Kapil Chits (Kakatiya) P. Ltd., Warangal, Hyderabad V. ACIT, Circle-1, Warangal, Warangal

ITA 159/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2664 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 15-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

ITA NO 159 OF 20 16 KAPIL CHITS KAKATIYA P LTD WARANGAL PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.159/HYD/2016 (ASSESSMENT YEAR: 2012-13) M/S. KAPIL CHITS (KAKATIYA) PRIVATE LIMITED WARANGAL PAN: AADCK 4851 D VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 1 STATION ROAD, WARANGAL (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S. RAMA RAO FOR REVENUE : SMT. SUMAN MALIK, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2012-13 AGAIN ST THE ORDER OF THE CIT (A)-3, HYDERABAD, DATED 13.11. 2015 CONFIRMING THE ADDITIONS OF RS.5,48,59,475 MADE BY THE AO ON THE GROUND THAT THE SAID EXPENDITURE INCURRED BY TH E ASSESSEE REPRESENTED CAPITAL EXPENDITURE AND IS NOT ALLOWABL E AS REVENUE EXPENDITURE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY FILED ITS RETURN OF INCOME FOR THE A.Y 2012-13 ON 26 .09.2012 ADMITTING INCOME OF RS.9,25,37,600. DURING THE ASSE SSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.5,48,59,475 TO WARDS NON- DATE OF HEARING : 15.06.2017 DATE OF PRONOUNCEMENT : 31.08.2017 ITA NO 159 OF 20 16 KAPIL CHITS KAKATIYA P LTD WARANGAL PAGE 2 OF 11 COMPETE FEE. OBSERVING THAT THE EXPENDITURE WAS CA PITAL IN NATURE, HE ISSUED A SHOW-CAUSE NOTICE TO THE ASSESS EE CALLING FOR ITS OBJECTIONS TO THE PROPOSED DISALLOWANCE. IN RES PONSE, THE ASSESSEE FILED DETAILED SUBMISSIONS STATING THAT TH E PAYMENT IS NOT ONLY FOR NON-COMPETING, BUT IS ALSO FOR SEVERAL OTHER SERVICES RENDERED BY M/S KAPIL CHIT FUND PVT. LTD TO THE ASS ESSEE AND THEREFORE, THE PAYMENT WAS REVENUE IN NATURE. IT WA S ALSO SUBMITTED THAT THE ASSESSEE DID NOT DERIVE ANY BENE FIT OF ENDURING NATURE AND THEREFORE, IT CANNOT BE TERMED AS CAPITA L EXPENDITURE. THE ASSESSEE FURTHER SUBMITTED THAT THE TDS ALSO WA S DEDUCTED U/S 194J OF THE I.T. ACT IN RESPECT OF THE NON COMP ETE FEE PAID AND WAS CREDITED TO THE GOVT. A/C AND LIKEWISE M/S. KAPIL CHIT FUND (P) LTD ALSO HAD OFFERED THIS RECEIPT OF NON-CO MPETE FEE AS REVENUE FOR ASSESSMENT PURPOSES FOR THE A.Y 2012-13. THE AO, HOWEVER, WAS NOT CONVINCED WITH THE ASSESSEES CONT ENTIONS AND HELD THAT THE NON- COMPETE FEE IS CAPITAL IN NATURE AND HENCE DISALLOWED THE SAME AND BROUGHT IT TO TAX. AGGRIEVE D, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO CONFIRME D THE ORDER OF THE AO AND THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUTHORI TIES BELOW WHILE THE LEARNED DR SUPPORTED THE ORDERS OF THE AU THORITIES BELOW. BOTH THE PARTIES ALSO FILED COPIES OF CASE L AW RELIED UPON BY THEM IN SUPPORT OF THEIR CONTENTIONS. 4. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT M/S. KAPIL CHIT FUND (P) LT D WAS ITA NO 159 OF 20 16 KAPIL CHITS KAKATIYA P LTD WARANGAL PAGE 3 OF 11 INCORPORATED IN THE YEAR 1981 AND WAS DOING CHIT FU ND BUSINESS IN THE UNDIVIDED STATE OF ANDHRA PRADESH. IT IS THE HOLDING COMPANY OF THE ASSESSEE BEFORE US. THE ASSESSEE WAS FLOATED BY KAPIL CHIT FUNDS (P) LTD ON 9.9.2008 TO DO THE CHIT FUND BUSINESS EXCLUSIVELY IN NORTHERN TELANGANA DISTRICTS. BOTH T HE PARENT AND THE SUBSIDIARY COMPANY ENTERED INTO AN AGREEMENT ON 10.04.2010, ACCORDING TO WHICH THE ASSESSEE HAS TO PAY 1% OF ITS ANNUAL TURNOVER FOR A PERIOD OF 5 YEARS AS NON-COM PETE FEE TO KAPIL CHIT FUND (P) LTD FOR NOT CARRYING OUT ITS BUS INESS IN NORTHERN TELANGANA DISTRICTS. AS PER VARIOUS CLAUSE S OF THE AGREEMENT DATED 10.04.2010, KAPIL CHIT FUNDS PVT. L TD AND THE ASSESSEE HEREIN HAVE DEMARCATED THE AREAS AND TERRI TORY IN WHICH THEY SHALL OPERATE AND EACH OF THE TWO SHALL NOT CA RRY OUT THE OPERATIONS IN THE AREAS ALLOCATED TO EACH OF THEM. THE CONSIDERATION TO BE PAID BY THE ASSESSEE TO ITS HOL DING COMPANY FOR SUCH RESTRICTION ON ITS ACTIVITIES IS AT 1% OF T HE ANNUAL TURNOVER. IT IS THE CASE OF THE ASSESSEE THAT THOUG H THE RESOLUTIONS PASSED BY THE BOARD OF DIRECTORS OF KAPIL CHIT FUND S (P) LTD WAS THAT THE NON-COMPETE FEE AGREEMENT IS VALID TILL 31 .12.2060, THE AGREEMENT WAS FOR A FIXED PERIOD OF 5 YEARS ONLY AN D THE AGREEMENT WAS ALSO LIABLE TO BE TERMINATED AT ANY T IME WITH A NOTICE OF 10 MONTHS BY EITHER PARTIES. THUS, ACCORD ING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE BENEFIT ACQUI RED BY M/S. KAPIL CHIT FUNDS (P) LTD BY VIRTUE OF THE AGREEMENT IS NOT OF ENDURING NATURE AND IN SUCH CIRCUMSTANCES, THE PAYM ENT MADE WAS CLEARLY REVENUE IN NATURE. FURTHER, HE ALSO SUBM ITTED THAT THE ASSESSEE HAS AVAILED VARIOUS OTHER SERVICES UNDER T HE AGREEMENT AND THE PAYMENT FOR SUCH SERVICES WAS INCLUDED IN T HE NON- COMPETE FEE. THEREFORE, ACCORDING TO HIM, THE PAYM ENT IS NOT FOR ITA NO 159 OF 20 16 KAPIL CHITS KAKATIYA P LTD WARANGAL PAGE 4 OF 11 ACQUIRING OF CAPITAL ASSET BUT WAS FOR EARNING OF I NCOME AND HENCE IS ALLOWABLE U/S 37(1) OF THE ACT. 5. THE FIRST ARGUMENT OF THE ASSESSEE WAS THAT, THE HOLDING COMPANY HAS OFFERED THE RECEIPT TO TAX IN I TS HANDS AND THEREFORE, IT SHOULD BE TREATED AS REVENUE EXPENDIT URE IN THE HANDS OF THE ASSESSEE AS WELL. BUT, WHETHER SUCH TR EATMENT IN THE HANDS OF THE RECIPIENT WOULD CLINCH THE ISSUE? IN O UR OPINION, IT WOULD NOT, BECAUSE THE NATURE OF THE PAYMENT COULD BE CAPITAL IN THE HANDS OF THE PAYER, WHILE IT COULD BE REVENUE R ECEIPT IN THE HANDS OF THE PAYEE. FOR EXAMPLE, IN THE HANDS OF THE PURCHASER OF A MACHINERY, THE PAYMENT WOULD BE CAPITAL IN NATURE , WHILE IN THE HANDS OF THE SELLER, IT COULD BE REVENUE RECEIPT. T HEREFORE, THE CONTENTION OF THE ASSESSEE THAT BECAUSE THE RECEIPT IN THE HANDS OF THE RECIPIENT I.E. THE HOLDING COMPANY HAS BEEN ACCEPTED AS A REVENUE RECEIPT, IT SHOULD BE TREATED AS REVENUE EX PENDITURE IN THE HANDS OF THE ASSESSEE IS NOT ACCEPTABLE. 