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TMI Blog2018 (1) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement", the assessee entered into Non-solicitation Agreement and Non-compete Agreement, both dated 05-08-2002 with Revathi. In lieu of accepting restrictive covenants, the assessee received consideration of Rs. 7.5 crores and Rs. 2.5 crores, respectively from Revathi. The aggregate consideration of Rs. 10 crores received by assessee on execution of non-solicitation and non-compete agreements was offered to tax by the assessee in the assessment year 2003-04. Subsequently, the assessee entered into an Agreement with Atlas Copco AB (Parent company of the assessee) and Ingersoll Rand Company, USA to acquire drilling rigs business of Ingersoll Rand India Ltd. Newly acquired business of assessee included manufacture and sale of specified products listed in non-compete agreement entered into by assessee with Revathi. Revathi objected to the assessee acquiring drilling rigs business of Ingersoll Rand India Ltd. in breach of the non-solicitation and non-compete agreements dated 05-08- 2002. Revathi invoked arbitration clause of the aforesaid agreements and also obtained ad-interim injunction from the Hon'ble Bombay High Court against assessee for acquiring drilling rigs business of Inge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings of Assessing Officer the Revenue is in appeal. 3. The solitary ground raised by the Department in appeal is as under : "1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in holding that the issue under consideration cannot be considered as mistake apparent from record and directed the AO to delete the addition of Rs. 22.50 crores as against Hon'ble Supreme Court's decision in the case of CIT vs. Best & Co. (Pvt.) Ltd. 60 ITR 11 and Kettewell Bullen & Co. Ltd. Vs. CIT 53 ITR 261 and CIT vs. Hero Cycles Pvt. Ltd. (1997) 228 ITR 468? 2. The appellant craves leave to add, amend or alter any of the above grounds of appeal." 4. Shri Rajeev Kumar representing the Department vehemently opposing the order of Commissioner of Income Tax (Appeals) submitted that the Commissioner of Income Tax (Appeals) has erred in coming to the conclusion that the action of Assessing Officer u/s. 154 is beyond his authority. The ld. DR submitted that it is a settled position that payment made for restrictive covenants is capital in nature. To further substantiate his point the ld. DR filed written submissions and has also placed reliance on various deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be said to be a "mistake apparent from the records", the Hon'ble Court held that both the Tribunal and the High Court were right in holding that such a mistake can be said to be a "mistake apparent from the records" which can be rectified u/s. 154(2) of the Act [ para 40 of the judgment]. It was also held that a decision of the "Jurisdictional Court", i.e. the High Court of Gujarat in Hiralal Bhagwati's case (supra), was not brought to the notice of the Tribunal and, thus, there was a "mistake apparent from the records" which required rectification [ para 39 of the Judgment]. (ii) In the case of ITO Vs. Smt. Manini Niranjanbhai [1992] 41 ITD 324 (Ahd- Trib) (SMC), while observing the Circular no. 68 dated 17/11/1971 of this CBDT, [1972] 83 ITR (ST.) 6 held that it is now well settled position that the Supreme Court does not declare the law w.e.f. the date of its order and the law declared by the Supreme Court has effect not only from the date of the decision but from the inception of the statutory provision. The Board have been advised that the mistake arising as, a result of subsequent interpretation of law by the Supreme Court would constituted mistake apparent fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shuram Pottery Works Co. Ltd. Vs. D.R. Trivedi, W.T.O (Guj.) 100 ITR 651, v. Walchand Nagar Industries Vs. V.S. Gaitonde, ITO, 44 ITR 260 ( Bom), vi. CIT Vs. Aurn Luthra, 252 ITR 76 ( P & H) and vii. Bhauram Jawahirmal Vs. CIT, 121 ITR 487 (All) 10.1 In view of above decisions of the Hon'ble Supreme Courts and various High Courts, it is argued and submitted that if decision of the High Court /Supreme Court is found on an issue subsequent to passing of the assessment order, which is applicable on such issue In the assessment order itself, either in favour of the Department or against the Department, following the said decisions, rectification order u/s.154 of the Act can be passed by the Assessing Officer in accordance with the interpretation of law/statute given by the Courts. It is only to be seen as to whether such an issue has been decided by the Hon'ble High Court/ Supreme Court in any decision which requires rectification. 