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TMI Blog2020 (1) TMI 1019X X X X Extracts X X X X X X X X Extracts X X X X ..... rate agreements against which separate payments have been made by the assessee to the transferor. Referring to cases CARBORANDUM UNIVERSAL LTD. [ 2012 (10) TMI 178 - MADRAS HIGH COURT] , M/S. EVEREST ADVERTISING PVT. LTD. [ 2015 (1) TMI 968 - BOMBAY HIGH COURT], ASIANET COMMUNICATIONS LTD. [ 2018 (8) TMI 1554 - MADRAS HIGH COURT] unanimous view is that any payment to ward-off rival competition over a certain period of time in furtherance of business interest would be revenue in nature. If the advance consisted 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. We find that fact of the present case to be quite similar and are of the considered opinion that the aforesaid payment made by the assessee to ward off rival competition in a particular business segment in overseas market would be in furtherance of assessee s business interest and would enable the assessee to carry out its business more efficiently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly consider the same for the purpose of Sec. 80HHE. Software expenditure - amortization expenses over a period of 36 months - HELD THAT:- Assessee purchased software for ₹ 30.34 Lacs during December, 1995 to April, 1997 and amortized the expenses over a period of 36 months. Accordingly, for year under consideration, it claimed proportionate expenditure of ₹ 12.22 Lacs which included exchange variation of ₹ 0.75 Lacs. As done in earlier years, the exchange variation was not allowed. It was also noted that there was no import of software during the year and thus, there would be no question of payment of exchange variation. However, Ld. CIT(A) after considering assessee s submissions, allowed the same. Upon due consideration of factual matrix, we find that no such addition of ₹ 11.67 Lacs as stated in the additional ground has been made while computing assessee s income and therefore, this ground is dismissed as infructuous. - I.T.A. No.2079/Mum/2003, 1642/Mum/2003, 3443/Mum/2004 (Assessment Year: 1998-2001) - - - Dated:- 2-1-2020 - HON BLE SHRI VIKAS AWASTHY, JM AND HON BLE SHRI MANOJ KUMAR AGGARWAL, AM Appellant by: Shri N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ACIT in holding that while computing Profits of the business for the purpose of deduction under section 80HHE, 90% of income totaling ₹ 63,91,317, should be reduced from Profits of business treating the same as covered by 'any other receipt of similar nature' as appearing in Explanation (d) to section 80HHE. 3. We have carefully heard the rival submissions, perused relevant material on record and deliberated in various judicial pronouncements as cited before us. Our adjudication to various grounds of appeal would be as given in succeeding paragraphs. 4. Facts on record would reveal that the assessee being resident corporate assessee stated to be engaged in development and marketing of software was assessed for year under consideration u/s. 143(3) on 30/03/2001 wherein the income of the assessee was determined at ₹ 185.59 Lacs under normal provisions after certain additions / disallowances / adjustments as against returned income of ₹ 125.71 Lacs filed by the assessee on 30/11/1998. Ground No.1-Disallowance of Non-compete fee. 5.1 During assessment proceedings, it transpire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. In other words, the payments made to rival to ward-off competition in business would constitute capital expenditure. 5.4 It was also observed that although the non-compete fee received by FIL was added to its income, however, Ld. first appellate authority held that since there was transfer of capital asset, no capital gain could be taxed since cost of the acquisition was indeterminate. In the above background, the said amount was disallowed and added to the income of the assessee. 6. The learned first appellate authority confirmed the stand of Ld. AO by observing as under: - 5.2 I have carefully examined the above facts of the case. The appellant has relied on various case laws as cited above but in the appellants case the facts are different, and not similar to the facts as narrated in the above case laws. In the appellants case it had purchased the total software business of FICIM and the appellant entered into a noncompete agreement with FICIM for a period of 10 years for a consideration of ₹ 20 crs which has been amortised over a period of 10 years and accordingly, an amount of ₹ 2 crs was debited to the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: By and under an agreement dt. 31/12/1996 entered into between the parties hereto, FIL