9911796707
TMI Blog2018 (9) TMI 1543X X X X Extracts X X X X X X X X Extracts X X X X ..... pany by holding it to be 'capital expenditure'. 3. Learned Departmental Representative rel ied upon the assessment order, while the Learned Counsel for the Assessee supported the order of the CIT(A) and also filed copy of the order of the ITAT in assessee's own case for the A.Y. 2012-13 wherein it has been held that the noncompete fees paid by the assessee is revenue expenditure and allowed the claim of deduction u/s 37(1) of the Act. The copy of the order is also filed before us. Ld. CIT(A) had in fact reproduced the relevant paras in para IX of his order which is reproduced hereunder again for the sake of ready reference:- "IX. Ground Nos.3 and 4 in appeal relates to capitalization of non-compete fee. Facts of the case, grounds of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit of the business, it is properly attributable to capital and is of the nature of the capital expenditure and that if, on the other hand, it is made not for the purpose of bringing into existence any such asset or advantage but is for running the business with a view to produce the profits, it is a revenue expenditure. It was held that the character of the 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 lump sum or by installments. The Hon'ble Supreme Court held that the asset which the company had acquired in the said case was in the nature of a capital asset as the right to carry on its business was unfettered by any competition fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt was considering the case of an assessee which had entered into an agreement with another exporter, was not to export coal but to assist the assessee in procuring coal for shipment in return of payment from the assessee and the agreement could be terminated at any time. The Hon'ble Supreme Court held that the payment related to the actual shipment of coal and therefore, such expenditure is allowable as a deduction. (b) CIT vs. Andhra Fuels (P) Ltd reported in (2016) 70 Taxmann.com 271 (A.P). In this case the Hon'ble jurisdictional High Court was considering the case of an assessee who had entered into a non-compete fee agreement for a period of 3 years to ward off competition in the territories of the A.P and the consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a non compete agreement and therefore, payment of non-compete fee made by the assessee pursuant to the restrictive covenant was revenue expenditure and not a capital expenditure. The Delhi High Court had considered the decision of the Hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd (cited Supra) before coming to the above conclusion. (e) Orchid Chemicals & Pharmaceuticals Ltd vs. ACIT reported in (2011) 7 ITR 0601 (Trib.) wherein it was held that the non compete fee paid by the assessee on acquisition of pharmaceutical business which constitute a new line of product is not allowable as a revenue expenditure in one-go but was to be treated as a deferred revenue expenditure and is allowable over a period of 4 years pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the payment made for such restrictive covenants is revenue in nature. Coming to the facts of the case before us, it is seen that the agreement is for a period of 5 years and the assessee has also filed a copy of the agreement dated 10.04.2015 by which the agreement has been extended by a further period of five years. The second agreement also contains the same terms & conditions as in the first agreement. Without going into the second agreement, which is additional evidence filed before us, we find that various clauses in the first agreement itself demonstrate that the agreement was initially for a period of 5 years and even the consideration is an annual payment based on the annual turnover. Therefore, it appears to be a payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the turnover for a period of 5 year towards non-compete fee. The appeal was against the disallowance of noncompete feed paid by the appellant to M/s. Kapil Chit Funds Private Limited. This non-compete fees received by M/s. Kapil Chit Funds Private Limited was admitted as its income. The payments are to be made on yearly basis on the turnover of the appellant. Hence, total income was contended that the amount represents revenue item of expenditure. The view of the appellant was supported by the decision of the Hon'ble ITAT in the appellant's own case for the Asst. Year 2012-13 which has been referred to supra. The Hon'ble ITAT, Hyderabad while deciding the appellant's own case had stated that the payment made by the appellant to M/s. Kapi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
