee to acquire the business activity of transformers and its related facilities from Whirlpool India Ltd. For contending so, the reliance has been placed on the fact that the Assessing Officer and CIT (A) both have considered the said agreement on stand alone point. In other words, the contention of Ld. Counsel is that the payment made with regard to non-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther meeting of the parties and according to clause 3.5 the base price retained for purchase of raw materials and work in progress was kept at 5.25 crores being 10% of the total purchase price agreed. Though clause 3 of the MOU has reference to Article 1 and Article 2, but copy of the same has not been furnished in the paper book filed before us. 91. To ascertain that for what the total payment of Rs.52.5 crores was made, one has to look into the agreement dated 2nd July, 1997 which was entered into in furtherance of MOU by the to be established local Indian entity , namely, Tecumseh India and Whirlpool India Ltd. wherein a total sum of Rs.49.85 crores was determined for the various assets. More particularly, these allocated payments are described in para 9 of this order. 92. Broadly stated, the purchase price paid for the sale and purchase of Compressor Division and related operation and facilities excluding the raw materials, work in progress and the land and building at Ballabhgarh was a sum of Rs.19.50 Crore (Clause 2 of the Agreement) purchase price for inventory i.e., raw material and work in progress was Rs.5.25 crores (Section 5 of the agreement), purchase price of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the contention of the Ld. Counsel of the assessee that the non-compete fees payment should be considered and viewed on stand alone basis. The same is hereby rejected. 96. It will also be incorrect to say that the Assessing Officer has considered such payment on stand alone basis as all the agreements namely; MOU, final agreement, non-compete agreement and supply agreement were produced before the Assessing Officer and he has discussed all these agreements in the assessment order. It is mentioned by the Assessing Officer in the assessment order that the assessee company was incorporated on January 30, 1997 and it is a fully owned subsidiary of a non-resident company known as M/s Tecumseh Products Company, Michigan, USA. The company started business of acquiring the Compressor Division of M/s Whirlpool India Ltd. in the month of July, 1997. For such purchase, the assessee entered into an MOU on 4th November, 1996 and a final agreement was executed on 2nd July, 1997 according to which an amount of Rs.46.25 crore was paid to M/s Whirlpool India Ltd. for various items like inventory, building, land and plant and machinery. It is further stated by the Assessing Officer that included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in consideration of payment of yearly rents and royalties. In addition, the assessee agreed to pay two further sums as protection fees which was in lieu of lessor giving an undertaking not to grant lease, permit or a prospecting licence with regard to limestone to any other party without a condition that the limestone given will not be used for the purpose of manufacturing cement. 99.1. Their Lordships, referring to various decisions, have come to the conclusion that under clause 4, the lessors undertook not to grant any lease permit or prospecting licence regarding limestone to any other party in respect of the group of quarries called the Durgasil area without a condition therein that no limestone shall be used for the manufacturing of cement. The consideration of Rs.5000/- per annum was to be paid by the assessee company to the lessor during the whole period of the lease and such advantage or benefit was to inure for the whole period of lease. It was held to be enduring benefit of the whole of the business of the company and, thus, falling within the Viscount Cave s test though the amount was not a lumpsum payment but was spread over the whole period of the lease and it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was one of the companies which exported coal from India to Burma before the Second World War. The shipment of coal to Burma Railways before the war was the subject of open tender. After the cessation of hostilities in 1946, it became possible to resume the export of coal to Burma. In order to overcome the difficulties in the conduct of trade, following the war, the principals of coal trade in Bengal formed an association styled as Coal Exporters and Charters Association of which the assessee company as well as M/s H.V. Low Co. Ltd. were two of the major members of the Association. When M/s H.V. Low Co. Ltd. learnt the resumption of the coal export to Burma by the assessee company in 1946, they also expressed an intention to export coal to Burma. There upon the two companies came to an understanding and arrived at a mutual arrangement on the following lines:- (i) M/s H.V. Low Co. Ltd. would not export coal to Burma during the subsistence of the agreement. (ii) M/s H.V. Low Co. Ltd. would assist the respondent in procuring coal for shipment to Burma. (iii) The respondent would carry on the coal shipping business and pay M/s H.V. Low Co. Ltd. at 5 as per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which in general circumstances can be properly attributable not to revenue, but to capital. 