TMI Blog2016 (10) TMI 357X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A) and the ITAT, the revenue’s contentions were not accepted. Here, the assessee’s argument was that the commission could not be characterised as excessive because they were more customary in nature having regard to the historic relationship with M/S Asha export, its export agent. This court is of the opinion that such decisions as to the nature and quantum of commission may differ having regard to the uniqueness of each business and the relationship that it may possess with those associated with it. Unless, the revenue is able to pinpoint extraordinary features, it cannot scrutinize the commercial terms that a business takes into account in making a decision and contend that certain percentage or quantum of commission is “excessive”. Capital gains in respect of slump sale - Revenue’s contention here is that sum spent by the assessee at the time of transfer of its business undertaking to fund the ESOP Trust, cannot be characterized as permissible expenditure but rather has to be added back for the purposes of income calculations - Held that:- As is evident, the expression “expenditure incurred wholly and exclusively in connection with such transfers” is in plain terms suff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o five assessment years i.e. 2005-2006, 2006-2007, 2007-2008, 2008- 2009 and 2009-2010. 2. It is urged that several questions of law arose, chiefly on the following issues:- 1. Whether payments made by the assessee to its holding company Nitrex Chemicals India Ltd for the use of its trademark and for the purpose of obtaining expertise in commerce, finance, manufacturing etc. amounted to revenue expenditure instead of capital expenditure? 2. Whether the finding with respect to additions being disallowances of excessive commission on exports in the circumstances of the case is tenable? 3. Whether the computation of capital gains in respect of slump sale of trading businesses on account of purchase of shares by ESOP Trust, could be deducted from capital gain under Section 48 of Income Tax Act? 4. Is the finding on disallowance under Section 14A sound in law? And 5. Whether in the circumstances of the case, foreign exchange fluctuation in respect of amounts held by the assessee, could be treated as capital losses rather than as revenue expenditure? 3. Re: Question No. 1: Whether the payment towards trade mark and use of expertise in the field of commerce, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at those expenses as revenue in nature, we do not see any infirmity in order of the ld. CIT(A) on this issue. 6. This court is of the opinion that the finding with respect to tangible or non-tangible asset vesting in the assesee and whether it had or not any lasting or enduring advantage to it is more in the nature of a finding of fact. The findings are also that to use the Nitrex brand, payments were made and it was essential for the assessee to make such payments on account of nature of its business and on account of procuring knowledge for setting up the systems as well as other procedures. In the circumstances, we are of the opinion that no question of law arises on this aspect. 7. Re Question No.2: The issue of excessive commission, was consistently ruled against the assessee, for all the five years. However, in both the CIT (A) and the ITAT, the revenue s contentions were not accepted. Here, the assessee s argument was that the commission could not be characterised as excessive because they were more customary in nature having regard to the historic relationship with M/S Asha export, its export agent. This court is of the opinion that such decisions as to the nature a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into an agreement to sell the Trading Division of the company which was engaged in the business of whole sales trading in chemicals and whole sale trading business with M/s EAC Industrial Ingredients Pte. Ltd. on 14.10.2005 for a consideration of ₹ 22,15,00,0001- subject to the adjustment regarding net liquid assets and movable assets which are given in Schedule 'J' of BTA. On the same date, the appellant signed an ETA Agreement with M/s EAC also for employees transfer. As per clause 2 of this agreement, it was decided that- 2. Pre-completion matterITA Prior to completion, the employees shall be jointly approached by EAC and or Newco and Nitrex for the purpose of obtaining their acceptance to becoming employees than their current terms and conditions but which shall not include any stock holding and share holding option in Nitrex India Ltd. 3. Condition precedent It shall be a condition precedent to completion of the transaction contemplated by the BTA that the management staff shall have confirmed that subject to the completion they will accept to be employee by Newco instead of Nitrex India Ltd. 4.4 EAC and/or Newco shall employ the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany and accept the employment of new company. Accordingly, management of team submitted acceptance letter on 09.12.2005 with the agreement of Nitrex Chemicals Stock Option Trust, thereby, the employees agreed to offer the shares held by them to the trust of NITSOP, 2004 and the consideration for such shares was to be determined by applying a price earnings multiple of five to the company's profit after tax for the Financial year 2004-05. However, the management team requested the appellant company to calculate the price of share by suing the profit after tax of the company for F. Y 2005-06 adjusted for EAC warranty claim. As a result of acceptance letter from the management team, the appellant company was able to transfer its trading business to M/s EAC without any hindrance. For buy backing, the management shares by the Trust, the appellant company provided the money to Trust. It is claimed by the appellant that said money is not recoverable from the Trust. However, the company has paid said money in pursuance to the BTA and ETA which was a contractual liability of the company. Without buy back of the shares from the employees, the business transfer of the trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Question No. 5, regarding the treatment of foreign exchange fluctuation- (arising only for AY 2009-2010). 15. The AO had held that loss on account of foreign exchange fluctuation to the tune of ₹ 2,77,72,900/- could not be claimed as revenue loss and rather had to be disallowed. This was on the basis of his understanding of the authority in CIT Vs Woodward Governor India (P) Ltd. 312 ITR 254 SC . The CIT(A) was of the opinion that the assessing officer s reasoning was flawed. He held that Section 43A was applicable in the circumstances of the case and AS-11 (Accounting Standard) was relied upon to indicate that exchange fluctuation gains or losses would have to be shown in the profit and loss account. 16. The revenue urges that both the CIT (A) and ITAT fell into error, it is pointed out, in support of its contention, that foreign exchange fluctuation, particularly, the loss reported during the relevant year, was on account of the ECB loan which the assessee had obtained. We notice that this aspect was considered by the ITAT which observed that the ECB loan/advance was an old one and the treatment of the foreign exchange fluctuation especially in case of increas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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