IGFT LTD, MUMBAI V. ITO 2(2)(1), MUMBAI

ITA 1284/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3589 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 18-09-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 17-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Cost of acquisition; Bad and doubtful debts; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 28; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO.: 1284/M/10 ASSESSMENT YEAR: 2001-02 M/S. IGFT LTD. 12-13 ESPLANADE, 3 RD FLOOR, 3, A.K. NAIK ROAD, FORT, MUMBAI 400001 PAN: AAACI0960J THE INCOME-TAX OFFICER-2(2)(1) MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI DR. K. SHIVARAM RESPONDENT BY : SHRI SANJAY AGRAWAL DATE OF HEARING : 13/02/13 DATE OF PRONOUNCEMENT : 13/05/13 ORDER PER DR. S.T.M. PAVALAN, JM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD. CIT(A)-5, MUMBAI DATED 29.12.2009 FOR THE ASSESSMEN T YEAR 2001-02. 2. GROUND NO. A RELATES TO TAXING OF AN AMOUNT OF R S.25,00,000/- RECEIVED ON TRANSFER OF INTANGIBLE ASSETS OF MERCHANT BANKING B USINESS AS REVENUE RECEIPT. 2.1 BRIEFLY STATED, THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF MERCHANT BANKING WHILE DECLARING A TOTAL INCOME AT A LOSS OF RS.84,04,542 HAD SHOWN AN INCOME IN THE FORM OF CONSIDERATION OF RS.25,00,000 /- FOR THE TRANSFER OF ITS INTANGIBLE ASSETS OF MERCHANT BANKING BUSINESS AS C APITAL RECEIPTS. HOWEVER, IN THE ASSESSMENT COMPLETED U/S 143(3), THE AO HAD DISALLO WED THE CLAIM OF THE ASSESSEE AND MADE AN ADDITION OF RS.25,00,000/- TREATING THE IMPUGNED RECEIPT AS REVENUE IN M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 2 NATURE THEREBY TAXED THE SAME UNDER THE HEAD BUSINE SS INCOME. ON APPEAL, THE LD.CIT(A) UPHELD THE ORDER OF THE AO. THE RELEVANT FINDINGS OF THE LD.CIT(A) IS EXTRACTED HEREUNDER: 6.I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS. IT IS EVIDENT THAT THE BUSINESS OF THE APPELLANT WAS NOT HAMPERED FOR EVER BUT FOR A VERY LIMITED PERIOD OF THREE YEARS. THE AMOUNT OF RS. 25 LAKH PRIMA FACIE APPEARS TO BE IN THE NATURE OF COMPENSATION TO THE APPELLANT RECEIVED IN THE COURSE OF CARRYING ON BUSINESS ACTIVITY. THERE IS NO LOSS OF CAPITAL STRU CTURE AT ALL. BUSINESS OF THE APPELLANT IS GOING ON AS USUAL AS EVIDENT FROM THE ANNUAL ACCOUNTS OF SUBSEQUENT YEARS WHICH ARE PLACED ON RECORD. THE AO IS FULLY JUSTIFIED IN OBSERVING THAT THE WHOLE EXERCISE WAS A COLORABLE D EVICE. HE HAS RIGHTLY POINTED OUT THAT IT DEFIES ALL BUSINESS PRUDENCE OF THE APPELLANT TO TRANSFER ITS BUSINESS OF MERCHANT BANKING EARNING MORE THAN RS. 7.50 CR FOR A NEGLIGIBLE SUM OF RS 1.25 CR. THERE IS ABSOLUTELY NO JUSTIFICA TION STATED BY THE APPELLANT FOR ENTERING INTO SUCH A BUSINESS ARRANGEMENT. MORE OVER, THERE IS NO BASIS STATED EITHER BEFORE THE AO OR BEFORE THE UNDERSIGN ED FOR ARRIVING AT THE FIGURE OF RS 25 LAKH AND RS 1 CR WHICH APPEARS TO B E COMPLETELY ARBITRARY DECISION WHICH AGAIN DEFIES ALL LOGIC IT IS NOT UND ERSTANDABLE WHY THE BUSINESS WAS TRANSFERRED FOR A NEGLIGIBLE SUM OF RS 25 LAKH WHILE THE NON-COMPETE FEE WAS WORKED OUT AT RS 1 CR. 6.1 IT MAY BE STATED HERE THAT IN A RECENTLY REPORT ED DECISION HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS TATA COFFEE LTD (2009) 29 DTR 336 (KAR) (AY 1995-96) ON IDENTICAL FACTS HAS H ELD THAT COMPENSATION PAID TOWARDS NOT CARRYING ON THE BUSIN ESS ACTIVITY OF THE ASSESSEE WHEREBY IT WOULD BE DEPRIVED OF THE RE VENUE THAT MAY ACCRUE FROM CARRYING ON THE BUSINESS, IS REVENUE RE CEIPT . HERE ALSO THE ASSESSEE SOLD ITS ASSETS ETC TO ONE COMPANY AND AS PER AGREEMENT, THE ASSESSEE WAS RESTRAINED FROM MANUFACTURING AND SELL ING TIME PIECES FOR A PERIOD OF TEN YEARS. IT WAS FOUND THAT THE ASSESSEE WAS CARRYING ON SEVERAL BUSINESSES AND HAD SOLD ONLY ONE UNIT WHILE CONTINUING WITH OTHERS, THERE WAS NO LOSS OF INCOME AND THEREFORE, NON COMPETE FEE WAS REVENUE IN NATURE. IN YET ANOTHER CASE OF TAM T AM PEDDA GURUVA REDDY VS JCI (2007) 291 ITR 44 (KARN), INVOLVING CONSTRUCTION BUSINESS WHERE RESTRICTIVE COVENANT BETWEEN THE ASS ESSEE AND NEWLY FORMED LIMITED COMPANY WAS INVOLVED. THE ASSESSEE HAD DISC LOSED RECEIPT OF COMPENSATION FOR A RESTRICTIVE COVENANT. IT WAS HEL D THAT THE AMOUNT WAS RIGHTLY TREATED AS REVENUE RECEIPT. IN A RECENT DEC ISION IN THE CASE OF JOHN DSUZA VS CIT AND ANR (2009) 29 DTR 321 (BOM) IN WHICH SIMILAR AMOUNT WAS RECEIVED BY THE ASSESSEE FOR NOT CARRYIN G ON FISH FARMING IN THE POND WHICH WAS BEING LOOKED AFTER BY HIM EARLIER. T HE AMOUNT PAID WAS HELD TO BE IN THE NATURE OF COMPENSATION AND WAS THE INC OME OF THE ASSESSEE TAXABLE AS BUSINESS INCOME. THERE WAS NO QUESTION O F ANY CAPITAL GAINS AS THE ASSESSEE WAS NOT THE OWNER OF ANY ASSET AND THERE W AS NO TRANSFER OF SUCH ALLEGED CAPITAL ASSET DURING THE YEAR. SIMILAR DECI SION WAS RENDERED IN THE M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 3 CASE OF CHEMPLAST ENGINEERS P. LTD VS CIT 234 ITR (MAD) IN WHICH SIMILAR COMPENSATION RECEIVED WAS HELD TO BE NOT FO R LOSS OF CAPITAL STRUCTURE BUT TOWARDS LOSS OF INCOME AND HENCE REVENUE IN NAT URE. 6.2 IT MAY ALSO BE STATED HERE THAT BOTH THE NON CO MPETE FEE AND THE CONSIDERATION OF RS 25 LAKH FOR TRANSFER OF EMPLOYE ES ETC ARE PART OF THE SAME AGREEMENT AND NOT IN ISOLATION TO EACH OTHER. THE A PPELLANT HAS NOT BEEN ABLE TO GIVE ANY SATISFACTORY REPLY ON VARIOUS RELEVANT ISSUES WHICH CLEARLY SHOW THAT ENTIRE EXERCISE WAS DONE FOR THE PURPOSE OF RE DUCING THE TAX LIABILITY. THE BUSINESS EXPEDIENCY AND PRUDENCE FOR SUCH PART TRAN SFER OF HUMAN RESOURCES AND SOME OTHER ASSETS HAVE NOT BEEN CLEARLY BROUGHT OUT. THUS, BY GIVING DIFFERENT NOMENCLATURE TO THE ABOVE TOW SUMS, THE A PPELLANT CANNOT ALTER THE REAL NATURE OF THE INCOME WHICH IS APPARENTLY REVEN UE IN CHARACTER. THE ADDITION MADE IS, THEREFORE, UPHELD. AGGRIEVED BY THE IMPUGNED ORDER, THE ASSESSEE HAS R AISED THIS GROUND IN THE APPEAL BEFORE US. 2.2 THE RELEVANT FACTS ARE THAT ARTHUR ANDERSEN & A SSOCIATES, A PARTNERSHIP FIRM WANTED TO INVEST AS STRATEGIC INVESTOR IN A COMPANY ENGAGED IN THE BUSINESS OF MERCHANT BANKING. THE ASSESSEE M/S. IND GLOBAL FINA NCIAL TRUST LTD (TRANSFEROR) AND MR. R. SANKARAN INCORPORATED A WHOLLY OWNED SUBSIDI ARY IN THE NAME AND STYLE OF M/S. IND GLOBAL CORPORATE