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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 ..... in order, we take-up the appeal for AY 1998-99 as the lead year. ITA No. 2079/Mum/2003: AY 1998-99 2. This appeal assails the order of learned Commissioner of Income Tax (Appeals)-XXXIII, Mumbai [CIT(A)] dated 09/12/2002 on following grounds of appeal: - Ground No. 1 The Commissioner of Income-tax (Appeals) XXXIII, Mumbai [hereinafter referred to as the CIT(A)]erred in not allowing deduction of Rs. 2,00,00,000/- being the amount of non-compete fees charged to the accounts for the year ended 31st March, 1998 on the ground that the same constitutes capital expenditure. Ground No. 2 The CIT (A) erred in upholding the ACIT's action in holding that Interest and Rent totaling to Rs. 64,94,107/- (90% being Rs. 58,44,696/-) is assessable under the head "Income from other Sources". Ground No. 3 The CIT (A) erred in upholding the action of the ACIT in reducing the entire amount of Rs. 63,91,317/- consisting of provision no longer required Rs. 40,30,766, miscellaneous recovery Rs. 7,01,244, trade creditors amounts written back as no longer payable Rs. 1,49,220 royalty recovery Rs. 10,85,784 and miscellaneous receipts Rs. 4,24,303 from the head 'Business Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the terms of software business were embodied into two agreements. Non-compete fee agreement bound FIL for a period of 10 years from entering into any software business arrangement for carrying out any software business relating to development and export of computer software and consultancy services including design development, maintenance, implementation, upgradation and porting of software for overseas market. The fee was based on projected profit, that would be forgone by FIL and therefore, the expenditure was deductible expenditure. As benefit was spread over 10 years, the same was being claimed over such period instead of being claimed in one year. The assessee further submitted that expenditure was in the nature of deferred revenue expenditure over a period of 10 years and therefore, the same was being amortized over such a period. 5.3 However relying upon the decision of Hon'ble Supreme Court in CIT Vs. Coal shipments (P.) Ltd (82 ITR 902) and decision of Hon'ble Orissa High Court in the case of Orissa Road Transport Co. Vs. CIT [75 ITR 126], Ld. AO opined that non-compete fee was to free the business from competition and therefore, the expenditure would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading operations but the whole software business was purchased by the appellants company. Therefore, the case relied on by the appellant is not applicable in the appellants case. In the case of Alembic Chemical Works Ltd. also the Hon'ble Court has held that the business of the appellant from the commencement of its plant in 1961 was the manufacture of pencillin. Even after the agreement the product continued to be penicillin and the agreement with Japanese enterprise stipulated the supply of the most suitable sub cultures evolved by Japanese company for the purpose oi augmentation of the yield of penicillin. Thus the Hon'ble Court held that the improvisation in the process and technology in some areas of the enterprise was supplemental to the existing business and there was no material to hold that it amounted to a new or fresh venture. But in the appellants case a total new business has been acquired by the appellant company. The contention of the appellant that the period of 10 years does not give the appellant any enduring benefit is not correct as it is evident from the agreement. The relevant part of the agreement is reproduced as under: "By and under an agreement dt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Pvt Ltd [ITA No 1259 of 2016 28/01/2019] after considering all the above decisions. In above case laws, the 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 and profitably. Therefore, we hold that the said expenditure would be deductible revenue expenditure. Accordingly, Ground No. 1 of the appeal stands allowed. Additional Ground of Appeal 7.1 The assessee, vide letter dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings, which were never appreciated or delved into by any of lower authorities. Keeping in view the fact that main ground has already been allowed by us, we see no useful purpose to remit the matter back to the file of lower authorities for reconsideration of alternative additional ground as well as additional evidences. Most importantly, Hon'ble Apex Court in Taparia Tools Ltd. V/s JCIT (55 Taxmann.com 361 23/03/2015) has held that normally the ordinary rule is to be applied namely revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if assessee claims that expenditure in that year, the department cannot deny the same. However, in those cases, when the assessee himself wants to spread the expenditure over a period of ensuing years, if can be allowed only if the matching concept is satisfied. We find that it was the assessee's submissions all along that the benefits were perceived over a period of 10 years, 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted items do not have profit element and could not be considered as part of the sales, the assessee's claim could not be accepted. Reliance was placed on the decision of Hon'ble Bombay High Court rendered in CIT V/s Sudharshan Chemicals India Ltd. (245 ITR 769) and CIT V/s Kantillal Chottalal (246 ITR 439) to arrive such a conclusion. Aggrieved, the assessee is in further appeal by way of Ground Nos. 3 & 4. 9.2 We are of the considered opinion that the aforesaid items represented miscellaneous write-backs & recoveries which arose in the course of carrying on business activities. The same could not be said to be an altogether of new stream of income for the assessee and therefore, could not be assessed under residuary head viz. Income from other sources. In fact, reversal of provision for doubtful debts was similarly treated as 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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