TMI Blog2009 (1) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... aid to core promoters) and has purchased shares from public and others at prices, ranging from Rs. 91 to Rs. 98 per share. The appellant purchased 1,30,94,260 shares of SVCL aggregating to Rs. 1,27,19,53,067. This was financed by borrowing from M/s ILFS, HDFC and Bank of America. The shares were immediately pledged with the said institutions to secure the loan borrowed from them. These loans were replaced by amounts advanced by India Cements Ltd. thereafter the appellant company had to pay interest to the India Cements Ltd. and the lenders referred above amounting to Rs. 51,40,99,129 from the date of acquisition till the date of disposal of shares. The assessee sold the shares at Rs. 147.2989 per spare aggregate sale consideration being Rs. 1,92,87,70,739. 4. The assessee company had capitalized the interest payable and added it to the cost of acquisition of shares in the respective years. Thus at the time of sale the assessee had added Rs. 51,40,99,129 being the total interest payable on the borrowings for acquisition of shares and added it to the cost of acquisition of shares and thus arriving at the total cost of acquisition of shares at Rs. 1,80,75,61,463. The assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his date only will be taken into account for indexation. Further under s. 55(2) 'cost of improvement' is defined, where it is stated as under: ...... but does not include any expenditure which is deductible in computing the income chargeable under the head 'Interest on securities', 'Income from house property', 'Profits and gains of business or profession' or 'Income from other sources' and the expression 'improvement' shall be construed accordingly." 6. On the basis of the circular, the AO had held that the interest on borrowing cannot be added to the cost of acquisition of shares. The AO also held that interest expenses being business expenditure cannot be treated as cost of acquisition or cost of improvement of shares. Aggrieved, the assessee went on appeal before the learned CIT(A). CIT(A) allowed the appeal of the assessee. Hence the Revenue is in appeal before us. 7. Learned Departmental Representative relied on the orders of the AO. He contended that the interest liability has accrued subsequent to the date of acquisition of asset and hence the same cannot be considered as forming part of the cost of acquisition of the asset. He submitted that as per the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mortgage interest paid till the date of sale. In coming to this conclusion the Madras High Court has followed the decision of the apex Court in Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC). Even though the decision of the Madras High Court was rendered in the context of the acquisition of land, the ratio applies equally to acquisition of any capital asset, including the shares. In the instant case the AO has treated the purchase of shares as a capital asset and has assessed the gains on transfer as long-term capital gains. Hence the Authorised Representative submitted that the decision of the Madras High Court is squarely applicable to the facts of the case. 11. The Authorised Representative also relied on the decision of Karnataka High Court in the case of CIT vs. Maithreyi Pai (1984) 43 CTR (Kar) 88 : (1985) 152 ITR 247 (Kar). In that case, the assessee had borrowed loans for investment in shares and the assessee claimed the interest payable on the borrowings for acquisition of shares as part of cost of acquisition of shares. The Karnataka High Court has held that as claim of interest has not been allowed under s. 57 the interest paid on borrowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to pay interest for the borrowed fund and secure the borrowing by creating a mortgage. Such a mortgage could not have been created earlier as he had to first acquire title before encumbering the same. Payment of consideration for the sale having been made with the borrowed funds, the borrowing directly related to the acquisition and the interest paid thereon would form part of the cost of acquisition. Respectfully following the aforesaid decision, we reject the contention of the learned Departmental Representative who supported the findings of the learned CIT(A) for this issue and accordingly, we decide this issue in favour of the assessee and against the Revenue by holding that interest paid for acquisition of shares would partake character of cost of share and therefore the same was rightly capitalized along with the cost of acquisition of shares. It is not denied before us that the assessee has borrowed money for the acquisition of shares in their own name and therefore, the interest payable thereon should be added to the cost of acquisition of shares. This ground raised by the assessee is therefore allowed." 