6. THE SECOND ARGUMENT IS THAT THE NON-COMPETE AGREEMENT IS FOR A SHORT PERIOD OF 5 YEARS AND NO E NDURING BENEFIT HAS ENURED TO THE ASSESSEE. 7. THE LEARNED DR HAD RELIED UPON THE DECISION OF T HE HON'BLE SUPREME COURT IN THE CASE OF ASSAM BENGAL C EMENT CO. LTD VS. CIT REPORTED IN (1955) 27 ITR 34 (S.C) IN S UPPORT OF HIS CONTENTION THAT SUCH PAYMENT WAS CAPITAL IN NATURE WHILE THE LEARNED COUNSEL FOR THE ASSESSEE HAD RELIED UPON VA RIOUS OTHER CASES IN SUPPORT OF HIS CONTENTION. LET US, THEREFO RE, CONSIDER THE ITA NO 159 OF 20 16 KAPIL CHITS KAKATIYA P LTD WARANGAL PAGE 5 OF 11 APPLICABILITY OF THE DECISIONS RELIED UPON BY BOTH THE PARTIES TO THE FACTS OF THE CASE BEFORE US. I) IN THE CASE OF ASSAM BENGAL CEMENT CO. LTD (CITE D SUPRA), THE HON'BLE SUPREME COURT WAS CONSIDERING T HE CASE OF A COMPANY WHICH ACQUIRED A LEASE OF CERTAIN LIMESTONE QUARRIES FROM THE STATE GOVT. FOR THE PURPOSE OF CARRYING ON MANUFACTURE OF CEMENT FOR A PERIOD OF 20 YEARS WITH A CLAUSE FO R RENEWAL FOR A FURTHER TERM OF 20 YEARS AND IN ADDITION TO THE PAY MENT OF RENT AND ROYALTY, TWO FURTHER SUMS WERE PAYABLE UNDER TH E SPECIAL COVENANTS TERMED AS PROTECTION FEES. THE HON'BLE SU PREME COURT HELD THAT IF THE EXPENDITURE IS MADE FOR ACQUIRING OR BRINGING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR THE ENDURING BE NEFIT OF THE BUSINESS, IT IS PROPERLY ATTRIBUTABLE TO CAPITAL AN D IS OF THE NATURE OF THE CAPITAL EXPENDITURE AND THAT IF, ON THE OTHE R HAND, IT IS MADE NOT FOR THE PURPOSE OF BRINGING INTO EXISTENCE ANY SUCH ASSET OR ADVANTAGE BUT IS FOR RUNNING THE BUSINESS WITH A VIEW TO PRODUCE THE PROFITS, IT IS A REVENUE EXPENDITURE. I T WAS HELD THAT THE CHARACTER OF THE PAYMENT CAN BE DETERMINED BY L OOKING AT WHAT IS THE TRUE NATURE OF THE ASSET WHICH HAS BEEN ACQUIRED AND NOT BY THE FACT WHETHER IT IS A PAYMENT IN LUMP SUM OR BY INSTALLMENTS. THE HON'BLE SUPREME COURT HELD THAT T HE ASSET WHICH THE COMPANY HAD ACQUIRED IN THE SAID CASE WAS IN THE NATURE OF A CAPITAL ASSET AS THE RIGHT TO CARRY ON ITS BUSINESS WAS UNFETTERED BY ANY COMPETITION FROM OUTSIDERS WITHIN THE AREA AND IT WAS A PROTECTION ACQUIRED BY THE COMPANY FOR ITS BUSINESS AS A WHOLE AND NOT A PART OF THE WORKING OF THE BUSINESS BUT WENT ON TO APPRECIATE THE WHOLE OF THE CAPITAL ASSET AND MA KE IT MORE YIELDING. IN THESE CIRCUMSTANCES, THE HON'BLE SUPRE ME COURT HELD ITA NO 159 OF 20 