TMI Blog1997 (1) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the said additional ground, being purely a question of law, may be admitted. On query by the Bench, he admitted that the issue raised in the additional ground was not raised before the CIT (Appeals). He also admitted that this new ground was not set forth in the Memorandum of Appeal filed before the Tribunal. In the written submission dated 23-9-1996, it has been stated that the grounds of appeal were got drafted by the Directors of the Company from a counsel in Bombay. While drafting the said appeal, the ld. counsel concentrated only on the additions maintained by the ld. CIT (Appeals) in the computation of income. It seems that the ld. counsel did not go through the ITNS-150 as enclosed with assessment order, in which the ld. Assessing Officer has charged interest under section 234B of Rs. 97,29,390. It was also stated therein that after filing of appeal it was found that the Company was not required to pay any advance-tax and, therefore, the interest charged by the ld. Assessing Officer was contrary to law and this ground remained to be taken in appeal. Accordingly, the additional ground regarding charging of interest under section 234B has not been taken. He argued t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r-argument, Shri Mehta stated that no investigation into facts is involved. Neither any evidence is required to be furnished before Assessing Officer/CIT (Appeals). Referring to the decision of the Apex Court in Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961/27 Taxman 275, he submitted that it has been held by their lordships that it is open to an assessee to dispute the levy of interest under section 139(8) or 215 provided he limits himself to the ground that he is not liable to levy at all. 3. We have considered the rival submissions and perused the decisions relied upon by the parties. It is not in dispute that as against loss of Rs. 1,02,86,772 disclosed in the return, the Assessing Officer completed the assessment on positive income of Rs. 2,42,17,560, vide order dated 28-2-1995 under section 143(3) of the Act. This resulted in demand of Rs. 2,36,61,273 including therein interest of Rs. 97,29,390 charged under section 234B. It is an admitted position that the assessee did not agitate the issue of levy of interest under the said section before the CIT (Appeals). The assessee had not offered any explanation as to why ground relating to levy of interest unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that should relate to the subject-matter of the appeal which, in turn, is linked to the subject-matter of the order passed by the first appellate authority. Even from the stand point of general principles there is a salutary principle underlying a taxing statute that there should be a finality to the proceedings so that an element of certainty could be ushered in as early as possible in the interests of both sides. The assessments need not be thrown to contest throughout the stages of appeal revision and reference. There is a fallacy in thinking that, in reality there is no list between the parties before the Tribunal and that the Tribunal should set upon itself the task of recomputing the tax liability irrespective of whether the ground was raised before the Appellate Assistant Commissioner or even before it. A decision of the Supreme Court takes its colour from the question involved in the case and while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of the Supreme Court. It is not proper to pick out words or sentences from the judgment divorced from the context. In CIT v. Kanpur Coal Syndicate Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered in the light of the decision of the apex Court in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 referred to above, and the first appellate authority shall have the same power as that of the Income-tax Officer, and has discretion to allow an additional ground to the appellant before it. The position of the Income-tax Appellate Tribunal in second appeal stands on a different footing. After an assessment is made, the order could be challenged before the first appellate authority by an assessee, and after the said decision, the second appeal can be filed before the Tribunal by the assessee as well as by the Department. The other side has also the right for cross-objection and, thus, in respect of any matter which has been adjudicated upon by the first appellate authority, the Tribunal has full jurisdiction to decide any of such issues and even to permit the raising of a new ground which was not raised at the time of submission of the second appeal. There may be circumstances where the point was not raised before the Income-tax Officer or even before the first appellate authority in respect of any addition or deduction. If the point is purely legal, then on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee on termination of