has agreed to transfer by sale its undertaking relating to the software business to ICIL together with all its assets and liabilities for the consideration and upon terms and conditions contained therein . Thus it is clear that that non-compete lees has not been paid by the appellant to FUJITSU merely for the reason that it would not sale manufacture, distribute, deal or otherwise do any act which would compete with the development and sale of software but it has been paid as a part of the payment made to the FIL for transferring by sale its undertaking relating to the software business to ICIL with all its assets and liabilities. Hence I hold that the payment is capital in nature and thus has been rightly disallowed by the A.O In the result appeal is dismissed. It is evident that Ld. CIT(A) has confirmed the stand of Ld. AO by observing that there was a transfer of undertaking with all assets and liabilities and the payment was made as part of the transfer process. We find that it is exactly this observation which is at fault. Upon perusal of documents on record, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure. Accordingly, Ground No. 1 of the appeal stands allowed. Additional Ground of Appeal 7.1 The assessee, vide letter dated 11/09/2019 has pleaded for admission of an additional ground of appeal concerning payment of non-compete fees. It has been explained that the quantum order was passed on 30/03/2001 which was adjudicated Ld. CIT(A) on 09/12/2002 wherein it was held that non-compete fees was capital in nature. In the meantime, the assessee by virtue of order dated 16/08/2001 passed by Hon ble Bombay High Court, got merged with FIL which was effective from 01/04/2000. Therefore, the benefit of non-compete agreement was effectively valid only for a period of 3 years. In the above background a without prejudice additional ground has been raised which read as under: - Deduction of ₹ 20,00,00,000 being the payment made towards non-compete fees Without prejudice to Ground No.1, on the facts and in the circumstances of the case and in law, the entire amount of non compete fees of ₹ 20,00,00,000 paid by the appellant ought to be allowed as a revenue expenditure in AY 1998-99. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being the life of restrictive covenants and accordingly, the claim was spread over a period of 10 years. Therefore, once the assessee himself chose to claim the same in a staggered manner, applying the matching principle and when the same has been allowed, there could be no occasion for the assessee to be aggrieved, on this point. Therefore, in view of the stated reasons, we decline to entertain the additional ground as well as additional evidences. Accordingly, the same stand dismissed. Ground No.2-Taxability of Interest Rent 8.1 It transpired that while determining the deduction u/s 80HHE, the assessee deducted 90% of interest on Bank deposits / staff and rental income aggregating to ₹ 64.91 Lacs. The Ld. AO opined that the said receipts were to be treated as income from other sources. The assessee submitted that the said receipts were arising out of business and therefore, chargeable as business income, However, the said submissions were declined and adjustment thereof while computing deduction u/s 80HHE was denied. The stand of Ld. AO, upon confirmation by first appellate authority, is under challenge before us. The Ld. AR has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from other sources in AY 2001-02 which was reversed by Ld. CIT(A). Upon further appeal by revenue, Tribunal confirmed the stand of Ld. CIT(A) and dismissed this ground vide ITA No. 4538/M/2005 order dated 15/12/2010. Therefore, we direct Ld.AO treat these receipts to be part of business income and accordingly consider the same for the purpose of Sec. 80HHE. Ground Nos. 3 4 stands allowed. 10. Finally, the appeal stands partly allowed in terms of our above order. ITA No. 1642/M/03, AY 1999-2000 11.1 The assessment for this year has been framed u/s 143(3) on 19/03/2002 on similar lines. Certain additions / adjustments, upon confirmation by Ld. CIT(A) vide impugned order dated 11/12/2002 is under challenge before us. Ground No. 1 is similar to Ground No. 1 of AY 1998-99 wherein the assessee is pleading for deduction of amortization of noncompete fees for ₹ 2 Crores. Facts being pari-materia the same as in AY 1998-99, we direct Ld. AO to allow the aforesaid deduction of ₹ 2 Crores. Ground No.2 concern with assessability of Rent interest income which would stand dismissed on similar lines as in AY 1998-99. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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