16 KAPIL CHITS KAKATIYA P LTD WARANGAL PAGE 6 OF 11 THAT THE EXPENDITURE INCURRED BY THE COMPANY IN ACQ UIRING SUCH ADVANTAGE CERTAINLY HAS AN ENDURING ADVANTAGE AND I S NOT IN THE NATURE OF CAPITAL EXPENDITURE AND WAS NOT ALLOWABLE AS A DEDUCTION. THE FACTS OF THIS CASE ARE SLIGHTLY DIFF ERENT FROM THE FACTS OF THE CASE BEFORE US. IN THE CASE OF ASSAM B ENGAL CEMENT CO. LTD (CITED SUPRA), THE AGREEMENT WAS BETWEEN A COMPANY AND THE STATE GOVT. AND WAS TO PREVENT THE COMPETITION FROM ALL THE COMPETITORS FOR A PERIOD OF 20 YEARS AND FOR A FURT HER TERM OF 20 YEARS. THEREFORE, THE COMPETITION FROM ALL QUARTERS HAS BEEN EXTINGUISHED AND NOT FROM ANY PARTICULAR COMPANY AN D THE PERIOD IS ALSO QUITE A LONG PERIOD AS AGAINST THE CASE OF THE ASSESSEE BEFORE US AS THE COMPETITION TO BE AVOIDED IS ONLY FROM ITS PARENT COMPANY AND IS ALSO INITIALLY FOR A PERIOD OF 5 YEA RS ONLY. THEREFORE, IN OUR OPINION, THE DECISION OF THE HON' BLE SUPREME COURT IS NOT APPLICABLE TO THE FACTS OF THE CASE BE FORE US. II) THE LEARNED COUNSEL FOR THE ASSESSEE HAD RELIED UPON THE FOLLOWING CASE LAW: A) CIT VS. COAL SHIPMENT P LTD REPORTED IN (1971) 82 ITR 902 (S.C) WHEREIN THE HON'BLE SUPREME COURT WAS CONSIDERING THE CASE OF AN ASSESSEE WHICH HAD ENTERED INTO AN AGREEMENT WITH ANOTHER EXPORTER, WAS NOT TO EXPORT COAL BUT TO ASSIST THE ASSESSEE I N PROCURING COAL FOR SHIPMENT IN RETURN OF PAYMENT FROM THE ASSESSEE AND THE AGREEMENT COULD BE TERMINATED AT ANY TIME. THE HON'BLE SUPREME COURT HELD THAT THE PAYMENT RELATED TO THE ACTUAL SHIPMENT OF COAL AND THEREFORE, SUCH EXPENDITURE IS ALLOWABLE AS A DEDUCTION. ITA NO 159 OF 20 16 KAPIL CHITS KAKATIYA P LTD WARANGAL PAGE 7 OF 11 B) CIT VS. ANDHRA FUELS (P) LTD REPORTED IN (2016) 70 TAXMANN.COM 271 (A.P). IN THIS CASE THE HON'BLE JURISDICTIONAL HIGH COURT WAS CONSIDERING THE CASE OF AN ASSESSEE WHO HAD ENTERED INTO A NON-COMPETE FEE AGREEMENT FOR A PERIOD OF 3 YEARS TO WARD OFF COMPETITION IN THE TERRITORIES OF THE A.P AND THE CONSIDERATION PAID FOR SUCH NON COMPETITION WAS CLAIMED AS A DEDUCTION AS THE REVENUE EXPENDITURE. THE HON'BLE HIGH COURT HELD THAT THE RESTRICTIVE COVENANT OF NON COMPETITION FOR A PERIOD OF 3 YEARS FROM THE DATE OF AGREEMENT WAS NEITHER PERMANENT NOR WAS AN ADVANTAGE OF AN ENDURING NATURE DERIVED BY THE ASSESSEE AND THEREFORE, THE PAYMENT WAS ALLOWABLE AS A DEDUCTION. C) CRYSTAL CHEMIE (P) LTD VS. ACIT REPORTED IN (2010) 42 DTR 0197 WHEREIN THE COORDINATE BENCH OF THE TRIBUNAL AT AHMEDABAD HELD THAT THE COMMISSION PAID BY THE ASSESSEE TO ANOTHER COMPANY BASED ON THE QUANTITY OF SPECIFIED PRODUCT SOLD BY THE ASSESSEE, FOR VARIOUS SERVICES RENDERED BY THAT COMPANY TO THE ASSESSEE, TO ENABLE IT TO UPGRADE IT S MACHINERY AND TO USE BETTER METHODS OF