TMI Blog2016 (6) TMI 1388X X X X Extracts X X X X X X X X Extracts X X X X ..... 06.2002, the provisions of Chapter XXC of the Act was available with the avowed object of ensuring the payment of tax properly payable on the market value of the immovable property transferred inter-vivo and for the purpose of computation of capital gains, the consideration shown by the assessee in the sale agreement for which NOC was granted by the Appropriate Authority under Chapter XXC of the Act, both the penal provisions of Chapter XXC of the Act and the provisions of section 50C of the Act, which came into effect at a later date should not affect jointly. Under the above facts and circumstances, we are of the considered opinion that when the penal provisions of Chapter XXC of the Act was very much available at the time of transaction taken place and when the provisions of section 50C of the Act came into effect in the subsequent financial year, the Assessing Officer was not correct in applying the provisions of section 50C of the Act. Similar ratio was laid down by the Kolkata Benches of the Tribunal in the case of Neville De Noranha v. ACIT [ 2008 (2) TMI 447 - ITAT CALCUTTA-C] . However, any final judgement against the stay on operation of the order of the Inspector Genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal as referred herein above. Accordingly, the ground raised by the assessee for the assessment years 2006-07 and 2007-08 is allowed for statistical purposes. Contribution to benevolent fund under section 40A(9) - HELD THAT:- by following his own order for earlier assessment years, the ld. CIT(A) has deleted the addition made by the Assessing Officer for the assessment year 2003-04 and for the assessment years 2004-05, 2005-06, 2006-07 and 2007-08 also the ld. CIT(A) deleted the addition made by the Assessing Officer. The only contention of the Department is that the earlier order of the ld. CIT(A) in assessee s own case has not become final cannot be accepted since the Department has not filed any order of higher forum having modified or reversed the above decision of the Coordinate Bench of the Tribunal. Under the above facts and circumstances, we sustain the order of the ld. CIT(A) on this issue for all the above assessment years under appeal and dismiss the ground raised by the Revenue. Deduction u/s 80IA on captive power consumption - over 96% of the power generated has been captively consumed in the assessee s factory itself - HELD THAT:- As relying on TANFAC INDUS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer to treat the non-compete fees paid as deferred revenue expenditure and allow 1/10th of the expenditure as deduction for every year. Repairs in the form of renovation to building - HELD THAT:- In view of the ratio laid down by the Hon ble Jurisdictional High Court in the case of CIT v. Ooty Dasaprakash [ 1998 (2) TMI 77 - MADRAS HIGH COURT] , we remit the issue back to the file of the Assessing Officer to segregate the total expenditure as capital and revenue and consider the same appropriately. This ground of appeal of the Revenue is remitted to the Assessing Officer for fresh consideration. Disallowance of royalty paid - HELD THAT:- By following the decision in the case of Gotan Lime Syndicate v. CIT [ 1965 (11) TMI 35 - SUPREME COURT] the ld. CIT(A) allowed the ground raised by the assessee as held in the absence of material to show that any part of the royalty had to be treated as premium and referable to the acquisition of the mining lease, the royalty payment, including the dead rent, had relation only the lime deposits to be gat and had therefore to be treated as revenue expenditure. Although the appellant did derive an advantage-assuming that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and M/s. Balmer Lawrie Co. Ltd. [a Government of India Enterprises]. The assessee has claimed the above lumpsum consideration of ₹.65 lakhs as capital gain, whereas, the Assessing Officer has treated the same as business income by relying on the decision in the case of Mcdowell and Company Ltd. v. Commercial Tax Officer 154 ITR 148(SC). 4. On appeal, after considering the submissions of the assessee and also by considering relevant provisions of section, by confirming the order of the Assessing Officer, the ld. CIT(A) has held as under: 7.4. I have carefully gone through the order of A.O and the detailed submission made by AR about the impugned issue. 