TMI Blog2018 (9) TMI 1543X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that the payment made by the appellant to M/s. Kapil Chit Funds Private Limited was revenue expenditure as without the said payment the appellant could not have carried on its business more efficiently and profitably. Hence, the Hon’ble ITAT had held that the payment was revenue expenditure and allowable as a deduction u/s 37(1) of the Income Tax Act. Respectfully following the decision of the Hon’ble ITAT, Hyderabad in the appellant’s own case for the same issue of non-compete fee. - Decided against revenue. - ITA Nos. 804 to 806/Hyd/2018 - - - Dated:- 11-9-2018 - Smt. P. Madhavi Devi, Judicial Member And Shri S. Rifaur Rahman, Accountant Member For the Assessee : Sri S. Rama Rao For the Revenue : Smt. Alka R. Jain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon the decision of the Hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd vs. CIT reported in (1955) 27 ITR 34 (S.C) in support of his contention that such payment was capital in nature while the learned Counsel for the assessee had relied upon various other cases in support of his contention. Let us, therefore, consider the ITA No 159 of 2016 Kapil Chits Kakatiya P Ltd Warangal Page 5 of 11 applicability of the decisions relied upon by both the parties to the facts of the case before us. (i) In the case of Assam Bengal Cement Co. Ltd (cited Supra), the Hon'ble Supreme Court was considering the case of a company which acquired a lease of certain limestone quarries from the State Govt. for the purpose of carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Page 6 of 11 that the expenditure incurred by the company in acquiring such advantage certainly has an enduring advantage and is not in the nature of capital expenditure and was not allowable as a deduction. The facts of this case are slightly different from the facts of the case before us. In the case of Assam Bengal Cement Co. Ltd (Cited Supra), the agreement was between a company and the State Govt. and was to prevent the competition from all the competitors for a period of 20 years and for a further term of 20 years. Therefore, the competition from all quarters has been extinguished and not from any particular company and the period is also quite a long period as against the case of the assessee before us as the competition to be avoide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owable as a deduction. (c) Crystal Chemie (P) Ltd vs. ACIT reported in (2010) 42 DTR 0197 wherein the Coordinate Bench of the Tribunal at Ahmedabad held that the commission paid by the assessee to another company based on the quantity of specified product sold by the assessee, for various services rendered by that company to the assessee, to enable it to upgrade its machinery and to use better methods of production, is revenue expenditure. (d) CIT vs. Eicher Ltd reported in (2008) 302 ITR 249 (S.C) wherein the Hon'ble Delhi High Court was dealing in a case of an assessee who had negotiated a non-compete fee agreement with a competitor and an ex-employee of the assessee so that they would not carry out any business activity wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the assessee company to benefit by taking over its business in northern Telangana Districts. By virtue of the non-compete agreement, the holding company has lost part of its territory and consequently a source of income and it is compensated by receipt of 1% of the annual turnover. What is to be seen in this case is whether the assessee has gained anything by virtue of this agreement. The assessee has gained the business of the holding company i.e. the income generating area and also not having its holding company as its competitor. Whether this benefit is enduring in nature. Perhaps not. Because, by the agreement dated 10.04.2010, the period of non-competing was 5 years only. It was further extended by a further period of 5 years by ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only for a period of 5 years and is extendable by a further period as mutually agreed to by both the parties. The agreement is also liable to be terminated with prior notice of 10 months. The agreement also includes various other services to be provided by Kapil Chit Funds (P) Ltd to the assessee company and the payment was not just for non competition. In this view of the matter also, we are satisfied that the payment made by the assessee to Kapil Chit Funds (P) Ltd is revenue expenditure as without the said payment, the assessee could not have carried on its business more efficiently and profitably. Therefore, we agree with the contention of the learned Counsel for the assessee that the payment is in the nature of revenue exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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