TMI Blog2001 (8) TMI 1392X X X X Extracts X X X X X X X X Extracts X X X X ..... 00,000 under s. 35AB. 3. The authorised representative in support of the additional grounds submitted that admission of these grounds does not involve any fresh investigation into the facts as all the facts relating to this claim are already on record. Further, the necessity for filing additional grounds was to correctly quantify the liability on account of the guarantee obligation. Originally, a claim of ₹ 238.08 lacs was made on payment basis, whereas actual liability on accrual basis was ₹ 479.97 lacs. Hence, the additional claim of ₹ 241.89 lacs. Similarly, on the second issue, though the appellant incurred a sum of ₹ 185 lacs for obtaining the use of the technical information, the appellant had erroneously claimed only 1/6th of this expenditure, i.e., ₹ 30.83 lacs under the belief that the said expenditure would attract the provisions of s. 35AB. The additional ground on this issue was to rationalise the claim as per the law. In support, the authorised representative relied on the decision of the Supreme Court in the case of National Thermal Power Corporation vs. CIT (1999) 157 CTR (SC) 249: (1998) 229 ITR 383(SC) and the decision of the juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of critical proprietary equipment to the project. The agreement signed in February, 1989, was effective form 27th Dec., 1989. The project cost was estimated at ₹ 394 crores. The financial arrangements were planned on that basis. The project was hit severely by non-availability of foreign currency. This resulted in withdrawal of financial facilities for the project by various banking institutions and ultimately it fell on the shoulders of UB group to pursue the project single-handedly. The Swiss company which did not get paid for its various services invoked the bank guarantee for the final payment. Simultaneously, the economic liberalisation that brought in globalization of companies had the effect of bringing down the import duties on various products substantially and this is how the butyl rubber project became an unviable one. It is the case of appellant that there was a delay in the start up of project of UBEL due to various economic factors like the Kuwait war leading to an oil crisis, the free flotation of rupee and consequential reduction in value, precarious foreign exchange reserve, etc. These factors led to a substantial increase in funding requirements of the proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not explained properly with evidence though the appellant contends that it is a co-promoter of the project of UBEL. (iv) Since no commission has been charged for giving the guarantee, the transaction does not amount to a valid contract between the appellant and the bank and hence no expenditure can be allowed. (v) The guarantee is given not in the course of business of the appellant as the businesses of the appellant and UBEL are different. Appellant is engaged in liquor business, whereas UBEL, though envisaged to carry on a butyl rubber business, no business was actually commenced as the project itself was shelved due to non-viability. (vi) The appellant does not carry on the business of giving guarantees as the volume of 8 guarantees outstanding during the year is not sufficient to categorise the activity as business. (vii) The transaction has a character of investment. Hence, the expenditure is a capital loss. (viii) The expenditure is not incurred wholly and exclusively for the purposes of the business of the appellant. (ix) There were discrepancies in passing necessary resolutions before provisioning of the guarantee. 11. The claim of the appellant was dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying on business of advancing moneys, etc. The entire income has been computed under the head Income from business even by the AO. Similar treatment was also given in the earlier years. This goes to establish that appellant is carrying on business of advancing moneys and providing guarantees. 12.4 Clause (n) of the memorandum of association clearly authorises the appellant to give guarantees in favour of customers and others. Since the appellant is, inter alia, in money lending business, a person who intends to seek financial assistance from the appellant would fall within the scope of the word customer of the appellant. In any case the presence of the word others will definitely bring within its fold the transaction with UBEL. It is submitted that memorandum of association should be broadly interpreted in an inclusive sense and not in a narrow sense. In reply, it was submitted that the principle of ejusdem generis is not applicable as there is no ambiguity in the interpretation. In support, the commentary by Justice G.P. Singh in his book Principle of Statutory Interpretations 7th Edn., Reprint 2000, Page, para C was relied on. 12.5 The appellant was a co-promoter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarantor and the guarantee should be similar. He further submitted that normally the business of guarantor and the business of the guarantee will be different and in support cited the example of a bank furnishing guarantee to a steel company and in such cases, it is incorrect to say that the transaction is not valid merely on the ground that the bank is not carrying on Steel business. 