7.5. The issue before me is : (a) Whether the Lump sum consideration- received by the appellant is chargeable under the head Capital Gain or Business Income. (b) Whether the above stated lump sum consideration can be treated as part of transfer of the asset and depreciation has to be computed as deletion to block of assets as ₹ 95 lacs instead of ₹ 30 lacs. (c) Whether the amount of ₹ 65 lacs has to be spread over a period of 5 years starting from November 2002. (d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Giving up the right to manufacture for ₹ 65 lacs, for which the buyer has to pay the Appellant for refraining from manufacture and (iii) Supply and procurement of material for 5 years - This is mutually depended and subject to penalty for non fulfillment of the respective obligation and further backed by bank guarantee on either side. However, in page 2 of the agreement between M/s. Chemplast Sanmar Ltd and Balmer Lawrie Ltd , dated 27th day of November 2002, the following has been provided: AND WHEREAS Balmer Lawrie has agreed to pay Chemplast a sum of ₹ 65 lacs (Rs sixty five lacs) upon execution of this Agreement as one time lumpsum payment in consideration for Chemplast to give up its right to manufacture the said barrels and drums during the tenure of this agreement. Chemplast would also simultaneously during the tenure of this agreement give an assured business of barrels and drums to Balmer Lawrie as detailed later in the agreement. 7.6.4. The payment of ₹ 65,00,000/- as one time lumpsum payment in consideration for Chemplast to give up its right to manufacture the said barrels and drums as cited above cannot be viewed in isolation, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's appeal fails. The treatment of ₹ 65 lacs being compensation for giving up the right to manufacture as business income by the A.a is upheld. No relief for the appellant. 5. On being aggrieved, the assessee is in appeal before the Tribunal. 6. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The Assessing Officer treated the lumpsum amount received by the assessee towards sale of Drum Plant (giving-up right to manufacture). While sustaining, the ld. CIT(A) has also rejected the alternative pleas raised before him during appellate proceedings. In an identical issue raised on similar facts and circumstances, by following the decision of the Hon ble Supreme Court in the case of Guffic Chem Pvt. Ltd. v. CIT 332 ITR 602, the Ahmedabad Bench of the Tribunal has decided the issue in favour of the assessee in the case of DCIT v. M/s. Gufic Limited in I.T.A. No.3355/Ahd/2008 for the assessment year 1997-98 dated 31.01.2012, by observing as under: 2. In respect of the impugned addition facts in brief as noted by the AO vide an order u/s.143(3) r.w.s. 147 of the IT Act dated 30/11/2004 while passing the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed that it shall not carry on directly or indirectly the business hitherto carried on by it. The agreement was for 20 years. The Tribunal held that the amount was a capital receipt; but the High Court reversed the decision. On appeal to the Supreme Court: Held, reversing the decision of the High Court, that prior to April 1, 2003, when Parliament stepped in to specifically tax such receipts, the payment was in the nature of a capital receipt. 4.1. Respectfully following the view taken by the Hon ble Apex Court, we hereby affirm the findings of ld.CIT(A) and dismiss this ground of the Revenue. 7. On perusal of the Ahmedabad Bench decision where the decision of the Hon ble Supreme Court in the case of Guffic Chem P. Ltd. v. CIT (supra) has been followed, we are of the opinion that both non-compete fee and giving-up right to not manufacture are one and same and therefore, respectfully following the above decision of the Ahmedabad Bench of the Tribunal, we set aside the order passed by the ld. CIT(A) on this issue and allow the ground raised by the assessee. 8. The next ground raised in the appeal of the assessee is with regard to adoption of guideline value for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Authority. Therefore, the assessee was show caused as to why the above said value should not be taken as the full value of consideration. The assessee mainly submitted before the Assessing Officer that having approved the sale consideration by the Appropriate Authority constituted under the provisions of the Income Tax Act, it is not open for the Assessing Officer to substitute such value by some other notional value. In view of this the consideration for transfer of property of ₹.144 lakhs should not be disturbed. Any attempt to make substitution of actual consideration by notional value in such case would not only against the principle of natural justice but also bad in law. 8.3 After considering the submissions of the assessee, the