PRODUCTION, IS REVENUE EXPENDITURE. D) CIT VS. EICHER LTD REPORTED IN (2008) 302 ITR 249 (S.C) WHEREIN THE HON'BLE DELHI HIGH COURT WAS DEALING IN A CASE OF AN ASSESSEE WHO HAD NEGOTIATED A NON-COMPETE FEE AGREEMENT WITH A COMPETITOR AND AN EX-EMPLOYEE OF THE ASSESSEE SO THAT THEY WOULD NOT CARRY OUT ANY BUSINESS ACTIVITY WITH REGARD TO ITA NO 159 OF 20 16 KAPIL CHITS KAKATIYA P LTD WARANGAL PAGE 8 OF 11 TWO WHEELERS AND THE ASSESSEE CLAIMED THIS AMOUNT AS A BUSINESS EXPENDITURE. THE HON'BLE HIGH COURT, AFTER CONSIDERING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MADRAS AUTO SERVICE (P) LTD REPORTED IN (1998) 233 ITR 468 (S.C ), HAS HELD THAT THE ASSESSEE DID NOT ACQUIRE ANY CAPITAL ASSET BY ENTERING INTO A NON COMPETE AGREEMENT AND THEREFORE, PAYMENT OF NON-COMPETE FEE MADE BY THE ASSESSEE PURSUANT TO THE RESTRICTIV E COVENANT WAS REVENUE EXPENDITURE AND NOT A CAPITAL EXPENDITURE. THE DELHI HIGH COURT HAD CONSIDERED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ASSAM BENGAL CEMENT CO. LTD (CITED SUPRA) BEFORE COMING TO THE ABOVE CONCLUSION. E) ORCHID CHEMICALS & PHARMACEUTICALS LTD VS. ACIT REPORTED IN (2011) 7 ITR 0601 (TRIB.) WHEREIN IT WA S HELD THAT THE NON COMPETE FEE PAID BY THE ASSESSEE ON ACQUISITION OF PHARMACEUTICAL BUSINESS WHICH CONSTITUTE A NEW LINE OF PRODUCT IS NOT ALLOWABLE A S A REVENUE EXPENDITURE IN ONE-GO BUT WAS TO BE TREATED AS A DEFERRED REVENUE EXPENDITURE AND IS ALLOWABLE OVER A PERIOD OF 4 YEARS PRO RATA, STARTI NG FROM THE RELEVANT YEAR. 8. FROM THE ABOVE DECISIONS, IT IS SEEN THAT THE NAT URE AND CHARACTER OF THE PAYMENT IN THE HANDS OF THE AS SESSEE WOULD DEPEND UPON THE PURPOSE OF THE PAYMENT AND THE NATU RE OF THE BENEFIT ENURED TO THE ASSESSEE BY SUCH PAYMENT. ON FORMATION OF ITA NO 159 OF 20 16 KAPIL CHITS KAKATIYA P LTD WARANGAL PAGE 9 OF 11 ASSESSEE COMPANY, THE HOLDING COMPANY WANTED THE AS SESSEE COMPANY TO BENEFIT BY TAKING OVER ITS BUSINESS IN N ORTHERN TELANGANA DISTRICTS. BY VIRTUE OF THE NON-COMPETE A GREEMENT, THE HOLDING COMPANY HAS LOST PART OF ITS TERRITORY AND CONSEQUENTLY A SOURCE OF INCOME AND IT IS COMPENSATED BY RECEIPT O F 1% OF THE ANNUAL TURNOVER. WHAT IS TO BE SEEN IN THIS CASE IS WHETHER THE ASSESSEE HAS GAINED ANYTHING BY VIRTUE OF THIS AGRE EMENT. THE ASSESSEE HAS GAINED THE BUSINESS OF THE HOLDING COM PANY I.E. THE INCOME GENERATING AREA AND ALSO NOT HAVING ITS HOLD ING COMPANY AS ITS COMPETITOR. WHETHER THIS BENEFIT IS ENDURING IN NATURE. PERHAPS NOT. BECAUSE, BY THE AGREEMENT DATED 10.04. 2010, THE PERIOD OF NON-COMPETING WAS 5 YEARS ONLY. IT WAS FU RTHER EXTENDED BY A FURTHER PERIOD OF 5 YEARS BY AGREEMENT DATED 1 0.04.2015 AND THE PAYMENT IS PAYABLE EVERY YEAR. THUS, THE PAYMEN T IS FOR WARDING OFF COMPETITION FROM ITS HOLDING COMPANY IN A PARTICULAR AREA AND THEREBY GENERATING REVENUE THEREFROM. 