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TMI Blog2017 (1) TMI 1818X X X X Extracts X X X X X X X X Extracts X X X X ..... - HELD THAT:- CIT(A) has dealt both the transactions separately. The first transaction was in connection with the payment on account of termination of agreement with SIPL. The Assessing Officer dealt the said transaction as capital in nature. The appellant entered into an agreement with SIPL for procuring advertisement from clients. Dispute arose, therefore, the said agreement was terminated in view of the termination. The appellant company paid an amount as compensation. It is to be decided what should be nature of this kind of payments. The CIT(A) dealt the matter in view of the law settled in CIT Vs. Glaxo Laboratories India P. Ltd. [ 1977 (11) TMI 34 - BOMBAY High Court ] wherein such type of transaction was held to be business expenditure. The assessee also relied upon the law settled in J S (P) Limited [ 1984 (5) TMI 40 - DELHI HIGH COURT ] and Empire Jute Co. Ltd. [ 1980 (5) TMI 1 - SUPREME COURT ] and Alembic Chemical Works [ 1989 (3) TMI 5 - SUPREME COURT ] No authority contrary to the said law has been produced before us. The factual position is quite same which has been dealt by the CIT(A) in question. No doubt in the said circumstances, we are of the view that the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in 1(i). deleting the addition computed by the AO at Rs.4,98,150/- by applying provisions of sec. 14A of the Income Tax Act r.w. Rule 8D of the Income Tax Rules. 1(ii) in restricting the disallowance u/s. 14A to the extent of Administrative and managerial expenses at Rs.63,250/- and Rs.4,34,935/- respectively. 1(iii) in not appreciating the fact that the funds of the assessee company were inter-mix of borrowed and owned funds and the assessee had failed to prove that the huge borrowed funds had been fully utilized for the purpose of business only and not for earning the exempt income which is in the manner of dividend of Rs.13,86,407/- received on LIC Mutual Funds investment which were made at various intervals. 1(iv) in failing to appreciate that Rule 8D is applicable for A.Y.2008-09 for the purpose of computation of disallowance u/s. 14A; and that the assessee company did not compute the said disallowance on its own in the Return of income of the year under consideration. 2(i) in holding that the amount of Rs.12.60 Crs. Is a Revenue expenditure without appreciating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the exempt income u/s. 14A of the Act and also disallowed an amount Rs.33,00,00,000/- on exceptional item and also disallowed an amount of Rs.40,76,800/- on account of software license fee and disallowed the interest on FDs to the tune of Rs.1,88,10,000/- treated as income from other sources. Thus assessed total loss to the tune of Rs.44,77,90,301/-. Feeling aggrieved the assessee filed an present appeal before the CIT(A) who deleted the disallowance on account of section 14A of the act and payment of compensation on exceptional items, software expenses etc. and treated the interest received from FD account to the tune of Rs.1,88,10,000/- as income from business and profession despite income from other source. Feeling aggrieved the revenue has filed the present appeal before us:- ISSUE NO.1(i) to 1(iv):- 4. Under these issues the revenue has challenged the deletion of the addition made in view of the provision u/s. 14A r.w. Rule 8D of the Act to the extent of Rs 4,34,935. The appellant received dividend of Rs.13,86,407/- from LIC Mutual Funds. The said income was exempted u/s.10(34)of the Act. The appellant did not disallow any expenditure in view of the provision u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to 2(iv):- 6. Under these issues the appellant challenged the deletion of the addition to the tune of Rs.12,60,00,000/- and to treat the amount of Rs.19,40,00,000/- as capital receipt. The appellant company relays the radio station in the name of Radio City. The appellant s income is mainly from the advertising through the intermittent breaks of the programme. For the procuring the advertisement from various clients, appellant had engaged Star India Pvt. Ltd. (SIPL). A dispute arose between them, therefore the assessee company terminated the agreement and on account of termination the appellant company paid compensation to SIPL to the tune of Rs.12,60,00,000/- for advertisement and Agency Sales Termination Agreement (ASTA) of Rs.19,40,00,000/- for Restrictive Covenant Agreement (RCA). The RCA was paid for restricting the SIPL for not competing against the appellant in similar business for another 2 years. The Assessing Officer disallowed the said compensation paid for ASTA and RCA treating the same as capital expenditure within the meaning of section 28(va) of the Act. It is necessary to advert the finding of the CIT(A) on record:- 4.3 I have considered the facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss interest