14. Respectfully following the above decision, this ground o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on transfer of shares. But the AO held that the payment under non-compete fee agreement is not the cost of shares and it is an arrangement only to prevent the promoters from engaging themselves in the cement industry line in competition with SVCL and disallowed the same. Aggrieved the assessee went on appeal before the learned CIT(A). CIT(A) upheld the action of the AO and concluded that the non-compete fees paid to the promoters cannot form part of the acquisition of shares. Aggrieved by the order of the learned CIT(A), the assessee is now in appeal before us. 21. Learned Authorised Representative submitted that the equity shares of SVCL were acquired by the assessee through a negotiated deal from its co-promoters group comprising mainly of Late Dr. B.V. Raju. Mr. K.V.V. Raju and Mr. Ravinder Varma, their investment companies and their family members. He submitted that since Dr. Raju was an influential person and had strong hold in the cement industry, the assessee taking cognizance of the cement market conditions thought it fit that any capacity addition by Dr. Raju or his family member would have a direct impact on the future operations of SVCL and hence decided to restrain Dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended to indulge in a trading activity, and from the mere fact that the assessee converted the property into small house sites and after leaving space for roads, sold the rest of the plots, it could not be inferred that the assessee even at the time of purchase of the property had the idea of indulging in an adventure in the nature of a trade to make maximum profit. The Tribunal was, accordingly, right in its view that the profit arising out of the sale could be brought to tax only as capital gains. (ii) CIT vs. A. Venkataraman Ors. (1982) 28 CTR (Mad) 329 : (1982) 137 ITR 846 (Mad) wherein it was held "that as, under the agreement, the assessees had to give vacant possession, the payment made to the tenants to obtain vacant possession was an expenditure incurred wholly and exclusively in connection with the agreement of sale which preceded the transfer and in fulfilment of a condition of sale. The amount paid was, therefore deductible as an expenditure under s. 48(i)". (iii) CIT vs. K. Raffiuddin (2000) 161 CTR (Mad) 351 : (2000) 242 ITR 57 (Mad) wherein it is held that the assessee was entitled to deduction from the sale consideration received in respect of the sale of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... routine commercial transaction and the concept of non-receipt of non-compete fees by all erstwhile shareholders is irrational and illogical and impracticable. The entering of non-compete fee agreement with all shareholders is impossible. The entering of non-compete fee agreement is to be looked from the point of view of businessman and their commercial expediency. Once it is established that there was nexus between the expenditure incurred on account of non-compete fee and the acquisition of shares which need not be the direct, the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of board of directors and assume the role to decide whether the non-compete is warranted having regard to the circumstances of the case. No businessman can be compelled to maximize profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. the expression 'commercial expediency' is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposed order of my learned Brother, AM, in these appeals. In respect of the conclusion and finding of my learned Brother on the issues in Revenue's appeal being ITA No. 2609/Mad/2005, I agree with the same. But, in respect of the finding and conclusions of my learned Brother in the assessee's appeal being ITA No. 2228/Mad/2005, in spite of my best efforts and great persuasion to myself, I am unable to agree with the same as arrived at by him. The reasons for my dissent with the finding and conclusions of my learned Brother are as under: 2. At the cost of repetition, I am summarizing the facts relating to the issue on which I have a different view. The assessee is an investment company which acquired 1,30,94,260 shares of Sri Vishnu Cement Ltd. (in short SVCL) at Rs. 77.39 per share as part of agreement to take over of Raasi Cements Ltd. (RCL in short) and their associate company by purchase agreement dt. 27th Oct., 1999. The assessee has purchased 1,30,94,260 shares in SVCL during 1999-2000 and 2000-01 and sold the shares during the previous year relevant to the asst. yr. 2002-03. The shares were purchased from the promoters and also from the public and others at the price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreements. Now, RCL is a division of ICL and is manufacturing cement. As far as the assessee company is concerned, it is only an investment company. While computing the long-term capital gain, the assessee company included the payment made to the three promoters as a consideration towards the non-compete agreements as a cost of acquisition for the purpose of s. 48. The AO was of opinion that there was no direct benefit to the assessee company as it was only an investment company and not engaged in the manufacturing of cement. Moreover, the holding company ICL is the major beneficiary due to the said agreements and RCL which is the cement division of ICL is also benefited out of such non-compete agreements and not the assessee. In the further opinion of the AO, except the three promoters who are claimed to be the core promoters, other shareholders were not paid any extra consideration for the transfer of the shares. In sum and substance, in the opinion of the AO the non-compete fee paid by the assessee was in fact in the interest of ICL and it has no nexus with the