Assessing Officer has observed that the provisions of section 50C of the Act is a deeming provision which shall be applicable in all cases including government companies where the consideration received is lesser than the value adopted by the Stamp Valuation Authority. A reference to a valuation office under section 50C of the Act could have been made in this case, if only the assessee has not disputed the value adopted by the Stamp Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m viz., the Inspector General of Registration, who vide his order dated 02.01.2004, determined the value of the property at ₹.396,72,377/- (land ₹.392,40,000/-, building ₹.432,377/-). As even the order of the appellate authority was felt unrealistic, the purchaser approached the Hon ble High Court of Madras, which granted an interim stay on the operation of the order of the Inspector General of Registration. The case of the assessee could not be referred to the valuation officer since the assessee has gone on appeal before the appellate authority. However, the deeming provision of section 50C of the Act cannot be overlooked. Therefore, the Assessing Officer has taken the value of ₹.3,96,76,377/- as determined by the Inspector General of Registration as the full value of the consideration. However, since the operation of the order of the Inspector General of Registration has been stayed by the Hon ble Madras High Court, the recovery proceedings pursuant to the treatment of the disputed value as full value of consideration is also stayed till the disposal of the case by the Hon ble Madras High Court. On appeal, the ld. CIT(A) confirmed the action of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Hon ble Madras High Court. I.T.A. No. 52/Mds/2009 A.Y. 2005-06 [Assessee s appeal] 9. With regard to the assessment year 2005-06, the only effective ground raised in the appeal of the assessee is with regard to confirmation of disallowance of provisions for gratuity. 9.1 The assessee has made a provision of ₹.7,50,23,640/- towards Gratuity Fund with Life Insurance Corporation of India, which was also approved by the Commissioner of Income Tax, Chennai. The assessee claimed the same as per the provisions of section 40A(7)(b) of the Act. However, the Assessing Officer negated the claim of the assessee on the ground that the assessee had only made the provision and not made actual payment, and therefore, the same cannot be allowed as per the provisions of section 43B of the Act. 9.2 On appeal, by following the decision in the case of CIT v. Sree Makakahya Tea Co. (P) Ltd. 199 ITR 714, the ld. CIT(A) has observed that even if any sum is allowable as per section 40A(7) if it does not satisfy the payment criterion of section 43B of the Act that will not be allowed. Had it not been so there was no need for the legislature to bring in section 43B(b) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d amount is only a provision and not paid is hit by the provisions of section 43B of the Act. 4. Counsel for the assessee relied on the order of the Commissioner of Income Tax (Appeals). He further submits that the Revenue in earlier years accepted the decision of the Commissioner of Income Tax (Appeals) in deleting the provision for gratuity for the assessment years 2005-06 and 2006-07 and no further appeal was filed by the Revenue on similar issue. Counsel relied on the following decisions in support of his contentions that provision made for approved gratuity fund is allowable as deduction under section 40A(7)(b) of the Act and such provision for gratuity is not hit by the provisions of section 43B of the Act:- i) CIT Vs. Bechtel India (P) Ltd. (2 DTR (Del) 145) ii) CIT Vs. Common Wealth Trust (P) Ltd Anr (269 ITR 290)(Ker) (iii) CIT Vs. Easwaran Sons Engineers Ltd.[Tax Appeal No.596 of 2005 dated 26.09.2011(Madras) (iv) Mewar Suga Mills Ltd. Vs. DCIT (Third Member) (65 ITD 163)(Jaipur Bench) 5. Heard both sides. Perused orders of lower authorities and the decisions relied on. The assessee during the relevant assessment year 200708 created provision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des that to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year clause (a) will not apply. This means exception has been carved out in respect of payment of sums by way of any contribution towards an approved gratuity fund. Thus the Legislature wanted to give a special treatment to provision made by an assessee for the purpose of payment by way of any contribution towards an approved gratuity fund. This has to be treated as a special provision. The marginal note to section 43B clearly says certain deductions to be only on actual payment . It deals with various items. Section 43B(b) deals generally with any sum payable by the assessee as an employer by way of contribution to any provident fund at superannuation fund or gratuity fund or any other fund for the welfare of the employees. Of course, the gratuity fund is also referred to. Section'40A(7), clause (b), particularly sub-clause (i), thereof is a special provision in regard to a claim for deduction based on a provision made for payment towards unapp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missed. 