FINANCE PVT LTD (TRANSFER EE) ON 11/10/2000 TO INDUCT ARTHUR ANDERSEN & ASSOCIATES AS STRATEGIC INVESTOR IN THE COMPANY. ARTHUR ANDERSEN & ASSOCIATES (AA) PURCHASED THE SHARES OF THE TRANS FEREE COMPANY FROM THE SELLERS (TRANSFEROR AND MR. SANKARAN, MANAGING DIRECTOR OF THE TRANSFEROR) AND TO COMPLY WITH THE ADEQUACY REQUIREMENTS TO RECEIVE SEBI LICEN SE, AA SUBSCRIBED $50 MILLION TO THE NEW SHARES ISSUED BY THE TRANSFEREE COMPANY. TH E TRANSFEROR SURRENDERED ITS SEBI LICENSE ON OR BEFORE THE EFFECT DATE I.E. THE DA TE ON WHICH THE TRANSFEREE RECEIVED THE SEBI LICENSE FOR MERCHANT BANKING BUSIN ESS. THE TRANSFEROR SURRENDERED ITS SEBI LICENSE FOR MERCHANT BANKING ON 4/12/2000 A ND THE TRANSFEREE RECEIVED ITS SEBI LICENSE FOR MERCHANT BANKING ON 29/12/2000 WHIC H IS THE EFFECTIVE DATE. THE TRANSFEROR HAS CHANGED ITS NAME TO IGFT LTD FROM IN D GLOBAL FINANCIAL TRUST LTD AND HAS CEASED TO USE ITS TRADEMARK AND TRANSFERRED THE SAME TO THE TRANSFEREE. FOR THE TRANSFER OF THE BUSINESS, THE ASSESSEE/TRANSFEROR R ECEIVED THE ABOVE AMOUNT FROM M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 4 THE TRANSFEREE. ALL ABOVE ACTS HAVE BEEN PERFORMED ACCORDING TO THE TERMS AND CONDITIONS SET OUT IN THE TRANSFER OF BUSINESS AGRE EMENT SIGNED BY INC GLOBAL FINANCIAL TRUST IND (TRANSFEROR), MR. R. SANKARAN, MANAGING DIRECTOR OF THE TRANSFEROR AND IND GLOBAL CORPORATE FINANCE PVT. LT D. (TRANSFEREE) & ARTHUR ANDERSEN & ASSOCIATES, A PARTNERSHIP FIRM. THE SAID AGREEMENT HAS BEEN SIGNED ON 7/12/2000. 2.3 BEFORE US, THE LD.AR HAS ADVANCED THE ARGUMENTS ON THE BASIS OF A WRITTEN SUBMISSION FILED BEFORE US AND THE RELEVANT PORTION IS EXTRACTED HEREUNDER: 1) VIDE CLAUSE 2 (PAGE 87 OF PAPER BOOK) THE CONS IDERATION OF RS. 25 LAKHS WAS FOR TRANSFER OF BUSINESS. 2) CLAUSE 1.3 (PAGE 84 OF PAPER BOOK) DEFINES THE TERM BUSINESS TO MEAN EMPLOYEES, CUSTOMER AND CLIENT RELATIONSHIPS, CUSTOMER AND CLIENT LISTS AND CERTAIN KNOW-HOW RELATED TO THE MERCHANT BANKIN G BUSINESS BUT DOES NOT INCLUDE EXCLUDED ASSETS (I.E. REAL ESTATE AND OTHER TANGIBLE ASSETS OF THE APPELLANT; REFER CLAUSE 1.8 ON PAGE 85 OF PAPER BOO K), CREDITORS AND LIABILITIES. 3) AGREEMENT IS WITH AN UNKNOWN AND UNRELATED PARTY, W HICH AT THE RELEVANT POINT OF TIME WAS A REPUTED INTERNATIONAL FIRM OF CHARTERED ACCOUNTANTS, AND HAS BEEN ACTED UPON BY BOTH SIDES. HENCE, AGREEMENT CANNOT BE CONSIDERED TO BE SHAM. 4) ON THE BASIS OF THE VERY SAME TRANSFER OF BUSINESS AGREEMENT AND FOR THE SAME PERIOD OF 3 YEARS, THE HONBLE TRIBUNAL HA S IN THE CASE OF THE CHAIRMAN MR. SANKARAN HELD THAT THE NON-COMPETE FEE WAS NOT LIABLE TO TAX (REFER PAGES 357 TO 361 ). HENCE, THE AGREEMENTS IN THE PRESENT CASE WHICH ORIGINATE FROM THE SAME TRANSFER OF BUSINESS AGREEM ENT CANNOT BE CONSIDERED TO BE SHAM. 5) ON THE BASIS OF THE VERY TRANSFER OF BUSINESS AGREE MENT, IND GLOBAL FINANCE P. LTD. HAD CLAIMED DEPRECIATION CONSIDERIN G THE AMOUNT OF RS 25 LAKHS AS TECHNICAL KNOW HOW, WHICH HAS BEEN REJECTE D BY HONBLE TRIBUNAL IN (2012) 19 ITR (TRIB) 483 (MUM) HOLDING THAT THE PAY MENT OF RS.25 LAKHS WAS FOR TRANSFER OF BUSINESS AND CONTRACTS AS MENTIONED IN PARAGRAPH 2.2 (REFER PAGE 497 OF DECISION ). 6) THE DECISIONS RELIED ON BY THE AO ARE NOT APPLICABL E TO THE FACTS OF THE APPELLANTS CASE (REFER SUBMISSIONS BEFORE CIT (A) AT PATES 193 AND 194 OF PAPER BOOK ): M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 5 A) IN CIT V. DR. R. L. BHARGAWA (2001) 256 ITR 42 (DEL ), IN ADDITION TO USE OF TECHNOLOGY, THE ASSESSEE THEREIN WAS ALSO REQUIRED TO RENDER CERTAIN SERVICES. AS THERE WAS NO ABSOLUT E PARTING OF TECHNICAL KNOW HOW, IT WAS HELD THAT RECEIPT WAS A REVENUE RECEIPT. B) IN CIT V. RALLIWOLF LTD. 143 ITR 720 (BOM), THE REC EIPT OF SHARES IN CONSIDERATION OF DRAWINGS, DESIGNS AND TE CHNICAL KNOW-HOW SUPPLIED WAS HELD TO BE CAPITAL IN NATURE. C) IN CIT V. CIBA OF INDIA LTD. 69 ITR 692 (SC) THE RE IMBURSEMENT OF EXPENSES ON RESEARCH WAS HELD TO BE NOT ALLOWABL E AS A BUSINESS EXPENDITURE AS THE ASSESSEE WAS NOT ENTITLED TO THE PATENT RIGHTS OF PRODUCTS MANUFACTURED OUT OF THE RESEARCH EFFORTS. D) IN CIT V. BRITHIS INDIA CORP. LTD. 165 ITR 51 (SC) , THE ISSUE WAS AS TO WHETHER EXPENDITURE ON TECHNICAL KNOW-HOW WAS REVENUE EXPENDITURE. 7) DECISIONS RELIED ON BY CIT (A) ARE NOT APPLICABLE T O THE FACTS OF THE APPELLANTS CASE AS IN THE SAID CASES, ONLY ONE OF THE BUSINESS HAD BEEN TRANSFERRED AND NOT THE SOLE AND MAIN BUSINESS. IN THE CASE OF THE APPELLANT, THE SOLE AND MAIN BUSINESS OR REVENUE EA RNER I.E. MERCHANT BANKING WAS DISCONTINUED. 8) DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F MCDOWELL & CO. (SUPRA) WAS CONSIDERED BY THE HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA V. AZADIBACHAOANDOLAN (2003) 263 ITR 706 ( SC) AND VODAFONE INTERNATIONAL HOLDINGS B. V. V. UOI (2012) 341 ITR (SC), WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT TAX PLANNING WI THIN THE FRAME WORK OF LAW IS PERMITTED. 9) AFTER DISCONTINUING THE MERCHANT BANKING ACTIVITIES , APPELLANT COMPANY DID NOT HAVE ANY ACTIVE SOURCE OF INCOME AND ITS IN COME CONSISTED OF INCOME MAINLY FROM DIVIDEND FROM SHARES AND MUTUAL FUNDS, PROFIT ON SALE OF SHARES, INTEREST INCOME AND NOMINAL CONSULTANCY CHARGES (REFER CHART ON PATE 362 ). HENCE, THERE WAS A SUBSTANTIAL FALL IN IN PROFIT EARNING OF THE APPELLANT AFTER ENTERING INTO NON-COMPETE AGREEMENT . 10) AS THE SUM OF RS.25 LAKHS WAS RECEIVED ON TRANSFER OF INTANGIBLE ASSETS HAVING NO COST OF ACQUISITION, FOLLOWING DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF B. C. SRINIVASASETTY 128 ITR 2 94 (SC), THE SAID SUM IS NOT LIABLE TO TAX. 11) HEADS OF INCOME ARE MUTUALLY EXCLUSIVE. IF THE INCO ME FALLS UNDER ONE OF THE HEADS OF INCOME, THE SAME CANNOT BE TAXED UN DER ANY OTHER HEAD OF INCOME-CIT V. D.P. SANDU BROS. 273 ITR 1 (SC). M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 6 12) WITHOUT PREJUDICE TO THE ABOVE, THE AO HAVING ACCEP TED THAT THE AMOUNT IS ON TRANSFER OF MERCHANT BANKING DIVISION, THE SUM OF RS 25 LAKHS CAN ONLY BE TAXED AS A CAPITAL RECEIPT AND NO T AS A REVENUE RECEIPT. 13) AMENDMENT TO SECTION 55 (2) IS PROSPECTIVE AND APPL IES ONLY FROM A.Y. 2002-03 (REFER CIRCULAR NO. 14 OF 2001; CHARTURVEDI &PITHISARIA VOL. 10; PAGE 1360 ). 14) HENCE, THE CONSIDERATION OF RS. 25 LAKHS RECEIVED O N TRANSFER OF INTANGIBLE ASSETS MAY BE HELD TO BE A CAPITAL RECEI PT. FURTHER, AS THE SAID INTANGIBLE ASSETS WERE SELF GENERATED, FOLLOWING DE CISION OF HONBLE SUPREME COURT IN THE CASE OF B.C. SRINIVASASETTYS CASE (SUPRA), THE SAME MAY BE HELD TO BE NOT LIABLE TO TAX. ON THE OTHER HAND, THE LD.DR HAS RELIED ON THE ORDE RS OF THE AO AND THE LD.CIT(A) IN SUPPORT OF THE REVENUES CASE. 2.4 WE HAVE HEARD BOTH THE PARTIES ON THIS GROUND A ND PERUSED THE MATERIAL ON RECORD. IT IS PERTINENT TO MENTION THAT CLAUSE 2.2 OF THE TRANSFER OF BUSINESS AGREEMENT DATED 07.12.2000 SUGGESTS THAT THE ASSESS EE HAS RECEIVED RS.2.5 MILLION (RS.25 LACS) AS CONSIDERATION FOR TRANSFER OF THE B USINESS. CLAUSE 1.3 OF THE DEFINITION CLAUSE IN THE SAID AGREEMENT READS BUSINESS MEANS THE EMPLOYEES (AS SET OUT IN SCHEDULE 4) AND CERTAIN KNOW-HOW RELATED TO THE MER CHANT BANKING BUSINESS OF THE TRANSFEROR BUT DOES NOT INCLUDE THE EXCLUDED ASSETS, CREDITORS AND LIABILITIES. CLAUSE 1.8 STATES THAT EXCLUDED ASSETS MEANS, THE REAL ESTA TE OF THE TRANSFEROR LOCATED AT 91/92, BAJAJ BHAWAN, NARIMAN POINT, MUMBAI-400 021 AND ANY OTHER TANGIBLE ASSETS OF THE TRANSFEROR. A COMBINED READING OF THE SAID RELEVANT CLAUSES INDICATES THAT THE RECEIPT OF RS.25 LAKHS IS FOR TRANSFER OF BUSINESS AND CONTRACTS. THE SAME FACT IS STRENGTHENED BY THE DECISION OF THE TRIBUNAL IN ITA NO.1258 & 1656/M/08 WHEREIN ON THE BASIS OF THE VERY TRANSFER OF BUSINESS AGREEMEN T, IND GLOBAL FINANCE PVT LTD (TRANSFEREE) HAS CLAIMED DEPRECIATION CONSIDERING T HE AMOUNT OF RS 25 LAKHS AS TECHNICAL KNOW HOW, WHICH HAS BEEN REJECTED BY HON BLE TRIBUNAL HOLDING THAT THE PAYMENT OF RS.25 LAKHS WAS FOR TRANSFER OF BUSINESS AND CONTRACTS. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE EXTRACTED HEREUNDER: M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 7 WE HAVE CAREFULLY CONSIDERED THE VARIOUS ASPECTS O F THE MATTER. WE FIND FROM PERUSAL OF THE TRANSFER OF BUSINESS AGREEMENT THAT THE PAYMENT OF RS.25.00 LACS HAD BEEN MADE FOR THE SALE AND TRANSFER OF BUS INESS AND CONTRACTS AS MENTIONED IN PARA 2.2 OF THE AGREEMENT. THE WORD 'BUSINESS' HAS BEEN DEFINED IN PARA 1.3 TO MEAN THE EMPLOYEES, CUSTOMER AND CLIENT RELATIONSHIP, CUSTOMER AND CLIENT LIST, CERTAIN KNOW-HOW RELATED TO MERCHANT BANKING BUSINESS OF THE TRANSFEROR BUT DID NOT INCLUDE THE EXCLUDED ASSETS, THE CREDITORS AND LIABILITIES. IT IS THUS, CLEAR THAT THE PAYMENT HAD BEEN MADE FOR THE TRANSFER OF BUSINESS AND CONTRACTS WHICH INCLUDED CUSTOMER AND CLIENT RELATIONSHIP. THOUGH THE DEFINI TION OF 'BUSINESS' REFERRED TO CERTAIN KNOW-HOW BUT THERE IS NO MATERIAL TO SHOW THAT ANY PART OF THE PAYMENT WAS RELATED TO ANY KNOW-HOW WHICH CAN BE CONSIDERED AS AN INTANGIB LE ASSET FOR THE PURPOSE OF SECTION 32(1)(II). 5.6 THE INTANGIBLE ASSET FOR THE PURPOSE OF DEPRECIATION HAS BEEN MENTIONED IN SECTION 32(1)(II) AS KNOW-HOW, PATENTS , COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH T OF SIMILAR NATURE. THE WORD 'KNOW-HOW' HAS BEEN DEFINED IN THE EXPLANATION-4 TO SECTION 32(1) TO MEAN ANY INDUSTRIAL INFORMATION OR TECHNIQUE LIKELY TO ASSIS T IN THE MANUFACTURE OR PROCESSING OF GOODS OR IN THE WORKING OF A MINE, OIL WELL OR OTHE R SOURCES OF MINERAL DEPOSITS. THERE IS NOTHING PRODUCED BEFORE US TO SHOW THAT THE TRAN SFEROR HAD TRANSFERRED ANY INDUSTRIAL INFORMATION OR TECHNIQUE DEVELOPED BY IT WHICH COUL D ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS. MOREOVER, THE TRANSFEROR WAS I N THE BUSINESS OF MERCHANT BANKING WHICH DOES NOT REQUIRE ANY INDUSTRIAL INFORMATION O R TECHNIQUE USEFUL IN MANUFACTURE OR PROCESSING OF GOODS. CIT(A) HAS MENTIONED THAT THE ASSESSEE DURING THE PROCEEDINGS BEFORE HIM HAD FILED BUSINESS KNOW- HOW MANUAL RELA TING TO MERCHANT BANKING WHICH WAS CLAIMED TO BE KNOW-HOW ON WHICH DEPRECIATION SH OULD BE ALLOWABLE. CIT(A) HAS GIVEN A FINDING THAT MANUAL CONTAINED ONLY FACTS OF REGULATIONS AND PROCEDURES WHICH ARE OTHERWISE AVAILABLE IN THE MARKET IN THE FORM O F BOOKS AND MANUAL CONTAINED NOTHING OTHER THAN WHAT IS AVAILABLE TO ANYONE DEAL ING IN THE LINE OF MERCHANT BANKING. HE HAS, THEREFORE, NOT CONSIDERED THE MANUAL AS KNO W-HOW. WE DO NOT SEE ANY INFIRMITY IN THE CONCLUSION DRAWN BY THE CIT(A). IT HAS NOT BEEN EXPLAINED BEFORE US AS TO WHY ASSESSEE WOULD PAY FO R RULES AND REGULATIONS AND PROCEDURES WHICH ARE AVAILABLE IN THE MARKET AND, T HEREFORE, WE HAVE TO CONCLUDE THAT THE PAYMENT OF RS.25.00 LACS HAD BEEN MADE FOR THE TRANSFER OF BUSINESS AND CONTRACTS INCLUDING CLIENTS AND CLIENT RELATIONSHIP WHICH CAN NOT BE CONSIDERED AS KNOW-HOW. THE LD. AR HAS ALSO ARGUED THAT EVEN IF THE PAYMENT WAS CONSIDERED AS MADE FOR ACQUISITION OF GOODWILL, DEPRECIATION WAS ALLOWABLE ON GOODWILL IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF KOTAK FOREX BROKERAGE LTD. (SUPRA). CIT(A) HAS NOT ACCEPTED THE FINDING OF THE AO THAT PAYMENT WAS FOR GOODWILL NOR ANY MATERIAL HAS BEEN PRODUCED BEFORE US TO SHOW THAT ANY PART OF THE PAY MENT RELATED TO ACQUISITION OF GOODWILL. AS WE HAVE HELD EARLIER, THE PAYMENT WAS FOR TRANSF ER OF BUSINESS AND CONTRACTS INCLUDING CLIENTS AND CLIENT RELATION SHIP WHICH IN OUR VIEW IS NOT AN INTANGIBLE ASSET AS DEFINED IN SECTION 32(1) (II) ON WHICH DEPRECIATION CAN BE ALLOWED. SINCE WE HAVE HELD THAT PAYMENT WAS NEITHER FOR KN OW-HOW NOR FOR GOODWILL, THE VARIOUS DECISIONS RELIED UPON BY THE ASSESSEE IN PARA 5.1 AND 5.2 ARE NOT APPLICABLE. WE, THEREFORE, SEE NO INFIRMITY IN THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE AND THE SAME IS THEREFORE, UPHELD. M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 8 THE AFOREMENTIONED DISCUSSION CLEARLY ESTABLISHES T HAT THE ASSESSEE HAS RECEIVED RS.2.5 MILLION (RS.25 LACS) AS CONSIDERATION FOR TR ANSFER OF THE BUSINESS AND CONTRACTS. IN VIEW OF THAT MATTER, WE DO NOT FIND ANY JUSTIFIA BLE REASON ON THE PART OF THE AUTHORITIES BELOW TO CONSIDER THE TRANSACTION AS SH AM WHICH INVOLVES COLOURABLE DEVICE. 2.4.1 THE PERUSAL OF THE ORDER OF THE LD.CIT(A) RAI SES VARIOUS ISSUES WHICH ARE ALSO TO BE DECIDED FOR THE SAKE OF COMPLETENESS. FIRSTLY, WHETHER THE AMOUNT OF RS. 25 LAKH IS IN THE NATURE OF COMPENSATION TO THE ASSESS EE RECEIVED IN THE COURSE OF CARRYING ON BUSINESS ACTIVITY AND HAS RESULTED IN N O LOSS OF CAPITAL STRUCTURE. IT IS PERTINENT TO MENTION THAT ACCORDING TO THE JUDGEMEN T OF CALCUTTA HIGH COURT IN CIT V. SIEWART & DHOLAKIA (P.) LTD. [1974] 95 ITR 573 (CAL), COMPENSATION TO THE ASSES SEE RECEIVED IN THE COURSE OF CARRYING ON BUSINESS ACTI VITY IS A TRADING RECEIPT ONLY IF IT IS RECEIVED FOR INJURY TO TRADE. IF ANY AMOUNT IS RECE IVED AS COMPENSATION FOR AN INJURY WHICH AFFECTS A CAPITAL ASSET OF THE ASSESSEE OR TH E CAPITAL STRUCTURE OF THE ASSESSEES BUSINESS, SUCH AMOUNT MAY NORMALLY BE CONSIDERED TO BE A CAPITAL RECEIPT. IF, HOWEVER, ANY AMOUNT IS RECEIVED BY AN ASSESSEE AS C OMPENSATION OR DAMAGES FOR ANY WRONG DONE WHICH DOES NOT AFFECT ANY CAPITAL AS SET OR THE CAPITAL STRUCTURE OF THE ASSESSEES BUSINESS BUT CAUSES INJURY TO THE ASSESS EE IN ITS TRADE, SUCH AMOUNT WILL NORMALLY CONSTITUTE A TRADING RECEIPT OF THE ASSESS EE. CONSIDERING THE FACT THAT THE ASSESSEE HAS RECEIVED RS.2.5 MILLION (RS.25 LACS) A S CONSIDERATION FOR TRANSFER OF THE MERCHANT BAKING BUSINESS TO THE TRANSFEREE AND THE ASSESSEE HAS DISCONTINUED ITS BUSINESS, WE ARE OF THE VIEW THAT THE IMPUGNED RECE IPT IS CAPITAL IN NATURE AND NOT IN THE NATURE OF COMPENSATION RECEIVED DURING THE COUR SE OF BUSINESS AS HAS BEEN FOUND BY THE LD.CIT(A). SECONDLY, WHETHER THE ENTIRE EXERCISE IS A COLOURABLE DEVICE WHICH DEFIES ALL BUSINESS PRUDENCE. IT IS RELEVANT TO POINT OUT THAT A TRANSACTION CAN BE REGARDED AS A SHAM OR COLOURABLE WHEN THE DOCUMENT IS NOT BONA FIDE NO R INTENDED TO BE ACTED UPON, BUT IS ONLY USED AS A CL OAK TO CONCEAL A DIFFERENT TRANSACTION OR WHERE IT IS INTENDED TO GIVE TO THIR D PARTIES THE APPEARANCE OF CREATING M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 9 BETWEEN THE PARTIES LEGAL RIGHTS AND OBLIGATIONS WH ICH ARE DIFFERENT FROM THE ACTUAL LEGAL RIGHTS AND OBLIGATIONS WHICH THE PARTIES INTE ND TO CREATE . IN THE FACTS OF THE CASE, THE REVENUE HAS NOT SHOWN AS TO HOW THE ASSES SEE HAS RESORTED TO A DEVICE, WHICH IS OTHERWISE COLOURABLE. THUS, WE DO NOT AG REE WITH THE FINDINGS OF THE LD.CIT(A) ON THIS COUNT. THIRDLY, AS TO THE OBSERVATION OF THE LD.CIT(A) THAT THERE I S NO BASIS FOR ARRIVING AT THE FIGURE OF RS.25 LACS A ND RS. 1 CRORE WHICH APPEARS TO BE COMPLETELY ARBITRARY DECISION WHICH AGAIN DEFIES AL L AND IT IS NOT UNDERSTANDABLE WHY THE BUSINESS WAS TRANSFERRED FOR A NEGLIGIBLE SUM O F RS 25 LAKH WHILE THE NON- COMPETE FEE WAS WORKED OUT AT RS 1 CR, IT MAY BE PO INTED OUT THAT IT IS FOR THE TRANSFEROR AND THE TRANSFEREE TO FIX THE CONSIDERAT ION FOR THE SUBJECT MATTER OF TRANSFER. IN FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, WE ARE OF THE OPINION THAT IT IS BEYOND THE PURVIEW OF THE REVENUE TO RAISE ANY I SSUE ON THE ADEQUACY OF CONSIDERATION. FOURTHLY , AS TO THE APPLICABILITY OF THE DECISION OF KARNAT AKA HIGH COURT IN THE CASE OF CIT VS TATA COFFEE LTD (2009) 29 DTR 336 (KAR) RELIED ON BY THE LD.CIT(A), THE KARNATAKA HIGH COURT HAS TREATED TH E NON-COMPETE FEES RECEIVED BY THE VENDOR AS A REVENUE RECEIPT FOR THE REASON THAT THE DISCONTINUANCE OF THE UNIT HAS NOT RESULTED IN THE LOSS OF ENDURING TRADING AS SET. SAME IS THE POSITION WITH THE OTHER CASES RELIED BY THE LD.CIT(A). HOWEVER, IN TH E INSTANT CASE, THE PERUSAL OF THE DETAILS AVAILABLE AT PAGE 362 OF THE PAPER BOOK CLE ARLY REVEALS THAT AFTER DISCONTINUING THE MERCHANT BANKING ACTIVITIES, ASSE SSEE COMPANY DID NOT HAVE ANY ACTIVE SOURCE OF INCOME AND ITS INCOME CONSISTED OF INCOME MAINLY FROM DIVIDEND FROM SHARES AND MUTUAL FUNDS, PROFIT ON SALE OF SHA RES, INTEREST INCOME AND NOMINAL CONSULTANCY CHARGES HENCE, THERE IS A SUBSTANTIAL F ALL IN PROFIT EARNING OF THE ASSESSEE AFTER ENTERING INTO NON-COMPETE AGREEMENT. AS PER THE RELEVANT AGREEMENT, THE ASSESSEE HAS RECEIVED THE IMPUGNED RECEIPT FOR THE TRANSFER OF ITS BUSINESS OF MERCHANT BANKING IN THE FORM OF EMPLOYEES, CONTRACT S IN THE FORM OF CUSTOMER AND CLIENT RELATIONSHIP, A LIST OF TEN LARGEST CLIENTS AND CERTAIN KNOW-HOW RELATED TO MERCHANT BANKING BUSINESS OF THE ASSESSEE, WHICH IN OUR VIEW NECESSARILY QUALIFY IMPUGNED RECEIPT FOR THE TRANSFER OF THE SAID INTANGIBLE ASSETS [THOUGH NOT IN TERMS M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 10 OF SECTION 32(1)(II) IS INTANGIBLE)] IN THE CATEGORY OF CAPITAL NATURE AS THE SUBJECT MATTER OF TRANSFER HAS RESULTED IN THE LOSS OF ENDU RING TRADING ASSETS. REGARDING THE POSSIBILITY OF TAXING THE SAID IMPUGNED CAPITAL REC EIPT UNDER THE HEAD OF CAPITAL GAINS, WE ARE OF THE CONSIDERED OPINION THAT SINCE NO COST OF ACQUISITION IS INVOLVED BY THE ASSESSEE FOR THESE ASSETS, THE SAME CANNOT BE TAXED UNDER THE HEAD CAPITAL GAINS ALSO. IT IS NEEDLESS TO EMPHASIS THAT THE NATURE OF THE TRANSFER DOES NOT ATTRACT THE PROVISION OF SECTION 50B OF THE ACT IN RELATION TO SLUMP SALE ALSO AS THERE IS NO TRANSFER OF AN UNDERTAKING BY THE ASSESSEE. ACCORDI NGLY, WE DECIDE GROUND NO A IN FAVOUR OF THE ASSESSEE. 3. GROUND NO. B RELATE TO TAXING AN AMOUNT OF RS.1, 00,00,000/- RECEIVED BY THE ASSESSEE AS NON-COMPETE FEES TREATING THE SAME AS R EVENUE RECEIPT. 3.1 BRIEFLY STATED, THE ASSESSEE ALSO ENTERED INTO A NON-COMPETE AGREEMENT WHEREBY THE ASSESSEE COMPANY WAS RESTRICTED FROM CA RRYING ON THE MERCHANT BANKING ACTIVITIES FOR A PERIOD OF THREE YEARS FOR WHICH IT RECEIVED A SUM OF RS. 1 CRORES TOWARDS NON-COMPETE FEES. IN THE ASSESSEMENT FRAMED, THE AO TREATED THE IMPUGNED RECEIPT AS REVENUE RECEIPTS AND ASSESSED T HE TAX UNDER THE HEAD BUSINESS INCOME. ON CONFIRMING THE SAME BY THE LD.CIT(A), TH E ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 3.2 BEFORE US THE LD.AR OF THE ASSESSEE HAS ADVANCE D THE ARGUMENTS ON THE BASIS OF THE WRITTEN SUBMISSION FILED BEFORE US AND CONTE NDED THAT THE IMPUGNED NON- COMPETE FEES IS TO BE TREATED AS CAPITAL RECEIPT NO T LIABLE FOR TAX. THE RELEVANT PORTION OF THE WRITTEN SUBMISSION IS REPRODUCED HEREUNDER: 1) AGREEMENT IS WITH AN UNKNOWN AND UNRELATED PARTY HA S BEEN ACTED UPON BY BOTH SIDES. HENCE, AGREEMENT CANNOT BE CONSIDERED T O BE SHAM. 2) ON THE BASIS OF THE VERY SAME TRANSFER OF BUSINESS AGREEMENT AND FOR THE SAME PERIOD OF 3 YEARS, THE HONBLE TRIBUNAL HAS IN THE CASE OF THE CHAIRMAN MR. SANKARAN HELD THAT THE NON-COMPETE FEE WAS NOT LIABLE TO TAX (REFER PAGES 357 TO 361 ). HENCE, THE AGREEMENTS IN THE PRESENT CASE WHIC H M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 11 ORIGINATE FROM THE SAME TRANSFER OF BUSINESS AGRE EMENT CANNOT BE CONSIDERED TO BE SHAM. 3) ON THE BASIS OF THE VERY SAME TRANSFER OF BUSINES S AGREEMENT, IND GLOBAL FINANCE P. LTD. HAD CLAIMED DEPRECIATION CONSIDERIN G THE AMOUNT OF RS. 25 LAKHS AS TECHNICAL KNOW HOW, WHICH HAS BEEN REJEC TED BY HONBLE TRIBUNAL IN (2012) 19 ITR (TRIB) 483 (MUM) HOLDING THAT THE P AYMENT OF RS. 25 LAKHS WAS FOR TRANSFER OF BUSINESS AND CONTRACTS AS MEN TIONED IN PARAGRAPH 2.2 (REFER PAGE 497 OF DECISION ). 4) HONBLE SPECIAL BENCH OF THE TRIBUNAL HAS IN THE CASE OF ACIT V. DR. B.V. RAJU (2012) 135 ITD (HYD) (SB) HELD THAT PRIOR TO A MENDMENT TO SECTION 55 (2)(A) W.E.F. 1.4.2003, THE AMOUNT RECEIVED ON TRAN SFER OF RIGHT TO CARRY ON BUSINESS COULD NOT BE TAXED U/S 45. 5) THE DECISIONS RELIED ON THE AO ARE NOT APPLICABLE TO THE FACTS OF THE APPELLANTS CASE (REFER SUBMISSIONS BEFORE CIT(A) AT PAGES 193 AND 194 OF PAPER BOOK ): A) IN CIT V. DR. R. L. BHARGAWA (2001) 256 ITR 42 (DEL), IN ADDITION TO USE OF TECHNOLOGY, THE ASSESSEE THER EIN WAS ALSO REQUIRED TO RENDER CERTAIN SERVICES. AS THERE WAS N O ABSOLUTE PARTING OF TECHNICAL KNOWHOW, IT WAS HELD THAT RECE IPT WAS A REVENUE RECEIPT. B) IN CIT V. RALLIWOLF LTD. 143 ITR 720 (B OM), THE RECEIPT OF SHARES IN CONSIDERATION OF DRAWINGS, DESIGNS AND TECHNICAL KNOW-HOW SUPPLIED WAS HELD TO BE CAPITAL IN NA TURE. C) IN CIT V. CIBA OF INDIA LTD. 69 ITR 692 (SC), THE REIMBURSEMENT OF EXPENSES ON RESEARCH WAS HELD TO BE NO T ALLOWABLE AS A BUSINESS EXPENDITURE AS THE ASSESSEE WAS NOT EN TITLED TO THE PATENT RIGHTS OF PRODUCTS MANUFACTURED OUT OF THE RESEA RCH EFFORTS. D) IN CIT V. BRITISH INDIA CORP. LTD. 165 ITR 51 (S C), THE ISSUE WAS AS TO WHETHER EXPENDITURE ON TECHNICAL KNOW-HOW WA S REVENUE EXPENDITURE. 6) DECISION OF THE HONBLE SUPREME COURT IN THE CAS E OF MCDOWELL & CO. (SUPRA) WAS CONSIDERED BY THE HONBLE SUPREME CO URT IN THE CASE OF UNION OF INDIA V. AZADIBACHAOANDOLAN (2003) 263 ITR 706 (SC) AND VODAFONE INTERNATIONAL HOLDINGS B. V. V. UOI (20 12) 341 ITR 1 (SC), WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT TAX PLANNING WITHIN THE FRAME WORK OF LAW IS PERMITTED. M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 12 7) DECISIONS RELIED ON BY CIT (A) ARE NOT APPLICABL E TO THE FACTS OF THE APPELLANTS CASE AS IN THE SAID CASES, ONLY ONE OF THE BUSINESSES HAD BEEN TRANSFERRED AND NOT THE SOLE AND MAIN BUSINESS. I N THE CASE OF THE APPELLANT, THE SOLE AND MAIN BUSINESS OR REVENUE EARNER I.E. MERCHANT BANKING WAS DISCONTINUED. 8) AFTER DISCONTINUING THE MERCHANT BANKING ACTIVIT IES, APPELLANT COMPANY DID NOT HAVE ANY ACTIVE SOURCE OF INCOME AND ITS INCOME CONSISTED OF INCOME MAINLY FROM DIVIDEND FROM SHARES AND MUTUA L FUNDS, PROFIT ON SALE OF SHARES, INTEREST INCOME AND NOMINAL CONSULT ANCY CHARGES (REFER CHART ON PATE 362 ). HENCE, THERE WAS A SUBSTANTIAL FALL IN IN PRO FIT EARNING OF THE APPELLANT AFTER ENTERING INTO NON-COMPETE AGRE EMENT. 9) HONBLE SUPREME COURT HAS IN THE CASE OF GUFFICC HEM P. LTD. V. CIT 332 ITR 602 (SC) HELD THAT NON COMPETE FEES RECEIVED BEFORE 1.04.2003 WAS A CAPITAL RECEIPT NOT LIABLE TO TAX. 10) HONBLE SPECIAL BENCH HAS IN THE CASE OF ACIT V . DR. B. V. RAJU (SUPRA) HELD THAT PRIOR TO AMENDMENT TO SECTION 28 (VA)(A ) W.E.F. 1.4.2003, COMPENSATION RECEIVED FOR NOT CARRYING ON ANY ACT IVITY IN RELATION ANY BUSINESS WAS ALSO NOT LIABLE TO TAX, BEING A CAPI TAL RECEIPT. 11) FOLLOWING THE ABOVE DECISIONS, AMOUNT OF RS. 1 CRORE RECEIVED BY APPELLANT TOWARDS NON-COMPETE FEES IS NOT LIABL E TO TAX. 12) WITHOUT PREJUDICE TO THE ABOVE, THE AO HAVING A CCEPTED THAT THE AMOUNT IN ON TRANSFER OF MERCHANT BANKING DIVIS ION, THE SUM OF RS. 100 LAKHS CAN ONLY BE TAXED AS A CAPITAL RECEIPT AN D NOT AS A REVENUE RECEIPT. 13) THE APPELLANT THEREFORE PRAYS THAT THE SUM OF R S. 100 LAKHS MAY BE HELD TO BE A CAPITAL RECEIPT NOT LIABLE TO TAX . ON THE OTHER HAND, THE LD.DR HAS RELIED ON THE ORDE RS OF THE AO AND THE LD.CIT IN SUPPORT OF THE REVENUES CASE. 3.3 AT THE OUT SET, IT IS RELEVANT TO POINT OUT THA T THE HONBLE SUPREME COURT IN THE CASE OF GUFFIC CHEM (P.) LTD. V. CIT [332 ITR 6 02 (SC)] HAS HELD AS FOLLOWS: PAYMENT RECEIVED AS NON-COMPETITION FEE UNDER A NE GATIVE COVENANT WAS ALWAYS TREATED AS A CAPITAL RECEIPT TILL THE ASSESSMENT YE AR 2003-04. IT IS ONLY VIDE FINANCE ACT, 2002 WITH EFFECT FROM 1-4-2003 THAT THE SAID C APITAL RECEIPT IS NOW MADE TAXABLE [SEE : SECTION 28(VA)]. THE FINANCE ACT, 20 02 ITSELF INDICATES THAT DURING M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 13 THE RELEVANT ASSESSMENT YEAR COMPENSATION RECEIVED BY THE ASSESSEE UNDER NON- COMPETITION AGREEMENT WAS A CAPITAL RECEIPT, NOT TA XABLE UNDER THE 1961 ACT. IT BECAME TAXABLE ONLY WITH EFFECT FROM 1-4-2003. IT I S WELL-SETTLED THAT A LIABILITY CANNOT BE CREATED RETROSPECTIVELY. IN THE PRESENT C ASE, COMPENSATION RECEIVED UNDER NON-COMPETITION AGREEMENT BECAME TAXABLE AS A CAPITAL RECEIPT AND NOT AS A REVENUE RECEIPT BY SPECIFIC LEGISLATIVE MANDATE V IDE SECTION 28(VA) AND THAT TOO WITH EFFECT FROM 1-4-2003. HENCE, THE SAID SECTION 28(VA) IS AMENDATORY AND NOT CLARIFICATORY. LASTLY, IN CIT V. RAI BAHADUR JAIRAM VALJI [1959] 35 ITR 148 IT WAS HELD BY THIS COURT THAT IF A CONTRACT IS ENTERED IN TO IN THE ORDINARY COURSE OF BUSINESS, ANY COMPENSATION RECEIVED FOR ITS TERMINA TION (LOSS OF AGENCY) WOULD BE A REVENUE RECEIPT. IN THE PRESENT CASE, BOTH CIT(A) AS WELL AS THE TRIBUNAL, CAME TO THE CONCLUSION THAT THE AGREEMENT ENTERED INTO B Y THE ASSESSEE WITH RANBAXY LED TO LOSS OF SOURCE OF BUSINESS; THAT PAYMENT WAS RECEIVED UNDER THE NEGATIVE COVENANT AND THEREFORE THE RECEIPT OF RS. 50 LAKHS BY THE ASSESSEE FROM RANBAXY WAS IN THE NATURE OF CAPITAL RECEIPT. IN FACT, IN O RDER TO PUT AN END TO THE LITIGATION, PARLIAMENT STEPPED INTO SPECIFICALLY TAX SUCH RECEI PTS UNDER NON-COMPETITION AGREEMENT WITH EFFECT FROM 1-4-2003. THE ABOVE JUDGMENT OF THE APEX COURT MAKES IT CLEAR THAT THE FEES RECEIVED UNDER NON-COMPETITION AGREEMENT IS A CAPITAL RECEIPT AS T HE AMENDMENT DOES NOT COVER THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION AND HE NCE NOT TAXABLE UNDER THE ACT. IT IS ALSO PERTINENT TO MENTION THAT ON THE BASIS O F THE VERY SAME TRANSFER OF BUSINESS AGREEMENT AND FOR THE SAME PERIOD OF 3 YEA RS, THE TRIBUNAL HAS IN THE CASE OF THE CHAIRMAN MR. SANKARAN IN ITA NOS 4951 & 4952 /M/2009 HELD THAT THE NON- COMPETE FEE WAS NOT LIABLE TO TAX. THE RELEVANT FIN DINGS OF THE ITAT ARE REPRODUCED HEREUNDER: WE HAVE HEARD THE LD.DR WHO PLACED RELIANCE ON THE ORDER OF AO, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. TH E DISPUTE IS REGARDING TAXABILITY OF AMOUNTS RECEIVED BY THE ASSESSEE FROM THE FIRM AA AS A NON COMPETE FEES. THE NON COMPETE FEES HAD BEEN RECEIVE D FOR THE RESTRICTIVE COVENANT IMPOSED ON THE ASSESSEE NOT THE COMPETE WI TH AA. THE ASSESSEE M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 14 WAS NOT AN EXISTING EMPLOYEE OF AA NOR HE WAS FORME R EMPLOYEE OF THE AA. THE ASSESSEE WAS MANAGING DIRECTOR OF IND GLOBAL CO RPORATE FINANCE PVT. LTD. WHICH WAS A SEPARATE LEGAL ENTITY. THE PROVISI ONS OF SECTION 17(3) (I) ARE APPLICABLE ONLY WHEN THE COMPENSATION IS RECEIVED F ROM EMPLOYER OR FORMER EMPLOYER IN CONNECTION WITH TERMINATION OF EMPLOYME NT OR THE MODIFICATION OF THE TERMS AND CONDITIONS RELATING THERETO. IN THIS CASE THERE IS NO EMPLOYER EMPLOYEE RELATION BETWEEN AA AND THE ASSESSEE AND T HEREFORE WE AGREE WITH THE CIT(A) THAT THE PROVISIONS OF SECTION 17(3)(I) ARE NOT APPLICABLE IN THIS CASE. MOREOVER THE AMOUNTS HAVE BEEN RECEIVED AS NO N COMPETE FEES WHICH IS A CAPITAL RECEIPT NOT TAXABLE. THOUGH NO COMPETE FEES HAS BEEN MADE TAXABLE UNDER SECTION 28(VA) BUT THE SAID PROVISION S IS APPLICABLE ONLY FROM ASSESSMENT YEAR 2003-04 AND WAS NOT APPLICABLE IN T HE RELEVANT YEARS. THIS VIEW IS SUPPORTED BY THE DECISION OF AMRUTSAR BENCH OF TRIBUNAL IN CASE OF T.S. MANOCHA (5SOT 277) AND SEVERAL OTHER DECISIONS OF TRIBUNAL. WE THEREFORE SEE NO INFIRMITY IN THE ORDER OF CIT(A) D ELETING THE ADDITIONS MADE BY THE AO AND THE SAME ARE UPHELD. 3.3.1 WE ALSO FIND MERITS IN THE CONTENTION OF THE ASSESSEE THAT THE DECISIONS RELIED ON BY LD.CIT(A) ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AS IN THE SAID CASES ONLY ONE OF THE BUSINESSES HAD BEEN TRANSFERR ED AND NOT THE SOLE AND MAIN BUSINESS. THE PERUSAL OF THE MATERIALS INDICATE THA T IN THE CASE OF THE ASSESSEE, THE SOLE AND MAIN BUSINESS OR REVENUE EARNER I.E. MERCH ANT BANKING HAS BEEN DISCONTINUED. THE REASONING THAT OF THE AUTHORITIES BELOW THAT SINCE THE AGREEMENT IS ONLY FOR A PERIOD OF 3 YEARS AND NOT ABSOLUTE IS NO T A RELEVANT FACTOR TO DETERMINE THE RECEIPT AS REVENUE IN NATURE AS GENERALLY ALL THE N ON-COMPETE AGREEMENTS ARE LIMITED IN POINT OF TIME WHICH PRESCRIBES THE PERIOD OF NON -COMPETITION. IN VIEW OF THAT MATTER, WE DECIDE THIS GROUND IN FAVOUR OF THE ASSE SSEE AND DELETE THE IMPUGNED ADDITION. ACCORDINGLY, GROUND NO. B IS ALLOWED. M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 15 4. GROUND NO. C IS ALTERNATE TO GROUNDS NO A & B. I N VIEW OF THE FACT THAT THE SAID GROUND ARE DECIDED IN FAVOUR OF THE ASSESSEE, GROUND NO. C REQUIRES NO ADJUDICATION. 5. GROUND NO. D RELATES TO THE DISALLOWANCE OF BAD DEB TS AMOUNTING TO RS.23,89,313/-. 5.1 BRIEFLY STATED, DURING BY THE YEAR UNDER CONSID ERATION, THE ASSESSEE HAD WRITTEN OFF BAD DEBTS AMOUNTING TO RS.24,30,162/- I N THE BOOKS OF ACCOUNTS AS ON ACCOUNT OF THE FOLLOWING: SR. NO. NAME OF THE PARTY NATURE OF DEBT AMOUNT (RS.) 1. KALYANI STEEL LTD. TRANSFER OF LEASED ASSETS 2,5 0,000/- 2. SINGHAL SWAROOP ISPAT LTD. TRANSFER OF LEASED AS SETS 2,73,850/- 3. EXPENSES INCURRED ON BEHALF OF CLIENTS EXPENSES INCURRED ON BEHALF OF CLIENTS 2,59,167/- 4. IND GLOBAL ASSET MANAGEMENT EXPENSES INCURRED ON BEHALF OF CLIENTS 6,16,297/- 5. IND GLOBAL TRUSTEESHIP LTD. EXPENSES INCURRED ON BEHALF OF CLIENTS 1,12,691/- 6. SINGHAL SWAROOP ISPAT LTD. OUTSTANDING INTEREST 5,08,960/- 7. BUSINESS INDIA PUBLICATIONS PVT. LTD. ADVISORY FEES 2,85,000/- 8. VARIOUS EMPLOYEES LOANS TO STAFF 83,348/- TOTAL 23,89,313/- HOWEVER, IN THE ASSESSMENT COMPLETED, THE AO DISALL OWED THE CLAIM AS THE ASSESSEE HAD NOT ESTABLISHED THAT THE DEBTS UNDER CONSIDERAT ION WERE BAD. ON APPEAL THE LD.CIT(A) CONFIRMED THE ORDER OF THE AO. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFOR E US. 5.2 WE HAVE HEARD THE RIVAL SUBMISSIONS ON THIS GROUND AND PERUSED THE MATERIAL ON RECORD. (I) AS REGARDS THE THE BAD DEBT OF RS.2, 50,000/- & RS.2,73,850/- IN RELATION TO KALYANI STEEL LTD AND SINGHAL SWAROOP I SPAT LTD RESPECTIVELY, THE ASSESSEE HAS GIVEN PLANT AND MACHINERY TO THE SAID PARTIES O N LEASE. ON EXPIRY OF THE LEASE TERM THE ASSESSEE HAS SOLD THE PLANT AND MACHINERY TO THE ABOVE PARTIES FOR THE SAID M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 16 AMOUNT ON 31.03.1999. SINCE THE AMOUNT HAS BECOME I RRECOVERABLE, THE ASSESSEE HAS TO WRITTEN OFF THE AMOUNT IN THE BOOKS OF ACCOU NTS. SINCE THESE DEBTS ARE ON SALE OF LEASED ASSETS I.E. IN THE COURSE OF BUSINESS THE SAME SHOULD BE ALLOWED AS A BUSINESS LOSS IN VIEW OF THE DECISION OF THE HONBL E RAJASTHAN HIGH COURT IN THE CASE OF CIT V. ANJANI KUMAR CO. LTD. (2003) 259 ITR 114 (RAJ) WHEREIN IT HAS BEEN HELD THAT ADVANCE FOR ACQUIRING LAND TO SET UP FACTORY B EING LOST, IS ALLOWABLE AS BUSINESS LOSS. (II) THE ASSESSEE HAS CLAIMED THE EXPENSES ON BEHALF OF CLIENTS TO THE TUNE OF RS.2,59,167/- IN THE NORMAL COURSE OF BUSINESS. (II I) WITH RESPECT TO THE BAD DEBT PERTAINING TO IND GLOBAL ASSET MANAGEMENT FUND LTD. - & IND GLOBAL TRUSTEESHIP LTD.- RS.6,16,297/- & RS.1,12,691/- RESPECTIVELY, THE ASS ESSEE HAS INCURRED THE ABOVE EXPENSES FOR THE COMPANIES PROMOTED BY IT. THESE CO MPANIES HAVE BEEN PROMOTED AS ITS SUBSIDIARIES TO CARRY ON THE BUSINESS INCIDE NTAL TO THE MAIN BUSINESS OF THE ASSESSEE. SINCE THESE COMPANIES HAVE NOT STARTED AN Y ACTIVITY AND IS IN THE PROCESS OF WINDING UP, THE AMOUNT IS CLAIMED AS BAD DEBTS. THUS, THESE EXPENSES HAVE BEEN INCURRED IN THE NORMAL COURSE OF BUSINESS, IN OUR V IEW, THE SAID EXPENSES QUALIFIES AS A BUSINESS LOSS UNDER SECTION 28 OF THE ACT. (IV) INTEREST OF RS.5,08,960/- HAS BEEN CHARGED FROM SINGHAL SWAROOP ISPAT LIMITED FOR DEFA ULT IN THE PAYMENT OF LEASE RENTALS. THE SAID INCOME HAS BEEN OFFERED FOR TAX I N A.Y. 1997-98. AS THE INTEREST COULD NOT BE RECOVERED FROM THE PARTY, THE SAME IS WRITTEN OFF AS BAD DEBTS. (V) ADVISORY SERVICES HAVE BEEN RENDERED TO BUSINESS IN DIA PUBLICATION PRIVATE LIMITED FOR WHICH AN AMOUNT OF RS.3,00,000/- WAS BILLED TO THE CLIENT AS CONSULTANCY FEES. THE ASSESSEE IS GIVEN A CHEQUE OF RS.2,85,000/- NET OF T.D.S. THE ASSESSEE IS INFORMED THAT AS NECESSARY FACILITIES ARE NOT AVAIL ABLE, THE CHEQUE COULD NOT BE DEPOSITED. ASSESSEE HAS SHOWN THE CHEQUE ON HAND AN D HAS CREDITED THE INCOME ACCOUNT. AS THE SAID PARTY DID NOT ISSUE FRESH CHEQ UE IN SPITE OF REMINDERS THE AMOUNT OF RS.2,85,000/- IS WRITTEN OFF AS BAD DEBTS . AS THE INTEREST AND ADVISORY FEES CHARGED FROM THE CLIENTS HAVE BEEN OFFERED FOR TAX IN EARLIER YEARS, WE ARE OF THE VIEW THAT THE CONDITIONS OF SECTION 36(2) ARE FULFI LLED. AS THE DEBTS HAVE ALSO BEEN WRITTEN OFF, THE SAME SHOULD BE ALLOWED AS A DEDUCT ION U/S 36(1) IN VIEW OF THE M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 17 DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F TRF LTD. 323 ITR 387 (SC). (VI) THE LOANS OF RS.83,348/- GIVEN TO STAFF HAS BEEN WR ITTEN OFF SINCE THE SAME ARE IRRECOVERABLE IN VIEW OF TRANSFER OF THE MERCHANT B ANKING BUSINESS. THE SAID LOANS ARE NOT TAKEN OVER BY M/S. ARTHUR ANDERSON. ALL THE EMPLOYEES HAD EITHER BEEN TAKEN OVER OR RESIGNED. SINCE THESE EXPENSES HAVE BEEN IN CURRED IN THE NORMAL COURSE OF BUSINESS, IN OUR VIEW, THE SAID EXPENSES QUALIFIES AS A BUSINESS LOSS UNDER SECTION 28 OF THE ACT. IN THE ABOVE SAID LINE OF DISCUSSIONS, GROUND NO D IS DECIDED ACCORDINGLY. 6. GROUND NO E IS ALTERNATE GROUND TO GROUND NO D WH ICH REQUIRES NO ADJUDICATION IN VIEW OF THE DISPOSAL OF GROUND NO D AS AFOREMENTIONED. 7. GROUND NO F RELATES TO THE DISALLOWANCE ON ACCO UNT OF PRE-PAID EXPENSES TO THE TUNE OF RS,5,52,877/- (SIC). 7.1 DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD DEBITED MEMBERSHIP & SUBSCRIPTION ACCOUNT AND CREDITED PREPAID EXPENSES BY RS.5,52,877/- BEING PREPAID PAYMENT FOR SEBI FEES, INSURANCE, REPAIRS AND MAINTE NANCE ETC. THE AO DISALLOWED THE AMOUNT SINCE THE BUSINESS WAS TRANSFERRED. THE AO ALSO NOTED THAT THERE IS NO PROVISION IN THE ACT TO DEBIT PREPAID EXPENSES. OUT OF THE SAID AMOUNT, RS.1,66,667/- PERTAINED TO SEBI FEES OF CURRENT YEAR AND HENCE, TH E AO RECTIFIED HIS ORDER TO THAT EFFECT AND ALLOWED RELIEF OF RS.1,66,667/-. HENCE, THE DISALLOWANCE WAS RESTRICTED TO RS.3,86,243/-. THE BREAK UP OF THE SAID PREPAID EXP ENSES AMOUNTING TO RS.3,86,243/- IS AS FOLLOWS: INSURANCE RS. 3,530 REPAIRS AND MAINTENANCE RS. 9.021 MEMBERSHIP AND SUBSCRIPTION RS. 45,459 OFFICE UPKEEP RS. 1,800 SEBI FEES PAID ON 16/03/2000 RS. 5,00,000 LESS: CLAIMED FOR YEAR ENDING 31.03.2000 RS . 6,900 LESS: ALLOWED BY AO U/S. 154 RS. 1,66,667 RS.3,26,433 TOTAL RS. 3,86,243 M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 18 ON APPEAL, THE LD.CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO. AGGRIEVED BY THE IMPUGNED DECISION, ASSESSEE HAS RAISED THIS GRO UND IN THE APPEAL BEFORE US. 7.2 BEFORE US, THE LD.AR HAS STATED THAT SINCE THE BUSI NESS HAS BEEN TRANSFERRED AND SOLD OFF OF THE INTANGIBLE ASSETS PERTAINING TO THE BUSINESS, THE ASSESSEE COULD NO MORE GET THE BENEFIT OF THE EXPENSE IN THE SUBSEQUE NT YEARS. HENCE, THE AMOUNT WAS ALLOWABLE AS LOSS IN THE CURRENT YEAR. SINCE TH E AMOUNTS WERE INCURRED IN THE NORMAL COURSE OF BUSINESS AND THEY CEASED TO RENDER BENEFITS IN FUTURE ASSESSMENT YEARS, THE SAID AMOUNT HAS BECOME A LOSS OF THE CUR RENT YEAR AND HENCE, WAS ALLOWABLE U/S 28. RELIANCE HAS BEEN PLACED ON THE D ECISION IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MYSORE SUGAR CO. LTD (1962) 46 ITR 649 (SC). ON THE OTHER HAND, THE LD.DR HAS RELIED ON THE ORDERS OF THE AO AND LD.CIT(A) IN SUPPORT OF THE CASE OF THE REVENUE. 7.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS DISCONTINUED TH E MERCHANT BANKING BUSINESS AND HAS ALSO SOLD OFF THE INTANGIBLE ASSETS PERTAINING TO THE SAID BUSINESS. SINCE THESE EXPENSES ARE PERTAINING TO THE SAID BUSINESS, THE L D.CIT(A) HAS CORRECTLY UPHELD THE IMPUGNED ADDITION AS THERE IS ABSOLUTELY NO BASIS F OR CLAIM OF DEDUCTION IN RESPECT OF EXISTING BUSINESS OF THE ASSESSEE IN THE ABSENCE OF ANY NEXUS WITH IT. THE SAID DECISION OF THE APEX COURT RELIED BY THE LD.AR IS N OT APPLICABLE TO THE FACTS OF THE ASSESSEE. ACCORDINGLY, THIS GROUND IS DISMISSED. IN VIEW OF THIS THE ALTERNATE GROUND NO G IS ALSO DISMISSED. 8. GROUND NO H RELATES TO THE DISALLOWANCE OF RS.5, 53,000/- ON ACCOUNT OF MEMBERSHIP AND SUBSCRIPTION FEES. 8.1 BRIEFLY STATED, DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.5,00,000/- AS BUSINESS EXPENDITURE TOWARDS ENTRANCE FEES OF MADRAS CRICKET CLUB AND RS.33,000/- TOWARDS MEMBERS HIP FEES OF BELVERDERE CLUB. M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 19 THE AO HELD THAT THE SAME WAS NOT FOR THE PURPOSE O F ASSESSEES BUSINESS. MOREOVER, SINCE THE BUSINESS WAS TRANSFERRED, THE E XPENSE COULD NOT BE ALLOWED. THE LD.CIT(A) UPHELD THE ORDER OF AO. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 8.2 BEFORE US, THE LD.AR HAS STATED THAT THE MEMBERSHIP ACQUIRED BY THE ASSESSEE IS IN THE NATURE OF CORPORATE MEMBERSHIP. THE MEMBERSHIP HAS BEEN ACQUIRED PRIOR TO TRANSFER OF MERCHANT BANKING BUSI NESS. HENCE, THE MEMBERSHIP ACQUISITION DOES NOT HAVE ANY RELATION TO THE TRANS FER OF BUSINESS. HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SAMTEL COLOR LTD. (2010) 326 ITR 425 HAS HELD THAT THE EXPENDITURE ON MEMBERSHIP OF CLUBS IS ALLOWABLE ONE. THE HONBLE COURT HAS HELD THAT MEMBERSHIP FEES ARE NOT A CAPITAL EXPENDITURE AND THE SAME IS FOR THE PURPOSE OF BUSINESS AS WELL. RELIAN CE HAS ALSO BEEN PLACED ON THE FOLLOWING DECISIONS: A. OTIS ELEVATOR (BOMBAY HIGH COURT) 195 ITR 682 B. ACIT V. JYOTI INDUSTRIES (ITA NO. 1567/MUM/1998) C. DCIT V. LN ENGINEERING WORKS PRIVATE LIMITED (ITA N O 1484/MUM/1999) ON THE OTHER HAND, THE LD.DR HAS RELIED ON THE ORDE RS OF THE AO AND LD.CIT(A). 8.3 WE HAVE HEARD BOTH THE PARTIES ON THIS GROUND AND P ERUSED THE MATERIAL ON RECORD. IN ORDER TO ALLOW THE EXPENDITURE, WHAT IS REQUIRED TO BE SEEN IS WHETHER THE EXPENDITURE HAS RESULTED INTO AN ADVANTAGE IN THE R EVENUE FIELD OR IN THE CAPITAL FIELD. IN THE CASE THE EXPENDITURE HAS NOT RESULTED IN CRE ATION OF ANY CAPITAL ASSET OR ANY NEW SOURCE OF INCOME AND IT HAS NOT BEEN CHANGED TH E CAPITAL STRUCTURE OF THE COMPANY AND HAD BEEN INCURRED ONLY FOR CONDUCT OF T HE BUSINESS MORE EFFICIENTLY AND PROFITABLY THEN IT WILL BE REVENUE EXPENDITURE. THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF OTIS ELEVATORS CO. (INDIA) LTD. 195 ITR 682 HAS HELD THAT WHERE THE ISSUE WAS WITH REFERENCE TO THE REIMBURSE MENT OF EXPENDITURE SPENT IN THE CLUB AND NOT THE FEE PAID FOR OBTAINING THE MEMBERS HIP. HOWEVER, THERE IS A JUDGMENT OF THE HON'BLE GUJRAT HIGH COURT IN THE CA SE OF GUJARAT STATE EXPORT M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 20 CORPORATION LTD., 209 ITR 649 IN WHICH THE LUMP SUM ENTRANCE FEES PAID TOWARDS MEMBERSHIP OF THE CLUB HAS BEEN HELD TO BE REVENUE EXPENDITURE. SIMILAR VIEW HAS ALSO BEEN TAKEN IN THE CASE OF CIT VS. SAMTEL COLOR LTD. 180 TAXMAN 82 (DEL) WHEREIN THE HON'BLE DELHI HIGH COURT HAS ALLOWED TH E EXPENDITURE HOLDING THAT THE ADMISSION FEE PAID TOWARDS CORPORATE MEMBERSHIP WAS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOT TOWARDS CAPITAL ACCOUNT AS IT ONLY FACILITATED SMOOTH AND EFFICIENT RUNNING OF THE BUSINESS ENTERPRISE AND DID NOT ADD TO PROFIT EARNING APPARATUS OF THE BUSINESS ENT ERPRISE. HOWEVER, THE HON'BLE KERALA HIGH COURT IN THE CASE OF FRAMATONE CONNECTO R ONE LTD. VS. DCIT 294 ITR 559 CONSIDERED SIMILAR PAYMENT PAID TO COCHIN YATCH CLUB TOWARDS INSTITUTIONAL MEMBERSHIP FEE AND HELD THAT THE EXPENDITURE EFFECT ED BY THE ASSESSEE WAS CAPITAL IN NATURE. ONCE THE ASSESSEE PAID THE AMOUNT TO A C LUB FOR MEMBERSHIP IT IS A PAYMENT ONCE AND FOR ALL RESULTING IN AN ENDURING B ENEFIT TO THE INSTITUTION. THE MERE FACT THAT ASSESSEE'S REPRESENTATIVE, LIKE THE MANAG ING DIRECTOR'S PARTICIPATION IN THE CLUB PROMOTED THE ASSESSE'S BUSINESS DID NOT CHANGE THE CHARACTER OF THE PAYMENT WHICH WAS MADE ONCE AND FOR ALL. THE HON'BLE KERALA HIGH COURT FOLLOWED THE PRINCIPLES ESTABLISHED BY THE APEX COURT IN PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. VS. CIT 225 ITR 792 IN ARRIVING AT THE ABOVE DECISION. THERE IS NO JURISDICTIONAL HIGH COURT JUDGMENT ON THIS ISSUE TH OUGH THE JUDGMENT IN THE CASE OF OTIS ELEVATORS CO. (INDIA) LTD IS IN THE CONTEST OF REIMBURSEMENT OF MEMBERSHIP FEES OF THE EMPLOYEES PAID BY THE COMPANY. EVEN IN T HE CASE OF HON'BLE DELHI HIGH COURT JUDGMENT IN THE CASE OF SAMTEL COLOR LTD. 180 TAXMAN 82 (DEL) THE FACTS INDICATE THAT THE ASSESSEE COMPANY NOMINATED EMPLOY EES WHO WOULD AVAIL THE BENEFIT OF CORPORATE MEMBERSHIP GIVEN TO THE ASSESS EE. IN THOSE CIRCUMSTANCES THE EXPENDITURE WAS ALLOWED UNDER SECTION 37(1). MOREOV ER NEITHER THE AO NOR THE LD.CIT(A) HAS GONE INTO THE FACTUAL MATRIX OF THE C ASE FOR DISALLOWING THE CLAIM OF THE ASSESSEE. IN VIEW OF THAT MATTER, WE ARE OF THE OPI NION THAT THE MATTER CAN BE RE- EXAMINED BY THE AO AFTER OBTAINING THE DETAILS AND EXAMINING THE JUSTIFICATION IN CLAIMING THE IMPUGNED EXPENSE AS BUSINESS EXPENDITU RE. THE MATTER IS RESTORED TO M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 21 THE FILE OF AO FOR CONSIDERING ACCORDINGLY. THE GRO UND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSE. 9. GROUND NO J RELATES TO DISALLOWANCE OF AN AMOUNT OF RS.61,984/- ON ACCOUNT OF DEPRECIATION ON RESIDENTIAL FLATS. 9.1 THE ASSESSEE HAD GIVEN CERTAIN ASSETS ON LEASE TO S INGHAL SWAROOP ISPAT LIMITED. AS THE SAID PARTY DEFAULTED IN PAYMENT OF LEASE RENTALS, THE LESSEE TRANSFERRED 3 FLATS AT MIRA ROAD AND A MOTOR CAR TO THE ASSESSEE IN LIEU OF THE LEASE RENTALS. THE ASSESSEE HAD CLAIMED THAT THE SAID FLA TS WERE USED PURPOSE OF THE BUSINESS AND HENCE CLAIMED DEPRECIATION ON THESE FL ATS. THE AO DISALLOWED THE DEPRECIATION ON THESE FLATS FOLLOWING THE DECISION OF HIS PREDECESSOR IN A.Y. 1998-99. THE AO IN A.Y. 1998-99 HAD HELD THAT THE FLATS WERE VACANT AND HENCE, DEPRECIATION WAS NOT ALLOWABLE. THE LD.CIT(A) CONFIRMED THE ORDE R OF THE AO. AGGRIEVED BY THE SAID DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 9.2 AT THE OUTSET, IT IS OBSERVED THAT THE ISSUE IS COV ERED AGAINST THE ASSESSEE IN A.Y. 1998-99 BY THE ORDER OF THE ITAT IN ITA NO 295 0/MUM/2004 IN THE ASSESSEES OWN CASE WHERE THE CLAIM OF THE ASSESSEE FOR DEPREC IATION HAS BEEN REJECTED. AS THE ASSESSEE HAS NOT BROUGHT ANY MATERIAL DIFFERENTIATI NG THE FACTS IN RELATION TO THE ASSESSMENT YEAR UNDER CONSIDERATION, WE, FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH, UPHOLD THE DECISION OF THE LD.CIT(A) ON THIS COUNT. ACCORDINGLY, THIS GROUND IS DISMISSED. 10. GROUND NO K RELATES TO THE ADDITION OF RS.63,00 0/- ON ACCOUNT OF INCOME FROM HOUSE PROPERTY. 10.1 THE ASSESSEE HAD GIVEN CERTAIN ASSETS ON LEASE TO S INGHA SWAROOP ISPAT LIMITED. AS THE SAID PARTY DEFAULTED IN PAYMENT OF LEASE RENTALS, THE LESSEE TRANSFERRED 3 FLATS AT MIRA ROAD AND A MOTOR CAR TO THE APPELLANT IN LIEU OF THE LEASE RENTALS. THE AO WHILE DISALLOWING THE DEPRECIATION HAD TREATED THE SAME AS DEEMED M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 22 TO BE LET OUT AND ASSESSED THE INCOME FROM HOUSE PR OPERTY AT RS.63,000/-. THE LD.CIT(A) CONFIRMED THE ORDER OF THE AO. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFOR E US. 10.2 IT IS OBSERVED THAT THIS ISSUE IS ALSO COVERED AGAINST THE ASSESSEE IN A.Y. 1998- 99 BY THE ORDER OF THE ITAT IN ITA NO 2950/MUM/2004 . AS THE ASSESSEE HAS NOT BROUGHT ANY MATERIAL DIFFERENTIATING THE FACTS IN R ELATION TO THE ASSESSMENT YEAR UNDER CONSIDERATION, WE, FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH, UPHOLD THE DECISION OF THE LD.CIT(A) ON THIS COUNT. ACCORDINGL Y, THIS GROUND IS DISMISSED. 11. GROUND NO L IS GENERAL IN NATURE WHICH DOES NOT REQUIRE ANY ADJUDICATION. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF MAY, 2013. SD/- SSS SD/- (D. KARUNAKARA RAO) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT: 13.05.2013 SRIVASTAVA COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T., CONCERNED MUMBAI 4. CIT (A) CONCERNED MUMBAI 5. THE DR, I - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 23 ITAT, MUMBAI BENCHES, MUMBAI M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 24 M/S.IGFT LTD. ITA NO.1284/M/10 AY 2001-02 25