12.10 It was submitted that the decisions relied on by the AO an CIT(A) are not relevant and, in any case, all those decisions were already considered by the Tribunal, Bangalore Bench. Hence, those decisions would not be of any help to the Department. 12.11 The appellant follows mercantile system of accounting and, accordingly, all liabilities and outgoings should be accounted on accrual basis. However, the liability on account of guarantee obligation was accounted on payment basis. To bring about its claim in line with the method of accounting followed, additional ground was taken. The assessment order also gives the finding that the appellant is following mercantile system of accounting. It was submitted that no entry in the books of account does not militate against the assessee and in supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation of the company to call itself as a promoter. Further, the learned Departmental Representative submitted that mere claim for guarantee cannot be treated as an allowable expenditure unless the reason behind furnishing of such guarantee is gone through and established that it was for business purpose. In support, he relied on the decision in CIT vs. Birla Bros. (P) Ltd. (1970) 77 ITR 751(SC). In CIT vs. L.N. Dalmiya (1994) 207 ITR 89(Cal) and in Mining Machinery Explosive (P) Ltd. vs. CIT (1993) 202 ITR 710(Cal). The learned Departmental Representative contended that furnishing of 8 guarantees over a period of time would not bring about sufficient volume and regularity so as to construe the activity as carrying on a business. He further submitted that the decision of Bangalore Bench in the case of United Breweries Limited (supra) would not be applicable as in that case there was actual carrying on of business and this fact is peculiar only to that case and is absent in appellant's case. Further, the memorandum of association of UB Ltd., authorised carrying on of such business, whereas in the appellant's case no such authority can be found. 16. He also submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no need to mention even customers and others . It would have been sufficient to stop at ..... and to guarantee the debts and contracts....... . The mention of the words customers and others brings about a qualification and restriction in dealing with a category of persons. 20. In summary, the contention of the Departmental Representative was that the expenditure is capital in nature and has no connection with the business of the appellant. 21. In reply, the learned authorised representative, in addition to oral submissions, also filed elaborate counter-reply wherein the objections of the Departmental Representative were dealt with issue wise and para wise. Since the counter-reply is very elaborate and covers all objections we are not reproducing the same as it would amount to repeating many of the points already dealt hereinabove. 22. Firstly, learned authorised representative contends that the decision of the Supreme Court in Birla Bros. (P) Ltd. vs. CIT (supra) cannot be relied on as the Supreme Court in this case was handicapped by insufficient findings by the Tribunal and has clearly expressed that it was not in a position to give a clear finding in the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with. 27. Sixthly, the learned authorised representative contended that the Department has not discharged the onus to establish its contention that the expenditure is for non-business purpose. The Department does not have any evidence to show the transaction as a non-business transaction. 28. The payment to UCO Bank had to be made as the appellant was contractually bound by it and UBEL's lack of financial resources made it unable to meet the liability to the banker. 29. The learned authorised representative contended that the non-charging of guarantee commission cannot be held against the appellant as it is not essential that in every transaction profits should be earned, as long as the transaction or expenditure is for the purposes of business which is wider in connotation than for the purposes of earning profits. In support decisions in CIT vs. Malyalam Plantation Ltd. (1964) 53 ITR 140(SC) and in Shree Meenakshi Mills Ltd. vs. CIT (1967) 63 ITR 207(SC) were relied on. 30. The learned authorised representative contended that even the Department accepts that the issues and facts of the two cases of the group companies decided by the Tribunal, Bangalore Bench, are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to guarantee the debts and contracts of the customers and others. This clause clearly and unambiguously empowers the company to carry on the business of provision of loans and guarantees. 