TMI Blog2001 (6) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(b). e. Addition of Rs. 1,71,412 for national interest on advance to M/s R.R. Holding Pvt. Ltd. f. Compensation paid for loss of office to Directors at Rs. 1,29,26,601. Ground No. 2(a) 4. If may be seen that while completing the assessment, the Assessing Officer noted that as per tax audit report an amount of Rs. 28,266 had been worked out and added under Rule 6D. According to Assessing Officer it was clear from Annexures B1 and B2 that other expenses relating to local conveyance and telephone amounting to Rs. 19,467 had not been considered in the light of rule 6D(2)(b). Accordingly the Assessing Officer disallowed this amount along with Rs. 58,266. In appeal the CIT(A) confirmed the action of the Assessing Officer. 5. The learned counsel for the assessee submitted that amount on local conveyance and telephone etc. are not subject of disallowance under rule 6D as held by Hon'ble Bombay High Court in the case of CIT v. Chemet [1999] 240 ITR 624. The learned counsel also placed reliance on the order of ITAT Special Bench Madras in the case of Sundaram Finance Ltd v. IAC [1984] 7 ITD 845 for this very purpose. 6. The learned D.R. placed reliance on the order of Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of hearing the learned counsel for the assessee pointed out that Hon'ble Jurisdictional High Court in the case of Expo Machinery Ltd. has confirmed the action of Tribunal in which 3596 of the expenses in respect of hotel bills and entertainment expenses was allowed and contention was that same view should have been followed by the CIT(A). The learned D.R. conceded to this preposition and respectfully following the same we are directing the Assessing Officer to allow 3596 expenses out of hotel bills for lunch, dinners, etc. and entertainment expenses and rest will be subject of disallowance under section 37(2A) of the Act. 12. So far as amount of Rs. 46,192 claimed by the assessee on account of presentation of articles to customers is concerned, the contention of the learned counsel was that whole of the amount should have been allowed as articles of presentations were not containing the logo of the company and thus it cannot be treated as sale promotion expenses. List of the articles of presentation had been given. It was submitted that the same view be taken now. 13. Learned D.R. placed reliance on the order of Assessing Officer. 14. We have considered the submissions and go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 40A(5) were no more on statute but after going through the expenses incurred by the assessee-company towards vehicle and telephones in respect of Chairman, Managing Director and Director it was noted by the Assessing Officer that no doubt some recoveries had been made from Managing Director and Chairman but still 20% of the remaining amount on car expenses and 25% on telephone expenses were disallowed totalling Rs. 94,668. Before the CIT(A) it was contested by the assessee that there was no justification for disallowance of 25% of the expenses of the car and telephone for personal use of Managing Director/ Directors, etc. The CIT(A) noted that Assessing Officer disallowed the claim under section 40A(5)/40(c) and not under section 40A(2)(b) of the Act and following the earlier order he confirmed the action of the Assessing Officer. 19. The learned counsel submitted that Assessing Officer has not disallowed the amount under section 40A(5)/40(c) but he has simply made disallowance without referring any particular section of the Act and it was submitted that no disallowance for personal use of the cars and telephone by Managing Director/Directors, etc. can be effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affairs, developed intimate knowledge and expertise in the bus body building. As per submissions of the assessee, there was dispute in respect of assessee-company and Ramesh Suri filed a suit before the Hon'ble Delhi High Court and was able to bring the business activities of the assessee-company to a halt. The assessee-company got the matter settled through negotiations and agreed to pay a sum of Rs. 1,29,26,500 to Ramesh Suri as amount in consideration of the past services rendered by him to the assessee-company and for his agreeing not to indulge in future for a period of twenty years in the business of ordinary bus body building in which line he was an expert so that assessee-company may be allowed to retain its monopoly in that business and to avoid jeopardise to its resources. The contention of the assessee was that had assessee-company had not paid the amount, the assessee-company would not have survived as main source of its income was profits from bus body building division and by making payment company was going to continue its monopoly among its constituents without any interruption. The assessee also placed reliance on the decision of Bombay High Court in the case of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee about allowability of the claim of this amount of Rs. 1,29,26,500 and concluded that the amount in question was payment to Mr. Ramesh Suri and Lalit Suri for settling family dispute, in ter alia, involving different business concerns. In this connection Assessing Officer noted that there was dispute between the two groups to the suit, viz., Ramesh Suri and his group consisting of himself as individual, as HUF, his wife and daughter as well as Mr. Lalit Suri and his wife. The other group was consisted of G. Sagar Suri, his HUF, his wife, three sons and HUFs of two sons and one Roshan Lal Suri. This family dispute not only involved the assessee-company but three other companies as well as Rajdhani Cold Storage Pvt. Ltd. According to Assessing Officer the object of this payment was settlement of dispute between