101.4. In that case the House of Lords dealt with a fund which was created by the respondent company as a nucleus of a pension fund for its employees. After handing over the money to trustees for the employees, the company claimed that the money should be charged to revenue. Such claim of the assessee was rejected on the ground that the payment of money created for itself an enduring benefit or advantage which was of a capital nature. Thus, it was observed by their Lordships that while deciding a question that whether a particular expenditure is in the nature of revenue or capital, the courts have to bear in mind that whether it was an expenditure forming part of the cost of income earning machine or structure as opposed to part of the cost of performing the income-earning operations. 101.5. Then, their Lordships referred to the decision in the case of Robert Addie and Sons Collieries Ltd. v. Commissioner of Inland Revenue, 1924 8 TC 671 wherein the test of true nature of expenditure was laid out and it was observed that while determining such question one has to ask oneself the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er mining. Due to steep fall in copper prices, they decided voluntarily to cut their production by 10%. It was agreed that Bancroft Mines Ltd. should cease production for one year and the respondent company and Bancroft Mines Ltd. should undertake between them the whole group programme for the year reduced by the overall cut of 10% and, in turn, agreed to pay a sum to Bancroft Mines Ltd. to compensate it for the abandonment of the production for the year and the question arose that whether such expenditure would be capital in nature. It was held by the court that the compensation paid was an allowable deduction. It was held that the expenditure was not for the purpose of acquiring a business or a benefit of long-term or enduring contract and their Lordships observed as follows:- Although we agree that payment made to ward off competition in business to a rival dealer would constitute capital expenditure if the object of making that payment is to derive an advantage by eliminating the competition over some length of time, the same result would not follow if there is no certainty of the duration of the advantage and the same can be put to an end at any time. How long the perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and provide water pipelines; (ii) to supply electricity for street lighting in the municipality and put up a transmission line therefore; and (iii) to create the main road from the factory to the Railway Station. In return, the respondent was not liable to pay Municipal rates and taxes for a period of 15 years. During the year under consideration a sum of Rs.2,09,459/-was expended towards installation of water pipelines and accessories outside the factory premises which were to belong to and be maintained by Municipality and which also came under the ownership of Municipality and such expenditure was held to be revenue in nature. It was held by the Apex Court that since the installation and accessories were the assets of the Municipality and not of the assessee, the expenditure did not result in bringing into existence any capital asset for the company. The advantage secured by the assessee by incurring the expenditure was absolution or immunity from liability to pay municipal rates or taxes for a period of 15 years and if liabilities had to be paid the payment would have been on revenue account and, thus, the advantage secured was in the form of revenue and not capital. 104. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. The expression asset or advantage of enduring nature was evolved to emphasise the element of a sufficient degree of durability appropriate to the context. (d) What is relevant is the purpose of the deal and it is intended to do and effect, considered in a commonsense way having regard to the business realities and in a given case, the test of enduring benefit might breakdown. 105. In the case of CIT Vs. Madras Auto Service (P) Ltd., 223 ITR 468 (SC) the assessee had obtained premises on lease for 39 years. Under the lease agreement assessee demolished existing construction and constructed new building to suit its business at its own expenses. The assessee in no circumstances was entitled for any compensation on account of putting up new construction and it should be treated as tenant subject to payment of rent lower than the rent prevailing in the market. The expenses incurred on construction were claimed as revenue expenditure and these were held allowable on the ground that the asset created by such expenditure did not belong to the assessee and what the assessee had got was only business advantage of using modern premises at a low rent, thus saving considerable rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the aforementioned decisions which have laid down various tests to consider a question that whether a particular expenditure will be capital or revenue, one thing is clear that the line of demarcation between the capital expenditure and revenue expenditure is very thin. Therefore, it is not desirable for any court to do that which the Parliament has abstained from doing i.e., to formulate precise rules for the guidance or embarrassment of businessmen in the conduct of business affairs. Justice Bhagwati while describing such situation in the decision of Assam Bengal Cement Company (supra) has referred to the quotation of Lord Macnaghten in Dovey v. Cory (1901) AC 477 at p.488. Similarly, the observations of Rowlatt, J. from the decision in the case of Countless Warwick Steamship Co. Ltd. vs. Ogg (1924) 2 K.B. 292 at p.298 have been reproduced where it is stated that it is very difficult to lay down any general rule which is both sufficiently accurate and sufficiently exhaustive to cover all or even a great number of possible cases, and any attempt was refused to be made to lay down any such rule. 108. Justice Bhagwati in the said decision has then referred to the broad tests, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade : vide Viscount Cave, .C., in Atherio vs. British Insulated and Helsby Cables Ltd. If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sump payment brings in a capital asset, then that puts the business on another footing altogether. Thus, if labour saving machinery was acquired, the cost of such acquisition cannot be deducted out of the profits by claiming that it relieves the annual labour bill, the business, has acquired a new asset, that is, machinery. The expressions enduring benefit or of a permanent character were introduced to make it clear that the asset or the right acquired must have enough durability to justify its being treated as a capital asset. 