foreign collaboration agreement as business income as against the assessee's claim thereof as capital receipt, the same having been received on extinguishment of right to receive the technical knowhow to manufacture and sale tyres and tubes. Ground No. 1.4(b) (c), (d), (e) (f), (h), (i) have been admitted by Shri Mehta, the ld. counsel for the assessee, to be explanatory to the above ground No. 1.1, 1.4(a) (g). It has also been agreed to by Shri Mehta that ground No. 1.3(i) to (x) need not be considered, these being denial mainly of observations of CIT (Appeals). Ground Nos. 1.2 and 1.4(j)(k) relate to the sum of Rs. 2,29,50,782 taxed by the revenue as business income of the assessment year 1992-93, presently under consideration as against the claim of the assessee that it pertained to the succeeding assessment year 1992-93. Ground Nos. 1.4((l) and (m) were not pressed. Likewise, ground Nos. 1.5 and 1.6 have not been pressed. We, therefore, dismiss those sub-grounds of ground No. 1, which have not been pressed. 7.2 Let us now take up ground No. 1.1 1.4(a) as also ground No. 1.2 and 1.4(j) and (k) for consideration, which relate to the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rate of 3% of the net sale price of the licenced products. Clause 4 provides for transfer and safeguarding of technical know-how. As per clause 4.3, the assessee agreed to hold in strict confidence of technical know-how and to cause its personnel to abide by the said understanding. Clause 4.3 stipulates that the assessee-licencee shall restrict the internal disclosure within its own organisation to the limited number of employees. Clause 4.4 required the licencee to prevent unauthorised disclosure by its employees of the technical know-how either within its organisation or outside. Clause 4.5 laid down the procedure to be followed by the parties to ensure the safe-transmittal of the technical know-how. Clause 5 forbids the licencee to apply for patents on technical know-how or technical services either in India or elsewhere. Clause 6 provides for indemnification and insurance. Clause 7 provides that the duration of the agreement shall be eight years w.e.f. 26-12-1986, which by mutual agreement and subject to approval by Govt. of India may be extended for additional five years until mid-night of 25-12-1999. Clause 8 provides for termination of agreement. Clause 8.1 sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capitalised in respective assessment year and written back in the assessment year 1992-93, as royalty payment was not made at all. 9. It appears that the disputes arose between the parties, namely, Michelin and S. Kumar Tyre Manufacturing Co. (for short 'SKTMC') concerning the implementation of various terms under the agreements. The parties entered into settlement agreement dated 22-11-1991. The notable features of the said settlement agreement are : Clause 1.1 provides that SKTMC shall accept the payments made in accordance with clause 1.4 below in full and final settlement of all claims, disputes and/or liabilities against Michelin, arising or related directly or indirectly from the agreement. As per clause 1.2, SKTMC agreed not to disclose and/or transfer the technical information received by it from Michelin to any third party for a period of two years starting from 30-11-1991. As per clause 1.3, SKTMC further agreed not to refer to the word 'Michelin' or to any trade mark, trade name and logo owned or used by Michelin or its affiliates or to the source of technology received from Michelin in manufacture, sale, marketing and distribution of its products or in any other way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em of capital gain is not taxable as per the decision of S.C. in the case of B. C. Srinivas Shetty 123 ITR 294. However, as a matter of abundant caution, the Company has purchased 3 years IDBI capital Bonds of Rs. 2,90,00,000 on 19-5-1992 and accordingly claims that even if the said amount is treated as liable to capital gains, exemption on the same is allowable under section 54E of the Income-tax Act. 5. The rights under an agreement constitute a capital asset for this reliance is placed on following decisions: (i) Tata Services Ltd. [1980] 122 ITR 594/[1979] 1 Taxman 427 (Bom.) (ii) CIT v. Sterling Investment Corpn. Ltd. [1980] 123 ITR 441/[1979] 1 Taxman 396 (Bom.). 