9.5 After considering the ratio laid down by the Hon ble Kerala High Court and the Hon ble Delhi High Court, the Coordinate Bench of the Tribunal in the case of ACIT v. Tyco Sanmar Ltd. (supra) decided the issue in favour of the assessee is also applies to the fact of the present case. However, for more clarity, the gratuity to be deductible, the conditions laid down in section 40A(7) had to be fulfilled. The deduction could not be allowed on general principles under any other section of the Act, because sub-section (1) of section 40A made it clear that the provisions of the section had effect notwithstanding anything to the contrary contained in any other provisions of the Act relating to the computation of income under the head Profits and gains of business or profession . In other words, section 40A had effect notwithstanding anything contained in ss. 30 to 39 of the Act. In view of the above observation, the Assessing Officer is directed to follow the decision in the case of Shree Sajjan Mills Ltd. v. CIT 156 ITR 585 (SC) and also the decision in the case of South Madras Electric Supply Corporation Ltd. v. CIT 244 ITR 780 (Mad) and decide the issue afresh. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the decision of the Delhi Benches of ITAT in the case Escort Ltd. v. ACIT (supra), the Ahmedabad Bench of the Tribunal in the case of ACIT v. Torrent Pharmaceuticals Ltd. (supra), has observed and held as under: 10. First ground is with regard to confirming the disallowance of ₹ 63 lakh which was claimed by assessee on revenue account. The contention of assessee before Ld. CIT(A) was that the assesseecompany had entered into an agreement with IBM. In pursuance of this agreement, IBM would undertake to study the existing business system and come with solutions as required by an Enterprise Resource Planning (ERP for short) provided by SAP. It would also train people so that data migration from legacy system to SAP would smooth and train people in the running of the ERP system. Total payments made to IBM amounting to ₹ 63 lakh. It was submitted before Ld. CIT(A) that ERP expenditures are essentially revenue in nature which are related to upgrading its present accounting software and entire exercise of going for ERP for smooth functioning of the organization. Ld. counsel for the assessee submitted that the submission of assessee was not considered in right perspectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as revenue expenditure. Hence, we find that the CIT(A) has recorded a categorical finding that the software programme without which the computer cannot work and with the advancement of technology, the programme changes during short period and this change is requirement of the business of the assessee i.e. share broking. Accordingly, we delete the addition confirmed by CIT(A) and this issue of assessee s appeal is allowed. . Further the Hon ble Bombay High Court in Tax Appeal No.4176 of 2009 in the case of M/s. Raychem RPG Ltd. (supra), has affirmed the view of ITAT Special Bench which has held that the expenditure incurred on ERP is of revenue in nature. Respectfully following the aforementioned decision, we allow this ground of assessee s appeal. 11.5. Though the two Coordinate Benches of the Tribunal have observed that the ERP expenses incurred by the assessee is of revenue in nature, the Assessing Officer has not passed speaking order as to whether the software was an outright purchase of computer programme which relates to technical know-how . According to the Assessing the expenditure on computer software gives an enduring benefit to an assessee, but he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer was deleted. 12.3 Aggrieved, the Revenue is in appeal before the Tribunal. Against the above deletion of addition under section 40A(9) of the Act, the Revenue has filed appeals for the assessment years 2004-05, 2005-06, 2006-07 and 2007-08. 