34A. Secondly, the question is what is the scope of phrase customers and others in this context. On going through the various arguments we find that there is no difficulty at all in understanding the scope of customers and others . While the word customer would include all those who are customers of the company, including the new customers and the past customers, the word others would bring within its meaning other categories, such as suppliers, bankers and others who are having dealing with the company or intend to deal with the company. It is only this construction which can give a proper meaning to the clause. There is no requirement to look into the principle of ejusdem generis as there is no ambiguity in cl. (n). If restricted meaning is given to the word others as contended by the Department, it would lead to an unnatural and incorrect interpretation as it would restrict the company from dealing with any new person or pursuing any new opportunity. The clause in the memorandum s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e next question is whether the appellant company has carried on the business of furnishing guarantee. In this regard we find that cl. (n) is part of the memorandum of association since the inception of the company in 1936. The company has carried on the activity of issuing guarantees in past so many years. We find from the records produced before us that there are several instances wherein the company has furnished guarantees. The income therefrom has been accounted for and taxed year after year. During the year itself the total guarantee obligation at the beginning of the year was ₹ 5,74,09,163 and the closing balance was ₹ 3,44,09,163. Fresh guarantees were given during the year and some were discharged and cancelled. Besides, there is also guarantee invoked by UCO Bank and Union Bank of India. From the records it is seen that similar activity of the company is carried on in the earlier years and subsequent years. Thus, there is a consistent frequency in issue and discharge of guarantees and the said activity has been carried on for a long period of time. Hence, we find that the company is in the business of furnishing guarantees. We also find that guarantees have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness has wider connotation than merely profit motive. This view finds support from the decisions of the Supreme Court in CIT vs. Malyalam Plantation Ltd. (supra) and Shree Meenakshi Mills Ltd. (supra). Further, the Madras High Court in the case of CIT vs. C.K. Narayan Rao (supra) held that there is no pre-condition for allowance of an expenditure that the outlay should have yielded any income receipts. The case law cited by the Department bring out general principles which are compatible with the findings given herein. Further, we find that the issues involved in this appeal and the issues involved in the appellant-group companies' cases, viz., McDowell Co. Ltd. and UB Ltd. decided by the Tribunal, Bangalore Bench, are exactly similar. There is no difference at all. The attempts made by the Department to distinguish these cases are superficial. In fact, that clauses in the memorandum of association of all the 3 companies, though worded differently, mean the same. The role of the 3 companies is furnishing the guarantees and the background factual position is the same. All of them have suffered uniformly and from the same cause. Hence, we hold that the issues are covered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant in this case is under s. 37, whereas the Supreme Court in the case of Birla Bros. (supra) considered the applicability of s. 10(2)(xi) and since no argument was adduced on the applicability of s. 10(2)(xv), the Supreme Court had no occasion to consider the allowability under this section. Sec. 10(2)(xv) and the present s. 37 of the IT Act is similar in provision. Hence, a decision involving the question which is neither argued nor considered can be relied on as a precedent. Further, in this case Supreme Court was also handicapped by insufficient findings by the Tribunal and the High Court. For these reasons, the decision in Birla Bros. (supra) would not support the Department's contention. 39. Regarding the discrepancy in the dates of the resolutions discussed by the CIT(A) in his reasons Nos. (x) and (xi) in page Nos. 24 and 25 of his order, it was clarified by the counsel for the appellant that CIT(A) has relied on resolution pertaining to the investment in share capital which does not deal with the issue on hand, whereas the board resolution on this issue enclosed in page Nos. 10 and 11 of the paper book are relevant. Copies of these were also available with the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation 44. The appellant claimed a sum of ₹ 6,80,83,334 as revenue expenditure in the computation of total income submitted for the purposes of income-tax. The break-up of the expenditure as provided by the appellant is as under : Rs. Lacs 1. Trade mark license fee paid 200.00 2. Towards covenants for non-competition 450.00 3. Towards license for use of technical information (1/6th of ₹ 185 lacs) 30.83 The said sum claimed by the appellant has been disallowed by the AO in entirety, whereas the CIT(A) confirmed the additions on account of item Nos. (1) and (2) and gave relief in item No. (3). Thus, the appellant is in appeal seeking relief on items (1) and (2) and the Department has filed a counter-appeal against the allowance of ₹ 30.83 lacs (Item No. 3) by CIT(A). 