112. It is also observed that the Viscount Cave s test has been adopted almost universally in India vide following decisions:- Viscount Cave s test has also been adopted almost universally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the above test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. In that circumstances, if the expenditure was part of the fixed capital of the business, then, it would be of a nature of capital expenditure and if it was the part of the circulating capital then it will be in the nature of revenue expenditure. It will be useful to reproduce the following observations of their Lordships from Assam Bengal Cement Company (supra) s case:- This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the principles which emerge from the authorities. In cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital expenditure. The question however ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the great diversity of human affairs and the complicated nature of business operations it is difficult to lay down a test which would apply to all situations and, thus, one has to apply these criteria one after the other from the business point of view and come to the conclusion whether on a fair appreciation of the whole situation the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure. The question is a question of fact to be determined by the IT authorities of an application of the broad principles laid down above and the Courts of Law would not ordinarily interfere with such findings of fact if they have been arrived at on a proper appreciation of those principles. Reference can be made to the following observations of their Lordships from the said decision: These tests are thus mutually exclusive and have to be applied to the facts of each particulars case in the manner above indicated. It has been rightly observed that in the great diversity of human affairs and the complicated nature of business operations it is difficult to lay down a test which would apply to all situations. One has therefore got to apply these cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding whether a particular expenditure can be termed to have provided enduring benefit but according to the aforementioned decisions it does neither mean permanent nor ephemeral. But at the same time if the restrictive covenant is to last for 5 years that has also been held to be giving enduring benefit in the case of Assam Bengal. 120. The ratio of decision in the case of Madras Auto Services (supra) is also of no avail in the cases of non compete payments as in that case the incurring of expenses did not create any asset as against that it has been clearly held by the Hon ble Supreme Court in the case of Assam Bengal (supra) that protection fee paid by the assessee had acquired an asset or advantage of an enduring nature which enured for the benefit of the whole of the business. Similar is the position of other decisions relating to laying down electricity lines, which did not become the property/asset of the assessee and therefore, the expenditure was held to be in the nature of revenue. 121. It may be mentioned here that the test of enduring benefit has not lost its importance even in the context of the present situation. To contend that the test of enduring benefit is no m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f capital expenditure. As against this, an expenditure which enables the profit making structure to work more efficiently leaving the source or the profit making structure untouched, would be in the nature of revenue expenditure. In other words, expenditure incurred to fine tune trading operations to enable the management to run the business effectively, efficiently and profitably leaving the fixed assets untouched would be an expenditure of a revenue nature even though the advantage obtained may last for an indefinite period. To that extent, the test of enduring benefit or advantage could be considered as having broken down; (v) expenditure incurred for grant of License which accords access to technical knowledge, as against, absolute transfer of technical knowledge and information would ordinarily be treated as revenue expenditure. In order to sift, in a manner of speaking, the grain from the chaff, one would have to closely look at the attendant circumstances, such as: (a) the tenure of the Licence. (b) the right, if any, in the licensee to create further rights in favour of third parties, (c) the prohibition, if any, in parting with a confidential information recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n para 88 and 89 of this order wherein aggregate amount of Rs.52.5 crore was determined as the total purchase price for the Compressor Division assets referred to in Article 1 and the Ballabgarh land and building as referred to in Article 2. The purchase price itself states that the amount of Rs.52.5 crore was to be paid as a total purchase price for the Compressor Division assets and Ballabhgarh land and building. 