12.4 We have heard rival contentions and perused the materials available on record. Against the claim of the assessee towards contribution to benevolent fund, the Assessing Officer has made addition under section 40A(9) of the Act in the assessment year 1998-99. By following the decision of Coordinate Bench of the Tribunal in the case of India Pistons Repco v. IAC 26 ITD 413), the ld. CIT(A) directed the Assessing Officer to allow contribution made by the assessee to benevolent fund by observing as under: 5. I have carefully considered the facts of the case, case laws and the submissions of the Id. AR. It is clear that Memorandum of Settlement was executed in terms of section 18(1) of the Industrial Dispute Act, 1947 and is binding on both the parties i.e. the employer and the workmen. The contribution to the benevolent fund was made in terms of clause 3 of the said Memorandum of Settlement. Thus the fund wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal cannot be accepted since the Department has not filed any order of higher forum having modified or reversed the above decision of the Coordinate Bench of the Tribunal. Under the above facts and circumstances, we sustain the order of the ld. CIT(A) on this issue for all the above assessment years under appeal and dismiss the ground raised by the Revenue. 13. The next common ground raised in the appeal of the Revenue for the assessment years 2003-04, 2004-05, 2006-07 and 2007-08 is that the ld. CIT(A) has erred in holding that the assessee is entitled for deduction under section 80IA of the Act on captive power consumption. 13. 1 The assessee has set up a 18 MW (6 MW x 3) combined power plant at Plant III, Raman Nagar, Mettur Dam, Salem District of Tamil Nadu during the financial year 1996-97. The assessee, vide its revised return dated 09.02.2005 claimed deduction of ₹. 3,12,88,685/- under section 80IA of the Act on the profits arising out of power generated at the above plant. The power generated by this plant has been distributed to the assessee s other manufacturing divisions. While the power generated has been captively consumed by the assessee itself, the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad Corporation Ltd. in I.T.A. No. 1029/Mds/2005 dated 05.01.2007, which the ld. CIT(A) ought to have followed. 13.4. We have heard both sides, perused the materials on record and gone through the orders of authorities below. It is an admitted fact that 96% of the power generated by the assessee has been captively consumed in the assessee s factory itself. Therefore, the Assessing Officer has held that the assessee is not eligible to claim deduction under section 80IA of the Act. By following the decision of the Tribunal in the case of ACIT v. TANFAC Industries (supra), the ld. CIT(A) held that the assessee is eligible to claim deduction under section 80IA of the Act. Against the order of the Tribunal, the Department carried the matter in appeal before the Hon ble Jurisdictional High Court and the Hon ble High Court in T.C. No. 1773 of 2008 dismissed the appeal filed by the Department. Against the order of the Hon ble Madras High Court, the Department preferred Special Leave Petition before the Hon ble Supreme Court and the Hon ble Supreme Court, vide its S.L.P. (C) No. 18537 of 2009, dismissed the SLP filed by the Department. Thus, the order passed by the Tribunal in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see replied that there was no difference between drawing power from captive generation or through the grid and both had to be considered in the same status. A.O. was not impressed. He held that captive consumption of electricity would not be eligible for deduction under sec.80IA of the Act. Resultant disallowance of deduction came to ₹.9,36,80,721/-. 13. In its appeal before the CIT(A), argument of the assessee was that an unreasonable distinction was made between captive unit and non-captive unit and just because power was not wheeled through TNEB, A.O. ought not have disallowed deduction under sec. 80IA of the Act. Relying on sub-sec.(8) of sec.80IA of the Act, assessee argued that captive consumption was recognized by the Statute for the purpose of working out deduction under sec.80IA of the Act. CIT(A) was appreciative of this contention and held that assessee had satisfied the requirements of sec.80IA of the Act as captive consumption also was recognized for that purpose and hence it could not be denied deduction under sec.80IA of the Act on billings made for captive consumption. 