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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 ..... ure and, as such, the expenditure was capital expenditure. 2. That on the facts and circumstances of the case and in law, the CIT(A) erred in upholding the addition of Rs. 39,90,120 being the fee paid to Registrar of Companies. 3. That on the facts and circumstances of the case in law, the CIT(A) erred in upholding disallowance of Rs. 20,00,000 being professional fee paid to the Architect. 3.1 That without prejudice and in alternative, CIT(A) erred in not allowing benefit of depreciation though the fee paid to Architect was in connection with acquisition of capital asset." 2. Accordingly the present appeal was fixed for hearing before Spl. Bench. M/s Hind Coca Cola Beverages P. Ltd., Gurgaon through ITA No. 1890/D/07 and M/s Reed Elsevier through ITA No. 4297/D/07 have joined as interveners as in these appeals the question regarding non-compete fees is involved. 3. Facts in the case of Tecumseh India P. Ltd. (ITA No. 3759/D/03): - These facts as emerged from the assessment order, order of CIT(A) and from the documents enclosed in the paper books are that the assessee is wholly owned subsidy of Tecumseh Product Company Michigan, USA (for short "Tecumseh-USA"). Tecumseh-U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion proceedings and then in clause 3 it is stated about the amount to be paid as "purchase price" and the total consideration has been referred to as the purchase price of the compressor division assets which were described in article 1 and the Ballabgarh land and building referred to in article 1 and 2 for a total sum of Rs. 52.5 crores. 6. According to rider provided in clause 3.5 of the MOU, it is mentioned that Tecumseh purchase of raw materials and work in progress pursuant to Clause. 1.2 (the condition for purchasing all raw and work in progress inventory of the compressor division and component operation), the agreed base lying for such purchase will be Rs. 5.25 crores and any adjustment to that amount (up or down) shall be based upon a physical inventory at closing date and will be reimbursed locally by the appropriate party. 7. In the said MOU, it is also agreed that Tecumseh will assume 600 Whirlpool employees currently engaged in the compressor division operations at Faridabad or component operations at Ballabgarh and list of such employees was to be provided by Whirlpool India to Tecumseh. In the said MOU a mention is made of manufacturing and production plan by the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 11. Before AO copy of annexure "M", as mentioned in Section 9(j), is not filed. However, a copy of non-competence agreement was filed which is dated 10th July, 1997. Copy of Annexure "M" is also not filed before us. Therefore, the non- compete agreement entered into by the assessee with Tecumseh-India can be considered to be the same as appendix "M" attached to the agreement. The amount mentioned in non-compete agreement is Rs.2.65 crores. If the same is added to the aforesaid aggregate sum of Rs. 49.85 crore then the total amount paid by the assessee to Whirlpool India will be an amount of Rs. 52.50 crore which is the total sum agreed to be paid by the assessee for whole of the transaction as per MOU. 12. It is that amount of Rs. 2,65,00,000/- which has been claimed by the assessee to be paid as non-compete fees being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporated as the same was incorporated on 30.01.1997 (reference in this regard was made to MOU copy of which is placed at pages 28 to 36 of paper book no. III. 15. Ld. AR submitted that the AO and Ld. CIT (A) both have accepted the fact that the non-compete agreement dated 10th July, 1997 was a stand-alone agreement and thus, the payments of Rs. 2.65 crore was treated as non-compete fees simplicitor and from that stand point it has to be seen that whether the expenditure is capital or revenue in nature. 16. It was pleaded that the three agreements envisaged three different subject matters and were executed on and were to be effective from different dates; they are also not with the same parties. To describe more particularly it was submitted as under: a) The Purchase Agreement was executed on 2.7.97 between Tecumseh India and Whirlpool and contained the terms of purchase of the 'Compressor Division' and 'Related Operations' of Whirlpool. b) The non-compete agreement was between Whirlpool Corporation USA and Whirlpool of India Ltd., New Delhi as Promissors and Tecumseh India and was executed on 10.07.97 after the purchase was effecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition of undertaking by the assessee. Non-compete agreement is specifying the application of the Whirlpool India, the period, the consideration and the relevant clauses which are yet to be done subsequently after the business was taken over on 2nd July, 1997. 3.1 In similar manner, the preamble E(iv) speaks of supply agreement which does not give details of the said agreement and which also has yet to see the light of the day subsequently after the purchase which was made effective from 14th July, 1997 3.2 Thus, it will be incorrect to plead that there was only one agreement and subsequent agreements dated 10th July, 1997 was not a non-compete agreement but was to be dovetailed into a purchase agreement by construing the payment of Rs. 2.65 crore towards the initial cost of acquisition of the business. 18. It was further pleaded that law in respect of interpretation of agreements is stated in the provisions of law and in judicial pronouncements as under:- * Section 91 of the Evidence Act, 1872 expressly lays down that when the terms of a contract, or of a grant, or of any other disposition of property, have been reduced to the form of a do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retations of the document are possible, the one which would give effect and meaning to all its parts should be adopted and for the purpose, the words creating uncertainty in the document can be ignored (page 2609)". * In Delta International Ltd. Vs. Shyam Sunder Ganeriwala (1999) 4 SCC 345 it was held: i. Where terms of the agreement are vague or having double meaning one which is lawful should be preferred. (page 545) ii. Where the parties were capable of understanding their rights fully, expressly agreed that the document should be construed one way, no interference should be drawn so as to construe it in a different way. (page 545). 