45. In addition, the appellant has filed additional ground seeking relief of ₹ 185 lacs spent towards licence for use of technical information. This re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant-company is in the alcohol beverages trade for more than 6 decades. It has in its portfolio, 19 brands, the details of which are furnished in p. 49 of the paper book. These brands are used to market the appellant's products in various segments. It is the case of appellant that alcohol market itself is highly competitive and is also highly regulated. There are various segments in the market such as scotch and IMFL. Even in IMFL, there are segments like super deluxe, deluxe, premium, semi-premium, regular and local. The companies involved in this business priced the product composition and packing depending on the segment in which the brand is positioned. It is alleged that positioning of the brand is the single most important factor in marketing of alcohol beverages. The company had made an attempt to develop its own brand in semi-premium segment under the brand name Herbertsons Indian Salute and had spent considerable sum and also time period of 3-5 years in developing the same. It is the case of appellant that the company could not successfully position this brand and was losing business in the segment to the competitors, whereas, the brand developed by CML under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenure of the brand, CML reserves right to and have a responsibility to monitor the quality content and market presence. It also has the responsibility to protect the brand image and also has the right to notify the user for any use, which has the prospect of damaging the brand. It is in line with this activity that CML had entered into agreement with the appellant for issuing the licence to use the branch. 52. During the course of assessment proceedings, with a view to elicit information the managing director of the appellant was summoned and a statement was recorded. The summary of the statement is that the appellant-company negotiated the consideration for these agreements and no valuation was made. Valuation is possible only in the case of old and established brands. For a brand such as Lord Master the proper method is by negotiation. The appellant had great expectation of sale out of this brand. It had projected sale of 1,00,000 cases per annum and at the rate of ₹ 7,000 per case the total sale annually would have been in excess of ₹ 70 crores with good profit margin. The licence for the brand was obtained as the brand had made strong impact in the market in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, accordingly, AO's view is that the appellant had not spent sufficient time in negotiating the price and this leads to suspicion as to the nature of transaction. Ninth point was that Lord and Master was not a great brand and sold only 11,000 cases during the period of 13 months from the date of its introduction. Tenth point was that the director who signed the agreements was not an employee of the appellant-company. 54. The AO while rejecting the claim of the appellant relied on the decision of Supreme Court in Swadeshi Cotton Mill Co. Ltd. (supra), wherein it was held that it is an erroneous proposition that as soon as assessee has established two facts, viz., the existence of an agreement between the employer and the employee and the fact of actual payment, no discretion was left to the ITO except to hold that the payment was made wholly and exclusively for the purpose of business. Although the payment might have been made and there might be an agreement in existence, it would still be open to the ITO to take into consideration all the relevant factors which will go to show whether the amount was paid as required by s. 10(2)(xi) of the 1922 Act. 55. CML has lost all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emain in full force and effect notwithstanding the expiry/termination of the said agreement by efflux of time or otherwise. Interpretation of this clause gives the position that the word expiry and efflux of time should be read together which means termination of the agreement on expiry of tenure. The word termination should be read with otherwise which clearly indicates that the agreements can be terminated even before the expiry of the tenure. If the intention of the parties is to render the agreement perpetual in nature. then nothing prevented them from mentioning so in clear terms. No effort should be made to assume something which is not apparent in the agreements. The agreements should be read in a manner in which the parties to the agreements have understood. There is no allegation by the Department that the agreements are collusive in nature. In the absence of such an allegation, there is no need to suspect and assume something which is not real. Thus, there is a total misunderstanding of the agreement inspite of its clear covenants. Further, cl. 12 of the agreement clearly provides for early termination by the appellant without assigning any reason. There is no pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tendable, the jurisdictional High Court in CIT vs. Tata Engineering Locomotive Co. (P) Ltd. (1979) 13 CTR (Bom) 209: (1980) 123 ITR 538(Bom) held : '..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'' The appellant submitted that facts in this appeal and the facts appearing in the case of Telco mentioned supra are similar and the finding of the jurisdictional High Court is binding and CIT(A) was incorrect in refusing to rely on this decision. 