14. Now before us, ld. DR strongly assailing the order of ld. CIT(A), submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contention that profit or gains can be claimed by the assessee only if such profit or gain is derived by the sale of its product or power generated to an outsider cannot be the manner in which the provisions contained in Sec.80IA(1) can be interpreted. The expression derived ; used in the said Sec.80IA(1) in the beginning as well as in the last part of the sub-sec. (4) makes it abundantly clear that such profit or gain could be obtained by one s own consumption of the outcome of any such undertaking or business enterprises as referred to in sub-sec.(4) of Sec.80IA. The dictionary meaning of the expression derive in the New Oxford Dictionary of English states obtaining something from a specified source . In Sec.80IA(1) also no restriction has been imposed as regards the deriving of profit or gain in order to state that such profit or gain derived only through an outside source alone would make eligible for the benefits provided in the said Section. 9. Therefore, there is no difficulty in holding that captive consumption of the power generated by the assessee from its own power plants would enable the respondent/assessee to derive profits and gains by working out the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the details of upfront fees/guarantee commission and claimed that the upfront fees were all revenue expenses. In view of the decision in the case of CIT v. Meenakshi Mills Ltd. 290 ITR 107 (Mad) and in the case of DCIT v. Gujarat Alkalies and Chemicals Ltd. SC 167 taxman 203/215 CTR 10, the ld. CIT(A) has held that the upfront fees of ₹.47,50,000/- paid by the assessee is of revenue in nature and allowed the same. With regard to guarantee commission by following the decisions in the case of CIT v. Madras Cements Ltd. 254 ITR 423 (Mad) and CIT v. Sivakami Mills Ltd. 227 ITR 465 (SC), wherein the Hon ble Supreme Court has held that guarantee commission paid was allowable as business expenditure, the ld. CIT(A) allowed the claim of the assessee for all the assessment years under appeal. 14.3 Aggrieved, the Revenue is in appeal before the Tribunal. 14.4 After hearing both sides, we find that in the case of CIT v. Meenakshi Mills Ltd. (supra), the Hon ble Madras High Court has held that the amount paid by the assessee to the Bank as upfront fees was deductible as business expenditure. In the case of DCIT v. Gujarat Alkalies and Chemicals Ltd. (supra), the Hon ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aves Chitram Ud Vs DCIT - (9 SOT 143) has also held that the gratuity liability, which was based on actuarial valuation, was deductible from the book profits as ascertained liability. As the fads and circumstances of the appellant are exactly similar to the case discussed above and as it has not been denied by the AO that provision for gratuity has been made on actuarial basis, respectfully following the decision of the ITAT, Indore (supra) and the ITAT, Mumbai (supra), I hold that the Provision for Gratuity of ₹ 61,71,603/ should not be added back to book profits. The appellant succeeds on this ground. 15.3 The ld. DR could not controvert the above findings of the ld. CIT(A), wherein the ld. CIT(A), by following the decisions of the Indore and Mumbai Benches of the Tribunal, held that the provision for gratuity of ₹.61,71,603/- should be added back to the book profits and allowed the ground raised by the assessee. Thus, we find no infirmity in the order passed by the ld. CIT(A) and the ground raised by the for the assessment years 2004-05 and 2005-06 is dismissed. 16. The next common issue raised in the appeals of the Revenue for the assessment years 2006-07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon'ble Chennai ITAT in the case of Orchid Chemicals Pharmaceuticals Vs ACIT 137 TTJ 373 and also one more decision of Hon'ble ITAT Chennai in the case of ITO Vs Seafil Leasing 124 TTJ 531 ITAT, Chennai. I am of the considered opinion that these decisions have similarities to the facts and circumstances of the present case and hence this expenditure may be allowed as deferred revenue expenditure for a period of 10 years. This decision of mine is in commensurate with the method adopted by the appellant himself for the purposes of maintenance of books of accounts by the appellant. In other words, the Assessing Officer is directed to treat the non-compete fees paid as deferred revenue expenditure and allow 1/l0th of the expenditure as deduction for every year. Since this issue is there for both the assessment years, this decision is applicable for both the assessment years in question. 16.6 Over and above, the Hon ble Jurisdictional High Court in the case of Carborandum Universal Limited v. JCIT (supra) has held as under: 5. This leaves us with the third question as regards the nature of expenditure on the non-compete fee paid to U.Mohanrao. It is seen from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whow, trade practices, etc. The agreement was to be effective for a period of five years from the date of the agreement. 