SARAF CHEMICALS LTD, MUMBAI V. DCIT CIR 7(2), MUMBAI

ITA 1135/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49267 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 10-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 11-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Depreciation; Search and seizure; Question of law; Valuation report; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NOS. 1135 & 1136/MUM/2010 & 7193/MUM/2008 (ASSESSMENT YEARS: 2003-04, 2004-05 & 2005-06) M/S. SARAF CHEMICALS LTD. DCIT. RANGE 7(2) 501, WATERFORD BLDG., 'C' WING 6TH FLOOR, AAYAKAR B HAVAN C.D. BARFIWALA ROAD, ANDHERI (W) VS. M.K. ROAD, MUMBAI 400020 MUMBAI 400058 PAN - AABCS 8425 M APPELLANT RESPONDENT APPELLANT BY: SHRI JITENDRA SANGHAVI RESPONDENT BY: SHRI S.K. SINGH O R D E R PER B. RAMAKOTAIAH, A.M. THESE ARE ASSESSEES APPEALS FOR ASSESSMENT YEARS 2 003-04, 2004-05 AND 2005-06 AGAINST THE ORDERS OF THE CIT(A) VII, M UMBAI DATED 03.11.2008 FOR A.Y. 2005-06 AND 06.11.2009 FOR OTHER TWO ASSES SMENT YEARS. 2. ASSESSEE RAISED COMMON GROUNDS IN ALL THE APPEALS W HICH ARE AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) VII, MUMBAI [CIT(A)] ERRED IN CONFIRMING THE DISALLOWANCE OF RS .3,00,000/- PER MONTH AND RS.1,75,000/- PER MONTH PAID TO MR. M .G. SARAF AND M/S. M.G. SARAF (HUF) TREATING THE SAME AS CAPI TAL IN NATURE. YOUR APPELLANT SUBMITS THAT UNDER THE FACTS AND CI RCUMSTANCES OF THE CASE THE ABOVE PAYMENTS MADE OUGHT TO HAVE B EEN HELD AS REVENUE IN NATURE AND THUS ALLOWED. 2. THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING T HE DISALLOWANCE OF AN AMOUNT OF RS.50,000/- PER MONTH AND AN AMOUNT OF RS.25,000/- PER MONTH PAID TO MR. M.G. SARAF AND M. G. SARAF (HUF) TOWARDS AGREEING AND UNDERTAKING NOT TO COMPE TE AND CEASE TO CARRY ON THE BUSINESS TREATING THE AMOUNTS PAID AS PER CAPITAL IN NATURE. 2 THE APPELLANT SUBMITS THAT UNDER THE FACTS AND CIR CUMSTANCES OF THE CASE THE AMOUNTS PAID SHOULD HAVE TREATED AS RE VENUE IN NATURE. 3. THE LEARNED CIT(A) FURTHER ERRED IN NOT TAKING I NTO ACCOUNT THE SUPPLEMENTARY DEED AND CLARIFICATORY DEED DATED 1.4 .2002 ENTERED INTO BY THE APPELLANT WITH THE ABOVE PARTIE S FOR THE APPORTIONMENT OF PAYMENTS BETWEEN RIGHT TO USE TRAD E NAME AND NON COMPETE FEES. YOUR APPELLANT SUBMITS THAT UNDER THE FACTS AND CI RCUMSTANCES OF THE CASE IT WAS NOT OPEN TO THE ASSESSING OFFICE R TO GIVE A DIFFERENT INTERPRETATION TO THE AGREEMENT ENTERED I NTO BY THE APPELLANT WITH THE ABOVE MENTIONED PARTIES. 4. WITHOUT PREJUDICE TO THE ABOVE CLAIM THAT THE LE ARNED CIT(A) SHOULD HAVE TAKEN INTO ACCOUNT THE SUPPLEMENTARY AN D CLARIFICATORY DEED ENTERED INTO BY THE ASSESSEE WIT H THE ABOVE PARTIES, THE LEARNED CIT(A) FURTHER ERRED IN NOT FO LLOWING THE PRINCIPLE OF APPORTIONMENT AND TREATING THE TOTAL AMOUNT OF RS.3,50,000 PER MONTH AND RS.2,00,000 PER MONTH TO MR. M.G. SARAF AND M/S. M.,G. SAFAR (HUF) RESPECTIVELY TOWAR DS NON COMPETE FEES ONLY. YOUR APPELLANT SUBMITS THAT UNDER THE FACTS AND CI RCUMSTANCES IF THE CASE THE AMOUNTS PAID SHOULD HAVE BEEN DULY APP ORTIONED BETWEEN THE RIGHT TO USE TRADE NAME AND NON COMPETE FEES AND THE AMOUNT SO APPORTIONED TOWARDS RIGHT TO USE TRAD E NAME SHOULD HAVE BEEN ALLOWED AS REVENUE IN NATURE. CONSEQUENT TO THE DECISION OF THE SPECIAL BENCH IN THE CASE OF TECUMSEH INDIA P. LTD. VS. ACIT 127 ITD 1 (SB) (DEL) ASSESSE E FILED ADDITIONAL GROUNDS OF APPEAL FOR THE RESPECTIVE ASSESSMENT YEARS AS UN DER: - 1. THE LEARNED ASSESSING OFFICER OUGHT TO HAVE GR ANTED DEPRECIATION U/S. 32 OF THE ACT ON PAYMENT IN RESPE CT OF NON- COMPETE COVENANT TREATED BY HIM AS CAPITAL EXPENDIT URE. 2. THE LEARNED ASSESSING OFFICER OUGHT TO HAVE GRAN TED DEPRECIATION U/S. 32 OF THE ACT ON THE TOTAL PAYMEN TS UNDER THE AGREEMENT TREATED AS CAPITAL EXPENDITURE AND OUGHT NOT RESTRICT THE SAME TO THE PAYMENT OF THE YEAR UNDER CONSIDERA TION. 3. BRIEFLY STATED, ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURING AND TRADING OF TEXTILE CHEMICALS AND AUXILIARIES INCLUD ING EXPORT THEREOF. ASSESSEE COMPANY ENTERED INTO SEPARATE AGREEMENTS E FFECTIVE FROM 01.09.1996 WITH THE PROPRIETORS OF TWO SISTER CONCE RNS, VIZ., SUPERTEX (INDIA) CORPORATION (PROPRIETOR M.G. SARAF) AND SUPERCHEM ( PROP. M.G. SARAF, HUF), 3 WHICH WERE ENGAGED IN TRADING OF CHEMICALS IN EARLI ER YEARS FOR A LONG PERIOD. AS PER THE AGREEMENTS THE ASSETS OF THE PROPRIETARY CONCERNS WERE VALUED AND THE BUSINESS WAS TAKEN OVER AS A GOING CONCERNS . IN ADDITION TO THE AMOUNTS PAID ON THE BASIS OF VALUATION REPORTS TOWA RDS ACQUIRING THE ASSETS AND LIABILITIES OF THE TWO PROPRIETARY CONCERNS, TH E COMPANY ALSO UNDERTOOK TO PAY A SUM OF ` 3.5 LAKHS PER MONTH TO SHRI M.G. SAFAR AND A SUM OF ` 2,00,000/- PER MONTH TO M.G. SARAF, HUF FOR A PERIO D OF 15 YEARS STARTING FROM 01.09.1996 TO 31.08.2011. THESE AMOUNTS WERE P AYABLE AS PER THE RELEVANT CLAUSES OF AGREEMENTS IN CONSIDERATION OF THE TRANSFER AND ASSIGNMENT OF SPECIFIC BUSINESS AS GOING CONCERN AN D CONSIDERING THE NON- COMPETE OBLIGATION UNDERTAKING BY THE AFORESAID TWO PROPRIETARY CONCERNS. ACCORDINGLY ASSESSEE CLAIMED THE TOTAL AMOUNT OF ` 66,00,000/- AS DEDUCTION IN THE RESPECTIVE ASSESSMENT YEARS, STATED TO BE AM OUNT OF ` 9,00,000/- TOWARDS ASSIGNMENT FEES AND ROYALTY OF ` 57,00,000/-. THIS CLAIM WAS FOR THE FIRST TIME MADE IN A.Y. 1997-98 AND IN SUBSEQUENT Y EARS AND THE A.O. IN THE RESPECTIVE SCRUTINY ASSESSMENTS HELD THE AMOUNT AS CAPITAL EXPENDITURE AND DISALLOWED THE SAME. THIS MATTER WAS CARRIED TO THE ITAT, WHICH BY THE ORDERS IN ITA 2218/MUM/2002 FOR A.Y. 1997-98 AND IT A NO. 3170/MUM/2002 FOR AY 1998-99 AND ITA NO. 3171/MUM/2 002 FOR A.Y. 1999-2000 DATED 17 TH OCTOBER 2005 HELD THAT THE AMOUNTS WERE CAPITAL IN NATURE. HOWEVER, DURING THE IMPUGNED ASSESSMENT YEA RS ASSESSEE MADE A SEPARATE CLAIM ON THE BASIS OF THE SUPPLEMENTARY AG REEMENT ENTERED INTO BY ASSESSEE COMPANY W.E.F. THE FIRST DAY OF APRIL 2002 WITH THE ABOVE SAID TWO PERSONS ON THE BASIS OF WHICH THE PAYMENT OF ` 3, 50,000/- AND ` 