cost of acquisition of the shares and hence it cannot be taken into consideration for working out the long-term c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is an investment company and ICL has not acquired any shares from SVCL in this share purchase deal. So, it is not correct to connect the payment of non-compete fee to that of ICL as ICL was already having substantial equity shares in SVCL. It is argued that the assessee made the investment in the shares of SVCL as a strategic investor and to safeguard the said investment being a long-term investor, the non-compete agreements were entered into with the core promoters of SVCL. 7. The learned counsel further argued that it is not necessary that "cost" should be interpreted as price paid and what is required under s. 55(2) of the Act is that the cost should have some nexus for acquiring the asset in question. The learned counsel also argued that if a comparison is made in respect of the price paid to those core promoters for acquiring the shares and the shares acquired from others by public offer, the total price of the shares paid to the core promoters and their family members will be at par only if the consideration paid on account of non-compete fee is included in the sale price. The sum and substance of the submissions of the learned counsel is that rate per share computed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative referred to s. 48 as well as s. 55(2) of the Act and submitted that it will be doing violence to the intention of legislature if unintended interpretation is given. The learned Departmental Representative supported the orders of the AO as well as CIT(A). 9. Now, on these rival submissions of both the parties and in the light of the facts before me. I have to consider the claim of the assessee that the payment of non-compete fees to the three promoters of SVCL whether is having direct nexus with the cost of acquisition of the shares in SVCL and hence the same should be treated as cost of acquisition for the purpose of s. 48 for computing the long-term capital gain/loss. Before proceeding to my conclusion and reasoning. I would like to refer to the reasoning given by my learned Brother AM on this issue. 10. The summary of the reasoning of the learned Brother for coming to the conclusion that payment of non-compete fee by the assessee to the three promoters of SVCL is part of the cost of acquisition of shares is as under: (i) In the modern era, the requirements of business and industries have increased, the merger and acquisition and payment of non-compete fee have bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compete fees. (iv) The shares purchased by Zuari Ltd. (Birla Group) which is having the name in the corporate world having good equity base as well as good market infrastructure. (v) ICL which is flagship company in the cement industry was having the participation in the equity as well as in the management of SVCL as ICL is one of the renowned corporate entity in the cement industry and that is also one of the prime considerations for the next buyer of the shares from the assessee company. 12. In this case, it is not disputed that the transaction between the assessee and Zuari Ltd. in respect of the sale of the shares of SVCL is subjected to capital gain tax. Sec. 45 of the IT Act is in the nature of charging section which provides that any profit or gain arising from the transfer of any capital asset as a chargeable capital gain under the IT Act. Sec. 48 of the IT Act reads as under: "48. The income chargeable under the head 'Capital gains' shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely: (i) expenditure incurred wholly and exclusively in connectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectively assigned to them in s. 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973); (ii) the conversion of Indian currency into foreign currency and the reconversion of foreign currency into Indian currency shall be at the rate of exchange prescribed in this behalf; (iii) "indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April. 1981, whichever is later; (iv) "indexed cost of any improvement" means an amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place; (v) "Cost Inflation Index", in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five per cent of average rise in the consumer price index for urban non-manual employees for the immediately preceding previous year to such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17(iiia) in relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee; and (iv) in relation to any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the aggregate of the amount of the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution, as the case may be, for acquiring such financial asset; (ab) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised stock exchange in India under a scheme for demutualisation or corporatisation approved by the Securities and Exchange Board of India established under s. 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange: Provided that the cost of a capital asset, being trading or clearing rights of the recognised stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no clear definition in the Act in respect of what constitutes "cost of acquisition", then it is to be decided on the accepted commercial principles. There is no quarrel that the term "cost" is wider than the term "price", but at the same time, the term "cost" should not be misunderstood to cover each and every expenditure which have otherwise no nexus or any role for acquiring the right or title in an asset. 