19. It was submitted by Ld. AR that non-compete fees is not in the nature of capital and reliance was placed on the following decisions:- "7. (i) Assam Bengal Cement Co. Ltd. Vs. CIT 21 ITR 34 (SC) [pages 1 to 15 PB No. VI]. In this decision, the Hon'ble Court at page 9 has observed as under:- "The distinction was thus made between acquisition of an income earning asset and the process of the earning of the income. Expenditure in the acquisition of that asset was capital expenditure an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h did not provide for a certainty of duration and the agreement could be terminated or revoked at any time. Though the arrangement ran for 5 years it automatically came to an end when Govt. of Burma made some other arrangement for its coal requirement. At page 909 the following observations from the judgment of Assam Bengal Cement Co. Ltd. Vs. CIT 27 ITR 34 (SC) were quoted: "The character of payment can be determined by looking at what is the true nature of assets which has been acquired....." The judgment in this case may be taken to have been decided on two specific aspects propounded by Mr. Palkiwala based on the facts of the case, to which the Court agreed - a. There was no certainty of the duration of the arrangement, the same can be revoked at any time and, therefore, the advantage cannot be said to be of the enduring character and expenditure cannot be held to be of capital nature; and b. The payment was related to quantum of coal shipped in the course of trading activity and not connected with the capital value of the assets. The judgment may be taken to have been decided on the facts of the case. Nevertheless, the Court made following observations at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 important to note the following rules laid down by the Court: a. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in the test; b. It is only where the advantage is in the capital field that the expenditure would be disallowable on an application of the test of enduring nature; c. If the advantage consists merely in facilitating the assessee's trading operations of enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably the expenditure would be revenue even though the advantage may endure for an indefinite future. d. 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. iv. CIT Vs. Associated Cement Companies Ltd. 172 ITR 257 (SC) dated 4.5.1988 (pages 43-49 of P.B. VI) In this case the argument of the revenue was that advantage of not being liable to pay municipal rates, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot the period of advantage but whether expenditure resulted in creation of a capital asset in the hands of the assessee. vii. CIT Vs. Eicher Ltd., 302 ITR 249 (Del.) [Pages 66 to 72 of PB VI] Helpfully, we have the benefit of the judgment of Eicher's case (supra) on two counts viz.- (i) that this is a judgment of the jurisdictional High Court, (ii) that it has dealt with the following four cases of the Apex Court: (a) Assam Bengal Cement Co. Ltd. Vs. CIT (supra) (b) CIT Vs. Coal Shipments P. Ltd. (supra) (c) Alembic Chemical Works Ltd. Vs. CIT (supra) (d) CIT Vs. Madras Auto Service P. Ltd. (supra) The Hon'ble Court agreed with the following submissions made before the CIT(A) and ITAT (para 7 page 252 of ITR): The payment of Rs. 4 crores was made to protect the assessee's business interests, its market position and profitably. No new asset is created by spending Rs. 4 crores. Profit making apparatus was not expanded or increased There was no loss or diminution or erosion in the capital asset of the assessee. After referring to the judgment in CIT Vs. Coal Shipments P. Ltd. (supra) the relevant portions of which were reproduced, the Hon'ble Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (supra)]. (ii) Assessee having not acquired any capital asset in view of above, the expenditure incurred could not be treated as capial expenditure [reference Assam Bengal Cement Co. (supra) as applied by Madras Auto Service P. Ltd.] (iii) Payment towards non-compete fee was to 'project the assessee's business interests, its market position and profitability [reference Eicher Ltd. (supra)]. The expenditure incurred was merely for facilitating assessee's trading operations and to conduct the business more profitably leaving fixed capital untouched [reference Empire Jute Co. Ltd. (supra)]. (iv) The duration of non-compete agreement was 5 years. The agreement itself was dependent upon the subsistence of the Supply Agreement (kindly see clause 1a(i) of non-compete agreement (page 18 of PB No. 1). The Supply Agreement also, though having a term of 5 years, could be terminated at any time by mutual agreement (kindly see para 9 of the Agreement reproduced above). In the eventuality of the Supply Agreement being terminated the non-compete agreement would also fall in view of second part of clause 1a(i) (page 18 of PB No. 1) of the non-compete agreement. The period of 5 years as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) within a specific territory, and (b) for a maximum period of 5/10 years, as specified in the agreements executed in connection therewith. Clause 1 (a) of the agreement. 4. Know-how has been defined to mean 'all information (including that comprised in or derived from manuals, instructions, catalogues, booklets, data disks, tapes, source codes, formula cards and flowcharts) relating to the Acquired Business and the services provided or products manufactured by the Acquired Business. Clause (1) (c) of the agreement 5. The agreement could be terminated at the instance of either of the parties during the term of the agreement. Clause 10 of the agreement." 21. He submitted that according to general principle what can be recognized as revenue expenditure is stated in Section 37 which read as under:- "37. General (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tone has been devised. Every case has to be decided on its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. But a few tests formulated by the courts may be referred to as they might help to arrive at a correct decision of the controversy between the parties. One celebrated test is that laid down by Lord Cave L.C. in Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, 192 (HL), where the learned Law Lord stated: ".......... When an expenditure 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, I think that there is every good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital." This test, as the parenthetical clause shows, must yield where there are special circumstances leading to a contrary conclusion and, as pointed out by Lord Radcliffe in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241 (PC), it would be misleading to suppose that in all ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and "enduring benefit" are not to be treated as something akin to statutory conditions; nor are the notions of "capital" or "revenue" a judicial fetish. They should be flexible so as to respond to the changing economic realities of the business. The expression "asset" or "advantage of enduring benefit" was evolved to emphasize the element of sufficient degree of durability appropriate to the context. 