2,00,000/- PAYABLE TO THE RESPECTIVE PARTIES WERE IN TURN BIFU RCATED AS ` 3,00,000/- TOWARDS USE OF TRADE NAME SUPERTEX AND ` 50,000/- TOWARDS NON COMPETE FEES IN THE CASE OF M.G. SARAF AND ` 1,75,000/- TOWARDS USE OF TRADE NAME SUPERCHEM AND ` 25,000/- TOWARDS NON-COMPETE FEES TO M.G. SARAF, HU F. ON THE BASIS OF THESE SUPPLEMENTARY AGREEMENTS ASSE SSEE CLAIMED THE AMOUNTS AS ASSIGNMENT FEES AND ROYALTY FOR THE USE OF TRADE NAME. THE A.O., WHILE RELYING ON THE FINDINGS OF THE ITAT WITH REFE RENCE TO THE ORIGINAL AGREEMENT ALSO HELD THAT THE SUPPLEMENTARY AGREEMEN TS IN THE NAME OF 4 MAKING A CLARIFICATORY DEED WAS A COLOURABLE TRANSA CTION AND THE REAL PURPOSE WAS TO SCUTTLE THE LEGAL AND FACTUAL CONCLU SION TAKEN BY THE ITAT. FURTHER HE ALSO HELD THAT THE CLARIFICATORY DEED WA S A SHAM TRANSACTION AND WAS STAGE-MANAGED MERELY WITH A VIEW TO EVADE INCOM E-TAX, VIDE PARA 4.17 AND 4.18 OF THE ASSESSMENT ORDER. THUS UPHOLDING TH E STAND TAKEN EARLIER AO DISALLOWED THE AMOUNT PAID TO THE TUNE OF ` 66,00,000/- HOLDING IT FOR NON-COMPETE FEES AND AS CAPITAL EXPENDITURE. AGGRIE VED BY THE SAID ORDER ASSESSEE PREFERRED APPEALS BEFORE THE CIT(A). THE C IT(A) IN THE RESPECTIVE ORDERS NOT ONLY RELIED ON THE FINDINGS OF THE ITAT IN EARLIER YEARS BUT ALSO AGREED WITH THE ASSESSING OFFICERS CONTENTIONS THA T SUPPLEMENTARY/CLARIFICATORY DEED DOES NOT CHANGE TH E ISSUE DURING THIS YEAR AS THE SAME IS AN AFTERTHOUGHT OF ASSESSEE AND WHI CH HAVE BEEN RIGHTLY HELD BY THE A.O. AS A SHAM TRANSACTION AND STAGE MANAGED JUST TO ESCAPE FROM THE ITAT ORDER AGAINST ASSESSEE IN ITS OWN CASE. T HUS HOLDING, THE CIT(A) REJECTED ASSESSEES CONTENTIONS MORE SO RELYING ON THE ORDER OF THE ITAT. 4. THE LEARNED COUNSEL REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. AND RELYING ON THE SUPPLEMENTARY DEEDS SUBMITT ED THAT THE INTENTION TO PAY THE AMOUNTS BY ` 3,00,000/- AND ` 2,50,000/- PER MONTH TO THE TWO PROPRIETARY CONCERNS HAVE LED TO CERTAIN COMPLICATI ONS, THEREFORE, BEFORE THE ISSUE WAS FINALISED BY THE ITAT, VIDE AGREEMENT DAT ED 01.04.2002 ASSESSEE HAS CLARIFIED AND BIFURCATED THE AMOUNT TOWARDS ASS IGNMENT FEES AND ROYALTY FOR USE OF TRADE NAME AND RELIED ON THE CLA USES OF THE SUPPLEMENTARY DEED TO SUBMIT THAT THE ROYALTY FOR USE OF TRADE NA ME IS REVENUE EXPENDITURE. WHILE ADMITTING THAT THE SPECIAL BENCH OF THE ITAT IN THE CASE OF TECUMSEH INDIA P. LTD. VS. ACIT 127 ITD 1 (SB) ( DEL) HELD THAT NON- COMPETE FEES BEING IN THE NATURE OF CAPITAL EXPENDI TURE CANNOT BE ALLOWED AS REVENUE EXPENDITURE, THE LEARNED COUNSEL HOWEVER, S UBMITTED THAT ASSESSEE IS ENTITLED TO DEPRECIATION ON THE PORTION OF NON-C OMPETE FEES AND RELIED ON THE ORDERS OF THE ITAT IN THE CASE OF REAL IMAGE TE CH P. LTD. 177 TAXMAN 80 (CHENNAI) FOR THE PROPOSITION THAT THE RIGHT ACQUIR ED BY ASSESSEE BY PAYMENT OF NON-COMPETE FEES IS IN THE NATURE OF AN INTANGIBLE ASSET AND 5 ASSESSEE IS ENTITLED TO DEPRECIATION THEREON. HE AL SO RELIED ON THE DECISION IN THE CASE OF ITO VS. MEDICROP TECHNOLOGIES INDIA LTD . 30 SOT 506 (CHENNAI) TO SUBMIT THAT EVENTHOUGH THE CLAIM WAS NOT ORIGINA LLY MADE ASSESSEE IS ENTITLED TO MAKE AN ALTERNATIVE CLAIM OF DEPRECIATI ON UNDER SECTION 32(1) ON NON-COMPETE FEES, THEREFORE, ASSESSEE HAS RAISED TH E ADDITIONAL GROUND REGARDING THE CLAIM OF DEPRECIATION. HE ALSO RELIED ON THE DECISION OF THE ITAT CHENNAI BENCH IN THE CASE OF ORCHID CHEMICALS AND PHARMACEUTICALS LTD. VS. SCIT 7 ITR (TRIB) 601 (CHENNAI) THAT THE A DDITIONAL GROUNDS RAISED ARE GROUNDS INVOLVING THE QUESTION OF LAW WHICH CAN BE RAISED AT ANY STAGE OF APPEAL PROCEEDINGS AND THEREFORE THE ADDITIONAL GROUNDS ARE TO BE ADMITTED AND ADJUDICATED UPON. 5. CONTINUING THE ARGUMENTS THE LEARNED COUNSEL PLACED ON RECORD THE ANNUAL REPORTS OF ASSESSEE FROM FINANCIAL YEAR 2000-01 TO 2004-05 TO SUBMIT THAT UPTO ANNUAL REPORT 2001-02, I.E. BEFORE ENTERING INTO THE SUPPLEMENTARY AGREEMENT THE CLAIM WAS AS NON-COMPET E FEES MADE IN THE BOOKS OF ACCOUNT WHEREAS W.E.F. 2002-03 ONWARDS THE CLAIM WAS MADE ON THE BASIS OF THE SUPPLEMENTARY AGREEMENT AS ASSIGNM ENT FEES OF ` 9,00,000/- AND ROYALTY FOR USE OF TRADE NAME OF ` 57,00,000/- AND SUBMITTED THAT THIS TRANSACTION WAS NOT A COLOURABLE TRANSACTION OR SHA M TRANSACTION AS THE SUPPLEMENTARY AGREEMENT WAS ENTERED ONLY TO CLARIFY THE BASIS FOR THE PAYMENT BEING MADE IN THE ORIGINAL AGREEMENT. HE SU BMITTED THAT EVEN THE HON'BLE SUPREME COURT IN THE CASE OF CONTINENTAL CO NSTRUCTION LTD. VS. CIT 60 TAXMAN 429 HELD THAT WHERE THERE IS A COMPOSITE AGREEMENT IT WAS THE DUTY OF THE REVENUE AND THE RIGHT OF ASSESSEE TO SE E THAT THE CONSIDERATION PAID UNDER THE CONTRACT LEGITIMATELY ATTRIBUTABLE T O SUCH INFORMATION AND SERVICES WAS APPORTIONED AND ASSESSEE WAS GIVEN THE BENEFIT OF THE DEDUCTION AVAILABLE UNDER THE SECTION TO THE EXTENT OF SUCH CONSIDERATION (60 TAXMAN 429, PG. 433). RELYING ON THE ABOVE PRINCIPL ES THE LEARNED COUNSEL PARTICULARLY SUBMITTED THAT IF A LITIGATION IS PART LY FOR THE PURPOSE OF PRESERVING OR MAINTAINING ASSESSEES ASSETS AND PAR TLY FOR ANOTHER PURPOSE, I.E. TO ACQUIRE INDIVIDUAL ASSETS WITHOUT APPORTION OF EXPENDITURE WHICH IS 6 INCURRED FOR FORMER PURPOSES SHOULD BE ALLOWED AS R EVENUE EXPENDITURE (RELIED ON TRANSPORT CO. LTD. VS. CIT 31 ITR 259) A ND OTHER PORTION SHOULD BE DISALLOWED AS BEING CAPITAL GAIN (INDIAN COPPER CORPORATION LTD. VS. CIT 110 ITR 434). IT WAS THE SUBMISSION OF THE LEARNED COUNSEL THAT THE AMOUNT WAS PAID BOTH FOR THE USE OF TRADE MARK AND FOR NON -COMPETE FEE, THE AMOUNT TO THE EXTENT OF USE OF TRADE MARK SHOULD BE ALLOWED AS REVENUE AND THE AMOUNT TO THE EXTENT OF NON-COMPETE FEES, E VENTHOUGH CONSIDERED AS CAPITAL EXPENDITURE SHOULD BE CONSIDERED FOR ALL OWANCE OF DEPRECIATION, THE ADDITIONAL GROUNDS RAISED ON THAT ISSUE. 