16. In this case, ICL is the holding company of the assessee. As per the facts available on record SVCL was promoted by RCL, a listed company engaged in the manufacture of cement by holding about 39 per cent of the equity in SVCL. Subsequently, RCL was taken over by ICL and there was a war of litigation between the erstwhile promoters of RCL and ICL. Finally, the erstwhile promoters of RCL had negotiations with ICL and there was out of Court settlement and the shares of SVCL were transferred to ICL which was 39 per cent of the total equity holding by ICL as its holding in SVCL, After acquiring 39 per cent of the shares in SVCL, ICL began the process of acquiring the balance shares from the promoters in SVCL and the assessee which is the subsidiary of ICL held negotiations w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is seen that late Dr. B.V. Raju was holding only 200 shares though it was claimed that he was the promoter of SVCL. The other two persons namely, Mr. K.V.V. Raju was holding 10,000 shares and Mr. Ravinder Varma was holding 40,000 shares out of the total shares claimed to be purchased from the promoters of 1,16,34,900 shares. Whether non-compete agreement is entered into with Dr. B.V. Raju or not is totally irrelevant consideration and having no nexus with the acquisition process of the shares of SVCL. In my opinion, the AO is right in holding that non-compete fee paid in the interest of holding company i.e., ICL and has no nexus direct or indirect with acquiring the shares in SVCL as a part of its cost. 19. Now, I may refer to the precedents relied on by the learned counsel. In the case of A. Mohammed Mohideen, the assessee purchased a property consisting of 22 grounds and 222 sq. ft. with a dilapidated building in 1963. He advertised for the sale of the property or for giving it on lease. As there were no bidders for the property, the assessee plotted out the land and sold it in small house plots. The ITO held that the assessee's conduct of demolishing the building, converting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal, it was found that the sale of the cinema theatre includes the goodwill also and the Tribunal held that the sale transaction of the cinema theatre will not attract only profit under s. 41(2) of the Act but also capital gain charge and as assessee has not received any amount towards the cost of goodwill, there was a loss of capital gain to the assessee and, therefore, the assessee was entitled to deduction. Approving the finding of the Tribunal, their Lordships held that the Tribunal has rightly come to the conclusion that the assessee is entitled to deduction from the sale consideration received in respect of the sale of cinema theatre in respect of the cost of goodwill paid by him at the time of its acquisition. 22. In the case of Venkatesh Ors., the assessee and other family members of one C.R. Rajendran were holding the shares in two companies and they agreed to sell the same to one Shri G and agreement was entered into on 6th July, 1981. The rates of the shares to be sold were fixed as Rs. 601 per share in the case of shares of Anglo French Textiles Ltd. and shares of Best and Co. (Pondicherry) were fixed at Rs. 935 per share. When the shares were sold, the value of tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right in holding that non-compete fees paid to the promoters cannot form part of cost of acquisition of the shares. Accordingly, ground Nos. 2 and 3 taken by the assessee are dismissed. 26. In the result. Revenue's appeal being ITA No. 2603/Mad/2005 is partly allowed for statistical purposes and assessee's appeal being ITA No. 2228/Mad/2005 is dismissed. REFERENCE UNDER S. 255(4) OF THE IT ACT, 1961 15th Oct., 2007 As there is a difference of opinion between the AM and the JM, the matter is being referred to the Hon'ble President. Tribunal with a request that the following question may be referred to a Third Member: "Whether, on the facts and in the circumstances of the case, the non-compete fee of Rs. 24,24,50,000 paid by the assessee company to the three promoters of Sri Vishnu Cement Ltd. is part of the cost of acquisition of shares of Sri Vishnu Cement Ltd. within the meaning of s. 48 r/w s. 55(2) of the IT Act for the purpose of computing the long-term capital gain?" VIMAL GANDHI, PRESIDENT (AS THIRD MEMBER): 21st Jan., 2009 On account of difference between Members of Tribunal, 'A' Bench, Chennai, the following question has been referred to me under s. 255(4)of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal before the learned CIT(A) and contentions advanced before the AO were reiterated. It was claimed that the appellant had acquired substantial interest in SVCL in order to safeguard its interest and to enhance the value of shares. The assessee had asked the promoters, who were the leaders in this field, not to undertake any competing business. Such competition would have adversely affected the business of SVCL and thus the value of shares. It was contended that value of shares, in fact, got increased on account of promoters agreeing not to start competing business. The non-compete fees was only for preservation of value of shares. Therefore, it was claimed that it was part of acquisition of shares. The learned CIT(A) also noted assessee's submission as, "therefore applying the same ratio, any payment made for safeguarding or improving the value of shares would also constitute part of acquisition of shares". 