25. It was submitted that non-compete payment is made by one party to another to restrain the second party from competing with the first party (the payer) in a specified territory for a specified period. The second party accepts the negative covenant of not carrying on competing business for a specified number of years in the specified territory. The purpose of non-compete payment is to maintain/protect the profitability of the business of the payer by insulating the same from the risk of competition, if similar competing business was to be carried on by the second party. 26. He submitted that applying the test laid down by Hon'ble Supreme Court in the case of Empire Jute & Co. (supra) it is to be appreciated that payment of non-compete fee only facilitates the carrying on of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge by expending the amount. In all these cases, the expenses have been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. In the present case also, since the asset created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusion that the expenditure should be looked upon as revenue expenditure." 29. He submitted that the aforesaid proposition also can be found in the decision of Karnataka High Court in the case of CIT vs. HMT Ltd. 203 ITR 820. 30. Shri Vohra further submitted that in following cases, applying the aforementioned principles, the courts have held that payment made by the assessee to the State Electricity Board for laying of electricity lines upto the assessee's factory, which was property of Electricity Board, was deductible business expenditure, even though by incurring such expenditure, the assessee had indefinitely secured uninterrupted power supply to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -compete fees be treated as capital expenditure and not otherwise. 34. Ld. Counsel referred to the decision of Hon'ble Delhi High Court in the case of CIT vs. Eicher Ltd. (supra) wherein non-compete fees was held to be allowable business deduction and he submitted that Hon'ble Delhi High Court has held that by making payment of non-competition fees, the assessee did not acquire any capital asset and, therefore, such expenditure could not be treated as capital expenditure. He submitted that SLP filed by the revenue against the said decision has been dismissed by Hon'ble Supreme Court vide order dated 20th January, 2009. 35. Shri Vohra referred to the decision of Privy Council in Nchanga Consolidated Copper Mines Ltd. 58 ITR 241 (PC) wherein it was held by the Privy Council that the payment made by Nchanga to Bancroft was not for initial outlay, but only to carry on and earn profit out of assets already in existence and, therefore, in the nature of revenue expenditure 36. Shri Vohra referred to the decision of Hon'ble Madras High Court in the case of CIT vs. Late G.D. Naidu and Ors 165 ITR 63 (Mad) where payments made by the firm to the assessee for not carrying on and/or for not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any independent business which could be detrimental to assessee was held to be revenue in nature. (c) Smartchem Technologies Ltd. vs. ITO (2005) 97 TTJ (Ahd) 818 wherein payment as non-compete fees was claimed u/s 37 of the Act. In the said case the assessee had purchased VBC's plant for manufacturing nitric acid and ammonium nitrate and paid Rs.6 crore as non-compete fees the deduction of which was claimed u/s 37 of the Act. The Assessing Officer treated the said expenditure as capital. The Tribunal held that the expenditure satisfied both assessee's necessity and commercial expediency. The benefit procured by the assessee was for a period of five years, hence, could not be said to be of enduring nature. (d) USV Ltd. vs. JCIT (2007) 106 TTJ (Mum) 535 wherein similar payment made to restrict the other party for not supplying data, details and scientific and marketing know how relating to formulation made from bulk drug Nitroglycerine to any third party for a period of at least three years from the date of agreement was held to be made for facilitation of profit earning process and, thus, was held to be revenue in nature. (e) Adsteam Agency (India) Ltd. vs. DCIT 16 SOT 44. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated at the volition of the parties, as in the present case, the payment would be on revenue account. Thus, it was submitted that rather the said case advances the proposition canvassed by the assessee. 38.3. It was submitted that in the case of Empire Jute Mills (supra) it has been held that merely because an expenditure results in a benefit of enduring nature would not, by itself, lead to the conclusion that the expenditure was capital in nature, unless it is proved that the enduring benefit was on capital account. 38.4. The decision of HP High Court in the case of Mohan Meakin Breweries Ltd. vs. CIT 227 ITR 879 (HP) cannot be applied to the facts of the intervenor's case as the question before the High Court was whether one time licence fee paid to the Government to ensure monopoly and exclusive right would be allowable revenue deduction or would constitute capital expenditure and on those facts it was held that licence fee paid by the assessee was in the nature of capital expenditure. The said case could not also be applied to the facts of the assessee's case as the payment did not create any monopoly. 38.5. The decision of Madras High Court in the case of Sree Meenakshi Mil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this regard it is submitted that all the three decisions relied upon by the Ld. Sr. DR proceeded on a finding by the Tribunal that by incurring the expenditure in dispute, the assessee had acquired benefit of enduring nature. However, in the present case it is for this Special Bench to first adjudicate whether payment of non-competition fee brought into existence an asset/advantage of enduring benefit. The next question which would have to be considered is that whether the benefit, so acquired by the assessee, is on capital account or revenue account? It is only after such finding is recorded, would the ratio of the decisions quoted by the Ld. Sr. DR be of any relevance. 40. Concluding his arguments, Ld. Counsel submitted as follows:- * If the expenditure is for the initial outlay or for acquiring or bringing into existence an asset or advantage of an enduring benefit in the capital field to the business that is being carried on, or for extension of the business that is going on, or for a substantial replacement of existing business assets, it would be capital expenditure. * If, on the other hand, the expenditure, although for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary that the expenditure is paid by separate agreement which can be defined in one agreement and paid by another agreement. He submitted that duration of restriction is not material and purpose and object of it will be material. 