11. (b) Whether, under the aforesaid facts and circumstances of the case of the assessee company, the compensation paid for termination of non-compete/non-solicitation agreements to Revathi of Rs. 15 Crores and Utkal towards termination of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (g) above. A non- compete agreement to the entered into by the company with the sellers. This being the terms, it can very, well be said that cancellation of agreement and payment of nom-compete /non-solicitation fees with the Utkal Investment Ltd. by the appellant company had originated from the transfer of shares, which were nothing but the transaction in the form of capital asset. Therefore, payment made in connection with meeting up of the terms as laid down in the share purchase agreement could not be said other than in the nature of capital expenditure. (ii) Again, clause 6.4 of the share purchase agreement has made a condition for payment of non-compete sum, as defined in Non- Compete Agreement to be paid to Atlas and if the same is not paid to Atlas, the power has been given to Atlas to pledge over the shares to realized the non-compete sum. The said clause is as below- "The Non-Compete Sum (as defined in the Non-Compete Agreement) shall be paid Atlas in accordance with the terms of the non-compete agreements. In the event that the non-compete sum is not paid to Atlas within the next working day of Closing for any reason, Atlas shall exercise the pledge over the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether by merger, asset purchase or stock purchase, any company or other business entity that is engaged in substantially, either in whole or in part, in the Business in the Territory, the conduct of such Business by such acquired company or other business entity shall not be subject to be provisions of this Agreement provided that not more than Ten percent (10%) of its gross revenues are Derived from such business conducted with the Territory" Article 3 of the aforesaid agreement has again given the consideration terming as below- " In consideration of the CP group entering to these Agreement REL hereby agrees to pay to Atlas a sum of Rs. 7,50,00,000/- (Rs. 75 million) ( the 'Consideration') Within the next working day of signing of this Agreement, REL shall pay the consideration to Atlas by way of a Banker's draft/ pay order drawn in favour of Atlas after deduction of applicable taxes." Article -4.2 which deals with "Remedies for Breach" is as below- "4.2 The aggregate amount of damages payable in connection with any and also such breaches shall in no event exceed the consideration............." 11.2.1 From the aforesaid various clauses of the agreement dated 17/08/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Limited Vs. Addl. Commissioner of Income Tax, 5 ITR (Trib.) 150 (Delhi)(SB). 5. On the other hand Shri R. Murlidhar appearing on behalf of the assessee supported the findings of Commissioner of Income Tax (Appeals). The ld. AR submitted that it is not a case where the assessee has made payment to Revathi and Utkal for entering into non-compete agreement. The assessee has made payment to Revathi and Utkal as compensation for breach of agreement earlier entered by the assessee with the said companies with non-solicitation and non-compete covenants. In other words, the payment of Rs. 22.50 crores has been made by the assessee to release the assessee from the restrictive covenants of non-solicitation and non-compete agreements dated 05-08-2002. Thus, the payments of compensation by the assessee to Revathi and Utkal are not capital in nature. 5.1 The ld. AR submitted that during the scrutiny assessment proceedings everything was open before the Assessing Officer. The Assessing Officer after examining entire facts of the case allowed the claim of assessee. The provisions of section 154 have been invoked by the Assessing Officer only on change of opinion. The scope of section 154 is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR submitted that when an issue under consideration is a debatable, order on such an issue could not be passed in proceeding u/s. 154 of the Act. To support this argument the ld. AR placed on the decision of Mumbai Bench of the Tribunal in the case of Tata Communications Ltd. Vs. Asst. Commissioner of Income Tax in ITA No. 3757/Mum/2010 for assessment year 1997-98 decided on 08-05-2013. 5.3 On merits of the issue the ld. AR submitted that payment towards non-solicitation and non-compete agreements is revenue in nature. To support his contentions the ld. AR placed reliance on the following decisions : i. Commissioner of Income Tax Vs. M/s. Everest Advertising Pvt. Ltd. in Income Tax Appeal No. 6539 of 2010 decided on 04-12-2012; ii. Commissioner of Income Tax Vs. Eicher Ltd., 302 ITR 249 (Del); iii. Carborandum Universal Ltd. Vs. Joint Commissioner of Income Tax, 26 taxmann.com 268 (Madras); iv. Assistant Commissioner of Income Tax Vs. Clariant Chemicals (I) Ltd., 53 taxmann.com 284 (Mumbai-Trib.); v. Joint Commissioner of Income Tax Vs. Synergy Credit Corpn. Ltd., 9 SOT 75 (Mumbai). 5.4 The ld. AR submitted that in all the above cases the Hon'ble High Courts and Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or deemed intimation under sub-section (1) of section 143;]] [(c) amend any intimation under sub-section (1) of section 200A;] [d) amend any intimation under sub-section (1) of section 206CB.]" A bare perusal of above provisions indicates that the Assessing Officer can assume jurisdiction u/s. 154 to "rectify mistake apparent from record." 8. The expression 'mistake apparent' connotes that a mistake or error should be obvious or evident without further explanation. In other words, a mistake that can be realized without debate or a dissertation. The Hon'ble Supreme Court of India in the case of T.S. Balaram, ITO Vs. Volkart Bros. (supra) has held : "A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions." The Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Nathpa Jhakri Joint Venture (supra) following the ratio laid down in the case of T.S. Balaram, ITO Vs. Volkart Bros. (supra) held that where issue is debatable the same cannot be entertained u/s. 154 of the Act. 9. In the present case, we find th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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