6. THE LEARNED D.R. WHILE ADMITTING THAT THE ANNUAL RE PORTS PLACED ON RECORD BY ASSESSEE HAVE BEEN VERIFIED FROM THE ASS ESSMENT RECORDS AND ASSESSEE HAS SHOWN BIFURCATION OF ASSIGNMENT FEES O F ` 9.00,000/- AND ROYALTY OF ` 57,00,000/- FROM THE YEAR 2002-03, IT WAS HIS SUBMI SSION THAT THE SUPPLEMENTARY DEED DOES NOT CHANGE THE CONTENTS OF ORIGINAL AGREEMENTS AND THE ENTIRE PAYMENT MADE AS PER THE AGREEMENTS E FFECTIVE FROM 01.09.1996 WAS ENTIRELY FOR ACQUIRING THE BUSINESS AS SUCH WHICH INCLUDED NON-COMPETE CLAUSE FOR A PERIOD OF 15 YEARS. IT WAS HIS SUBMISSION THAT EVENTHOUGH THE PAYMENTS WERE MADE PERIODICALLY THE AMOUNTS WERE CRYSTALLISED BY THE ORIGINAL AGREEMENT, THE AGREEME NT OF WHICH WAS CONSIDERED BY THE ITAT IN ITS WISDOM AND HELD THAT THE PAYMENTS ARE ENTIRELY CAPITAL IN NATURE. THEREFORE THE PRESENT A GREEMENT RELIED UPON BY ASSESSEE AS SUPPLEMENTARY/ CLARIFICATORY AGREEMENTS DOES NOT CHANGE THE ORIGINAL NATURE OF THE PAYMENTS AND RELYING ON THE ORDERS OF THE ITAT IN EARLIER YEARS THE AMOUNT HAS TO BE CONSIDERED AS CA PITAL EXPENDITURE, EVEN IF THE PRESENT AGREEMENTS WERE CONSIDERED. IT WAS HIS CASE THAT THE SUPPLEMENTARY CLARIFICATORY DEEDS WILL NATURALLY AC QUIRE ITS LEGITIMACY ON THE TERMS ORIGINALLY AGREED BETWEEN THE PARTIES AND SIN CE THE ORIGINAL AGREEMENT WAS ALREADY CONSIDERED BY THE ITAT IN ITS ENTIRETY THE NATURE OF THE PAYMENT EVENTHOUGH NOW TREATED BY THE PARTY DIFFERENTLY CAN NOT BE CHANGED. IT WAS FURTHER SUBMITTED THAT THE ITAT SPECIAL BENCH IN TH E CASE OF TECUMSEH INDIA P. LTD. VS. ACIT 127 ITD 1 (SB) (DEL) HAS CON SIDERED VARIOUS CASE LAW 7 ON THE ISSUE AND HELD THAT NON-COMPETE FEES IS CAPI TAL IN NATURE AND SINCE THIS AGREEMENT WAS ENTERED AND THE BUSINESSES WERE ACQUIRED PRIOR TO THE 1 ST OF APRIL 1998, PROVISIONS OF SECTION 32(1)(II) WIT H REFERENCE TO INTANGIBLE ASSETS DOES NOT APPLY TO THE FACTS OF THE CASE. THE ORIGINAL RIGHTS WERE ACQUIRED AS EARLY AS 01.09.1996, THEREFORE, THE DEP RECIATION ON THE NON- COMPETE FEES WAS NOT ELIGIBLE EVENTHOUGH THE PAYMEN TS ARE MADE REGULARLY IN RESPECTIVE ASSESSMENT YEARS. IT WAS HIS SUBMISSI ON THAT THE CASE LAWS RELIED UPON BY THE LEARNED COUNSEL ARE DISTINGUISHA BLE ON THE FACT THAT THEY WERE GIVEN IN THE CONTEXT OF INTANGIBLE ASSETS BEIN G ALLOWED FOR DEPRECIATION WHICH ARE ACQUIRED AFTER 01.04.1998. SINCE THE ORIG INAL AGREEMENT WAS PRIOR TO THAT ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION O N THE NON-COMPETE FEES TREATED AS CAPITAL EXPENDITURE. THEREFORE ASSESSEE S GROUNDS ARE TO BE REJECTED. 7. THE LEARNED COUNSEL IN REPLY FURTHER SUBMITTED THAT THE TRIBUNAL HAS NOT CONSIDERED THE HON'BLE SUPREME COURT JUDGEMENT IN THE CASE OF CONTINENTAL CONSTRUCTION LTD. AND IT SHOULD HAVE AP PORTIONED THE AMOUNT TOWARDS USE OF TRADE MARK AND USE OF NON-COMPETE FE ES AND ACCORDINGLY THE ORDER REQUIRES MODIFICATION SO AS TO BE IN CONFORMI TY WITH THE JUDGEMENT OF THE HON'BLE SUPREME COURT RELIED UPON (60 TAXMAN 42 9 DATED 15.01.1992). 8. WE HAVE CONSIDERED THE ISSUE AND ARGUMENTS OF THE R IVAL PARTIES AND EXAMINED THE RECORD. AS STATED EARLIER THE AGREEMEN T EFFECTIVE FROM 01.09.1996 WAS CONSIDERED BY THE ITAT VIDE ORDER DA TED 17.10.2005 AND HELD THAT THE PAYMENT IS CAPITAL IN NATURE. NOT ONL Y THAT AT THE TIME OF CONSIDERING THE ISSUE FOR A.Y. 1997-98 THE SUPPLEME NTARY DEEDS WHICH WERE ENTERED W.E.F. 01.04.2002 HAVE NOT BEEN PLACED ON R ECORD FOR THE REASONS BEST KNOWN TO ASSESSEE AND SO NOT CONSIDERED BY TH E ITAT, EVENTHOUGH THE SAID AGREEMENTS WERE SUPPOSED TO HAVE BEEN ENTERED AND ACTED UPON. BE THAT AS IT MAY, WE HAVE CONSIDERED WHETHER THE SUPP LEMENTARY AGREEMENT WILL MODIFY THE TERMS OF THE ISSUE AND THE EXPENDIT URE CAN BE CONSIDERED AS REVENUE IN NATURE. WE ARE AFRAID THAT THE SUPPLEMEN TARY/CLARIFICATORY DEEDS DOES NOT CHANGE THE NATURE OF PAYMENTS, AS THE ITAT HAS CONSIDERED THE 8 ISSUE IN ITS ENTIRETY. AT THE TIME OF ARGUING THE M ATTER IT WAS SUBMITTED THAT THE PAYMENT OF `66, 00,000/- COMPRISES OF THE FOLLOWING CONSIDERATIONS: (A) RIGHT TO USE TRADE MARKS AND TRADE NAMES, (II) RIGH T TO USE PREMISES OF KAKA CHAMBERS, WORLI, AND (III) NON-COMPETE FEES PAYMENT . THESE ARGUMENTS OF ASSESSEE WERE EXTRACTED IN PARA 8 OF THE ORDER. THE ITAT HAD CONSIDERED THE CONTENTIONS AND HELD AS UNDER: - 9. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE EL ABORATE SUBMISSIONS MADE BEFORE US BY BOTH THE SIDES. WE HA VE ALSO CAREFULLY GONE THROUGH THE FACTS AS EMERGING FROM T HE RECORD AND HAVE CONSIDERED THE PRECEDENTS CITED BEFORE US. FI RST OF ALL, IT WOULD BE FRUITFUL TO REFER TO THE RELEVANT AGREEMENTS ENT ERED INTO BY THE ASSESSEE COMPANY WITH THE TWO PROPRIETARY CONCERNS. THESE AGREEMENTS ARE, MUTATIS MUTANDIS, SIMILARLY DRAFTED AND THEREFORE WE WILL REFER TO THE RELEVANT CLAUSES OF THE AGREEM ENT DATED 2.9.96 ENTERED INTO BY THE ASSESSEE COMPANY WITH SHRI M.G. SARAF. IN THE PRELIMINARY CLAUSE, THE PURPOSE OF THE AGREEMENT IS INDICATED AT PAGE 4 OF THE AGREEMENT, RELEVANT PART OF WHICH MAY BE R EPRODUCED BELOW. WHEREAS WITH A VIEW TO ACHIEVE ITS ULTIMATE OBJECT IVE, THE PARTY HERETO OF THE SECOND PART APPROACHED THE PARTY HERETO OF THE FIRS T PART WITH A PROPOSAL TO TAKEOVER AS A RUNNING BUSINESS/GOING CONCERN THE RU NNING BUSINESS AND INFRASTRUCTURAL FACILITIES, INCLUDING THE CONTINUED USE OF THE REGISTERED TRADE NAME OF THE BUSINESS OF DEALING IN TEXTILE CHEMICALS & AUXIL IARIES CARRIED ON UNDER THE NAME OF SUPERTEX (INDIA) CORPORATION (HEREINAFTER REFERR ED TO AS SPECIFIED BUSINESS) FROM THE PARTY HERETO OF THE FIRST PART. WHEREAS THE PARTIES HERETO OF BOTH THE PARTS HAD A NUMBER OF MEETING FOR DISCUSSION AND NEGOTIATING THE TERMS AND CONDITIONS OF SUCH ASSIGNMENTS AND HAVE ARRIVED AT THE TERMS ON WHICH THE PARTY OF THE FIRS T PART HAS AGREED TO TRANSFER AND ASSIGN AS A GOING CONCERN WITH ALL ASSETS, RIGHTS, PROPERTIES AND LIABILITIES INCLUDING ALL THE OTHER FIXED ASSETS, CURRENT ASSETS UNINTERR UPTED SERVICES OF THE EMPLOYEES AND ALL OTHER FACILITIES AS OWNED BY THE PARTY HERE TO OF THE FIRST PART IN HIS CAPACITY AS A PROPRIETOR OF SUPERTEX AND THE PARTY HERETO OF THE SECOND PART HAS AGREED TO ACQUIRE THE SAME ON THE BASIS OF THE TERMS AND COND ITIONS AGREED UPON BY AND BETWEEN THE PARTIES AND RECORDED HEREAFTER. FROM THE ABOVE, IT MAY BE SEEN THAT AS A RESULT OF EXECUTING BOTH THE AGREEMENTS, THE PROPRIETARY BUSINESS, FOR ALL PRACT ICAL AND LEGAL PURPOSES, HAS O COME TO AN END. IN OTHER WORDS, THE SE BUSINESS WOULD COMPLETELY GET MERGED WITH THE ASSESSEE COMPA NY WITH ALL ASSETS, RIGHTS, PROPERTIES, LIABILITIES, ETC. APPAR ENTLY, THIS IS A CASE WHERE THE PROPRIETARY BUSINESS HAS BEEN ACQUIRED BY THE ASSESSEE COMPANY AS A GOING CONCERN. 