42. He contended that how it can be determined has been enunciated in two examples which are extreme on both sides. He referred to the decision of Hon'ble Allahabad High Court in the case of Neel Kamal Talkies v CIT(1973) 87 ITR 691(All) where the assessee being the owner of cinema house at Bijnore had entered into an agreement with another cinema owner whereby a sum of Rs.600/- per month was paid for five years for non-exhibition of any film in the other cinema. Exhibition monopoly was created and competition was completely eliminated and, thus, it was held that the payment was of a capital nature. 43. Then, he referred to another situation where one agreement of acquisition is executed and another agreement is made in respect of non-competition. The amount for non-competition is not drawn from capital and the payment is made on the basis of profit/turnover and in that case there will be no nexus between the capital/acquisition, then, it will be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure/payment is part of the company's working expenses or it is an expenditure laid down as a part of process of profit earning or on the other hand, it is a capital lay out, being an expenditure necessary for acquisition of property or of right of a permanent character the possession of which is a condition of carrying on its trade at all? 48. Referring to aforesaid test Mrs. Aggarwal referred to the decision of Hon'ble Supreme Court in the cases of Assam Bengal Cement Co. Vs. CIT 27 ITR 34 (SC) & CIT Vs. Coal Shipment P. Ltd. 82 ITR 902. She contended that the payment of Rs. 2.65 crore is a part of huge payment to the extent of 45crore made by the assessee to M/s Whirlpool for the acquisition of the complete Compressor Division of Whirlpool, sans the land, factory building, plant & machinery, transfer of work force/employees, contracts and other assets and hence comprises initial outlay. Such payment was necessary for the acquisition of rights of a permanent character and is not a part of the company's working expenses. The said payment has only been given a colour of revenue expenditure but actually it is a capital expenditure. 49. Ld. Counsel argued that all agreements execute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Michigan, a leading global compressor manufacturer entered into a Memorandum of Understanding on 4.11.1996 with M/s Whirlpool of India Ltd. and Whirlpool Corporation, and expressed its interest in purchasing the Compressor Division of M/s Whirlpool of India Ltd., wherein Tecumseh was to become a strategic and key supplier to Whirlpool for compressors. The two companies had agreed to the framework by which the said transaction was to be accomplished. b) Tecumseh and Whirlpool were to enter into an Asset Purchase Agreement whereby Tecumseh was to purchase all compressor machinery, equipment and tooling located at Whirlpool Faridabad facility as well as related compressor component assets located at Whirlpool Ballabgarh facility, c) Tecumseh was also to purchase all raw and work-in- progress inventory for the Compressor Division and component operations, (d) all assets and machineries currently used in the compressor repair business were to be included in the asset purchase agreement, (e) Tecumseh was entitled to all drawings, routings, bill of material, knowhow trade secrets, patents, copyrights and other technical information and intellectual property as part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hirlpool shall be entitled to sell and install compressors purchased from Tecumseh India to persons under its service arrangement, subject to the provisions of the Supply Agreement." iv) It is submitted that the said agreement also envisaged the purchase of the Ballabgarh land measuring 105,983 sq. mtrs. and building and facilities situated at Ballabgarh where the entire operations of the Compressor Division were to be established. Tecumseh was also enjoying the liberty that, in the event Tecumseh India conveys its interest in the main parcel of land, Tecumseh may transfer the licence to the person or entity to whom the main parcel is conveyed. Besides the land, the entire assets, employees and workers were also transferred. 6. Agreement dated 10.7.1997 Though, by virtue of the Agreement dated 10.7.1997 Whirlpool had agreed not to compete with Tecumseh India in the manufacture, sale, repair of compressors for a period of five years commencing from the date of the agreement for a consideration of sum of Rs.2.55 crores, yet, the non-compete Agreement read together with the other Agreements is a Non-Compete Agreement in perpetuity. i) Clause 4 of the Non-Compete Agreement sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of enduring nature is one of the age old tests, yet in the judgment of the Hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. vs. CIT (1955) 27 ITR 34 (SC) the relevant tests are as follows: (a) 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 advantage for an enquiring benefit of the 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 matter on another footing altogether. (b) Whether for the purposes of expenditure, any capital was withdrawn or in other words whether the object of incurring the expenditure was to employ what was taken in as capital of business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. (c) The aforesaid judgment of Assam Bengal Cement Co. Ltd. Vs. The Commissioner of Income-Tax, West Bengal, approves certain broad tests in support of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following : (i) In the case of Robert Addie and Sons' Collieries Ltd. v. Commissioner of Inland Revenue ([1924] 8 T. C. 671, 676.), Lord President Clyde gave the following test: "It is necessary accordingly to attend to the true nature of the expenditure, and to ask one's self the question, is it a part of the company's working expenses ? Is it expenditure laid out as part of the process of profit earning ?-or, on the other hand, is it a capital outlay ?