7. On 29.04.1996, yet another agreement was entered into between the assessee and the said U.Mohanrao, former Chairman and Managing Director of Cutfast Abrasive Tools Limited, as by way of a non-compete agreement that the said U.Mohanrao shall not, in any manner, assist any third party, or sell or render advise or act as a Consultant in respect of the products, namely, coated and bonded abrasives, current range of products of the Electrominerals Division of CATL and cloth processing for coated abrasives. In consideration of the said agreement, the said U.Mohanrao was paid a sum of ₹ 1,75,00,000/- towards non-compete fee. On 14.10.1996, there was a supplementary agreement between the assessee and the said U.Mohanrao, which contemplated inclusion of other products, namely, coated and bonded abrasives, current range of products of the Electrominerals Division of CATL and also all other electromineral products, used or capable of being used in the manufacture of abrasive products (both bonded and coated), and cloth processing for coated abrasives. The agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the expenditure incurred was more in the field of indefinite income earning operation and not in the context of strengthening the income earning structure, he submitted that the Tribunal and the Authorities below committed a serious error in looking at the enduring benefit concept for the purpose of rejecting the assessee's case. 10. Referring to the decision reported in [1980] 124 ITR 1 (Empire Jute Co. Ltd. Vs. Commissioner of Income Tax (S.C.)), he submitted that the expenditure incurred was for the exploitation of a commercial asset; hence was revenue in character. Even where an expenditure is incurred by obtaining an advantage of enduring benefit, it may, nonetheless, be on revenue account and the test of enduring benefit may break down. He further submitted that what is material herein is to consider the nature of advantage in a commercial sense. If the advantage is in the field of facilitating the assessee's business operation more effectively or more profitably leaving the fixed capital untouched, the expenditure would be on revenue account. 11. Referring to the decision reported in [1991] 191 ITR 249 (Chelpark Company Ltd. Vs. Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment from the point of view of the receiver and vice versa. Thus whether an expenditure is capital or revenue has to be determined with regard to the nature of the transaction and other relevant factors. Referring to the decision reported in [1965] 58 ITR 241 (PC) (Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd.), the Apex Court pointed out that there may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. ... What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. 15. Referring to the decision reported in [1965] 56 ITR 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment and enduring benefit are not to be treated as something akin to statutory conditions; nor are the notions of capital or revenue a judicial fetish. - [1989] 177 ITR 377 (Alembic Chemical Works Co. Ltd.). 18. Going by the above-said principle, if one looks at the decision reported in [1991] 191 ITR 249 (Chelpark Company Ltd. Vs. Commissioner of Income Tax), one may find that the decision that the expenditure was a capital expenditure and hence not deductible, rested in the context of the peculiar facts of the case; the partnership with which the assessee had the non-compete agreement got dissolved immediately after the payment of the non-compete fee and the potential competitor had vanished. On these facts, this Court observed that, whatever the assessee had paid for was of permanent or enduring quality, in the sense that competition had been totally eliminated and protection had been acquired for the business of the assessee as a whole. We do not find that the Revenue could draw any support from the said decision of this Court, it being one based on the facts of the said decision. The question herein as to whether non-compete fee paid to the ex-Managing Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee for the assessment year 2005-06 is that the ld. CIT(A) has erred in deleting the repairs in the form of renovation to building. 