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TMI Blog2019 (12) TMI 1272X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002-03,2008-09 to 2014-15. As the issues raised in all these appeals are interconnected, these are disposed of by this common order. 2. Shri R. Vijayaraghavan, Advocate represented on behalf of the Assessee and Mr. M. Srinivasa Rao, JCIT represented on behalf of the Revenue. 3. In the Revenue's appeal, the Revenue has raised four issues. The first issue being in Ground No.2.1 to 2.13 against the action of the learned CIT(A) in treating the non-compete fee paid by the assessee to Mr. B.H. Kothari as deferred revenue expenditure as against capital as held by the Assessing Officer. At the time of hearing, it was fairly agreed by both the sides that the issue was now squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee's own case in the Assessment Years 2003-04, 2005-06, 2006-07 & 2007-08 in I.T.A. Nos.1348 and 1349/Mds/2008, 558/Mds/2009, 289 & 290/Mds/2012 dated 13.06.2016, wherein in page 39 of the said order in paragraphs 16 to 16.7, the Co-ordinate Bench of this Tribunal has held as follows: "16. The next common issue raised in the appeals of the Revenue for the assessment years 2006-07 and 2007-08 is that the ld. CIT(A) is erred in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & Pharmaceuticals Vs ACIT 137 TTJ 373 and also one more decision of Hon'ble ITAT Chennai in the case of ITO Vs Seafil Leasing 124 TTJ 531 ITAT, Chennai. I am of the considered opinion that these decisions have similarities to the facts and circumstances of the present case and hence this expenditure may be allowed as deferred revenue expenditure for a period of 10 years. This decision of mine is in commensurate with the method adopted by the appellant himself for the purposes of maintenance of books of accounts by the appellant. In other words, the Assessing Officer is directed to treat the non-compete fees paid as deferred revenue expenditure and allow 1/l0th of the expenditure as deduction for every year. Since this issue is there for both the assessment years, this decision is applicable for both the assessment years in question." 16.6 Over and above, the Hon'ble Jurisdictional High Court in the case of Carborandum Universal Limited v. JCIT (supra) has held as under: "5. This leaves us with the third question as regards the nature of expenditure on the noncompete fee paid to U.Mohanrao. It is seen from the facts narrated in the order dated 17.07.1998 that this Court gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of five years from the date of the agreement. 7. On 29.04.1996, yet another agreement was entered into between the assessee and the said U.Mohanrao, former Chairman and Managing Director of Cutfast Abrasive Tools Limited, as by way of a non-compete agreement that the said U.Mohanrao shall not, in any manner, assist any third party, or sell or render advise or act as a Consultant in respect of the products, namely, coated and bonded abrasives, current range of products of the Electrominerals Division of CATL and cloth processing for coated abrasives. In consideration of the said agreement, the said U.Mohanrao was paid a sum of Rs. 1,75,00,000/- towards non-compete fee. On 14.10.1996, there was a supplementary agreement between the assessee and the said U.Mohanrao, which contemplated inclusion of other products, namely, coated and bonded abrasives, current range of products of the Electrominerals Division of CATL and also all other electromineral products, used or capable of being used in the manufacture of abrasive products (both bonded and coated), and cloth processing for coated abrasives. The agreement was to be effective for a period of five years and a further sum of Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration and not in the context of strengthening the income earning structure, he submitted that the Tribunal and the Authorities below committed a serious error in looking at the enduring benefit concept for the purpose of rejecting the assessee's case. 10. Referring to the decision reported in [1980] 124 ITR 1 (Empire Jute Co. Ltd. Vs. Commissioner of Income Tax (S.C.)), he submitted that the expenditure incurred was for the exploitation of a commercial asset; hence was revenue in character. Even where an expenditure is incurred by obtaining an advantage of enduring benefit, it may, nonetheless, be on revenue account and the test of enduring benefit may break down. He further submitted that what is material herein is to consider the nature of advantage in a commercial sense. If the advantage is in the field of facilitating the assessee's business operation more effectively or more profitably leaving the fixed capital untouched, the expenditure would be on revenue account. 11. Referring to the decision reported in [1991] 191 ITR 249 (Chelpark Company Ltd. Vs. Commissioner of Income Tax), learned counsel pointed out that the decision has to be understood in the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital or revenue has to be determined with regard to the nature of the transaction and other relevant factors. Referring to the decision reported in [1965] 58 ITR 241 (PC) (Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd.), the Apex Court pointed out that "there may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. ... What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists 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." 15. Referring to the decision reported in [1965] 56 ITR 52 (SC) (Bombay Steam Navigation Co. [1953] P. Ltd. v. CIT) as well as [1924] 8 TC 671 at 676, (R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r are the notions of "capital" or "revenue" a judicial fetish. " - [1989] 177 ITR 377 (Alembic Chemical Works Co. Ltd.). 