57.4 Trade mark has not been put to use during the year. Appellant's reply : It is true that trade-mark did not generate any sale during the year. This does not mean it was not used. It was used for launch. Further the appellant had to give certain time gap as earlier it was known as CML brand. Further, the liquor needed to mature before it is bottl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 63 ITR 57(SC) (supra) and in CIT vs. J.K. Chemicals Ltd. (supra) to hold against the appellant. Whereas (1967) 63 ITR 57(SC) (supra) far from supporting the Department, supports the appellant. The decision in CIT vs. J.K. Chemicals Ltd. (supra) is irrelevant to the facts of the appellant's case. 57.6 The expenditure incurred is unreasonable and not supported by valuation report and hence, the expenditure incurred is not wholly and exclusively for the purposes of business. Appellant's reply : The agreement entered between the parties is after nogotiation and is entered at an arm's length basis. The sum paid is as per the agreement and the same is disclosed by appellant and also CML in their respective books of accounts. The genuinity of payment and the purpose of the payment is undoubted and accepted by the Department. There is no material in the possession of the Department to suspect the contents of the agreement. Hence, Department cannot question the reasonableness or otherwise of the expenditure. Since the agreement was through negotiation and no valuation report was prepared, there is no point in insisting for valuation report. The reasonableness of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d if it is not for its business. The entire effort of the Department appears to somehow disallow the expenditure for one reason or other. By giving this finding the Department has acted in a totally partisan and unreasonable manner. 57.9 The agreement creates new source of income. Hence, the expenditure is capital in nature. Appellant's reply : The license to use the brand does not create a new source of income. The license will be used in the existing business of alcoholic spirits. Every agreement cannot create a new source of income. Hence, it is incorrect to say that the agreement creates a new source of income. 58. It was further submitted that the appellant also earns income from licensing of trade-marks owned by it. Income from this source is treated as revenue in the hands of the assessee and offered for tax consistently all these years. Such being the case, it is incorrect on the part of the Department to say that expenditure incurred for licensing of use of trade-mark as capital in nature. The Department cannot adopt contradictory and conflictive approach in dealing with this issue. While the receipt has been taxed as revenue, expenditure is disallowed as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant to suggest for non-business purpose. 61. In reply, the counsel for the appellant submitted that it is incorrect for the authorities to hold that the appellant had not furnished sufficient information. Firstly, it was wrong for the AO to insist for a valuation report when it is already made clear that no valuation was made for the purpose of fixing consideration. The entire transaction was a negotiated transaction. Secondly, the brand valuation on the basis of past sales or performance is made only in the case of long established brands with sufficient data and track record. In the case of new brands and new technology, it is the future potential which should be a guide and as the future presents uncertainty negotiated price is one of the accepted mode. In this case, complete details regarding brand are already available inasmuch as the past sale of the brand was 11,000 cases and potentiality perceived by the appellant as explained by its managing director in the statement recorded by the AO indicates to be 1,00,000 cases per annum with profit margin of ₹ 700 per case. The purpose for which the brand sought to be used has been explained. The business necessit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve rise to any contrary or conflicting view than what is expressly stated in the agreements. We do not find any support to the proposition of the Department that by reading the agreements together the subject-matter of the agreement would change from license for use to acquisition of intellectual property. Similarly, the tenure of the agreement also does not change from a specific tenure to perpetual tenure. An agreement involving a perpetual tenure should specifically state so. Drawing an inference that the agreements are perpetual would defeat the rights inter se parties. The Tribunal cannot confer a new right on any one party unless the same has been agreed to between the parties. Hence, we are not impressed with the argument of the Department that the agreements are perpetual in nature. 63.6 Sixthly, the agreements are specific in mentioning that the subject-matter is use of the brand for a specific tenure. The payment has been made in a lump-sum for the entire tenure and there is no doubt that benefits of the agreement would be enduring and would be available during the entire tenure of the agreement. This by itself has not rendered the expenditure capital in nature. The ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT vs. Kirloskar Tractors Ltd. (supra) has held on the similar facts that the expenditure is revenue in nature. In fact, the Department could not cite a single case in support of its contention that the impugned expenditure is capital in nature. The case relied on by them in (1994) 207 ITR 985(Bom) (supra) is not at all relevant as this case dealt with pre-operative expenditure in respect of a new fertilizer plant which was being set up. We are unable to understand as to how this decision could be relied on especially when decisions which are direct and relevant have been brought to the notice of AO and CIT(A). 