10. THE NON-COMPETE OBLIGATION IS STIPULATED IN C LAUSE 2 OF THE AGREEMENT, WHICH IS AS UNDER: FROM THE DATE OF TRANSFER OF BUSINESS BY SUPERTEX TO THE COMPANY IN TERMS HEREOF, THE PROPRIETOR SHALL NOT COMPETE WITH THE COMPANY, NEITHER ON HIS OWN ACCOUNT NOR THROUGH ANY PROPRIETARY OR PARTNERSHIP CONCERN WITH THE COMPANY IN RESPECT OF THE 9 BUSINESS ASSIGNED AND TRANSFERRED BY THE PARTY HERE TO OF THE FIRST PART TO THE PARTY OF THE SECOND PART FOR A PERIOD OF FIFTEEN YEARS FR OM THE DATE OF TRANSFER AND ASSIGNMENT OF THE SPECIFIED BUSINESS IN ALL THE TER RITORIES. IT MAY BE SEEN THAT IN CLEAR TERMS, THE PROPRIETARY CONCERNS HAVE UNDERTAKEN NOT TO COMPETE WITH THE ASSESSEE COMPANY IN ANY WAY FOR A PERIOD OF 15 YEARS. IN CLAUSE 5 OF THE AGREEM ENT, IT WAS FURTHER STIPULATED THAT WITH THE TRANSFER AND ASSIGNMENT OF THE BUSINESS OF SUPERTEX, THE PROPRIETOR SHALL CEASE TO CARRY ON TH E BUSINESS OF DEALING IN TEXTILE CHEMICALS AND AUXILIARIES EITHER IN THE NAME OF SUPERTEX OR IN ANY OTHER NAME. THE CONSIDERATION RE CEIVABLE BY THE PROPRIETARY BUSINESS IS STIPULATED IN CLAUSE 6 AND 7 OF THE AGREEMENT, WHICH ARE AS UNDER: THE PROPRIETOR AGREES TO TRANSFER AND THE COMPANY AGREES TO ACQUIRE THE FIXED ASSETS OF THE SPECIFIED BUSINESS AS DESCRIBED IN AN NEXURE A TO THIS AGREEMENT AT A VALUE AS MAY BE ARRIVED AT ON THE BASIS OF THE REPO RT OF A VALUER AND PAY FOR THE SAID VALUE SO DETERMINED WITHIN THREE MONTHS FROM T HE DATE OF THE VALUATION REPORT, WHICH IN ANY CASE SHALL NOT BE LATER THAN 31.12.97. IN CONSIDERATION OF THE TRANSFER AND ASSIGNMENT OF THE SPECIFIED BUSINESS AS A GOING CONCERN AND CONSIDERING THE NO COMPETE OBLIGATION UNDERTAKEN BY THE PROPRIETOR, THE COMPANY SHALL PAY TO THE PROPRIETOR A SUM OF RS .3,50,000/- PER MONTH FOR A PERIOD OF 15 YEARS STARTING FROM 1.9.96 TILL 31.8.2 011. SUBJECT TO DEDUCTION OF TAX, IF ANY, UNDER THE RELEVANT PROVISIONS OF THE IT ACT. T HE SAID SUM OF RS.3,50,000/- SHALL ACCRUE AND BECOME DUE AT THE END OF EACH CALE NDAR MONTH. FROM THE ABOVE, IT MAY BE SEEN THAT ALL FIXED ASSET S AS PER ANNEXURE A HAVE TO BE VALUED BY A VALUER. CLAUSE 7 MENTIONS THAT IN CONSIDERATION OF THE TRANSFER AND ASSIGNMENT OF THE SPECIFIED BUSINESS AS A GOING CONCERN AND CONSIDERING THE NO COMPETE OBLIGATION UNDERTAKEN BY THE PROPRIETOR, THE COMPAN Y SHALL PAY A SUM OF RS.3.50 LAKHS PER MONTH FOR A PERIOD OF 15 YEARS . IT IS TRUE THAT THE ASSESSEE COMPANY WOULD ALSO GET THE BENEFIT OF THE EXCLUSIVE USE OF TRADEMARKS AS ALSO THE TENANTED PREMISES, WHICH ARE INSEPARABLE PART OF THE PROPRIETARY BUSINESS AS A GOING CONCERN . THE AGREEMENT ENSURES THAT THE ERSTWHILE PROPRIETOR SHALL CEASE T O HAVE ANY INTEREST WHATSOEVER IN THIS BUSINESS OR IN THE TRADEMARKS ET C. THE PROPRIETOR HAS ALSO BEEN DEBARRED TO CARRY ON SUCH BUSINESS IN ANY NAME FOR A PERIOD OF 15 YEARS. IT IS NOTABLE THAT THIS IS A CO MPOSITE AGREEMENT FOR ACQUISITION OF THE PROPRIETARY BUSINESS AS A GOING CONCERN AS WELL AS FOR DEBARRING THE ERSTWHILE PROPRIETARY CONCERNS CO MPETING WITH THE ASSESSEE COMPANY FOR A PERIOD OF 15 YEARS. THE CONS IDERATION FOR THIS OBLIGATION HAS TO BE CALCULATED AS PER CLAUSES 6 AN D 7 REPRODUCED ABOVE. ALL FIXED ASSETS HAVE TO BE VALUED AND SUCH VALUE DETERMINED BY THE VALUER HAS TO BE PAID BY THE ASSESSEE COMPAN Y. OVER AND ABOVE THIS PAYMENT, THE CONSIDERATION OF THE TRANSF ER AND ASSIGNMENT OF THE BUSINESS AS A GOING CONCERN AND IN CONSIDERA TION OF NO COMPETE OBLIGATION UNDERTAKEN BY THE PROPRIETOR, T HE ASSESSEE COMPANY HAS UNDERTAKEN TO PAY A SUM OF RS.3.5 LAKHS PER MONTH FOR A PERIOD OF 15 YEARS DURING WHICH NO COMPETE AGRE EMENT SHALL BE IN FORCE. 10 9. AFTER THAT THE ITAT CONSIDERED VARIOUS CASE LAWS RE LIED UPON BY BOTH THE PARTIES FROM PARA 11 TO 15, WHICH WE DO NOT INT END TO EXTRACT HERE.FINDINGS BY THE ITAT IN PARAS 16 & 17, WHICH A RE MATERIAL FOR DECIDING THE ISSUE ARE AS UNDER: - 16. ON A CAREFUL CONSIDERATION OF THE LEGAL POSITI ON AS APPLIED TO THE FACTS OF THE ASSESSEES CASE, IN OUR VIEW, THE PAYMENT MADE BY THE ASSESSEE COMPANY TO THE TWO PROPRIETARY CONCERN S FOR A PERIOD OF 15 YEARS AS PER THE TERMS AND CONDITIONS OF THE AGR EEMENT CANNOT BE TREATED AS REVENUE EXPENDITURE. THE PROPRIETARY CON CERNS HAVE BEEN ACQUIRED BY THE ASSESSEE COMPANY AS GOING CONCERNS. THE TWO PROPRIETORS, BY VIRTUE OF THIS AGREEMENT, HAVE TRAN SFERRED THE RESPECTIVE BUSINESS ALONG WITH RIGHTS, ASSETS AND L IABILITIES WHICH INCLUDED TRADEMARKS ETC. IN ADDITION TO THE VALUE O F THE ASSETS, THE ASSESSEE COMPANY HAS UNDERTAKEN TO PAY A SUM OF RS. 3.5 LAKHS PER MONTH TO ONE PROPRIETOR AND ANOTHER SUM OF RS.2 LAK HS PER MONTH TO ANOTHER PROPRIETOR WHICH IS CLEARLY FOR ELIMINATING COMPETITION IN THE SAME LINE OF BUSINESS FOR A SUFFICIENTLY LONG PERIO D OF 5 YEARS. THE USER OF TRADEMARK, IF ANY, BY THE ASSESSEE COMPANY IS ONLY AN INSEPARABLE PART OF THE ENTIRE ARRANGEMENT. BY THE NON-COMPETE CLAUSE OF THE AGREEMENT, THE ERSTWHILE PROPRIETORS ARE AUTOMATICALLY EXCLUDED FROM USE OF SUCH TRADEMARKS AND THEY HAVE BOUND THEMSELVES CONTRACTUALLY NOT TO CARRY ON SIMILAR BU SINESS ACTIVITY IN WHATEVER NAMES FOR A PERIOD OF 15 YEARS. AS A CONSI DERATION, THE IMPUGNED MONTHLY PAYMENTS ARE TO BE PAID BY THE ASS ESSEE COMPANY FOR A PERIOD OF 15 YEARS. THIS MEANS THAT O N THE EXPIRY OF THE NON-COMPETE PERIOD OF 15 YEARS, THE PAYMENTS WO ULD ALSO CEASE TO BE MADE. WE DO NOT FIND MUCH MERIT IN THE ARGUME NTS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE PAYMENTS ARE PART LY ATTRIBUTABLE TO THE BENEFIT ACQUIRED BY THE ASSESSEE COMPANY BY WAY OF USE OF THE TENANTED PREMISES AT A NOMINAL RENT. THERE IS NO RE FERENCE TO THIS FACT IN THE AGREEMENT. FURTHER, THE LANDLORD OR OWNER OF SUCH PREMISES IS NOT A PARTY TO THE AGREEMENT AND EVEN IF SOME BENEF IT HAS ACCRUED TO THE ASSESSEE COMPANY, IT IS ENTIRELY ON ACCOUNT OF THE RENT CONTROL ACT, WHICH MAY BE APPLICABLE. THE BUSINESS PREMISES EITHER OWNED OR RENTED HAVE BEEN TAKEN OVER BY THE ASSESSEE COMPANY AS PART OF THE OVERALL AGREEMENT OR ARRANGEMENT FOR PURCHASE OF PR OPRIETARY BUSINESS AS GOING CONCERN ALONG WITH ALL ASSETS AND LIABILITIES. 