4.The learned CIT(A) did not find any force in the contention advanced on behalf of the appellant. He observed that non-compete payment to promoter will help business of SVCL, but can have only indirect effect on the value of shares. The payment of non-compete fees could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, according to learned AM, the document (non-compete fee agreement) reflected real intention of the parties. The learned AM found that assessee had purchased shares from general public @ Rs. 98.25 per share against average cost of Rs. 97 per share from the promoters. These facts, according to learned AM, have been noted by SEBI while fixing the cost of acquisition of shares. The learned AM also accepted assessee's claim that it had made investment in shares as a strategic investor to safeguard its position as long-term investor to ensure and protect the interest of the company. The non-compete agreement was entered for a genuine business consideration and as part of overall negotiation of acquisition of shares and, therefore, it was part of acquisition of shares. On account of non-compete agreement, the assessee was able to exercise control over the promoters in restricting the starting of business of similar nature which they had sold to the assessee. The non-compete agreement was entered into with promoter on account of commercial expediency. Accordingly, the learned AM allowed this ground of appeal taken by the assessee. 7. The learned JM did not agree with the view taken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is not of much concern. Though it is tried to be argued that it is an independent business transaction of the assessee as an investment company and ICL has nothing to do with the said transaction, but in the background of the above facts that ICL is a holding company of the assessee and for ICL only assessee was involved in acquiring the shares of SVCL through its promoters and from the public. It is also pertinent to take note of the fact that major portion of finance for acquiring the shares of SVCL is made by ICL to which admittedly, the assessee company has paid interest and it has been claimed as the "cost of acquisition" which is also allowed as in this case the profit or gain arose on the sale of shares is taxed under the head 'Capital gain'. 18. Now, in support of entering into a non-compete restrictive covenant with Dr. B.V. Raju, Mr. K.V.V. Raju and Mr. Ravinder Varma, it is claimed that if Dr. B.V. Raju would have entered into cement industry/trade that would have a direct and serious impact on the operations of SVCL. In my opinion, such contention of the assessee is totally baseless considering the fact that ICL, the holding company of the assessee has indirectly ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to purchase a company, develop its business and then sell at profit. When a company doing good business is taken over, the promoters are inclined to set up similar competing business. To prevent this, non-competing agreements are necessary. In the present case also, it was bona fidely believed that business of the SVCL would be harmed if promoters would set up a new company to manufacture cement and, therefore, agreements in question were entered and amount of Rs. 24 crores were paid to the promoters as non-compete fees. It was submitted that ICL no doubt is a big name in cement industry and so is Zuari Ltd., but that is not material as big concerns also have to pay similar non-competing fees. The learned counsel cited cases of ICI India, Eicher Ltd. etc. The non-competing fees was paid to improve business of SVCL and ultimately the value of the shares. It is clear from facts that value of the shares improved and admittedly assessee made profit on sale of SVCL's shares. Thus payment of non-competing fee was a commercial transaction. The learned counsel referred to decision in the case of Mathurdas Mangaldas Parekh vs. CIT (1980) 18 CTR (Guj) 390 : (1980) 126 ITR 669 (Guj). The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itive agreement were also transferred to purchasers. However, learned counsel for the assessee in these proceedings has fairly conceded that those rights were not transferred. The learned Departmental Representative further pointed out that three promoters to whom amount in dispute was paid had only 50,200 shares out of total holding of 1,16,34,900 shares of SVCL. Thus holding of three persons was merely 0.45 per cent of total holding. Nothing was paid to 99.5 per cent shareholders. Acquisition of non-competing right was for some other purpose like protecting the interest of assessee's holding company ICL which is in cement business. Even otherwise agreement of non-competing only clogged the right of three individuals to carry on similar trade or business. It was not part of acquisition of shares. If it was then transfer of such right to the purchaser Zuari Ltd. was essential. But Zuari