6. That all the three conditions, viz., existence of capital asset, extinguishment of rights and receipt of consideration as a result of such extinguishment are present, the said amount received from the foreign collaborators is a capital receipt. " 12. The balance payment of US Dollar 8,00,000 equivalent to Rs. 2,29,50,782 has been disclosed in the return for the assessment year 1993-94 filed on 31-12-1993 by way of miscellaneous receipts credited to profit and loss account. In note 5 below statement of to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the entire amount of Rs. 5,18,02,396 (Rs. 2,88,51,613+2,29,50,782) was taxable in assessment year 1992-93, presently under consideration. The salient points made by the Assessing Officer in para 11 of his order have been noted by the CIT (Appeals) at P.P. 9-10 of his appellate order, thus : " (i) The appellant has received US Dollar 11,18,000 equivalent to Rs. 2,88,51,613 in the present assessment year and further amount of Rs. 2,29,50,782 has been received in the next year from foreign collaborator. (ii) As per agreement of July 1986 under which three separate agreements were drawn, the foreign collaborator was required : (a) to provide non-exclusive licence of technical know-how to manufacturer of the specifications to be defined with the right to sub-licence, but only upon prior written approval of Michelin; (b) the rendering of technical services in France for assimilating the technical know-how; (c) the rendering of technical services in India for assimilating the technical know-how for manufacturing the products. (iii). The factory was set-up in India without any assistance from Michelin and no amount was paid to Michelin in any form in connection with the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he next year. Since the accounts are being maintained on mercantile basis as indicated in the Audit report filed with the return, the entire amount equals to US Dollars 19,18,000 becomes receivable in the present assessment year and only part payment has been deferred. Therefore, the aggregate amount of Rs. 5,18,02,396 becomes taxable in the present assessment year itself. " Accordingly, the Assessing Officer made the impugned addition of Rs. 5,18,02,396 to the income of the assessee. The assessee appealed. 15. Before the CIT (Appeals), the stand of the assessee was repeated. It was also argued that the company mainly relied on the written opinion of Shri Bansi S. Mehta, D.R. and, accordingly, purchased IDBI Bonds to claim exemption under section 54E of the Act. It was also stated that the second amount of Rs. 2,29,50,782 was received in the assessment year 1993-94 and has been offered as business income in that year. It was argued that the addition of both the impugned amounts be deleted. The Assessing Officer who attended the appellate proceedings, submitted that the assessee gave different treatment to the part of the same receipts in two years. The first instalment, which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lfilment of the obligations. He noted that nowhere it has been provided that in case Michelin fails to discharge the obligations, it shall pay any amount as compensation. Under these circumstances, the CIT (Appeals) expressed the view that the only logical reason for Michelin to agree to pay compensation is that they wanted to avoid litigation and save the damage of their reputation by making the assessee to stop from publishing that the technical know-how provided by Michelin was of sub-standard quality. He noted the stipulations in clauses 1.1, 1.2 and 1.3 of the settlement agreement dated 22-11-1991, which reinforced his view that the Michelin were concerned with their reputation and were bothered with likely loss of reputation in the world market, if the assessee company made it publish that their technology was sub-standard. 16.1 On the strength of the alternate submission contained in para 4.8 4.9 of the assessee's letter dated 18-7-1995 about set off of working loss of tyre division aggregating to Rs. 5,79,87,928 upto Feb., 1992 against income of Rs. 5,18,02,396, the CIT (Appeals) concluded that the assessee itself has conceded the impugned receipts as business income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermination of the nature of receipt. He remarked that in the assessee's case the damages have been paid by Michelin only to prevent the assessee from its nuisance value and not on account of non-fulfilment of any obligation. 16.6 According to the CIT (Appeals), the decision of the Apex Court in CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 is directly on the point. In that case, their lordships held that generally the payment made in settlement of rights under a trade contract are trade receipts. Their lordships have further held that a receipt is a capital receipt or a revenue receipt will depend upon whether it is a compensation for injury inflicted on a capital asset or stock in trade. According to him, in the case of the assessee, there is no injury inflicted on any capital asset and payment has been received in consequences of an agreement in the nature of a trade contract. He, therefore, expressed the view that the same has got to be held as a trading receipt. The CIT (Appeals) applied the decision of the Apex Court in Seth Banarsi Das Gupta v. CIT [1987] 166 ITR 783/32 Taxman 112A to the facts of the assessee's case. In the decision, their lordships held that the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstituted business receipt. 