18. Going by the above-said principle, if one looks at the decision reported in [1991] 191 ITR 249 (Chelpark Company Ltd. Vs. Commissioner of Income Tax), one may find that the decision that the expenditure was a capital expenditure and hence not deductible, rested in the context of the peculiar facts of the case; the partnership with which the assessee had the noncompete agreement got dissolved immediately after the payment of the non-compete fee and the potential competitor had vanished. On these facts, this Court observed that, whatever the assessee had paid for was of permanent or enduring quality, in the sense that competition had been totally eliminated and protection had been acquired for the business of the assessee as a whole. We do not find that the Revenue could draw any support from the said decision of this Court, it being one based on the facts of the said decision. The question herein as to whether non-compete fee paid to the ex-Managing Director was a revenue or a capital expenditure, has to be seen in the context of the facts of this case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. He vehemently supported the order of the Assessing Officer. 5. We have considered the rival submissions and perused the materials available on record. 6. As it is noticed, the issue is squarely covered by the decision of the Coordinate Bench of this Tribunal in the assessee's own case in the earlier Assessment Years referred to supra and it is noticed that the learned CIT(A) has followed judicial discipline in following the decision of the Co-ordinate Bench of this Tribunal, we find no reason to interfere in the order of the learned CIT(A) on this issue. Consequently, Ground No.2.1 to 2.3 of the Revenue's appeal stands dismissed. In respect of Ground No.3.1 and 3.2, it was submitted that the ground was against the action of the learned CIT(A) in deleting the disallowance made u/s.40A(9) in respect of the assessee's contribution to the benevolent fund. It was fairly agreed by both the sides that the issue was squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee's own case referred to supra, wherein in page 25, paragraphs 12 to 12.4 it has been held as follows: "12. The first common ground raised in the appeals of the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the submissions of the Id. AR. It is clear that Memorandum of Settlement was executed in terms of section 18(1) of the Industrial Dispute Act, 1947 and is binding on both the parties i.e. the employer and the workmen. The contribution to the benevolent fund was made in terms of clause 3 of the said Memorandum of Settlement. Thus the fund was not created suomote by the appellant but was based on the Memorandum of Settlement between the employer and the workmen in terms of section 18(1) of the Industrial Dispute Act, 1947. The case relied by the Ld. AO supra is also not applicable to the case in hand as it pertained to payment of commission to managing agent. It was held in the said case by the Hon'ble Supreme Court that in view of section 326 of the Companies Act, 1956, which contained an absolute prohibition against the appointment or reappointment of a managing agent before approval of the Central Government was obtained, the appellant company's liability to pay the remuneration of the managing agents arose only when the Government conveyed its approval and not prior to that date. The facts of the appellant's case are different. In the present case the payment ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l discipline in following the decision of the Co-ordinate Bench of this Tribunal, we find no reason to interfere in the order of the learned CIT(A) on this issue. Consequently, Ground Nos.3.1 and 3.2 of the Revenue's appeals stands dismissed. 9. In Ground Nos.4.1 and 4.2 of the Revenue's appeal against the action of the learned CIT(A) in deleting the provision of gratuity, it was submitted by the learned Authorized Representative that the issue was squarely covered in favour of the assessee by following the decision of the Co-ordinate Bench of this Tribunal in the assessee's own case referred to supra, wherein in page 15 to 20 of the said order in paragraphs 9 to 10 it has been held as follows: "9. With regard to the assessment year 2005-06, the only effective ground raised in the appeal of the assessee is with regard to confirmation of disallowance of provisions for gratuity. 9.1 The assessee has made a provision of Rs..7,50,23,640/- towards Gratuity Fund with Life Insurance Corporation of India, which was also approved by the Commissioner of Income Tax, Chennai. The assessee claimed the same as per the provisions of section 40A(7)(b) of the Act. However, the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected the contentions of the assessee and disallowed the provision for gratuity holding that unless the said provision is paid, it is not allowable in view of the provisions of section 43B of the Act. On appeal, the Commissioner of Income Tax (Appeals) allowed the claim of the assessee and deleted the disallowance observing that similar issue has been allowed in assessee's own case for the assessment years 2005-06 and 2006-07. 3. Departmental Representative vehemently supports the order of the Assessing Officer in disallowing the provision for gratuity submitting that since the said amount is only a provision and not paid is hit by the provisions of section 43B of the Act. 4. Counsel for the assessee relied on the order of the Commissioner of Income Tax (Appeals). He further submits that the Revenue in earlier years accepted the decision of the Commissioner of Income Tax (Appeals) in deleting the provision for gratuity for the assessment years 2005-06 and 2006-07 and no further appeal was filed by the Revenue on similar issue. Counsel relied on the following decisions in support of his contentions that provision made for approved gratuity fund is allowable as deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary contained in any other provision of the Act relating to the computation of income under the head "Profits and gains of business or profession". Similarly, section 43B opens with a non obstante clause. Section 40A(7) provides that in cases covered by the provisions of clause (a) no deduction shall be allowed in respect of any provision whether called as such or by any other name made by the assessee for the payment of gratuity of his employees on their retirement or on termination of their employment for any reason. However, clause (b) of section 40A(7) clearly provides that to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year clause (a) will not apply. This means exception has been carved out in respect of payment of sums by way of any contribution towards an approved gratuity fund. Thus the Legislature wanted to give a special treatment to provision made by an assessee for the purpose of payment by way of any contribution towards an approved gratuity fund. This has to be treated as a special provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is made towards an approved gratuity fund. There is no dispute that in the instant case the provision made is towards contribution to an approved gratuity fund. Therefore the claim by the assessee for deduction on this score was clearly justified. We are accordingly of the opinion that no substantial question of law arises in this regard as well." 8. Respectfully following the said decisions, we uphold the order of the Commissioner of Income Tax (Appeals) in deleting the disallowance made for approved gratuity funds. 