17. ANOTHER ARGUMENT SUBMITTED BY THE LD. COUNSEL F OR THE ASSESSEE THAT ONE OF THE PROPRIETORS, VIZ. M.G. SAR AF, HUF AGREED FOR INCLUSION OF THE AMOUNT IN ITS TOTAL INCOME FOR TAX ATION PURPOSES, IN OUR VIEW, HAS ONLY SOME PERSUASIVE VALUE. IN OUR VI EW, THE TREATMENT GIVEN IN THE HANDS OF THE RECIPIENT DOES NOT DETERM INE THE NATURE OF THE PAYMENT IN THE CASE OF THE PAYEE. THE VARIOUS C ASES WHICH HAVE BEEN REFERRED TO ABOVE AND WHICH ARE DIRECTLY ON TH E POINT, MAKE IT 11 ABUNDANTLY CLEAR THAT NON-COMPETE FEES HAVE TO BE T REATED AS CAPITAL EXPENDITURE. WE, THEREFORE, REVERSE THE FINDING OF THE LD. CIT(A) ON THE ISSUE AND THE AO IS DIRECTED TO DISALLOW THE RELEVA NT EXPENDITURE TREATING IT TO BE CAPITAL EXPENDITURE. AS CAN BE SEEN FROM THE ABOVE THE ITAT CONSIDERED T HE ENTIRE AGREEMENT AND HELD THAT USE OF TRADE MARK, IF ANY, BY THE ASSESSE E COMPANY IS ONLY AN INSEPARABLE PART OF THE ENTIRE AGREEMENT. BY THE NO N-COMPETE CLAUSE OF THE AGREEMENT ERSTWHILE OWNERS ARE AUTOMATICALLY EXCLUD ED FROM USE OF SUCH TRADE MARK AND THEY HAVE BOUND THEMSELVES CONTRACTU ALLY NOT TO CARRY ON SIMILAR ACTIVITIES IN WHATEVER NAME FOR A PERIOD OF 15 YEARS. IN VIEW OF THIS, SINCE THE PAYMENT WAS COMPOSITE PAYMENT AT THE TIME OF ACQUIRING THE BUSINESS, EVENTHOUGH PAYABLE OVER A PERIOD OF 15 YE ARS IN MONTHLY INSTALMENTS, THE ITAT CAME TO A CONCLUSION THAT THE AMOUNT HAS TO BE TREATED AS CAPITAL EXPENDITURE. 10. IN VIEW OF THE CLEAR FINDINGS OF THE ITAT ON THE OR IGINAL AGREEMENT, WE ARE OF THE OPINION THAT THE SUPPLEMENTARY AGREEMENT BIFURCATING THE MONTHLY PAYMENTS INTO USE OF TRADE MARK AND NON-COM PETE FEE DOES NOT HELP ASSESSEES CASE. SINCE THE PAYMENTS WERE ALSO HELD TO BE CAPITAL IN NATURE, RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISION WE AGREE WITH THE FINDINGS OF THE CIT(A) THAT THE AMOUNTS CANNOT BE ALLOWED A REVENUE EXPENDITURE. IN THE COURSE OF ARGUMENT THE LEARNED COUNSEL TRIED TO DISTINGUISH THE FACTS IN THE PRESENT ISSUE WITH THA T OF THE EARLIER YEAR WHEN THE ITAT HAS CONSIDERED THE ISSUE. IT WAS HIS SUBMI SSION THAT CONSEQUENT TO THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME C OURT IN THE CASE OF CONTINENTAL CONSTRUCTION LTD. VS. CIT 60 TAXMAN 429 , THE ITAT IS BOUND TO APPORTION THE AMOUNT PAID TOWARDS VARIOUS SERVICES AND ACCORDINGLY THE AMOUNT PAID TOWARDS USE OF TRADE MARKS SHOULD BE CO NSIDERED AS REVENUE AND THE AMOUNT PAID FOR NON-COMPETE FEES SHOULD BE CONSIDERED AS CAPITAL EXPENDITURE. WE ARE UNABLE TO PURSUE OURSELVES WITH THE ARGUMENT OF THE LEARNED COUNSEL. FIRST OF ALL, AS SEEN FROM THE AGR EEMENTS ENTERED WITH THE ERSTWHILE PROPRIETARY CONCERNS BY ASSESSEE COMPANY DATED 02.09.1996 EFFECTIVE FROM 01.09.1996 THE AGREEMENTS WERE VERY CLEAR THAT THE ENTIRE 12 SPECIFIED BUSINESS WAS TRANSFERRED AS ONGOING CONCE RN TO THAT OF THE COMPANY. THIS ASPECT WAS ALSO DISCUSSED BY THE ITAT IN ITS ORDER IN PARA 10, WHICH WAS EXTRACTED ABOVE. THE SPECIFIED BUSINESS A S DEFINED IN THE AGREEMENT INCLUDES THE RUNNING BUSINESS AND INFRAST RUCTURAL FACILITIES, INCLUDING CONTINUED USE OF REGISTERED TRADE NAMES O F THE COMPANIES, I.E. THE NAME OF SUPERTEX AND SUPERCHEM IN THE RESPECTIVE CA SES. NOT ONLY THAT VIDE CLAUSE 1, THE SPECIFIED BUSINESS WITH ITS ASSETS AN D LIABILITIES AS A RUNNING BUSINESS/GOING CONCERN INCLUDING WITHOUT LIMITING T HE GENERALITY THEREOF, WAS TAKEN OVER BY ASSESSEE. CLAUSE 1.1 IS FOR RIGHT TO USE THE TRADE NAME SUPERTEX/SUPERCHEM. CLAUSE 1.2 IS FOR ASSETS, WHICH ARE FREE FROM ALL LIENS AND ENCUMBRANCES, WHETHER LEGAL OR OTHERWISE INCLUD ING THE RIGHTS, TITLE AND INTEREST OF THE PROPRIETORS IN SUPERTEX/SUPERCHEM. CLAUSE 1.6 & 1.7 ARE SPECIFIC WITH REFERENCE TO TRADE MARKS AND RIGHT TO USE TRADE MARK WHICH ARE AS UNDER: - 1.6 THE TRADE MARK AND TRADE NAME REGISTERED BY SU PERTEX FOR THE PRODUCT SOLD BY IT. 1.7 THE RIGHTS TO USE THE NAME OF SUPERTEX REGISTERED B Y THE PROPRIETOR WITH THE REGISTRAR OF TRADE MARKS. THE SAME IS REITERATED IN THE SO CALLED SUPPLEMENTA RY AND CONFIRMATION DEED ENTERED ON THE FIRST DAY OF APRIL 2002. THROUGH THI S SUPPLEMENTARY AND CONFORMATION DEED THE RIGHTS, TITLE AND BENEFITS, W HICH ARE ACCRUED IN THE ORIGINAL AGREEMENT CONTINUES TO BE AVAILABLE WITH ASSESSEE COMPANY. IN THE GUISE OF CLAUSE 7 OF THE SUPPLEMENTARY AND CONFIRMA TION DEED ONLY BIFURCATES THE MONTHLY PAYMENT TOWARDS USE OF TRADE NAME AND TOWARDS NON-COMPETE FEES BUT THIS BIFURCATION AT PRESENT DO ES NOT CHANGE THE ORIGINAL AGREEMENT, WHICH WERE INTERPRETED TO BE AC QUISITION OF THE BUSINESS INCLUDING ITS RIGHTS AND TITLE, ASSETS AND LIABILIT IES, TRADE MARK USAGE AS GOING CONCERN AND ALSO FOR NON-COMPETE FEES FOR WHI CH A LUMP SUM AMOUNT WAS PAID ON THE REVALUATION OF ASSETS AND LIABILITI ES SPECIFIED, WHICH WAS ACKNOWLEDGED HAVING RECEIVED IN LUMP SUM IN SUPPLEM ENTARY AGREEMENT AND MONTHLY PAYMENT FOR A PERIOD OF 15 YEARS AT A F IXED AMOUNT QUANTIFIED THEREIN. SINCE THE SUPPLEMENTARY AGREEMENT ONLY TRI ES TO BIFURCATE THE 13 AMOUNTS PAYABLE INTO TWO COMPONENTS FOR USAGE OF TR ADE NAME AND NON- COMPETE FEE, IN OUR VIEW, IT DOES NOT CHANGE THE TE RMS AND CONDITIONS ORIGINALLY AGREED UPON WHICH ARE FOR ACQUIRING THE ENTIRE BUSINESS AS A GOING CONCERN FOR WHICH THE PAYMENTS WERE BEING MADE FOR A PERIOD OF 15 YEARS. SINCE THE PARTIES HAVE AGREED ON THE TERMS AND COND ITIONS ORIGINALLY WHICH WERE ALREADY CONSIDERED TO BE CAPITAL IN NATURE TOW ARDS NON-COMPETE CLAUSE WHILE ACQUIRING THE BUSINESS, THE SUPPLEMENTARY DEE D CANNOT BE