-is it expenditure necessary for the acquisition of property or of rights of a permanent character, the possession of which is a condition of carrying on its trade at all ? " ii) Further the Judges approved the dictum: The expression " once and for all " used in the dictum laid down in Atherton's case (1) was referred to by Bhagwati J., speaking for this court in the case of Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax (2), and it was observed that the expression was used to denote an expenditure which is made once and for all for procuring an enduring benefit to the business as distinguished from a recurring expenditure in the nature of operational expenses. The character of the payment can be determined, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orking of the business but went to appreciate the whole of the capital asset and it was part of initial outlay and to make it more profit yielding. The advantage derived by the assessee was certainly an enduring advantage and thus, was of the nature in capital expenditure and was not allowable u/s 37 of the Act. 55. The obligation to make payment was undertaken by the assessee in consideration of their acquisition of the right and opportunity to earn profit, i.e. of the right to conduct the business and not for the purpose of producing profit in the conduct of the business. The distinction has to be made between the expenditure incurred for acquisition of an income earning asset and the expenditure incurred in the process of the earning of the income. The expenditure in the acquisition of that asset is capital expenditure and expenditure in the process of earning of profit was revenue expenditure. She contended that such test really is akin to one laid down by Bowen Ld. Judge City of London Contract Corporation Ltd. v. Styles [(1887) 27 C.239]. Argument by Shri Manish Gupta, Sr. DR: - 56. It was submitted by Sh. Gupta that according to clause 12 of MOU dated 4.11.1996 the Whirlp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents." 59. It was submitted that this clause provides for non-compete agreement and no time limit has been provided for and there is no stipulation regarding revocation of the same. Thus, it was submitted that the nature of non-compete agreement is a perpetual along with purchase of factory, land, machine, buildings, employees, know-how, etc. and no scope whatsoever has been left for future business to Whirlpool India Ltd. 60. Ld. DR submitted that non-compete agreement dated 10th July, 1997 is the fall out of earlier agreements in the shape of MOU dated 4th November, 1996 and agreement dated 2nd July, 1997. It was submitted that in Clauses C and D of non-compete agreement it was provided as under:- "C. In terms of the Purchase Agreement, the Promisors have agreed not to compete with Tecumseh India in the manufacture, sale and repair of compressors as a condition of the sale and purchase of the Compressor Division and Related Operations, subject to payment of Compensation for the same. D. The execution and delivery of this Agreement is a condition precedent to Tecumseh India's obligation to consummate the transactions described in the Purchase Agreement." 61. Then, Ld. DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in more than one document, all the documents containing the contract should be properly gone through. It was submitted that Section 91 of Indian Evidence Act provide as under:- "91. Evidence of terms of contracts, grants and other dispositions of property reduced to form of documents.-When the terms of a contract, or of a grant, or of any other disposition of property, have been reduced to the form of a document, and in all cases in which any matter is required by law to be reduced to the form of a document, no evidence shall be given in proof of the terms of such contract, grant or other disposition of property, or such matter, except the document itself, or secondary evidence of its content in cases in which secondary evidence is admissible under the provisions hereinbefore contained. Explanation 1 -This section applies equally to cases in which the contracts grants or dispositions of property referred to are contained in one document, and to cases in which they are contained in more documents than one." 64. Reference was made to Section 6 of Indian Evidence Act to contend that Court must take notice of the facts which formed part of the same transaction alth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from doing so by any statute". (ii) CIT Vs. Manohar Glass Works 232 ITR 302 (All) : "The Appellate Tribunal, being the last fact finding body, is under a legal obligation to record a correct finding of fact and as and when it finds some difficulty in recording a correct finding of fact on account of contradictions in the factual position, it may remand the matter back to the A.O to the lower authority to state correct facts".A-13 68. Replying to the arguments of Ld. AR, that various agreements are executed between different parties, Ld. DR submitted that initial MOU could not have been signed by the assessee, since it came into existence as a subsidiary of the foreign parent company, which was a signatory to the MOU. A common thread was running between these agreements/contracts which could not be ignored. 69. It was submitted that as per the claim of the assessee non-compete agreement was executed after 8 days of the purchase agreement, therefore, these two transactions should be considered to be separate transactions. He submitted that the assessee is conveniently ignoring the clause E(iii) and Clause 9(j) of the purchase agreement dated 2nd July, 1997 specifically pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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 under section 10(2)(xv) of the income Tax Act". 74. In the case of CIT vs. Coal Shipment Pvt. Ltd. (supra) the observations of the Hon'ble Supreme Court were as under:- "Although we agree that payment to ward of 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 constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital 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(SC) & CIT Vs. Coal Shipment Pvt. Ltd. 82 ITR 902(SC). c. "Enduring advantage" does not mean that an advantage should last forever. Apparently the assessee's argument appears to be that an "enduring benefit" should be synonymous with "Perpetual" and "everlasting". The Revenue has already shown that on a correct interpretation of the terms of both the agreements, it is seen that it is a perpetual agreement without any time limit and even if 5 years time frame is taken as the outer limit of the non-compete agreement, it still becomes an "enduring benefit". While clarifying the meaning of enduring benefit, the Supreme Court in the case of Assam Bengal Cement Co. Ltd v CIT:27ITR 34(sc) at pg 44 has held : "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". Similarly, the Supreme Court also quoted with approval at pg 47 the observations made in Sun Newspap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 entered into for the benefit of and may be enforced by the Tecumseh India and Tecumseh and their respective successors and assigns only and is not intended to benefit, be enforceable by, or create any remedy or right of action in favour of any other person." 81. It was submitted that the reading of above clause would show that there is no provision for termination of non-compete agreement, hence, the facts of the present case are different from the facts in the case of CIT vs. Eicher Ltd. (supra). 