TMI Blog2008 (3) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/Del/2001 relevant for the Assessment Year 1995-96. 2. A full time employee of the Assessee called Vishwanathan had acquired, during the course of his employment, specialized knowledge of technology in the two-wheeler industry as well as of managing the dealership of the market place and other specialized knowledge relating to the two-wheeler business. Vishwanathan entered into an agreement with a company called VCPL to the effect that he would promote VCPL and collaborate with it to set up manufacturing facilities for two-wheelers upon his retirement from the Assessee. 3. On coming to know of this, the Assessee negotiated a non-compete agreement with VCPL and Vishwanathan whereby the Assessee paid a sum of Rs.4 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT (A) as well as by the Tribunal. The undisputed fact is that the payment of Rs. 4 crores is to restrain or prevent VCPL and Vishwanathan from becoming potential business rivals of the Assessee. The payment is to protect the Assessee's business interests, its market position and profitability. No new asset is created thereby nor is the Assessee's profit making apparatus expanded or increased. The Assessee does not suffer any loss or diminution or erosion in its capital assets. On these conclusions, the CIT (A) and the Tribunal decided that the payment was allowable as a business expenditure and that it was not a capital expenditure. 8. The submissions made by learned counsel for the Revenue before us are to the same effect and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as the object of making the payments in question was to eliminate competition of a rival exporter, the benefit which enured to the respondent was of an enduring nature and, as such, the payment should be treated as capital expenditure. We find ourselves unable to accede to this contention because we find that the arrangement between the respondent and M/s. H.V. Lowe and Co. Ltd. was not for any fixed term but could be terminated at any time at the volition of any of the parties. Although an enduring benefit need not be of an ever-lasting character, it should not, at the same time, be so transitory and ephemeral that it can be terminated at any time at the volition of any of the parties. Any other view would have the effect of rendering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot strictly be decisive in all cases, yet, at the same time, it should not be so brief as to virtually be transitory. 13. In Commissioner of Income Tax v. Late G.D. Naidu, [1987] 165 ITR 63, compensation paid to the assessee was referable to a restrictive covenant in an agreement between the assessee and another party. The question that arose was whether the amount was a capital expenditure or not. The Supreme Court held that in so far as the assessee is concerned, he did not acquire any separate business nor was any competition eliminated by such an acquisition. Since there was no acquisition of any business by payment of the amount referable to the restrictive covenant and no benefit of an enduring nature was acquired, the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et, then that puts the business on another footing altogether. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. (Italics in original) 16. In Madras Auto Service, the assessee had spent some amount to construct a new building after demolishing the old building in which the assessee was a lessee. The assessee had the benefit of the existing lease in respect of the new building at an agreed rent for a period of 39 years. The rent as stipul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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