CONSIDERED NOW SO AS TO DIFFER FROM THE INTERPRETATION AND FIN DINGS ALREADY GIVEN. MOREOVER THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CONTINENTAL CONSTRUCTION LTD. VS. CIT 60 TAXMAN 429 WAS GIVEN IN THE CONTEXT OF DEDUCTION UNDER SECTION 80-O AND IN THAT CONTEXT THE HON'BLE SUPREME COURT CONSIDERED THAT APPORTIONMENT CAN BE DONE TO CERTAIN PART OF THE SERVICES WHICH CAN BE CONSIDERED FOR THE BEN EFIT OF THE DEDUCTION AVAILABLE. THE HON'BLE SUPREME COURT HAS CONSIDERED AND STATED AS UNDER: - IT IS A WELL SETTLED PRINCIPLE THAT EXIGIBILITY OF AN ITEM TO TAX OR TAX DEDUCTION CAN HARDLY BE MADE TO DEPEND ON THE LABEL GIVEN TO IT BY THE PARTIES. AN ASSESSEE CANNOT CLAIM DEDUCTION UND ER SECTION 80-O IN RESPECT OF CERTAIN RECEIPTS MERELY ON THE BASIS THAT THEY ARE DESCRIBED AS ROYALTY, FEE OR COMMISSION IN THE CONT RACT BETWEEN THE PARTIES. BY THE SAME TOKEN, THE ABSENCE OF A SPECIF IC LABEL CANNOT BE DESTRUCTIVE OF THE RIGHT OF AN ASSESSEE TO CLAIM A DEDUCTION, IF, IN FACT, THE CONSIDERATION FOR THE RECEIPTS CAN BE ATTRIBUTE D TO THE SOURCE INDICATED IN THE SECTION. CONTRACTS OF THE TYPE ENV ISAGED BY SECTION 80-O ARE USUALLY VERY COMPLEX ONES AND COVER A MULT ITUDE OF OBLIGATIONS AND RESPONSIBILITIES. IT IS NOT ALWAYS POSSIBLE OR WORTHWHILE FOR THE PARTIES TO DISSECT THE CONSIDERA TION AND APPORTION IT TO THE VARIOUS INGREDIENTS OR ELEMENTS COMPRISED IN THE CONTRACTS. IF THE CONTRACTS IN THE PRESENT CASE OBLIGED THE ASSES SEE TO MAKE AVAILABLE INFORMATION AND RENDER SERVICES TO THE FO REIGN GOVERNMENT OF THE NATURE OUTLINED IN SECTION 80-O, IT WAS THE DUTY OF THE REVENUE AND THE RIGHT OF THE ASSESSEE TO SEE THAT THE CONSI DERATION PAID UNDER THE CONTRACT LEGITIMATELY ATTRIBUTABLE TO SUCH INFO RMATION AND SERVICES WAS APPORTIONED AND THE ASSESSEE GIVEN THE BENEFIT OF THE DEDUCTION AVAILABLE UNDER THE SECTION TO THE EXTENT OF SUCH C ONSIDERATION. 11. IN FACT THE ABOVE JUDGEMENT OF THE HON'BLE SUPREME COURT SUPPORTS THE CONTENTIONS OF THE REVENUE THAT THE PRESENT LAB EL GIVEN BY THE PARTIES IN BIFURCATING THE AMOUNT TOWARDS USE OF TRADE NAME AN D USE OF NON-COMPETE 14 CLAUSE ARE NOT RELEVANT FOR CONSIDERING THE ITEMS A S ELIGIBLE FOR DEDUCTION. IT IS ALSO ON RECORD THAT ASSESSEE ACQUIRED THE BUSINE SS AS A GOING CONCERN INCLUDING ITS RIGHT TO USE TRADE MARK AND THIS AGRE EMENT ENTERED IN AS EARLY AS 01.09.1996 WAS INTERPRETED AND THE PAYMENTS WERE CONSIDERED AS CAPITAL EXPENDITURE. AS ALREADY STATED, FOR THE REASONS BES T KNOWN TO ASSESSEE, THE SUPPLEMENTARY DEED SUPPOSED TO HAVE BEEN ENTERED ON 01.04.2000 WAS NOT PLACED BEFORE THE HON'BLE ITAT NOR THERE WAS ANY AT TEMPT TO BRING ITS NOTICE THE JUDGEMENT OF THE HON'BLE SUPREME COURT RENDERED AS EARLY AS 15.01.1992. EVEN AT THE TIME OF ENTERING INTO THE O RIGINAL AGREEMENTS THE PARTIES ARE AWARE ABOUT THE JUDGEMENT NOW RELIED U PON. WHEN THE PARTIES THEMSELVES ARE UNABLE TO SEGREGATE THE AMOUNT ORIGI NALLY AND DECIDED TO COLLECT THE LUMP SUM PAYMENT OVER A PERIOD OF 15 YE ARS REGULARLY ON MONTHLY BASIS, THE ARGUMENT OF THE LEARNED COUNSEL THAT THE ITAT SHOULD HAVE APPORTIONED THE AMOUNT HAS NO LOGIC. SINCE THE PRESENT LABEL GIVEN BY ASSESSEE FOR BIFURCATING THE AMOUNT TOWARDS USE OF TRADE MARK AND NON- COMPETE FEES CAN ONLY BE STATED TO BE SELF SERVING AS THERE IS NO BASIS FOR SUCH SEGREGATION UNDERTAKEN BY ASSESSEE. MOREOVER, WHETHER THE AMOUNT IS PAID TOWARDS USE OF TRADE MARK OR FOR NON-COMPETE F EES, THE ENTIRE AMOUNT AROSE FROM THE ORIGINAL AGREEMENT WHICH WAS ENTERED AT THE TIME OF TAKING OVER OF THE ERSTWHILE PROPRIETARY CONCERN AS A GOIN G CONCERN AND ON THE BASIS OF FACTS AND LAW, THE AMOUNT PAID OR PAYABLE WAS CONSIDERED TO BE CAPITAL EXPENDITURE, THEREFORE, IN OUR VIEW THERE I S NO NEED TO DIFFERENTIATE OR DISTINGUISH THE PRESENT PAYMENTS IN ANY OTHER MANNE R. FOR THE REASONS STATED ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE GROUNDS RAISED BY ASSESSEE. 12. ONE OF THE ADDITIONAL GROUNDS RAISED IS WITH REFERE NCE TO THE CLAIM OF DEPRECIATION. DURING THE PENDENCY OF THE APPEAL ASS ESSEE SOUGHT ADJOURNMENT ON THE REASON THAT THE ISSUE OF NON-COM PETE FEES WAS PENDING BEFORE THE SPECIAL BENCH IN THE CASE OF TECUMSEH IN DIA P. LTD. VS. ACIT. CONSEQUENT TO THE ORDER RENDERED BY THE SPECIAL BEN CH 127 ITD 1 (SB) (DEL) ASSESSEE FILED ADDITIONAL GROUNDS WITH REFERENCE TO CLAIM OF DEPRECIATION. IN 15 THE ABOVE REFERRED CASE THE ISSUE OF NON-COMPETE FE ES WAS CONSIDERED AND HELD TO BE CAPITAL IN NATURE. IN THAT CASE ASSESSEE , WHO WAS ONLY A SUBSIDIARY OF TECUMSEH-USA ENTERED INTO MOU WITH W HIRLPOOL-INDIA LTD. THROUGH WHICH WHIRLPOOL INDIA DECIDED TO SELL COMPR ESSORS AND RELATED OPERATIONS OWNED BY IT AT FARIDABAD. IN ACCORDANCE WITH THE MOU BOTH THE PARTIES ENTERED INTO ASSET PURCHASE AGREEMENT AND T HE TOTAL AMOUNT PAID TO WHIRLPOOL INDIA WAS AN AMOUNT OF ` 52.50 CRORES. THE SAID AMOUNT INCLUDED AN AMOUNT OF ` 2.65 CRORES TOWARD NON-COMPETE FEES. THIS AMOUNT WA S CLAIMED BY ASSESSEE TO BE NON-COMPETE FEES AS REVEN UE EXPENDITURE. THE A.O. AS WELL AS THE CIT(A) REJECTED THE CLAIM CONSI DERING THE ENTIRE GAMUT OF CASE LAWS AND THE AGREEMENT ENTERED INTO BY THE PAR TIES. THE HON'BLE SPECIAL BENCH CONSIDERED AND HELD AS UNDER: - THE ASSESSEES PARENT COMPANY BEING A LEADING MANU FACTURER OF COMPRESSORS WORLDWIDE, HAD DESIRED TO ENTER INTO TH E INDIAN MARKET FOR THAT ACTIVITY AND, FOR THE PURPOSE OF EFFECTUAT ING SUCH DESIRE THAT COMPANY ENTERED INTO A MOU WITH THE WHIRLPOOL INDIA LTD. AND ITS PARENT COMPANY IN WHICH IT WAS CLEARLY STATED IN CL AUSE 1.1 THAT TECUMSEH AND WHIRLPOOL WOULD ENTER INTO AN ASSET PU RCHASE AGREEMENT WHEREBY TECUMSEH (THROUGH TO BE ESTABLISH ED LOCAL INDIAN ENTITY) WOULD PURCHASE ALL COMPRESSOR MACHINERIES, EQUIPMENTS AND TOOLING LOCATED AT WHIRLPOOLS FARIDABAD FACILITY A S WELL AS RELATED COMPRESSOR COMPONENT ASSETS LOCATED AT WHIRLPOOLS BALLABGARH FACILITY [INCLUDING LAMINATIONS, WIRE DRAWINGS, CEN TRAL TOOL ROOM, OVERHEAD PROTECTORS AND RELAYS] AND ALL SUCH ASSETS WERE TO BE FULLY IDENTIFIED IN SUCH ASSET PURCHASE AGREEMENT OR OTHE R APPROPRIATE LOCAL INDIAN DOCUMENTATION REQUIRED TO DETAIL SUCH SALE AND PURCHASE AGREEMENT. SIMILARLY, IN CLAUSES 12 AND 12.1 THE ME NTION WAS MADE REGARDING NON-COMPETE AGREEMENT WHEREBY WHIRLPOOL-I NDIA AND WHIRLPOOL-USA (INCLUDING ITS WHOLLY OWNED SUBSIDIAR IES) AGREED NOT TO MANUFACTURE OR REPAIR COMPRESSORS DURING THE TERM O F GLOBAL SOURCING AGREEMENT WITH TECUMSEH. HOWEVER, WHIRLPOOL HAD BEE N GIVEN A RIGHT TO SELL REFRIGERATOR COMPRESSORS TO SERVICE PARTNER S PURCHASED FROM TECUMSEH SUBJECT TO PROVISIONS OF CLAUSE 6.1 OF THE AGREEMENT. LOOKING INTO THE ABOVE CLAUSES OF THE MOU IT COULD BE OBSERVED THAT PRINCIPALLY BOTH THE PARTIES HAD AGREED TO PASS ON A TOTAL CONSIDERATION OF RS.52.5 CRORES. ALLOCATION OF PURC HASE PRICE FOR VARIOUS ASSETS WAS TO BE DETERMINED AT THE FURTHER MEETING OF THE PARTIES AND ACCORDING TO CLAUSE 3.5, THE BASE PRICE RETAINED FOR PURCHASE OF RAW MATERIAL AND WORK-IN-PROGRESS WERE KEPT AT RS.5.25 CRORES, BEING 10 PER CENT OF THE TOTAL PURCHASE PRI CE AGREED. 16 TO ASCERTAIN AS TO WHAT FOR THE TOTAL PAYMENT OF R S.52.5 CRORES WAS MADE, ONE HAD TO LOOK INTO THE AGREEMENT DATED 2-7- 1997 WHICH WAS ENTERED INTO IN THE FURTHERANCE OF MOU BY THE TO B E ESTABLISHED LOCAL INDIAN ENTITY, NAMELY, THE ASSESSEE AND WHIRLPOOL I NDIA LTD. WHEREIN A TOTAL SUM OF RS.49.85 CRORES WAS DETERMINED FOR THE VARIOUS ASSETS. BROADLY STATED, THE PURCHASE PRICE PAID FOR THE SAL E AND PURCHASE OF COMPRESSOR DAVISON AND RELATED OPERATIONS AND FACIL ITIES EXCLUDING THE RAW MATERIALS, WORK-IN-PROGRESS AND THE LAND AN D BUILDING AT BALLABHGARH WAS A SUM OF RS.19.50 CRORES, PURCHASE PRICE FOR INVENTORY, I.E., RAW MATERIAL AND WORK-IN-PROGRESS WAS A SUM OF RS.5.25 CRORES, PURCHASE PRICE OF THE LAND FOR AN A GGREGATE AMOUNT OF RS.25.10 CRORES WHICH MADE THE TOTAL OF THESE ASSET S AT RS.49.85 CRORES. IF A FURTHER SUM OF RS.2.65 CRORES PAID ON ACCOUNT OF NON- COMPETE FEE WAS ADDED TO THE SAME, THE TOTAL WOULD COME TO RS.52.50 CRORES. THUS, IT WOULD BE INCORRECT TO SAY THT THE NON-COMP ETE AGREEMENT SHOULD BE CONSIDERED ON STAND ALONE BASIS AS THE RE FERENCE TO NON- COMPETE AGREEMENT WAS NOT COMING FOR THE FIRST TIME IN THE AGREEMENT DATED 2-7-1997, BUT IT ORIGINATED FROM THE MOU DATE D 4-11-1996 WHEREIN AS PER CLAUSE 12, IT WAS CLEARLY STATED THA T THESE PARTIES WOULD ENTER INTO A NON-COMPETE AGREEMENT AND AGGREG ATE AMOUNT OF TRANSFER OF ALL THESE ASSETS WAS STATED TO BE RS.52 .50 CRORES. ALL OTHER EVENTS HAD PROCEEDED ON THE BASIS OF MOU ONLY AS TH ERE WAS NO SIGNIFICANT CHANGE IN WHAT WAS STATED IN THE MOU AS A TOTAL CONSIDERATION FOR THE WHOLE OF THE TRANSACTION AND WHAT WAS SUBJECT TO TRANSFER. WHILE CONSIDERING THE FACTS AND ARRIVING AT A LEGAL CONCLUSION FROM THOSE FACTS, IT WAS NECESSARY TO GO INTO THE ENTIRE TRANSACTION FOR PROPER APPRECIATION OF THE FACTS AS WELL AS LAW. FROM THE FACTS IT WAS CLEAR THAT FOR ENTIRE TRANSAC TION WHICH INCLUDED NON-COMPETE AGREEMENT AN AGGREGATE SUM OF RS.52.5 C RORES WAS AGREED TO BE PAID AS PER CLAUSE 3.1 OF THE MOU. AS PER CLAUSE 3.4 OF THE MOU PARTIES WERE TO MEET FOR DETERMINING THE PR OPER ALLOCATION OF THE PURCHASE PRICE FOR VARIOUS ASSETS. THE ALLOCATI ON OF PRICE FOR VARIOUS ASSETS HAD BEEN DESCRIBED WHICH INCLUDED A SUM OF RS.2.65 CRORES CALLED AS NON-COMPETE FEE. THEREFORE, THE VERY BASIS OF PAYMENT OF SO-CALLED NON-COMPETE FEES COULD NOT BE DETACHED FROM THE MEMORANDUM OF UNDERSTANDING BEING PART AND PARC EL OF THE INITIALLY AGGREGATED AGREED PURCHASE PRICE. CLAUSE D OF NON-COMPETE AGREEMENT CLEARLY STATED THAT EXECUTION & DELIVERY OF NON-COMPETE AGREEMENT WAS A CONDITION PRECEDENT FOR THE ASSESSE ES OBLIGATION TO CONSUMMATE THE TRANSACTION DESCRIBED IN THE PURCHAS E AGREEMENT. THEREFORE, ALL THESE AGREEMENTS FORMED ONE TRANSACT ION AND THEY WERE INTERWOVEN BY A COMMON THREAD. THESE AGREEMENT S WERE NOT MUTUALLY EXCLUSIVE SO AS TO SAY THAT ONE COULD BE F ULFILLED WITHOUT 17 FULFILLING THE OTHER. THUS, THERE WAS NO FORCE ON T HE CONTENTION OF THE ASSESSEE THAT THE NON-COMPETE FEES PAYMENT SHOULD B E CONSIDERED AND VIEWED ON STAND ALONE BASIS. THE SAME WAS TO BE REJECTED. IT WOULD ALSO BE INCORRECT TO SAY THAT THE ASSESSIN G OFFICER HAD CONSIDERED SUCH PAYMENT ON STAND ALONE BASIS AS ALL THE AGREEMENTS, NAMELY, MOU FINAL AGREEMENT, NON-COMPET E AGREEMENT AND SUPPLY AGREEMENT WERE PRODUCED BEFORE THE ASSES SING OFFICER AND HE HAD DISCUSSED ALL THESE AGREEMENTS IN THE AS SESSMENT ORDER. IT WAS MENTIONED BY THE ASSESSING OFFICER IN THE AS SESSMENT ORDER THAT THE ASSESSEE-COMPANY WAS INCORPORATED ON 30-1- 1997 AND IT WAS A FULLY OWNED SUBSIDIARY OF THE NON-RESIDENT CO MPANY KNOWN AS TECUMSEH, USA. THE COMPANY STARTED BUSINESS OF ACQU IRING THE COMPRESSOR DIVISION OF WHIRLPOOL INDIA IN THE MONTH OF JULY, 1997. FOR SUCH PURCHASE, THE ASSESSEE ENTERED INTO A MOU ON 4-11-1996 AND A FINAL AGREEMENT WAS EXECUTED ON 2-7-1997 ACCO RDING TO WHICH AN AMOUNT OF RS.46.25 CRORES WAS PAID TO WHIRLPOOL INDIA LTD. FOR VARIOUS ITEMS LIKE INVENTORY, BUILDING, LAND AND PL ANT AND MACHINERY. IT WAS FURTHER STARTED BY THE ASSESSING OFFICER THA T INCLUDED IN THAT AMOUNT WAS A SUM OF RS.2.56 CRORES (ACTUAL AMOUNT W AS RS.2.65 CRORES) AND WHIRLPOOL WAS TO SIGN A NON-COMPETE AGR EEMENT AFTER RECEIVING FULL CONSIDERATION. IT WAS FURTHER STATED BY THE ASSESSING OFFICER THAT THE ASSESSEE DID NOT FILE APPENDIX-M, BUT FILED A NON- COMPETE AGREEMENT DATED 10-7-1997. THEREFORE, IT CO ULD NOT BE HELD THAT THE ASSESSING OFFICER HAD CONSIDERED THE PAYME NT OF NON- COMPETE FEE ON STRAND ALONE BASIS. THE CONSIDERATIO N THEREOF WAS FOR THE PURPOSE OF DETERMINING THE ALLOWABILITY OR OTHE RWISE THEREOF FROM INCOME-TAX POINT OF VIEW, AS OTHER PAYMENTS WERE NE VER CLAIMED BY THE ASSESSEE ON REVENUE ACCOUNT. BUT THAT DID NOT M EAN THAT THE ASSESSING OFFICER HAD CONSIDERED NON-COMPETE AGREEM ENT ON STAND ALONE BASIS. AS POINTED OUT EARLIER, TO ARRIVE AT A PROPER CONCL USION, IT WAS NECESSARY TO GO INTO THE ENTIRETY OF FACTS AND EVEN IF IT WAS THE CASE OF THE ASSESSEE THAT THE ASSESSING OFFICER AND THE COM MISSIONER (APPEALS), BOTH HAD CONSIDERED THE NON-COMPETE AGRE EMENT ON STAND ALONE BASIS, EVEN THEN THE TRIBUNAL WAS NOT PRECLUD ED FROM GOING INTO THE MOU AND MAIN AGREEMENT TO DECIDE THE QUESTION R ELATING TO ALLOWABILITY OR OTHERWISE OF SUCH A CLAIM OF THE AS SESSEE. THEREFORE ALSO, THE CONTENTION OF THE ASSESSEE, THAT NON-COMP ETE AGREEMENT SHOULD BE CONSIDERED ON STAND ALONE BASIS COULD NOT BE ACCEPTED. COMING TO THE NATURE OF EXPENDITURE IN QUESTION, IT CAN BE SEEN FROM THE VARIOUS TESTS LAID DOWN IN THE EARLIER DECIDED CASES THAT BROADLY THE BASIC TESTS TO DETERMINE THE NATURE OF AN EXPEN DITURE REMAIN THE SAME EVEN IN THE CONTEXT OF A MODERN SITUATION AND THOSE TESTS INCLUDE THE TEST OF INITIAL OUTLAY OF THE BUSINESS, THE AIM AND OBJECT OF THE EXPENDITURE, ENDURING BENEFIT TEST AND THE TEST OF FIXED AND CIRCULATING CAPITAL. 18 APPLYING THE AFOREMENTIONED TESTS TO THE FACT OF TH E INSTANT CASE, IT MAY BE STATED THAT THE SO-CALLED NON-COMPETE AGREE MENT WAS PART & PARCEL OF THE ENTIRE TRANSACTION. THE ASSESSEE HAD ACQUIRED A BUSINESS CONCERN IN INDIA WITH ITS OUTLAY (MORE PAR TICULARLY DESCRIBED ELSEWHERE IN THIS ORDER) AND THE ENTIRE TRANSACTION WAS OUTLINED IN THE MOU DATED 4-11-1996. THE AGGREGATE AMOUNT OF RS.52. 5 CRORES WAS DETERMINED AS THE TOTAL PURCHASE PRICE FOR THE COMP RESSOR DIVISIONS ASSETS REFERRED TO THE ARTICLE 1 AND THE BALLABGARH LAND AND BUILDING REFERRED TO IN ARTICLE 2. THE PURCHASE PRICE ITSELF STATED THAT THE AMOUNT OF RS.52.5 CRORES WAS TO BE PAID AS TOTAL PU RCHASE PRICE FOR THE COMPRESSOR DIVISIONS ASSETS AND BALLABGARH LAN D AND BUILDING. IT CAN BE SEEN THAT NON-COMPETE AGREEMENT WAS MADE APPENDIX M TO THE AGREEMENT DATED 2-11-1997 AND WAS, THUS, PAR T AND PARCEL OF THE MAIN AGREEMENT, THE SIGNING AND EXECUTION WHERE OF WAS A CONDITION PRECEDENT. IT COULD BE MENTIONED HERE THAT THE TOTAL PURCHASE PRICE OF RS.52.5 CRORES ENVISAGED IN MOU VIDE CLAUSE 3 INCLUDED A SU M OF RS.2.65 CRORES WHICH WAS TO BE PAID FOR NON-COMPETE AGREEME NT. THE OTHER SUM OF RS.49.85 CRORES WHICH WAS TO BE PAID IN RESP ECT OF VARIOUS ASSETS. IF THESE TWO SUMS WERE AGGREGATED, THEN THE TOTAL AMOUNT WOULD COME TO RS.52.5 CRORES WHICH WAS THE AGREED P URCHASE PRICE. THE ASSESSEE-COMPANY WAS INCORPORATED FOR THE PURPO SE OF EFFECTUATING THE TRANSACTIONS AGREED IN THE MOU. TH E PURPOSE OF THE ASSESSEE-COMPANY FOR WHICH IT WAS INCORPORATED WAS THAT TECUMSEH UAS, BEING A LEADING GLOBAL COMPRESSOR MANUFACTURE , WAS INTERESTED IN PURCHASING COMPRESSOR RELATED OPERATIONS OF WHIR LPOOL INDIA FOR THE INDIAN COMPRESSOR MARKET. THUS, THE VERY INTENTION AND PURPOSE WAS TO ESTABLISH BUSINESS IN INDIA BY TAKING OVER THE C OMPRESSOR AND RELATED OPERATIONS OF WHIRLPOOL INDIA IN INDIA. THE NON-COMPETE AGREEMENT WAS PART AND PARCEL OF THE WHOLE TRANSACT ION AND COULD NOT BE TREATED TO BE A SEPARATE TRANSACTION. THE CASE OF THE ASSESSEE WOULD FALL UNDER THE TEST WHICH DESCRIBES THAT IF THE EXPENDITURE IS MADE FOR THE INITIAL OUT LAY OR FOR THE EXPANSION OF THE BUSINESS OR A SUBSTANTIAL REPLACEM ENT OF THE EQUIPMENT, THEN IT WOULD FALL UNDER THE CAPITAL EXP ENDITURE. IT WAS NOT AN EXPENDITURE INCURRED WHILE THE BUSINESS WAS BEING CARRIED ON. THOUGH IT HAD BEEN THE CONTENTION OF THE ASSESSEE T HAT NON-COMPETE AGREEMENT WAS EXECUTED SUBSEQUENT TO THE DATE OF MA IN AGREEMENT, YET SUCH CONTENTION OF THE ASSESSEE COULD NOT BE AC CEPTED AS IN THE MAIN AGREEMENT ITSELF THE NON-COMPETE AGREEMENT WAS APPENDED AS M WITHOUT WHICH THE TRANSACTION WAS NOT COMPLETE, AS BY INCLUDING THE AMOUNT PAID FOR NON-COMPETE AGREEMENT THE PURCH ASE PRICE AS STATED IN MOU COULD BE ARRIVED AT. THE INCURRING OF EXPENDITURE ALSO BROUGHT AN ENDURI NG BENEFIT TO THE ASSESSEE IF THE SAME WAS EXAMINED FROM THE PROPOSIT ION OF LAW LAID 19 DOWN IN THE CASE OF ASSAM BENGAL CEMENT CO. LTD. V. CIT [1995] 27 ITR 34 (SC) WHEREIN THEIR LORDSHIPS HAVE CONSIDERED THE PERIOD OF FIVE YEARS AS PROVIDING AN ENDURING ADVANTAGE TO TH E ASSESSEE IRRESPECTIVE OF THE FACT THAT THE PAYMENT WAS TO BE MADE ANNUALLY. IT IS WELL-SETTLED THAT EXPENDITURE INCURRED ON WAR DING OFF COMPETITION IN THE BUSINESS EVEN TO A RIVAL DEALER WILL CONSTIT UTE CAPITAL EXPENDITURE AND TO HOLD IT AS CAPITAL EXPENDITURE I T IS NOT NECESSARY THAT NON-COMPETE FEE BE PAID TO CREATE MONOPOLY RIG HTS. IN VIEW OF AFORESAID, IT WAS TO BE HELD THAT THE EX PENDITURE OF RS.2.65 CRORES CLAIMED BY THE ASSESSEE IN PURSUANCE OF NON- COMPETE AGREEMENT DATED 10.-7.1997 WAS CAPITAL EXPENDITURE, THE DEDUCTION OF WHICH COULD NOT BE GRANTED TO THE ASSESSEE AS RE VENUE EXPENDITURE. 13. IN VIEW OF THIS, THE NON-COMPETE FEES PAID BY ASSES SEE CANNOT BE ALLOWED AS REVENUE EXPENDITURE. NOW THE ISSUE IS WH ETHER ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE SAME AS CLAIMED IN ADDITIONAL GROUNDS. THIS ASSET, IF AT ALL TO BE CONSIDERED AS INTANGIBLE ASS ET, WAS ACQUIRED W.E.F. 01.09.1996. SECTION 32(1)(II) ALLOWED DEPRECIATION ON INTANGIBLE ASSETS ACQUIRED ON OR AFTER 1 ST OF APRIL 1998. SINCE THE ASSETS / SO CALLED INTANG IBLE ASSETS WERE ACQUIRED BEFORE THE AFORESAID DATE, PRO VISIONS OF SECTION 32(1)(II) ARE NOT APPLICABLE TO THE FACTS OF THE CASE. EVENTH OUGH ASSESSEE IS PAYING VARIOUS AMOUNTS OVER THE YEARS AS PER THE AGREEMENT , IT CAN ONLY BE CONSIDERED AS DEFERRED PAYMENT FOR THE RIGHTS ACQUI RED W.E.F.01.09.1996. SINCE THE PROVISIONS ARE NOT APPLICABLE TO THE SO C ALLED INTANGIBLE ASSETS ACQUIRED BY ASSESSEE BEFORE 01.04.1998 ASSESSEES ADDITIONAL GROUNDS FOR ALLOWING DEPRECIATION ON MONTHLY PAYMENTS BEING MAD E TOWARDS NON- COMPETE FEES CANNOT BE ALLOWED. IN VIEW OF THIS, TH E GROUNDS ON ALLOWANCE OF DEPRECIATION ON THE NON COMPETE FEES ALSO STAND DIS MISSED. 14. IN THE RESULT, ALL THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH JUNE 2011 20 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VII, MUMBAI 4. THE CIT VII, MUMBAI CITY 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.