16.10 In the final analysis, the CIT (Appeals), held that the amount of Rs. 5,18,02,396 receivable under the settlement agreement of 22-11-1991 has rightly been taxed as business income in the assessment year 1992-93 because the accounts are maintained on mercantile basis. According to him, there is no basis at all on which the assessee has shown one part in assessment year 1992-93 and the other in assessment year 1993-94. Similarly there is no basis on which the first instalment is shown as capital receipt and the second as business income. 16.11 For the reasons aforesaid, he confirmed the impugned addition. Dissatisfied, the assessee is in appeal before us. 17. Shri M.C.Mehta, C.A., argued on behalf of the assessee-company. The Department has been represented by Shri S.K. Singh, ld. D.R. Both have been heard at length. 18. Inviting our attention to the approval dated 12-6-1986 granted by the Government of India to the promoters of the Co. to enter into collaboration agreement with Michelin (copy at P.P. 101-105 of the paperbook), Shri Mehta submitted that the revenue authorities have not considered items 7,9 13 of the Annexure to the said ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92 and 1992-93. Shri Mehta also refuted the observation of the CIT (Appeals) at para 5 on page 10 to the effect that the nature of dispute had not been disclosed to the Department, as the Assessing Officer has himself noted in para 11.6 of his order that the settlement agreement provided for payment of US Dollar 19,19,000 for certain reasons. He also had reservations on the observations of the CIT (Appeals) in para 10.2 of his order, wherein the CIT (Appeals) stated that Shri Mehta had submitted that the second amount received in next year has been offered as business income in the next year. Shri Mehta submitted that the second amount had not been offered as business income as alleged in the next year. However, it was done by way of note below the statement of total income. Referring to the details of royalty adjusted by the assessee in its books appearing at page 166 of the paper book, Shri Mehta submitted that the royalty payable had been capitalised in the assessment years 1988-89, 1989-90, 1990-91 and 1991-92. These were never claimed as revenue expenditure as observed by the CIT (Appeals), in para 10.4 of his order. He also refuted the allegation of threat given by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 22-11-1991 as also the clarificatory letter dated 10-6-1992 of Clifford Chance (these documents appear at P.P. 155-161 of the paper book). Shri Mehta further submitted that since the settlement agreement in respect of payment of US Dollar 8,00,000 (equivalent to Rs. 2.29 crores) was in restraint of trade as per para (b) of letter dated 10-6-1992 of Clifford Chance. The said amount was not taxable. 18.4 In support of the above submissions, reliance was placed on the following decisions:--- (i) CIT v. Bombay Burmah Trading Corpn. [1986] 161 ITR 386/27 Taxman 314 (SC); (ii) K.Eapen Jacob v. CIT [1987] 166 ITR 199/[1986] 27 Taxman 626 (Mad.); (iii) CIT v. Merchandisers (P.) Ltd. [1990] 182 ITR 107/49 Taxman 68 (Ker.); (iv) CIT v. H.S.Shivarudrappa [1993] 200 ITR 1/67 Taxman 387 (Kar.). (v) CIT v. ACE Builders (P.) Ltd. [1993] 202 ITR 324/70 Taxman 474 (Bom.); (vi) CIT v. Saraswathi Publicities [1981] 132 ITR 207 (Mad.); (vii) Addl. CIT v. Dr.K.P. Karanth [1983] 139 ITR 479 (AP); (viii) CIT v. Automobile Products of India Ltd. [1983] 140 ITR 159/[1981] 7 Taxman 327 (Bom.); (ix) CIT v. G.D.Naidu [1987] 165 ITR 63/[1986] 24 Taxman 255 (Mad.); and (x) CIT v. Smt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licensee. Shri Singh further submitted that clause 9.1 had two portions, namely, upon termination of the agreement Michelin shall cease to transfer the technical know-how and all other information and the licensee shall continue to abide by the confidentiality procedure set forth in sub-clause(s) of clause 4 for two years after termination of the agreement. Shri Singh argued that the stipulation in clause 9.1 makes it abundantly clear that the assessee has no right to disclose technical know-how even after the termination of the agreement for a period of two years. Clause 9.2 binds the assessee even after termination of the agreement from making un-authorised use or disclosure of the technical know-how. Shri Singh argued that clause 9.3 provides for payment obligations for breach of agreement by the assessee company. There is no clause for payment of compensation for breach of agreement by Michelin. Shri Singh pointed out that clause 10.1 prohibits the assessee company to assign, transfer, sub-licence, change or part with any of its rights or obligations under the agreement without prior written consent of the Michelin. Thus, the assessee has no right to sub-licence or change or pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iting our attention to settlement agreement dated 22-11-1991, Shri