17.1 The assessee has incurred a sum of ₹.60,35,328/- towards repairs in the form of renovation to building and claimed the same as revenue expenses. It was the submission of the assessee that the assessee company has not derived any benefit of enduring nature from these expenses and therefore claimed the expenses as revenue expenses. By considering the submissions of the assessee and also by considering various decisions, the Assessing Officer negated the claim of the assessee and allowed depreciation @ 10% on this expenses. 17.2 On appeal, by relying on various judicial pronouncements, the AR of the assessee strongly contended that the expenses incurred by the assessee on account of renovation of existing building should be treated as revenue expenses. By following the decision in the case of Flowserve Sanmar Ltd. (group company of the assessee), the ld. CIT(A) allowed the ground raised by the assessee. 17.3 Aggrieved, the Revenue is in appeal before the Tribunal. The ld. DR strongly relied on the assessment order, wherein th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of current repairs in section 31(i) of the Act. However, in the instant case, the assessee has not acquired or created any new asset to enhance the income of the assessee. Therefore, the case law relied on by the ld. DR has no application to the facts of the case. 17.6 In the case of CIT v. Ooty Dasaprakash (supra), the Hon ble Madras High Court has held that the expenditure was incurred solely for repairs and modernizing the hotel and replacing the existing components of the building, furniture and fittings with a view to create a conducive and beautiful atmosphere for the purpose of running the business of a hotel and the expenditure incurred was not of an enduring nature and was allowable as revenue expenditure under section 37 of the Act. 17.7 Under the above facts and circumstances and in view of the ratio laid down by the Hon ble Jurisdictional High Court in the case of CIT v. Ooty Dasaprakash (supra), we remit the issue back to the file of the Assessing Officer to segregate the total expenditure as capital and revenue and consider the same appropriately. This ground of appeal of the Revenue is remitted to the Assessing Officer for fresh consideration. 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om limestone, was granted, under a lease dated March 4, 1949, from the Government of Jodhpur, the right to excavate limestone in certain areas. The lease expired on July 14, 1952, but it was extended by the Government for a short periods. Pursuant to a policy adopted by the Government, the Rajpramukh of Rajasthan sanctioned 15 sq. miles of lime deposits to the appellant on October 4, 1954, on the terms and conditions prescribed under the Jodhpur Division Vindhyan Limestone Mining Leases Rules, 1954. For the period July, 1952 to the date the new lease was to be given effect to, a fixed royalty of ₹ 96,000 per annum had to be paid on the basis of dead rent. Under the Jodhpur Division Vindhyan Limestone Mining Leases Rules, 1954, a mining lease could be granted only to a holder of a certificate of approval from the Mining Department and the lease was to be for a period of five years with an option for renewal for another period of five years. Dead rent was to be charged at ₹ 10 per acre while royalty was to be charged at 1 a. 6 ps. per maund of lump lime and 1 a. per maund of limestone. Rule 19 of the Rules laid dawn that the lessee shall not encroach upon cultivable land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o decide by matching the colour of one case against the colour of another. ABDUL KAYOOM V. COMMISSIONER OF INCOME-TAX [1962] 44 LT.R. 689 (S.C.) followed. It is not the law in every case, that if an enduring advantage is obtained the expenditure for securing it must be treated as capital expenditure, for the ordinary case, the cost of the material worked up in a manufactory is not a capital expenditure, it is a current expenditure, and does not become a capital expenditure merely because the material is provided by something like a forward contract, under which a person for the payment of a lump sum down secures a supply of the raw material for a period extending over several years, ALIANZA Co. v. BELL [1904] 2 K.B. 666 at 673 approved. Decision of the Rajasthan High-Court in COMMISSIONER OF INCOME-TAX V. GOTAN LIME SYNDICATE [1964] 51 I.T.R. 533 reversed. 18.5 In view of the above decision of the Hon ble Supreme Court, which was followed by the ld. CIT(A), we confirm the order passed by the ld. CIT(A) on this issue. Thus, the ground raised by the Revenue is dismissed. 19. The next ground raised in the appeal of the Revenue is that the ld. CIT(A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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