82. It was submitted that as per settled law the decision of Hon'ble Supreme Court is the law of land under Article 141 of the Constitution and if prima facie, there appears to be some dichotomy between the decision of Supreme Court and High Court, it is the decision of the Supreme Court which would have precedent and binding effect over all High Courts, Tribunals within the territory of India. To raise such contention Ld. DR referred to the decision of Hon'ble Supreme Court in the case of Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terveners, 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 Bengal Cement Ltd. Vs. CIT 27 ITR 34 (SC)and (2) CIT Vs. Coal Shipment Pvt. Ltd. 82 ITR 902 (SC). In this connection, he cited the ratio of cases of Empire Jute & Co., Ltd., Vs. CIT 124 ITR 1 and Alembic Chemical Works Co. Ltd. Vs. CIT 177 ITR 377(SC). There is no truth in such claim for the following reasons : (a) The decision of the Assam Bengal Cement Ltd. Vs. CIT 27 ITR 34 (SC) was rendered by a Bench of 4 Judges. Similarly decision in the case of CIT Vs. Coal Shipment Pvt. Ltd. 82 ITR 902 (SC) was rendered by a Bench of 3 Judges whereas Empire Jute & Co., Ltd., Vs. CIT : 124 ITR 1(SC) and Alembic Chemical Works Co. Ltd. Vs. CIT 177 ITR 377(SC) case was rendered by three & two Judges Benches respectively. Looking at the Bench-strength, it cannot be said that the decision of the Hon'ble Supreme Court rendered in the cases of Assam Bengal Cement Ltd. Vs. CIT 27 ITR 34 (SC) or CIT Vs. Coal Shipment Pvt. Ltd. 82 ITR 902 (SC) have either been overridden or reversed subsequently. These de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable 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 the same High Court in Chelpark Co. V. CIT(1991) 191 ITR 249 (Mad.). 4 He also sought strength from the fact that the Department's SLP in Supreme Court against Delhi High Court's order in the case of CIT Vs. Eicher Ltd : 302 ITR 249 (Del) has been dismissed, and therefore, Delhi High Court's view now has become final. The above assertion is not correct. First of all, the facts of the present case relates to an understanding taken over newly whereas in CIT Vs. Eicher Ltd : 302 ITR 249 (Del) case, non-compete fee was paid in an existing business. Secondly, when an SLP is dismissed by Supreme Court without entering into the merits of the case, it does not create a binding precedent. The Hon'ble Calcutta High Court has referred to 3 such decisions of Supreme Court on this matter in CIT Vs. Ruby Traders & Exporters Ltd. (2003) 263 ITR 300 (Cal). The relevant portion is reproduced here under: "Having regard to the order dismissing the SLP, we find that it was purely on a que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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-compete agreement should be considered separately from the other payments made by the assessee with regard to acquisition of assets relating to activity of manufacturing and trade of compressors. 88. The facts have already been set out in the earlier part of this order. The parent company of the assessee company being leading manufacturer of compressors worldwide, had desired to enter the Indian market for that activity and, for the purpose of effectuating such desire that company entered into an agreement called MOU with the Whirlpool India Ltd. and its parent company in which it was clearly stated in clause 1.1 that Tecumseh and Whirlpool shall enter into an asset purchase agreement whereby Tecumseh (through a to be established local Indian entity) shall purchase all compressor, machinery, equipment and tooling located at Whirlpool's Faridabad facility as well as related compressor component assets located at Whirlpool's Ballabhgarh facility [including laminations, wire drawings, cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the land (called as "main parcel", "seven acre parcel" and "five acre parcel") for an aggregate amount of Rs.25.10 crores which made the total of these assets at Rs.49.85 crore. If a further sum of Rs.2.65 crore paid on account of non-compete fee is added to the same, the total will come to Rs.52.50 crore. 93. Thus, it will be incorrect to say that the non-compete agreement should be considered on stand alone basis as the reference of non-compete agreement is not coming for the first time in the agreement dated 2nd July, 1997, but it originated from the MOU dated 4th November, 1996 wherein as per clause 12 it is clearly stated that these parties shall enter into non-compete agreement and aggregate amount of transfer of all these assets was stated to be Rs.52.50crore. All the further events have proceeded on the basis of MOU only as there is no significant change in what was stated in MOU as a total consideration for whole of the transaction and what was subject to transfer. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 in that amount was a sum of Rs.2.56 (actual amount is Rs.2.65 crore) according to item No. 9(j) of the agreement and M/s Whirlpool was to sign a non-compete agreement after receiving full consideration in the form contained in Appendix-M. It is further stated by the Assessing Officer that the assessee did not file Appendix-M, but filed a non-compete agreement dated 10th July, 1997. Therefore, it cannot be held that the Assessing Officer has considered the payment of non-compete fee on stand alone basis. The consideration thereof was for the purpose of determining the allowability or otherwise thereof from income-tax point of view as other payments were never claimed by the assessee being on revenue account. But that does not mean that the Assessing Officer has considered non-compete agreement on stand-alone basis. 97. As pointed out earlier, to arrive at a proper conclusion, it is necessary to go into the entirety of facts and even if it is the case of the Ld. Counsel that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit 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 a recurring payment. 99.2. It was held that the fact that it was a recurring payment was immaterial because one had to look to the nature of payment which in turn will be determined by the nature of assets which the company had acquired. It was observed that the asset which was acquired by the company in consideration of such recurring payment was in the nature of capital asset i.e., 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 observed to be not a part of the working of the business, but it appreciated the whole of the capital asset which was made more profit yielding. The expenditure was considered to be made for acquiring such addition, which was an enduring advantage and, thus, was held to be in the nature of capital expenditure. Recurring payment was considered as an appreciation to the lease to the considerable extent, and it was so held for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 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 the ton (subsequently raised to Rs.1-5-0 per ton) of coal shipped to Burma. 