Singh submitted that clauses 1.1, 1.2 and 1.3 contain the conditions binding the assessee after the termination of the agreement. He pointed out that clause 1.2 is nothing but reproduction of clause 9.1 of the technical know-how agreement dated 22-6-1987, whereby the assessee was bound not to disclose any information to any third party. It is, therefore, clear that the payment of compensation by Michelin was not for non-disclosure of any information to any third party. Clause 1.1 makes it clear that the compensation was paid for the reason that the assessee shall not sue Michelin. Referring to clause 1.3 of the settlement agreement, Shri Singh pointed out that clause 10.1 of the technical knowhow agreement binds the assessee not to assign, transfer, sub-licence etc. Shri Singh, therefore, vehemently argued that the settlement agreement basically provide for payment of compensation since the agreement did not run through its full duration of eight years. According to him, the impugned compensation was received by the assessee, as the agreement had not run for its full course. It is not for transfer of any capital ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant to the assessment years 1993-94 and 1994-95. Nonetheless, there has been production of tyres and Tubes in the factory of the assessee; therefore, after the termination of the agreement, production of the assessee did not suffer. On the contrary, production and sale showed increasing trend in subsequent years. It cannot, therefore, be said that any injury was inflicted on income earning apparatus of the assessee, which is apparent from the result of the assessee's business. He further argued that there is distinction between injury to income earning capital assets and loss in the business. The agreement was terminated w.e.f. Nov., 1991 but the assessee continued to produce and sale tyres and tubes on its own account after termination of the agreement upto Sept. 1993. Thereafter the same plant has been used for providing job work to Apollo Tyres i.e., production of tyres and tubes as per specifications given by Apollo Tyres. He therefore, submitted that it is incorrect to say that there is injury to capital assets or apparatus by which income is earned. It is not so. 19.6 In support of the proposition that if agreement does not run for an agreed period and terminates earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the technology received by the assessee in the manufacture, sale etc. of its products. He submitted that the assessee was provided the licence only. Since the licence is terminated, the assessee looses the right to make use of any thing or right provided in that licence. The assessee, therefore, does not have any right to use any word Michelin or to make use of technology received for the manufacture by the assessee. Secondly, clause 9.2(b) of the technical know-how agreement provides that the assessee shall not be relieved from any liability arising from licensee's unauthorised use or disclosure of technical knowhow. Shri Singh argued that the assessee was bound by the technical know-how agreement itself not to make use of technology or to make disclosure. The assessee, therefore, did not possess any right whatsoever to make use of technology or to disclose technical know-how after the termination. Therefore, in the absence of any right, he argued that, question of exercising restraint by the assessee does not arise. According to him, there is no case of restraint of trade involved in clause(s) 1.2 1.3 of settlement agreement. The aforesaid clauses mention only those points, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. A. Gajapathy Naidu [1964] 53 ITR 114 (SC). 20. We have carefully considered the rival contentions of the parties and the decisions relied upon by them. We have also perused the material made available to us by the parties. The undisputed facts may be recapitulated. Michelin of France and S. Kumar of Indore had signed a memorandum of understanding on 27/29-9-1985 and had thereafter approached the Government of India for approval of foreign collaboration agreement. The Government of India accorded approval on 12-6-1986. Pursuant thereto, foreign collaboration agreement was signed between the parties on 8/15-7-1986. In furtherance thereof, the parties entered into technical know-how agreement and technical services agreement on 22-6-1987. The salient features of the technical know-how agreement have already been set out earlier. 