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TMI Blog2008 (5) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... me to be in the nature of a capital expenditure in computing the appellants income for the above year. The appellants submit that since the said expenditure has neither resulted in the acquisition of any asset nor in an advantage of an enduring nature, the same should be allowed as a revenue expenditure and the ACIT ought not to have treated the said payment to be in the nature of a capital expenditure and disallowed the same in computing their total income. The appellants therefore pray that the ACIT be directed to treat the payment of ₹ 5,00,000 as a revenue expenditure and allow deduction for the same in computing their income for the above year. (b)Without prejudice to the above, even assuming but not admitting that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the assessee and following the judgment of the Madras High Court in the case of Tamilnadu Dairy Development Corpn. v. CIT [1999] 239 ITR 142 , the Assessing Officer has treated the expenditure as capital expenditure and disallowed the claim of the assessee. 3.1 The assessee preferred an appeal before the CIT (A), but, did not find favour with him. 4. Now the assessee has preferred an appeal before the Tribunal with the submissions that the non compete charges were paid to enhance its profitability of its business. He has also invited our attention to the agreement with the submissions that according to non-compete agreement, the recipient was prohibited from doing the same business only for a period of 5 years and if he fails ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital expenditure or revenue expenditure. Nature of expenditure depends upon the facts of the particular case and the intention of the parties. The learned Counsel for the assessee further contended that nature of expenditure has to be seen from the angle of the business or the businessman and not from the Revenue s attitude. 6. The learned DR on the other hand has placed a heavy reliance upon the Order of the lower authorities. 7. Having given a thoughtful consideration to the rival submissions and from the Orders of the lower authorities and documents placed on record, we find that assessee has purchased the goodwill and other rights for ₹ 10 lakhs which was treated to be capital expenditure. The assessee further paid a sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtchem Technologies Ltd. (supra), in which it has been held that though there are no said principles or tests or rules, which can be said to be universally applicable to decide as to whether a particular expenditure is capital expenditure or revenue expenditure because whatever principles have been laid down by various Courts can only be applied only with reference to the facts of the particular case, but, still some of the tests which play dominant role should be kept in mind while deciding as to whether the expenditure in question is capital or revenue expenditure. The Tribunal has laid down certain tests. The Tribunal has further held that the expenditure has to be seen from the angle of the business or the businessman and not from the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a direct nexus, connection or relation to the carrying on or conducting the business of the assessee, it must be regarded as integral part of the profit-making process and in such a case, it must be held to be a revenue expenditure; (vi)The period for which a right or benefit is available is not relevant because if the expenditure is found to have direct nexus with the profitability, then this test must fail. If the expenditure is considered in the light of assessee s necessity or commercial expediency, it will be found that it satisfies both the tests because as admitted by the revenue authorities, the non competition agreement was to enhance the assessee s sales of relevant two chemicals in central and eastern parts of India w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to how the incurrence of the impugned expenditure would add to the profit-making apparatus assumed by the assessee through the sale agreement. It may, by incurring this expenditure, ensure, at least insofar as the vendor is concerned, that the profit-making apparatus continues to yield returns, as envisaged, or in other words, continues to be as effective and nothing more, i.e., is akin to a maintenance expenditure. Such expenditure, as would be readily agreed, is incurred only to ensure the operational efficiency of the underlying subject or the income yielding source. In marketing parlance, one may draw comparison (to the extent such comparisons can be validly drawn), to the profit of one s understanding, with the expenditure on adve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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