these two groups. He noted that every payment does not spell expenditure as laid down in the case of Indian Traders (P.) Ltd. v. CIT [1994] 97 ITR 601 (SC). The Assessing Officer was of the view that payment was not made by assessee-company in its character as a trader but for and on behalf of G. Sagar Suri group. The said expenditure was not incurred in the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ischarged. Ramesh Suri claimed his reinstatement in the Board of Directors of all the four companies but in compromise he not only lost that right but he did not remain even an ordinary member of these companies after the compromise and also lost all the powers to sign documents etc. of these four companies while G. Sagar Suri who did not make any claim against Ramesh Suri group in the suit got all the shareholdings of Ramesh Suri and other members of his group and they got Rs. 30 lakhs due from the members of Ramesh Suri group to different companies as well as absolute control in all the five companies. AR these facts go to show that this was the amount paid to settle the claim made by Ramesh Suri and was not for any business activities. 25. The other observation of the learned Assessing Officer is that no payment could have been made to Ramesh Suri for his past services as noted in para 6 of the compromise application as already G. Sagar Suri group had removed him from the Board of Directors and he was not allowed to operate any of the bank account of these four concerns. Next important observation of the learned Assessing Officer was that assessee had failed to prove on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er case relied upon by the Assessing Officer was that of Associated Portland Cement Manufacturing Ltd. v. Kerr (HM Inspector of Tax) [1943] 27 TC 103 (CA) and that of Assam Bengal Cement Co. Ltd v. CIT [1955] 27 ITR 34 (SC) and that of Hon'ble Allahabad High Court decision in the case of Neel Kamal Talkies v. CIT [1973] 87 ITR 691 and ultimately the decision of Hon'ble Supreme Court in the case of CIT v. Coal Shipments (P.) Ltd. [1971] 82 ITR 902 and concluded that amount in question was a capital expenditure and not allowable. The Assessing Officer accordingly rejected the claim against which assessee came in appeal before the CIT(A). 29. The submissions of the assessee before the CIT(A) were identical as were agitated before the Assessing Officer and reliance was placed on different case laws. The CIT(A) confirmed the view taken by the Assessing Officer for the reasons recorded by him. Aggrieved, the assessee is in second appeal before the Tribunal. 30. The learned counsel for the assessee assailing the findings of the learned Assessing Officer submitted that Assessing Officer while deciding the issue involved had mixed up the facts of the present case. The learned counsel po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bus/truck body for Ashok Leyland Ltd. and also entered into various agreements with Ministry of Defence for manufacture of Army vehicles. 32. The learned counsel also submitted that Assessing Officer was not justified to ignore the above referred to compromise deed which was unambiguous and clear in terms and to conclude that amount in question was paid for settlement of the dispute between the two groups. For this the learned counsel submitted that no doubt Ramesh Suri made different allegations in the plaint filed before Hon'ble High Court covering all the family members of both the groups and companies belonging to them but it was due to strategies evolved by lawyers who made baseless allegations to show that Ramesh Suri was having grievances against all the members of the families and of the companies. The allegations of Ramesh Suri were never agreed to by the assessee-company or by G. Sagar Suri and his family members as is apparent from their written submissions, copy of which is appearing in the paper book. The record shall show that complicated situation arose with regard to the assessee-company as transaction of this company could not proceed as Ramesh Suri effectively s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35. The learned counsel also referred to the decision of Hon'ble Supreme Court in the case of Bikaner Gypsums Ltd. v. CIT [1991] 187 ITR 394 and submitted that amount paid for purpose of removal of disability was to be treated as revenue expenditure. Taking help from this ratio the learned counsel submitted that in the case in hand Ramesh. Suri was creating problems to the assessee and he would have brought a tough competition in the business of the assessee particularly bus body building activities and by making payment the assessee-company has removed such disability and the amount is to be treated as revenue expenditure. Same was the view laid down in the case of CIT v. Associated Cement Co. Ltd. [1988] 172 ITR 257. 36. The learned counsel also submitted that, if any amount is for termination of agreement/arrangement to avoid future commercial inconvenience then it is to be treated as revenue expenditure and for that reliance was placed on the decision in the case of CIT v. Ashok Leyland Ltd. [1972] 86 ITR 549 (SC). 37. In the end the learned counsel submitted that the amount in question was for the purpose of business and that too smoothly and incidental to business. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst it the learned D.R. pointed out that issue in question had been dealt at length by the Assessing Officer and he relied upon the same. The learned D.R. basically placed reliance on the decision ofApex Courtin the case of Coal Shipments (P.) Ltd which had since been followed by Hon'ble Madhya Pradesh High Court in the case of Grover Soap (P.) Ltd. v. CIT [1996] 221 ITR 299. Facts of Grover Soap (P.) Ltd.'s case were that assessee-company become partner of the firm in which originally there were two partners. Before assessee-company joined partners on31-7-1976created goodwill of the firm to the extent of Rs. 2,10,000 and two partners created their capital amount for Rs. 1,05,000 each. Later on the said firm was dissolved on31-12-1976. It was mentioned in the dissolution deed that original partners shall be paid Rs. 10 per ton each on the soap manufactured by the continuing partners provided minimum payment to each of the retiring partners shall not be less than Rs. 1,000 p.m. This payment was made in lieu of their undertaking not to carry on a similar business for a period of fifteen years under a similar trade and name. The amount of royalty payable to two partners was claimed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record that there appears to be two groups in Suri Brothers and on account of some family dispute, Ramesh Suri and Lalit Suri with their family members were on one side while G. Sagar Suri and his family members with Roshan Lal Suri were on the other. Some dispute arose in the middle of 1987 with Lalit Suri who was looking after Bharat Hotels. The shareholding of assessee-company in the Bharat Hotel was sold on13-11-1987and Ramesh Suri paid a sum of Rs. 1 crore towards the said amount by a postdated cheque which was dishonoured. Again a fresh cheque was issued and the same again stands dishonoured resulting into calling of extra ordinary general meeting of the assessee-company by G. Sagar Suri and others for removal of Ramesh Suri as Director/Managing Director of assessee-company along with Lalit Suri. Meeting was held on 3-3-1988 and after taking note of dishonoured cheque of Rs. 1 crore issued by Ramesh Suri and on refusal of Ramesh Suri and Lalit Suri for renewal of the document for continuance of their personal guarantee given to the creditors of assessee-company and for non-payment of Rs. 30 lakhs by Ramesh Suri to assessee-company, the Board of Directors removed Ramesh Sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k. No specific amount has also been earmarked for alleged past services. Further Ramesh Suri being Managing Director of the assessee-company must be getting salaries for the services rendered by him in the past and question of any amount being assigned for such past services does not arise. In view of this we do agree with the finding recorded by the Assessing Officer that there was no scope for recognising the past services of Ramesh Suri and to allocate any amount out of the impugned amount given to Ramesh Suri. 43. The other alleged relevant consideration for giving the amount in question is that Ramesh Suri being involved in the bus body building division of assessee-company for so many years acquired special and invaluable expertise and experience and he could have been tough competitor in this nature of business for the assessee-company and the amount was given to Ramesh Suri so that he may be restrained from carrying on such business in future for twenty years and assesseecompany may run its business smoothly free from any hindrance. In this connection the Assessing Officer rightly observed that assessee-company had not brought anything on record to show that Ramesh Suri a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .V. Low Co. was temporary measure liable to be terminated at will and the payments were made by the assessee in pursuance of the agreement in the interest of assessee's trade. The Hon'ble Supreme Court also concluded that payments made by the assessee were not of capital nature and allowable under section 10(2)(xv) of the Income-tax Act, 1922 because arrangement between the assessee and H.V. Low Co. was not for fixed term but could be terminated at any time at the violation of any of the parties. No doubt Their Lordships have treated the amount as revenue expenditure but observation appearing at page 910 of the report is relevant and is reproduced below: "Although we agree that pay ment made to ward off competition in business to a rival dealer would constitute capital expenditure if the object of making that payment is to derive an advantage by eliminating the competition ever some length of time, the same result would not follow if there is no certainty of the duration of the advantage and the same can be put to an end at any time. How long the period of contemplated advantage should be in order to constitute enduring benefit would depend upon the circumstances and the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the amount is to be treated as capital in nature. 49. So far as the other pleas of the learned counsel for the assessee that amount was paid for the purpose of business and allowable on the test of commercial expediency, we are of the view that Assessing Officer had concluded rightly that this amount was not for business expediency but was actually for settlement. of the family dispute in between the two groups of Suri brothers and their family members. It has come on record that these four brothers were running the business of assessee-company and three other companies. Ramesh Suri was removed from the effective management and control of all the four companies including assessee-company. Ramesh Suri filed a suit and got ad-interim injunction in his favour and then matter was amicably settled. The fact noted in the compromise application are relevant. No doubt Ramesh Suri and his group transferred the shares in favour of G. Sagar Suri but as pointed out by Assessing Officer, Ramesh Suri group lost more and G. Sagar Suri group obtained more in the said settlement. A perusal of table 1, appearing at page 47 of the assessment order shall show that main relief of Ramesh Suri was eq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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