20.1 The Government of India had approved the foreign collaboration agreement on three specific conditions, namely, the payment by the assessee of (i) royalty at 3% for a period of five years; (ii) lump sum know-how fee of Rs. 20,00,000; and (iii) eight years duration of the agreement. In consideration of non-exclusive right granted by Michelin to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come or capital becomes one of much refinement. In that case, the assessee which carried on the business of distribution of films had entered into three agreements for advancing monies to certain motion picture producers towards the production of films and acquiring the rights of distribution thereof. After the assessee had exploited to certain extent its right of distribution of the films, the agreements were cancelled and the producers paid an aggregate sum of Rs. 26,000 to the assessee towards commission. The Tribunal and the High Court held that the sum was a capital receipt. On appeal to the Supreme Court, their lordships held that the sum paid to the assessee was not compensation for not carrying on its business but was a sum paid in the ordinary course of business to adjust the relation between the assessee and the producer; the termination of the agreements did not radically or at all affect or alter the structure of assessee's business; the amount received by the assessee was only so received towards commission, i.e., as compensation for the loss of commission which it could have earned had the agreements not been terminated; the amount was not received by the assessee as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt on account of termination of such a contract can only be a trading receipt. In Blue Star Ltd.'s case, their Lordships held, thus : The question whether a particular income arising from determination of a contract is a capital receipt or revenue receipt is a difficult question to answer. Where, on a consideration of the circumstances, a payment is made to compensate a person for cancellation of a contract, which does not affect the trading structure of the recipient's business nor deprive the recipient of what in substance is the source of income, termination of the contract being a normal incident of the business and such cancellation leaving the recipient of the amount free to carry on its trade, the receipt is revenue. However, where by a cancellation of agency, the trade structure of the assessee is impaired or such cancellation results in the loss of what may be recorded as the source of the assessee's income, payment made to compensate for such cancellation of agency is normally a capital receipt. " 20.6 Let us analyse the case of the assessee before us in the light of the principles of law enunciated in the decisions . It has been contended by Shri Mehta that by o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquire any capital asset or advantage of an enduring nature. In the case of Tata Engg. Locomotive Co. (P.) Ltd., their Lordships of Bombay High Court held, thus: " Technical know-how cannot be called a tangible asset. Technical know-how and technical advice for the time being cannot in these days of technological and scientific development and consequent change in production techniques, be treated as a capital asset. The length of the period of agreement is not of much consequence, if the nature of the advice made available is such that it cannot be called a capital asset. Merely because an assessee who has entered into a contract with regard to know-how is entitled to use the know-how even after the agreement has expired it does not mean that he has acquired a benefit of an enduring nature. Agreement of foreign collaboration where foreign know-how is availed of in lieu of payment, is in substance a transaction of acquiring the necessary technical information with regard to the technique of production. Instead of employing persons having knowledge of techniques and utilising their knowledge technical know-how is acquired. Technical know-how made available by a party to such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no transfer of capital asset within the meaning of section 2(47) of the Act on extinguishment of rights therein. We are, therefore, unable to accept the opinion of Shri Bansi S. Mehta, C.A. The CIT (Appeals) has rightly held that the decisions in Tata Engg. Locomotive Co. (P.) Ltd.'s case and Sterling Investment Corpn. Ltd.'s case did not render any assistance to the assessee, as in the assessee's case the assessee's right to receive technology was never refused by Michelin. We find force in the argument of Shri Singh that as the agreement had been terminated before it completed its full term, the assessee had right to sue Michelin for compensation, which right arose to the assessee from section 64 of the Indian Easement Act. He had argued that though the assessee had right to sue Michelin but the said right is not transferable by virtue of section 6(e) of Transfer of Properties Act, 1882. There was no rebuttal on the above arguments from the side of the assessee. As a matter of fact, the assessee had received compensation consequent to pre-mature termination of the agreements, which was also in accordance with the provisions of section 73 of the Indian Contract Act. The said s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we hold that the impugned receipts are revenue