Ltd. showed no interest in such non-compete right nor acquired the same. It is possible that the assessee might have desire to earn more profit and more dividend from SVCL by paying non-compete fees, but it could not be said to be part of cost of acquisition of shares. Shares of a limited company ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case, is required to be examined. Otherwise too, both the par lies made detailed submission whether the amount of Rs 24,24,50,000 paid by the assessee was a permissible deduction under s. 48 r/w s. 55 while computing the capital gain. I, therefore, proceed to consider the question on the facts and circumstances of the case. 13. At the very outset, I may state that learned AM has recorded that payment of non-compete fees was made as a measure of "business expediency" and as part of investment strategy to improve control over the promoters in restricting the starting of business of similar nature. As payment was part of overall negotiation of acquisition of shares, it is to be considered as part of acquisition of shares. On facts, he has drawn an inference that non-competing fee was part of "cost of shares". The learned counsel for the assessee has supported proposed order of the learned AM. 14. The learned JM, on the other hand, has recorded facts of the case in detail, particularly the detail of share holding of promoters and others including ICL. He recorded a specific finding how ICL had started war of litigation and how negotiation was carried by it to acquire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is shown to be incurred by an assessee for the purposes of its business, then the same cannot be disallowed merely because some incidental benefit has been derived by a third party. But that is not the case here. On facts the expenditure is clearly incurred for the direct benefit of ICL or those enterprises who are in the business of manufacture of cement, which is not the business of the assessee. So the direct benefit, if any, is derived by ICL or its cement divisions. There may be some incidental benefit to the assessee. Therefore, the cited cases do not help the assessee in any manner. 15.1 The contention of the assessee that non-competing fees was paid as a measure of strategy investment and to improve the value of the shares of SVCL, and therefore, the payment should be allowed as an element of commercial expediency towards the cost of acquisition of shares. This claim found favour in the proposed order of the learned AM. However, in my view, the contention is devoid of any substance. There is distinction between company and its business on one hand, and share and shareholder of such company, on the other. It may be possible for the assessee company to claim that payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 The first case is CIT vs. Eicher Ltd. (2008) 218 CTR (Del) 612 : (2008) 302 ITR 249 (Del) wherein their Lordship of Delhi High Court treated "non-compete fees" as revenue expenditure and as a permissible deduction while computing business income. The ruling in my view goes against the assessee. If non-compete fees is a revenue expenditure then it cannot be allowed as a deduction in computing capital gains as provided in sub-s. (2) of s. 55. The said sub-section provides that cost of any improvement, does not include any expenditure which is deductible in computing income chargeable under the head "Profits and gains of business or profession". In the cited case, deduction was held to be permissible under the head "Profits and gains of business". Decided case, therefore, goes against the claim of the assessee. 16.2 The second case relied upon is that of Asstt. CIT vs. Real Image Tech. (P) Ltd. (2008) 14 DTR (Chennai)(Trib) 138 in which only question raised was whether non-compete right was entitled to depreciation as this right was subject to wear and tear. The view taken by the Tribunal in this case is directly opposed to the view taken by Delhi High Court in the case cited abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into existence by the mare. The maintenance or upkeep expenses of the mare was really intended to bring into being the off spring in the shape of colt and filly, and, in that sense, could be legitimately regarded as cost incurred by the assessee in the acquisition of the colt and the filly." The amount claimed was accordingly allowed. Likewise expenses incurred by the assessee on training fees of the animal was, held to constitute cost of improvement falling under s. 48(ii). The case, as is noted above, is going on its own facts. There is no parallel with facts of the present case. It cannot be taken as an authority for holding that expenditure incurred by the company for improving its business can be taken as cost of "acquisition" or "improvement" of shares of the company. Therefore, this decision is of no help to the assessee. 17. In the light of above discussion, I see no reason to allow deduction of Rs. 24,24,50,000 paid as non-competing fees towards cost of acquisition of shares or towards cost of improvement of shares and as a permissible deduction for computing capital gain arising on sale of shares. The payment in question has no nexus with the shares and can by no stret ..... X X X X Extracts X X X X X X X X Extracts X X X X
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