64. Seventhly, regarding the objection of the AO that the appellant has not submitted valuation report and hence the expenditure is not supported by proper evidence, we find that such an approach is incorrect. It is a fact that appellant has not done any exercise to obtain a valuation report prior to the agreement and as such no valuation report was available. When such a report was not even prepared how could the AO expect the appellant to provide the same. Further, it is not mandatory under law that every transaction of this nature should be supported by valuation re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the appellant. Moreover, as pointed out by the appellant's counsel, the pre-condition for use mentioned in s. 32 is not applicable to s. 37. We find the decision of the jurisdictional High Court in Mysore Spinning Manufacturing Co. Ltd. vs. CIT that to allow an expenditure, it is not necessary that the expenditure must be one required for the purposes of carrying on the business or earning of the profits of that year. It is enough if the expenditure is incurred for the purposes of business. 66. We find that there is ample support in the submissions of the appellant and we have no hesitation in holding that the sum of ₹ 200 lacs incurred by the appellant as licence fee for use of brand Lord Master is a revenue expenditure incurred during the course of carrying on of its regular business and, accordingly, is entitled for deduction. Accordingly, we direct the AO to allow the claim of the appellant. (B) Covenants for non-competition fee : 67. The appellant has entered into a separate agreement on 14th Dec., 1993, with CLM and the agreement is titled as non-competition govenants . The agreement was entered into in consideration of payment of ₹ 4.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bengal Cement Co. vs. CIT (1955) 27 ITR 34(SC) wherein the Supreme Court in similar circumstances held that the payment made to ward off competition for a length of time was capital expenditure. 69. The CIT(A) in appeal confirmed the addition by relying on the decision of Madhya Pradesh High Court in Grover Soap (P) Ltd. vs. CIT (1997) 137 CTR (MP) 546: (1996) 221 ITR 299(MP). 70. Before us, the counsel for the appellant submitted that paras (A), (B) and cl. 2 of the covenants of non-competition and para (C) of the agreement for trade-mark should be read together to understand to scope of the agreements. As per para (C), CML will have authority to monitor and control the operations of the appellant insofar as the use of brand Lord Master is concerned. It also provides aid and assistance to use the brand. Though the agreement is titled as Non-compete , to understand the correct scope of the agreement, it is essential to go through the agreement in full. Clause 1 of the agreement clearly covenants between the parties that the scope of the agreement is limited to CML agreeing to allow the appellant to exclusively manufacture and market any product under the brand name Lord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is of any use as they all deal with the situation which is not comparable to that of the appellant. The appellant in support of its case relies on the decision in Malayalam Plantation Ltd. (supra), Sri Meenakshi Mills Ltd. (supra), in CIT vs. Avery India Ltd. (supra), in Annapurna Gauri Shankar Hotel (P) Ltd. (supra), in G.D. Naidu vs. CIT (supra) and decision in McDowell Co. Ltd. (supra) (page No. 36 of paper book 1, para 24). 74. In the above Tribunal decision, the cases relied only the Department have been fully considered and after doing so, the Tribunal has held that the expenditure is revenue in nature. Since all the objections of the Department are already considered in the Tribunal decision and the decision of the Tribunal supports the contention of the appellant, the appellant begs to submit that the expenditure claimed be allowed in the interest of justice. 75. The counsel further submitted that the decision of Madhya Pradesh High Court in Grover Soap Ltd. vs. CIT (supra) and Madras High Court in Chelpark Co. Ltd. vs. CIT (1991) 94 CTR (Mad) 71: (1991) 191 ITR 249(Mad) are not applicable to the facts of the case. Madhya Pradesh High Court in above case relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated an association with CML and CML continued to carry on the similar liquor business, while restricting them from the use of trade-mark Lord Master. In effect, the appellant paid fee for exclusive use of trade-mark and not purchase eliminating competitor in the sense as understood by the Courts in the case of Chelpark Co. Ltd. vs. CIT (supra) and Grover Soap Ltd. vs. CIT (supra). It was submitted that for these reasons, these two decisions are not applicable to the facts of the case on hand. The learned counsel also brought to our notice the opinion expressed by eminant jurist N.A. Palkhiwala in his book on income-tax, relevant portion in pages nos. 674 and 675 extracted herein : ''In CIT vs. Coal Shipments Ltd. where one coal exporting company made annual payments to another in consideration of that other agreeing not to export coal during the subsistence of the agreement, and the agreement was terminable at will, the Supreme Court held the payments to be on revenue account. This is a judgment of significance and may well mark the development of the law in the direction of