9. In the result, appeal of the Revenue is dismissed." 9.5 After considering the ratio laid down by the Hon'ble Kerala High Court and the Hon'ble Delhi High Court, the Coordinate Bench of the Tribunal in the case of ACIT v. Tyco Sanmar Ltd. (supra) decided the issue in favour of the assessee is also applies to the fact of the present case. However, for more clarity, the gratuity to be deductible, the conditions laid down in section 40A(7) had to be fulfilled. The deduction could not be allowed on general principles under any other section of the Act, because sub-section (1) of section 40A made it clear that the provisions of the section had effect notwithstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 and 4.2 of the Revenue's appeals stands dismissed. 14. In respect of Ground No.5, it was submitted by the learned Departmental Representative that the issue was against the action of the learned CIT(A) in deleting the provision for gratuity when computing the book profits u/s.115 BBG of the Act. It was fairly agreed by both the sides that the issue was fairly covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee's own case referred to supra, wherein in page 37 at paragraphs 15 to 15.3 it has been held as follows in favour of the assessee. "15. The next common ground raised in the appeals of the Revenue for the assessment years 2004-05 and 2005-06 is that the learned CIT(A) is erred in holding that the provision for gratuity made on actuarial basis should not be added back while computing the book profits. 15.1 The assessee has made a provision of Rs. 61,71,603/- for gratuity. The Assessing Officer has disallowed the claim of the assessee by stating that the provision for gratuity is only a provision in the nature of unascertained liability and the same requires to be added back to the book profits. On appeal, by following various decisions, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Co-ordinate Bench of this Tribunal in the assessee's own case referred to supra and as it is noticed that the learned CIT(A) has followed the judicial discipline by following the decision of the Co-ordinate Bench of this Tribunal in the assessee's own case referred to supra, we find no reason to interfere in the order of the learned CIT(A) on this issue. Consequently, Ground No.5 of the Revenue's appeal for the Assessment Year 2008-09 2009-10, 2010-11, 2011-12, 2013-14 and 2014-15 stands dismissed. This issue is not there in the appeal for the Assessment Year 2012-13. 17. In the result, the appeals of the Revenue stands dismissed. 18. Coming to the assessee's appeals, it was submitted by the learned Authorized Representative that the common issue in all the appeals of the assessee was against the action of the learned CIT(A) in confirming the action of the learned Assessing Officer in treating the sale of carbon credits as Revenue receipts based on the decision in the case of Apollo Tyres Limited by ITAT Cochin Bench reported in [2014] 47 Taxmann.com 416. It was a submission by the learned Authorized Representative that the said decision was contrary to the earlier decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me at all. It was further a submission that the addition made by the Assessing Officer and as confirmed by the learned CIT(A) treating the receipts on the sale of carbon credits as revenue may be deleted. 19. In reply, the learned Departmental Representative vehemently supported the order of the learned Assessing Officer and the learned CIT(A). 20. It was a submission that the order of the Tribunal in the case of Apollo Tyres Limited was a right interpretation and the receipts was liable to be treated as revenue receipts only. 21. We have considered the rival submissions and perused the materials available on record. 22. A perusal of the provision of Section 115BBG clearly shows the intention of the legislature to bring the income on the sale of the carbon credits to tax under the special provision. It is abundantly clear that the said receipts are not brought to tax under the various Clauses of business income. The legislature's intention itself being to tax the said receipts under a special category clearly shows that the receipts in the sale of the carbon credits prior to 01.04.2018 was in fact liable to be treated as a capital receipt only. Further, it is noticed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission that the Revenue has not challenged these findings. It was further a submission that the learned CIT(A) had not considered the identical ground for the Assessment Year 2012-13 raised by the assessee. It was a submission that the issue having being held in favour of the assessee by the learned CIT(A) for the Assessment Years 2013-14 and 2014-15, the similar findings may be granted for the Assessment Year 2012-13 also. The learned Authorized Representative drew our attention to the Ground No.14 raised by the assessee before the learned CIT(A) which relates to the claim of additional depreciation. 24. In reply, the learned Departmental Representative vehemently supported the order of the Assessing Officer. 25. We have considered the rival submission and perused the materials available on record. 26. As it is noticed the learned CIT(A) has followed the judicial discipline in following the decision of the Hon'ble Jurisdictional High Court in the case of M/s. Brakes India Limited vs. The Deputy Commissioner of Income Tax, Chennai referred to supra when deciding identical issue for the Assessment Years 2013-14 and 2014-15, respectively following the decision of the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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