receipts. These are not capital receipts and the decisions in Bombay Burmah Trading Corpn.'s case and Barium Chemicals Co. relied upon by Shri Mehta do not advance the case of the assessee, as those decisions are distinguishable on facts. Shri Mehta has also argued that the second instalment of Rs. 2.29 crores is not taxable, as it was received in restraint of trade, which is obvious from para (b) of letter dated 10-6-1992 of Clifford Chance. Support was derived from certain decisions referred to earlier. We have minutely gone through the settlement agreement dated 22-11-1991 as also the letter dated 10-6-1992 of Clifford Chance. It is observed therefrom that clause(s) 1.2 and 1.3 of settlement agreement reiterate the same stipulations which were contained in the original licence agreement. Clause 9.1 of the technical know-how agreement had provided that for two years after termination of the agreement, the assessee shall continue to abide by the confidentiality procedure set forth therein. Same stipulation is contained in clause 1.2 of the settlement agreement whereby the assessee agreed not to disclose the technical information to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no dispute as to the year of taxability of the first instalment of compensation of Rs. 2,88,51,613. The assessee had itself credited the above amount to its profit and loss account of the previous year relevant to the assessment year 1992-93. The dispute in this regard relates to the second instalment of compensation of Rs. 2,29,50,782. We have to again turn to the settlement agreement dated 22-11-1991. Clause 1.4(a)(ii) provided for payment of US Dollar 8,00,000 by Michelin by 30th November 1992 at the latest. Shri Mehta, the ld. counsel for the assessee, has argued that the date 30th November, 1992 falls in the account year relevant to the assessment year 1993-94 and has, therefore, been credited to the profit and loss account under the head 'miscellaneous receipt' relevant to the assessment year 1993-94. A close look to clause 1.4 would reveal that consequent to the settlement agreement dated 22-11-1991, Michelin had agreed to pay to the assessee total sum of US Dollar 1,91,08,000. It is, therefore, obvious that the right to receive the entire compensation of US Dollar 1,91,08,000 accrued to the assessee on 22-11-1991 i.e., the date of settlement agreement, which date falls i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head 'sales promotion' were of entertainment in nature incurred on providing refreshment etc. to the customers and part of the refreshment to staff was attributable to entertainment. He estimated the entertainment expenses at Rs. 50,000 and after allowing Rs. 5,000 added Rs. 45,000 to the income of the assessee. On appeal, the CIT(A) opined that the disallowance was short computed by Rs. 11,608. He, therefore, enhanced the disallowance by Rs. 11,608 aggrieved, the assessee is before us. 24. Shri Mehta invited our attention to the details of refreshment to staff and of sales promotion appearing at P.P. 20 44 of the paper book respectively. He submitted that sales promotion expenses were inclusive of presentation articles worth Rs. 69,703 which did not bear the logo of the company. Relying on the decisions in the case of CIT v. Indian Aluminium Cables Ltd. (No. 2) [1990] 183 ITR 611/49 Taxman 251 (Delhi) and in the case of CIT v. Allana Sons (P.) Ltd. [1995] 216 ITR 690 (Bom.), he submitted that no disallowance out of above expenditure is justified, as those articles did not have any advertisement value. In the alternative, he submitted that the disallowance out of the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses account. The Assessing Officer had disallowed sums of Rs. 2,52,160 and Rs. 2,70,353 paid to M/s. Little Co. as also Rs. 15,000 paid to M/s. Arthur Andersen Associates on the ground that no details of services rendered were furnished. The disallowance has been confirmed by CIT(A). Aggrieved, the assessee is before us. 27. Shri Mehta submitted that Little Co. had negotiated settlement agreement with Michelin at Bombay, Paris Hongkong and the payments to them had been made for services rendered by them. He invited our attention to a letter dated 20-1-1991 from Little Co. (copy at page 56 of the paper book), whereby Little Co. agreed to advise and represent the assessee in the matter pertaining to the dispute with Michelin. He also invited our attention to their two bills (copies at P.P. 57-58 of the paper book). Shri Mehta contended that the expenses were incurred for the purposes of business and, therefore, the disallowance is unjustified. In the alternative, he submitted that the above two bills were inclusive of Rs. 1,24,750 and Rs. 1,48,750 towards professional services rendered by Little Co. and, therefore, the disallowance can at best be restricted to the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing reasonable opportunity of being heard to the assessee. We order accordingly. 