101.1 In pursuance of the above mutual agreement, the assessee made certain payments to M/s H.V. Low & Co. or its nominee which were claimed to be revenue expenditure. The Assessing Officer held that these were payments made to secure monopoly, therefore, cannot be allowed as revenue expenditure. AAC upheld the order of Assessing Officer. However, the Tribunal reversed the order of AAC and held that the payments made by the assessee were revenue in nature. The Hon'ble High Court also held that the payment made by the assessee were not such as was likely to have an enduring benefit effect. In the opinion of the High Court, there was no certainty of duration and the arrangement could be terminated or revoked at any time. The consideration was not paid "once for all", but was related to uncertain shipments to be made. It did not create any monopoly or bring about any capital advantage to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 question that whether it is a part of the company's working expenses and it is an expenditure laid out as part of the process of profit earning or, on the other hand, it is a capital outlay. Another question is that whether that expenditure is necessary for acquisition of property or of rights of a permanent character, the possession of which is a condition of carrying on its trade at all. 101.6. Then, their Lordships referred to the Assam Bengal Company Ltd.'s case wherein the expression "once and for all" was considered and it was held that the character of payment can be determined by looking at what is the true nature of the asset which has been acquired and not by the fact whether it is a payment in lumpsum or by instalments. It was observed that the words "permanent" and "enduring" are only relative terms and not synonymous with perpetual or everlasting. 101.7. Then, their Lordships referred to the tests like those of "fixed capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 102. In the case of Empire Jute Company (supra), the assessee company was carrying on the business of manufacture of jute and was a member of Indian Jute Mills Association. The association was formed with the object of, inter alia, protecting the trade of its members, making restrictive conditions on the conduct of the trade and achieving the production of the mills of these members. A working time agreement was entered into between the members restricting the number of working hours per week for which the mills were entitled to work their looms. According to clause 4 of the working time agreement, no signatory could work for more than 45 hours per week and according to clause 6 (b) signatories were entitled to transfer, in part or whole, their allotted hours of work p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure 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. In the case of Alembic Chemical Works Co. Ltd. vs. CIT 177 ITR 377, the assessee company which was in the business of manufacturing of penicillin with a view to increase the yield entered into an agreement with Meiji, a reputed Japanese enterprises, and made payment to the said concern of Rs.2,39,625/-for supply of "sub-cultures of Meiji's most suitable penicillin producing strains" in a pilot plant, the technical information, know how and written description of Meiji's process for fermentation of Penicillin along with a flow sheet of the process in the pilot plant and the design and specifications of the main equipment in such pilot plant and to arrange for the training of the assessee's representatives in Meiji's plant in Japan at the assessee's expenses and advised the assessee in large-scale manufacture of penicillin for a period of two years. The assessee was to keep technical know how confidential and secret and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed 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 revenue expenditure for the next 39 years. 106. The Hon'ble Delhi High Court in the case of CIT vs. Eicher Ltd. 302 ITR 249 in a case where the ex-employee of the assessee called Vishwanathan had acquired during the course of his employment special knowledge of technology in the two-wheeler industry as well as of managing the dealership of the market place and other specialized knowledge relating to the two-wheeler business, had entered into an agreement with another company called VCPL to the effect that he would promote the other company and collaborate with it to set up manufacturing facilities for two-wheelers upon his retirement from the assessee. 106.1. Upon coming to know such things, the assessee negotiated a non- compete agreement with VCPL and Vishwanathan whereby a sum of Rs.4 crore was paid to VCPL, so that VCPL and Vishwanathan would not carry out any business activity with regard to two-wheelers and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, which are laid down in earlier judgments and the earliest one was found in the decision in the case of City of London Contract Corporation vs Styles (1887) 2 Tax Cas. 239 at p.243 wherein the basic rule was laid down as under:- "You do not use it for the purposes of your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern.' 109. In other words the above rule states that the expenditure in the acquisition of the concern would be capital expenditure; the expenditure in carrying on the concern would be revenue expenditure. Thereafter, in the case of Vellambrosa Rubber Co. v. Farmer [1910] 5 Tax Cas. 529 Lord Dunedin has evolved the test of expenses incurred once and for all vis-à-vis income expenditure i.e., going to recur every year. This test was further adopted by Rowlatt, J. in Ounsworth (Surveyor of Taxes) v. Vickers Limited [1915] 6 Tax Cas. 67 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in India. Vide Munshi Gulab Singh and Sons v. Commissioner of Income Tax, Commissioner of Income Tax, Bombay v. Century Spinning, Weaving & Manufacturing Co. Ltd., Jagat Bus Service, Saharanpur vs. Commissioner of Income Tax, Bombay vs. Finlay Mills Ltd. " 113. Their Lordships after analyzing history of all these judicial decisions for addressing the question that whether a particular expenditure will be capital or revenue, have referred to the principles which emerges out from these authorities. 