9. IN ALL THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE COVENANT OR RESTRICTION FOR N ON COMPETITION WAS FOR A LIMITED PERIOD AND IT WAS IN THESE CIRCUM STANCES THAT THE HON'BLE COURTS HAVE HELD THAT THE PAYMENT MADE FOR SUCH RESTRICTIVE COVENANTS IS REVENUE IN NATURE. COMING TO THE FACTS OF THE CASE BEFORE US, IT IS SEEN THAT THE AGREEMENT I S FOR A PERIOD OF 5 YEARS AND THE ASSESSEE HAS ALSO FILED A COPY OF T HE AGREEMENT DATED 10.04.2015 BY WHICH THE AGREEMENT HAS BEEN EX TENDED BY A FURTHER PERIOD OF FIVE YEARS. THE SECOND AGREEMENT ALSO CONTAINS THE SAME TERMS & CONDITIONS AS IN THE FIRST AGREEME NT. WITHOUT GOING INTO THE SECOND AGREEMENT, WHICH IS ADDITIONA L EVIDENCE FILED BEFORE US, WE FIND THAT VARIOUS CLAUSES IN TH E FIRST AGREEMENT ITA NO 159 OF 20 16 KAPIL CHITS KAKATIYA P LTD WARANGAL PAGE 10 OF 11 ITSELF DEMONSTRATE THAT THE AGREEMENT WAS INITIALLY FOR A PERIOD OF 5 YEARS AND EVEN THE CONSIDERATION IS AN ANNUAL PAY MENT BASED ON THE ANNUAL TURNOVER. THEREFORE, IT APPEARS TO BE A PAYMENT FOR LOSS OF REVENUE TO KAPIL CHIT FUNDS (P) LTD AND IS D EPENDENT UPON THE BUSINESS CARRIED ON BY THE ASSESSEE. THEREFORE, IN OUR OPINION, THE DECISION OF THE JURISDICTIONAL HIGH CO URT IN THE CASE OF ANDHRA FUELS (P) LTD (CITED SUPRA) IS CLEARLY APP LICABLE TO THE FACTS OF THE CASE BEFORE US. THE RESTRICTIVE COVENA NT IS ONLY FOR A PERIOD OF 5 YEARS AND IS EXTENDABLE BY A FURTHER PE RIOD AS MUTUALLY AGREED TO BY BOTH THE PARTIES. THE AGREEME NT IS ALSO LIABLE TO BE TERMINATED WITH PRIOR NOTICE OF 10 MON THS. THE AGREEMENT ALSO INCLUDES VARIOUS OTHER SERVICES TO B E PROVIDED BY KAPIL CHIT FUNDS (P) LTD TO THE ASSESSEE COMPANY AN D THE PAYMENT WAS NOT JUST FOR NON COMPETITION. IN THIS V IEW OF THE MATTER ALSO, WE ARE SATISFIED THAT THE PAYMENT MADE BY THE ASSESSEE TO KAPIL CHIT FUNDS (P) LTD IS REVENUE EXP ENDITURE AS WITHOUT THE SAID PAYMENT, THE ASSESSEE COULD NOT HA VE CARRIED ON ITS BUSINESS MORE EFFICIENTLY AND PROFITABLY. THERE FORE, WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE PAYMENT IS IN THE NATURE OF REVENUE EXPENDITURE AND IS AN ALLOWABLE DEDUCTION U/S 37(1) OF THE I.T. ACT. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2017. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 31 ST AUGUST, 2017. VINODAN/SPS ITA NO 159 OF 20 16 KAPIL CHITS KAKATIYA P LTD WARANGAL PAGE 11 OF 11 COPY TO: 1 SHRI S.RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYA'S E LEGANCE, 3-6- 643, STREET NO.9, HIMAYATNAGAR, HYDERABAD 500029 2 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 1, STAT ION ROAD, WARANGAL 3 CIT (A)-3 HYDERABAD 4 PR. 3 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER