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TMI Blog2023 (8) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... o incur in the relevant previous year but also for few more years to come. Therefore, it will not be correct to say that by avoiding certain business expenditure, the company can be said to have acquired enduring benefits or acquired any income yielding asset. In the case at hand also, by paying the compensation under ASTA, assessee not only saved the expense that it would have had to incur in the relevant previous year but also for few more years to come. Therefore, CIT(A) as well as the ITAT, in our view, was correct in allowing this amount paid on account of termination of agreement to SIPL as revenue expenditure. Amount paid under RCA - Tribunal upholding the decision of CIT(A) that the amount being paid under RCA was in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000/- and a sum of Rs. 19,40,00,000/- that assessee had treated as revenue expenditure. Assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] who, by an order dated 8th February 2013, partly allowed the appeal of assessee. The CIT(A) deleted the addition to the tune of Rs. 12,60,00,000/- and allowed it to be treated as revenue expenditure and as regards the amount of Rs. 19,40,00,000/- upheld the findings of the Assessing Officer that it should be treated as capital expenditure but allowed depreciation on the ground that it was an intangible asset. Both Revenue and assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT). The ITAT, vide its order of 25th January 2017, dismissed the appeal filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that assessee was paying to SIPL was an expenditure incurred for earning the advertisement income. If assessee would not have terminated the agreement, it would have been allowed to continue with the agreement but assessee had paid compensation of Rs. 12,60,00,000/- to SIPL for premature termination of the agreement, that would have to be treated as revenue expenditure. The CIT(A) also relied upon judgment in the case of CIT V/s. Glaxo Laboratories India P. Ltd. 197 ITR 110. 3. As regards the RCA, where assessee paid a sum of Rs. 19,40,00,000/- as non-compete fees to SIPL, the CIT(A), relying upon a judgment of the Apex Court in Guffic Chem P. Ltd. 332 ITR 602 (SC), held that the compensation paid would be capital in nature. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enduring benefit of a trade, there is good reason (in the absence of special circumstances leading to the opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. But as a result of termination of the services, if assessee got rid of its liability to pay the commission it was required to pay under the agreement not only during the accounting year but also for a few years more, the expenditure thus saved undoubtedly swelled the profits of the company and where the termination was on business considerations and as a matter of commercial expediency it cannot be stated that by terminating the agreement, assesee acquired any enduring benefit or any income yielding asset. By terminating the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Division Bench of the Gujarat High Court in the case of Principal Commissioner of Income Tax v. Ferromatice Milacron India (P.) Limited. It was also the case where the Assessee had incurred expenditure pursuant to the non-compete agreement and claimed depreciation on such asset. While dismissing the Revenue's Appeal against the Judgment of the Tribunal, following observations were made : We may recall the Assessing Officer does not dispute that the expenditure was capital in nature since by making such expenditure, the assessee had acquired certain enduring benefits. He was, however, of the opinion that to claim depreciation, the assessee must satisfy the requirement of Section 32(1)(ii) of the Act, in which Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific intangible assets referred to in section 32(1)(ii) of the Act preceding the term business or commercial rights of similar nature it is seen that intangible assets are not of the same kind and are clearly distinct from one another. The legislature thus did not intend to provide for depreciation only in respect of the specified intangible assets but also to other categories of intangible assets which may not be possible to exhaustively enumerate. It was concluded that the assessee who had acquired commercial rights to sell products under the trade name and through the network created by the seller for sale in India were entitled to deprecation. In the present case, Mr. Patel was erstwhile partner of the assessee. The assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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