and allowable as business expenditure Indian Income tax Act, 1922, S.10(2)(xv). Respectfully following the above jurisdictional High Court decision appellant s claim of revenue expenditure for the termination of agency agreement is allowed. With regard to termination of RCA which is in the name of non compete fees paid by the appellant to SIPL for Rs.19,40,00,000/-, it has to be examined whether this is capital expenditure or revenue expenditure. Here it is to be kept in mind that appellant had paid the compensation for non compete fee and SIPL had received the compensation. SIPL s receiving of this amount of Rs.19,40,00,000/- will be treated as income in view of sec. 28(va) of the IT Act which is inserted in the Incometax Act from 01.04.2003. The nature of payments in the hands of the appellant can be decided by the Supreme Court decision in the case of Guffic Chem P. Ltd. 332 ITR 602 (SC) in para 7 it is held as under:- 7. Two questions arose for determination, namely, whether the amounts received by the appellant for loss of agency was in normal course of business and therefore whether they constituted revenue receipts? The second question which arose be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess any compensation received for its termination would be revenue receipt and if an agreement is entered into by the appellant which led to the loss of source of business, that payment received under negative covenant as it is in this case and therefore, the receipt by appellant was in the nature of capital receipt. On examining this case law Hon ble Supreme Court held has cleared that negative covenant is in the nature of source of loss of business and it is capital asset. This capital asset will be by recipient i.e. SIPL but the capital nature of this receipt will not change in the hands of the appellant i.e. Music Broadcast P. Ltd. so appellant had acquired a right from SIPL. This right in the form of capital asset which is eligible for depreciation u/s. 32(1)(ii) of the I.T. Act is in the nature of commercial right. Hence A.O. s treating the payment to the negative covenant in the form of a capital expenditure is confirmed. However, as appellant has acquired the right it has to be right in the nature of commercial right, appellant is eligible for depreciation u/s. 32. 8. In concluding the whole discussion, appellant s compensation payment for the agency termination by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant para has been produced above while enumerating the finding of the CIT(A) in which this type of transaction has been dealt as capital receipt. Depreciation has rightly allowed accordingly. Therefore in view of the said circumstances, we are of the view that the said transaction has also been dealt by the CIT(A) in accordance with law specifically in view of the circumstances when no distinguishable facts and law have been produced before us. In view of the observations made above, we are of the view that the CIT(A) has decided the said issues judiciously and correctly which is not require to be interfere with at this appellant stage. Accordingly, these issues are decided in favour of the assessee against the revenue. ISSUE NO.3(i) to 3(ii):- 10. Under these issues the revenue has challenged the treatment of computer software license fees amounting to Rs.1,01,92,000/- as revenue expenditure. The contention of the Revenue is that it should be treated as capital expenditure. Before going further, it is necessary to advert the finding of the CIT(A) on record:- 5.1 I have considered the facts of the case. This issue has come into consideration in CIT(A) order for A.Y.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant s claim of software license fee is allowed as revenue expenditure. This ground of appeal is allowed. 11. On appraisal of the above mentioned findings, it is not in dispute that the revenue has already dealt this issue while deciding the matter in the A.Y.2009-10 in which the said transaction has been treated as revenue expenditure. On the basis of the said decision, the present issue has been decided by the CIT(A) in favour of the assessee in the present A.Y. i.e. 2008-09. Nothing came into the notice that the finding of the CIT(A) for the A.Y.2009-10 on this issue is under challenged or not. No distinguishable facts have been produced before us to which it can be assumed that the said transaction is capital in nature. No law contrary to the law relied by the CIT(A) has been produced before us. Therefore, in view of the said circumstances, we are of the view that the CIT(A) has decided the matter judiciously and correctly which is not require to be interfere with at this appellate stage. Accordingly this issue is being decided in favour of assessee against the revenue. ISSUE NO.4:- 12. Under this issue the revenue has challenged the order of the CIT(A) in which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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