29. Ground No. V relates to disallowance of Rs. 71,808 on account of shrinkage in textile division. From the quantitative details filed, the Assessing Officer noticed that the assessee had claimed shrinkage of 5860.60 mtrs. in cotton textile and of 281.35 mtrs. in shirting. Since there was no co-relation between the purchases and shortages or between sales and shortages, he negatived the assessee's claim, which resulted in the impugned disallowance. The assessee appealed. 30. Before the CIT(A), it was contended that the assessee purchased grey cloth which has to be first dipped into water and thereafter processing is done. It was pointed out that shrinkage occurs at the time of dipping of grey cloth in water. It was also submitted that the assessee had unprocessed opening stock of suitings and shirtings. Hence, there could not be any co-relation between shrinkage and purchases on month to month basis. It was also stated that shrinkage was about 2% only which could not be considered as excessive. The submissions of the assessee did not find favour with the CIT(A), who confirmed the disallowance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at.), it was submitted that further deduction of Rs. 12,81,133 ought to have been allowed. The contentions of the assessee were not acceptable to the CIT(A). He observed that the assessee had incurred entire expenditure of Rs. 21,26,323 in the assessment year 1989-90 but the assessee instead of claiming the deduction of the entire sum claimed deduction of Rs. 3,84,486 on prorata basis in assessment year 1989-90. Accordingly, the assessee should have preferred the claim in the assessment years 1990-91 and 1991-92 on prorata basis. This was not done. He opined that strictly speaking even the amount of Rs. 4,25,265 should not have been allowed, as the expenditure had been incurred in an earlier year and there is no scheme of deferred revenue expenditure in the Income-tax Act. According to him, the decisions relied upon by the assessee were not on the point at issue. Aggrieved, the assessee is before us. 34. Shri Mehta submitted that whenever a new product comes into the market, massive expenditure on advertisement is incurred and the same is claimed as deferred revenue expenditure usually in five years. It was for this reason that in the assessment year 1989-90, the assessee had cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, the total income has been computed on positive figure as a result of inclusion of an amount of Rs. 5,18,02,396 received from Michelin. Such income cannot be said to have been derived from an industrial undertaking. In support of his view, the CIT(A) relied upon certain decisions. Being aggrieved, the assessee is before us. 37. Relying on note 1 below statement of total income to the effect that the return is subject to all other claims allowable as per law, Shri Mehta argued that on the basis of the above note the Assessing Officer should have allowed deductions under sections 80HH 80-I once the loss returned was converted into positive total income. He further submitted that the amount of Rs. 5.18 crores is directly related to the assessee's business. Hence, the assessee is entitled to deduction under the aforesaid sections on income that may be finally determined. Shri Singh, the ld. DR., supported the order of the CIT(A). 38. We have considered the rival submissions. In our opinion, the stand of the assessee cannot be accepted. In the case of CIT v. Eastern Seafoods Exports (P.) Ltd. [1995] 215 ITR 64, their lordships of Madras High Court have considered the impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. For this proposition, reliance was placed on the decision in CIT v. Manmohan Das [1966] 59 ITR 699 (SC). He carried us through the decision in Dalmia Cement (Bharat) Ltd.'s case and submitted that it will help the assessee, as the assessee is still in appeal before the CIT(A) for the earlier assessment years 1990-91 and 1991-92. In oppugnation, Shri Singh, the ld. D.R., submitted that their lordships of the Supreme Court have held in Dalmia Cement (Bharat) Ltd.'s case that the assessee cannot claim in assessment proceedings for a subsequent year that losses in the earlier years should be determined, carried forward and set off against the profits in the subsequent year. According to him, the decision relied upon by the assessee no longer holds good, as the controversy under the old Act cannot arise under the Income-tax Act, 1961. He invited our attention to the observation of the Apex Court at page 101 in Dalmia Cement (Bharat) Ltd.'s case, wherein their lordships observed that under the present Act, section 143(3) requires the Assessing Officer to determine the loss, if there is any and that the assessee has a right to appeal under section 246(a) of the Act. He argued that unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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