114. It was observed that where the expenditure is made for initial outlay or for expansion of business or a substantial replacement of equipment, the expenditure will be capital in nature. It was observed that a capital asset of the business is either acquired or extended to be substantially replaced and that outlay whatever be its source; whether it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 arises for consideration where expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantial replacement of its equipment. Such expenditure can be looked at either from the point of view of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset advantage but for running the business or working it with a view to produce the profits it is running the business or working it with a view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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 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 in which latter event only it would be a deductible allowance under section 10(2)(xv) of the Income Tax Act. The question has all along been considered to be a question of fact to be determined by the Income Tax authorities on 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 application of those principles." 118. General proposition canvassed by Shri Vohra cannot be accepted that in all cases of payment of non-compete fee, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition 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 more in force will be contrary even to the recent judicial pronouncements. Reference in this regard can be made to the later decision of the Hon'ble Delhi High Court in the case of CIT vs. J.K. Synthetics Ltd. 309 ITR 371 (Del) which is a decision rendered after the decision in the case of CIT vs. Eicher Ltd. (supra) wherein after examining the available judicial pronouncements it was stated that the following broad principles were forced over the years which required to be applied to the facts of each case. The relevant observations are as under: "Broad principles which emerge on reading of various authorities 55. An overall view of the judgments of the Supreme Court, as well as, of the High Courts would show that the following broad principles have been forged over the years, which require, to be ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 received under the License to third parties without the consent of the licensor, (d) whether the Licence transfers the 'fruits of research' of the licensor, 'once for all', (e) whether on expiry of the Licence the licensee is required to return back the plans and designs obtained under the Licence to the licensor even though the licensee may continue to manufacture the product, in respect of, which 'access' to knowledge was obtained during the subsistence of the Licence. (f) whether any secret or process of manufacture was sold by the licensor to the licensee. Expenditure on obtaining access to such secret process would ordinarily be construed as capital in nature; (vi) the fact that assessee could use the technical knowledge obtained during the tenure of the License for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and was, thus, part and parcel of the main agreement the signing and execution whereof was a condition precedent (Clause D of non-compete agreement reproduced in para 60 of this order) for the completion of the transaction. 125. It can be mentioned here that the total purchase price of Rs.52.5 crores envisaged in MOU vide clause 3 was including a sum of Rs.2.65 crore to be paid for non-compete agreement. The other sum of Rs.49.85 crore was to be paid in respect of various assets as described in para 9 of this order. If we aggregate these two sums then, the total amount will come to Rs.52.5 crores which was the agreed purchase price. The assessee company was incorporated for the purpose of effectuating the transactions agreed in the MOU. The purpose of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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(2)(xv) of the Income Tax Act. The further protection fee which was paid by the company to the lessor under clause 5 of the deed was also of a similar nature. It was no doubt spread over a period of 5 years, but the advantage which the company got as a result of the payment was to inure for its benefit for the whole of the period of the lease unless determined in the manner provided in the last part of the clause. It provided protection to the company against all competitors in the whole of the Khasi and Jaintia Hills District and the capital asset which the company acquired under the lease was thereby appreciated to a considerable extent. The sum of Rs.35,000 agreed to be paid by the company to the lessor for the period of 5 years was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 cannot get any help from the decision of Hon'ble Delhi High Court in the case of CIT vs. Eicher Company Ltd. (supra) as in that case their Lordships have clearly found from the record that it was not clear that how long the restrictive covenant was to last and what the assessee had done was that it eliminated the competition in the two-wheeler business for a while. Their Lordships have also found that the benefit received by the assessee in that case was neither permanent nor ephemeral. Therefore, the said decision is not applicable to the facts of the present case as in the case of assessee the non-compete agreement is applicable for 5 years, which period has been considered to be sufficient to give enduring benefit in the case of Assam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted 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 be treated as capital expenditure. However, the Ld. CIT (A) did not accept such submission of the assessee, and, referring to the decision of Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. vs. CIT (supra) he upheld the action of the Assessing Officer. The assessee is aggrieved, hence, in appeal. 135. The submissions made before the CIT (A) were reiterated before us. The learned AR relied upon the unreported decision of Delhi ITAT in the case of GE Capital Transportation Services Ltd. vs. DCIT, order dated 4th May, 2007 in ITA No.2036/Del/2002 a copy of which is placed at pages 119 to 123 and reliance was placed on para 16 to 21 of the order, which, for the sake of convenience are reproduced bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad 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. Commissioner of Income Tax (Appeals) and remand the matter back to the file of the Assessing Officer for deciding the issue afresh in the light of the observations made above and after affording proper opportunity of hearing to both the parties. This ground of appeal is allowed for statistical purposes." 136. Ld. DR, however, relied upon the order of the Assessing Officer and CIT (A). 137. On this issue we have heard both the parties. The fact is undisputed that the fee has been paid by the assessee for increasing the authorized capital. Hon'ble Supreme Court in the case Punjab State Industrial Development Corporation Ltd. vs. CIT (supra) has held that the fee paid to the Registrar for expansion of the capital base of the company was directly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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