124. The MOU was implemented through agreement dated 2nd July, 1997 which also states about execution of non-compete agreement in clause 9 (j) which read as under:- j. Whirlpool shall sign and deliver to Tecumseh India, against the receipt of full consideration specified therein, a Non-Compete Agreement in the form as contained in Appendix M undertaking not to compete with Tecumseh India in the manufacture, sale or repair of compressors in India, except that Whirlpool shall be entitled to sell and install compressors purchased from Tecumseh India to persons under its service arrangements, subject to the provisions of the supply agreements. 124.1 Thus, it can be seen that non-compete agreement was made Appendix M to the agreement dated 2nd July, 1997 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made annually. Their Lordships have observed that the asset which the company had acquired in consideration of such recurring payment was in the nature of capital asset which was the right to carry on its business unfettered by any competition from outsiders within the area. The protection acquired by the company was for its business as a whole. It was not a part of the working of the business, but went to appreciate the whole of the capital asset and make it more profit yielding. The relevant observations of their Lordships from the said decision are as under:- The asset which the company had acquired in consideration of this recurring payment was in the nature of a capital asset, the right to carry on its business unfettered by any competition from outsiders within the area. It was a protection acquired by the company for its business as a whole. It was not a part of the working of the business but went to appreciate the whole of the capital asset and making it more profit yielding. The expenditure made by the company in acquiring this advantage which was certainly an enduring advantage was thus of the nature of capital expenditure and was not an allowable deduction u/s 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arding off the competition. Reference in this regard can be made to the following observations of Hon ble Supreme Court from the decision in the case CIT vs. Coal Shipment Pvt. Ltd. (supra) where it was observed that even in a case where payment is made to ward off competition in business to a rival dealer would constitute capital expenditure:- Although we agree that payment made to ward off competition in business to a rival dealer would constitute capital expenditure if the object of making that payment is to derive an advantage by eliminating the competition over some length of time, the same result would not follow if there is no certainty of the duration of the advantage and the same can be put to an end at any time. How long the period of contemplated advantage should be in order to constitute enduring benefit would depend upon the circumstances and the facts of each individual case. 129. According to above observations it can be seen that warding off competition in business even to a rival dealer will constitute capital expenditure and to hold them capital expenditure it is not necessary that non-compete fee is paid to create monopoly rights. 130. The assessee also c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und No.2 the issue is discussed by the Assessing Officer in para 3 of the impugned assessment order. The assessee has increased its authorized share capital and for that purpose it has incurred an expenditure of Rs.39,90,120/- being on account of fee paid to Registrar of Companies. The Assessing Officer relying on the following decisions of Hon ble Supreme Court has disallowed this amount:- i) Punjab State Industrial Development Corporation Ltd. vs. CIT 225 ITR 792; ii) Brook Bond India Ltd. vs. CIT 225 ITR 798 (SC). 134. Before Ld. CIT (A) it was pleaded that company s investment in working capital as on 31st March, 1998 was Rs.24,79,41,453/- and investment in fixed assets as on 31st March, 1998 was Rs.44,52,68,614/- and it was submitted that even if ROC fees of Rs.39,90,120/- is apportioned in the ratio of working capital to fixed capital, then, the amount attributable to working capital will come to Rs.14,54,876/- and attributable to fixed assets will be an amount of Rs.25,35,244/-. The amount attributable to working capital at Rs.14,54,876/- out of Rs.39,90,120/- is expenditure on revenue account and qualifies for deduction as a revenue expenditure and another amount may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. vs. C.I.T. [225 ITR 798]. The contention of the assessee is that the increase in the share capital was to meet the needs for working capital. It is the submission of the assessee that the Tribunal in Laxmi Auto Components Ltd. (Supra) has observed that where the expenses were incurred for increasing the share capital which was in to meet the need for working capital then the expenditure was allowable as revenue expenditure. We find that both the lower authorities has not brought on record the entire facts of the case whether the increase in the share capital by the assessee was for working capital or for fixed capital. Further, we find that the learned C.I.T.(A) has observed in his order that for the assessment year 1990-91 a similar issue had arisen and the claim for deduction of the assessee was disallowed. In these facts and circumstances we are of the considered opinion that the issue should be restored back to the file of the Assessing Officer for deciding the same afresh after verifying the facts of the case and considering the decision of the Tribunal in the case of Laxmi Auto Components Ltd. (supra). We therefore, set aside the order of the Assessing Officer and the Ld. ..... 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