holding-taking into account the fiercely competitive nature of modern business-that expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness during the tenure of this agreement. It has restricted itself from only using this trade-mark or trade-mark sounding similar name, however, can continue to operate in similar business. From the submissions before us we find that CML continued to carry on similar business. Hence, from the facts obtaining on record, it cannot be said that CML is out of business of alcoholic spirit by virtue of restrictive covenants in the agreement. This situation is different from classic non-competition situation envisaged in this decision of the Madhya Pradesh High Court as well as the decision of the Madras High Court referred above. In these two cases, we find the competitor had dissolved the firm and thus the business entity had vanished, the managing director had left the country, thereby creating a situation wherein the competitor was out of the business. In this appeal, we find CML continued in the similar line of business. Further there is nothing to indicate to the fact that the operations of CML were posing competition to the appellant. The facts indicate that the appellant-company was trying to enter semi-premium segment of the business and had achieved limited success in its eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant paid a sum of ₹ 185 lacs as fees for use of technical information to be furnished by Chhabria Marketing Ltd. (CML). Detailed facts relating to this have already been discussed in earlier paragraphs. 88. The appellant erroneously had claimed 1/6th of ₹ 185 lacs, i.e., ₹ 30,83,334 as deduction under s. 35AB while computing its income for the year. This was also disallowed by the AO. However, CIT(A) allowed the same. Against this, the Department has appealed before us. The appellant has filed additional ground claiming entire ₹ 185 lacs as deduction on the contention that since the expenditure was incurred towards the use of technical information, the expenditure is allowable under s. 37, whereas the earlier claim of 1/6th under s. 35AB was an error inasmuch as s. 35AB would be applicable only in the case of acquisition or purchase. The additional ground has been admitted for the reasons already mentioned above. 89. The appellant in support relied on the decision of Calcutta High Court in Turner Morrison Co. Ltd. vs. CIT (2001) 165 CTR (Cal) 451: (2000) 245 ITR 724(Cal) as well as the decision of the Tribunal, Calcutta C Bench, in (1995) 55 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer of business undertaking was on slump sale basis and had computed the income as long-term capital gain. 94. The CIT(A) granted partial relief by adopting the consideration declared by the appellant, i.e., ₹ 675 lacs. He, however, held that the income was liable to be computed under the head capital gain. 95. In the appeal before us, the appellant requests that the slump sale basis should be adopted. However, during the course of hearing, the appellant chose not to press the issue and, accordingly, these grounds are dismissed as not pressed. However, the Department is in appeal on the relief granted by CIT(A) which is discussed in the Departmental's appeal. Issue No. 4 : Royalty fee receivable from Balaji Distrilleries Ltd. : Addition of ₹ 95,35,760 : 96. The appellant is before us against the decision of CIT(A) restoring this issue to the AO for further investigation and assessment. Brief facts on the issue are that the appellant had entered into an agreement with Balaji Distrilleries Ltd. and had permitted the latter to use the appellant's trade-marks and devices for manufacturing of Bagpiper whisky and Honey Bee brandy in the State of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in the hands of Balaji Distilleries Ltd., and the cost computation is extracted hereunder : Per case Rs. 1. Spirit + packing material + local levies (if any) + bottling charges (cost of production has been taken as average of cost of production of different distilleries (as given by Mr. D.S. Mathur, VP (Spirits Division-UB group) see Annexure Balaji-5 280 2. Freight including loading/unloading from the manufacturing unit to the depots of TASMAC (This is the average cost of transportation incurred by a liquor company within a State) 15 3. Expenses on account of schemes, gifts, given aways to retailers (as per the statement given by Shri A. Gapoor, V.P. (S M) of H.L, on 20th Jan., 1997) 15 4. Service charges payable to Balaji for procuring orders from TASMAC (estimated) 10 5. Finance charges payable to Balaji for financing the credit of 15-30 days to TASMAC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n : The appellant is against the setting aside of the issue to the AO. It is submitted that CIT(A) erred in setting aside after noting that there was no material on record warranting any addition. Further, in the absence of any appeal on the findings of the CIT(A) by the Department, it is an admitted position that the addition was made on suspicion and doubt. Against this factual background, it is incorrect for the CIT(A) to direct the AO to investigate the matter and to bring further material on record when it is not even known whether any such material really exits. Directing the AO to compare the royalty received in Tamil Nadu with the profit earned in the State of Andhra Pradesh and Kerala is incorrect