TMI Blog2013 (9) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... ed functions. The Assessing Officer held that the expenditure was for smooth running of the assessee and was allowable as revenue expenditure but since benefit was for three years, he allowed expenditure on pro rata basis only for one year. - There is no provision in the Income-tax Act for amortisation of such expenditure. Therefore, once the expenditure has been found allowable as revenue expenditure, the same has to be allowed in full - Decided in favour of assessee. Disallowance of service tax - Section 43B - Held that:- the same issue has already been considered by the Mumbai Bench of the Tribunal in case of Pharma Search [2012 (5) TMI 90 - ITAT MUMBAI] - as per service tax law, service tax is payable as and when the payment/fees for underlying services provided are realised. Therefore, if for any reason the payment for service rendered is not realised, there is no liability as to payment of service tax. - As the assessee had not realised any payment for services during the relevant year, it had no liability to pay service tax and once there was no liability for payment of service tax, the provision of section 43B were not applicable as the said provisions can be applied onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te fee in case the same is held to be capital in nature. We first take up the dispute relating to non-compete fee on which both parties are in appeal. The facts in brief are that the assessee-company was incorporated during the year on October 11, 2000, for providing corporate advisory services and merchant banking services. The assessee during the year entered into a transfer of business agreement dated December 7, 2000, with Ind Global Financial Trust Ltd. for transfer of their merchant banking business to the assessee. Shri R. Shankaran, managing director of Ind Global Financial Trust Ltd. and also a shareholder of the said company was also a party to the said agreement along with Arthur Anderson and Associates (AA) who was to be made a shareholder of the assessee-company as desired by the transferor. In terms of transfer of business agreement, the assessee had paid a sum of ₹ 70 lakhs to Shri R. Shankaran and Rs. one crore to Ind Global Financial Trust Ltd. as non-compete fee. The non-compete fee had been paid for restricting the above two parties from undertaking the following activities for a period of 36 months. (i) Carrying out business similar to that of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the advantage was in the capital field or in the commercial sense. In case, the advantage only facilitated the assessee's trading operations and enabled the management in the conduct of the business more efficiently and properly, the expenditure has to be considered as revenue expenditure. It was pointed out that, in this case, no new asset was created nor was there any expansion of profit making apparatus. It was also pointed out that removal of competition only facilitated the assessee's business operations leaving the fixed capital untouched and therefore the expenditure should be treated as revenue expenditure. Reliance was placed on the decision of the Mumbai Bench of the Tribunal in Joint CIT v. Synergy Credit Corpn. Ltd.[2006] 9 SOT 75 (Mum) in which the Tribunal held that the assessee had no advantage in the capital field even though the restrictive covenant in that case was for a period of 5 years. Similarly, it was pointed out that the Tribunal in the case of Smartchem Technologies Ltd. v. ITO [2005] 97 TTJ (Ahd) 818 have held that non-compete fee was for business expediency and, therefore, the expenditure incurred was of a revenue nature. The assessee also s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of the assessee. It was also pointed out that non-compete clause was applicable for a period of 5 years in the case of Tecumseh India Private Ltd. whereas in the case of the assessee it was only for a period of three years. It was also submitted that one time payment or enduring benefit were not conclusive tests to decide the true nature of expenditure as held by the hon'ble Supreme Court in the case of Empire Jute Co. Ltd. [1980] 124 ITR 1 (SC). It is required to be seen whether the advantage to the assessee was in the field of revenue or capital field. In the present case, there was no advantage to the assessee in the capital field and, therefore, the expenditure has to be considered as revenue in nature. Alternatively, it was also submitted that in case the payment was treated as capital in nature, depreciation should be allowed to the assessee. Reliance for the said proposition was placed on the decision of the Chennai Bench of the Tribunal in the case of Asst. CIT v. Real Image Tech P. Ltd. [2009] 120 TTJ (Chennai) 983 and the decision of the Mumbai Bench of the Tribunal in case of Schott Glass India P. Ltd. in I.T. A. No. 1698/M/2003 dated September 7, 2011 in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting up of new business in India. Though the non-compete agreement had been executed subsequent to the main agreement, non-compete agreement was appended to main agreement itself. The Special Bench held that the expenditure incurred as part of initial outlay for setting up of new business has to be considered as capital expenditure. The Special Bench further held that the expenditure was capital in nature on the additional ground that the same was incurred to ward off competition in the business. The Special Bench referred to the judgment of the hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC) in which the hon'ble Supreme Court observed that by incurring expenditure on account of non-compete fee, the assessee had acquired the capital asset which was the right to carryout business unfettered from any competition from outsiders. The protection acquired by the assessee was for the business as a whole. The hon'ble Supreme Court further observed that it was not part of the working of the business but went on to appreciate the whole of capital asset and make it more profit yielding. Accordingly, the expenditure was held as capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd., and, therefore, on that ground also it has to be treated as capital in nature. Therefore, we hold that expenditure has to be disallowed as capital expenditure. We, accordingly set aside the order of the Commissioner of Income-tax (Appeals) and confirm the addition made by the Assessing Officer. The assessee has raised an additional ground that in case expenditure is treated as capital in nature, the assessee will be entitled for depreciation treating the same as intangible asset. We find that this issue has already been considered by the Chennai Bench of the Tribunal in case of Asst. CIT v. Real Image Tech P. Ltd. [2009] 120 TTJ (Chennai) 983, in which the Tribunal observed that by obtaining non-compete right on payment of noncompete fee, the assessee can run his business without bothering about competition and, therefore, non-compete right was an intangible asset falling in the category of any other business or commercial right under section 32(1)(ii). The same decision has been followed by the Mumbai Bench of the Tribunal in the case of Scott Glass India Tech. P. Ltd. v. Deputy CIT. Respectfully fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and was allowable as revenue expenditure but since benefit was for three years, he allowed expenditure on pro rata basis only for one year. The Commissioner of Income-tax (Appeals) has agreed with the submission of the assessee that once the amount has been found allowable as revenue expenditure, the same has to be allowed in full irrespective of the period for which the benefit had accrued to the assessee. On careful consideration, we see no infirmity in the order of the Commissioner of Income-tax (Appeals). There is no provision in the Income-tax Act for amortisation of such expenditure. Therefore, once the expenditure has been found allowable as revenue expenditure, the same has to be allowed in full. We accordingly confirm the order of the Commissioner of Income-tax (Appeals) allowing the claim. The third dispute which is relevant only to the appeal of the assessee is regarding addition of ₹ 2,25,000 on account of service tax charged by the assessee from the customer. The assessee had not credited the service tax charged from the customers in the profit and loss account and had also not claimed any expenditure on this account. The Assessing Officer held that servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be allowed only on payment basis under section 43B of the Act. We find that the same issue has already been considered by the Mumbai Bench of the Tribunal in case of Pharma Search. The Tribunal in that case noted that as per service tax law, service tax is payable as and when the payment/fees for underlying services provided are realised. Therefore, if for any reason the payment for service rendered is not realised, there is no liability as to payment of service tax. The Tribunal, therefore, concluded that service tax laws stand on a different footing from other laws such as sales tax, central excise, etc. As the assessee had not realised any payment for services during the relevant year, it had no liability to pay service tax and once there was no liability for payment of service tax, the provision of section 43B were not applicable as the said provisions can be applied only if any liability has been incurred on account of service tax during the year. The addition made was, therefore, deleted. No distinguishing features have been brought to our notice by the authorised representative. We, therefore, set aside the order of the Commissioner of Income-tax (Appeals) and allow the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 421 (Delhi) (I. T.A. No. 315/2010 dated March 30, 2010) ; (ii) The decision of the Tribunal in case of American Express Services India Ltd. (I. T. A. No. 4106/M/2007 dated February 3, 2012) ; (iii) The judgment of the hon'ble High Court of Kerala in the case of B. Raveendran Pillai v. CIT [2011] 332 ITR 531 (Ker) ; (iv) The decision of the Tribunal in the case of Kotak Forex Brokerage Ltd. v. Asst. CIT [2009] 33 SOT 237 (Mum) ; (v) The decision of the Tribunal in the case of KEC International Ltd. v. Addl. CIT [2010] 41 SOT 43 (Mum) ; and (vi) Decision in the case of Hindustan Coca Cola Beverages P. Ltd. v. Deputy CIT [2009] 34 SOT 171 (Delhi). The authorised representative also referred to the following decisions in support of the plea that in case the know-how is not held as intangible expenditure, the should be allowed as revenue expenditure. (i) The judgment of the hon'ble High Court of Delhi in the case of CIT v. Denso India P. Ltd. [2012] 344 ITR 566 (Delhi) (I. T. A. No. 16 of 2008 dated October 8, 2010), and (ii) The judgment of the hon'ble High Court of Bombay in the case of Gannon Norton Metal Diamond Dies Ltd. v. CIT [1987] 163 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working of a mine, oil well or other sources of mineral deposits. There is nothing produced before us to show that the transferor had transferred any industrial information or technique developed by it which could assist in the manufacture or processing of goods. Moreover, the transferor was in the business of merchant banking which does not require any industrial information or technique useful in manufacture or processing of goods. The Commissioner of Income-tax (Appeals) has mentioned that the assessee during the proceedings before him had filed business know-how manual relating to merchant banking which was claimed to be know-how on which depreciation should be allowable. The Commissioner of Income-tax (Appeals) has given a finding that manual contained only facts of regulations and procedures which are otherwise available in the market in the form of books and manual contained nothing other than what is available to anyone dealing in the line of merchant banking. He has, therefore, not considered the manual as knowhow. We do not see any infirmity in the conclusion drawn by the Commissioner of Income-tax (Appeals). It has not been explained before us as to why the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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