inasmuch as the admitted position is that the arrangement in Tamil Nadu is one of its kind. Such being the exclusive position in Tamil Nadu it cannot be compared with any other State. Consequently, the direction of the CIT(A) in this regard is erroneous and illogical. Further, the direction of the CIT(A) to make enquiries also transgresses the power to set aside. Ordering fresh investigation especially when there is no material is outside the jurisdiction to set aside and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lished. He submitted that the power to set aside should be used judiciously. He further submitted that CIT(A) having held that addition was based on suspicion and not on any evidence, ought to have deleted the addition instead of direction for a fresh assessment. Accordingly, he prayed for deletion of the addition made by AO. 103. We have gone through the record and evidence available before us as well as the submissions of both the sides. We find : (a) The Department is not in appeal against the findings of CIT(A) that the addition by AO is on surmises and suspicion. Thus, the finding by the CIT(A) is final. When CIT(A) has reached such a conclusion, the proper course would have been to delete the addition. (b) From the records we find that there is no material or evidence against the appellant warranting any addition. In such a circumstance, it is incorrect to set aside with a direction to procure the evidence. (c) Power to set aside cannot be used for the purpose of making roving enquiry or ordering fresh investigation as these powers are available separately under the Act. Power to investigate under the Act comes with certain responsibilities and cannot be done in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cion. 104. For the above reasons, we hold that the addition should be deleted as no useful purpose would be served by setting aside except causing inconvenience to the appellant. Accordingly, we amend the decision of the CIT(A) to restore the issue to AO and we delete the addition made by the AO. Issue No. 5 : Sundry credit balances written back : ₹ 55,815 105. The AO made addition of ₹ 55,815 on account of credit balances written back by the appellant. CIT(A) confirmed the addition. 106. Before us, the counsel for the appellant submitted that they do not wish to press the issue and accordingly this ground is dismissed. Issue No. 6 : Office-cum-transit premises : Addition of ₹ 12,21,182 107. The appellant owns certain premises called Niladri at Nepean Sea Road, Mumbai. The said premises consists of rooms, conference hall, reception area, etc. It appears that the appellant has been using this premises both for office and as transit house for visiting executives. The entire premises was furnished separately in such a way that it met the dual purpose. Accordingly, the appellant claimed 50 per cent of the expenditure incurred as office expenses and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on our findings given above. 113. The appellant succeeds on this issue. 114. Accordingly, the appeal is allowed in part. ITA No. 3079/Mum/1999 Ground 1(a) : 115. This ground pertains to allowing ₹ 30,83,334 being 1/6th of ₹ 1.85 crores paid towards technical know-how for the manufacture of Lord Master whisky. This ground has been elaborately discussed by us in the appellant's appeal. For the reasons mentioned therein, this ground is dismissed. Ground 2(a) : 116. This ground pertains to long-term capital gains on sale of Bhandup unit to Kissan Products Ltd. The Department is in appeal against the direction of CIT(A) in adopting the sale proceeds on sale of Bhandup unit at ₹ 675 lacs as against ₹ 1,228 lacs adopted by the AO. 117. The brief facts are that the assessee-company had entered into an agreement for sale of its food division at Bhandup producing Dippy's brands of products. This undertaking was sold with effect from 1st April, 1993, to Kissan Products Limited for a lump-sum consideration of ₹ 675 lacs. Before sale, the appellant had obtained the requisite clearance under Chapter XX-C of the IT Act from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the addition relying on the decisions in K.P. Varghese vs. ITO Anr. (1981) 24 CTR (SC) 358: (1981) 131 ITR 597(SC) and D.S. Bist Sons vs. CIT (1984) 149 ITR 276 (Del). The CIT(A) held that there is no evidence available to suggest that the appellant has received any consideration other than mentioned in the agreement. 119. The learned Departmental Representative appearing for the Department contended that the consideration calculated by the AO was correct and prayed that the same should be adopted. In support of his argument he relied on the assessment order. Learned Departmental Representative submitted that the AO had taken great pains in calculating the consideration at ₹ 1,228 lacs and the assessee has not come up with any alternative rationale to upset the findings of the AO. The learned Departmental Representative further submitted that the case law relied by CIT(A) were not applicable to the case on hand. 120. The learned counsel for the assessee-company supported the findings of the CIT(A) on this issue. It was brought to our notice that the CIT(A) has relied on the decision of Supreme Court in the case of K.P. Varghese vs. CIT (supra). He further submit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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