DCIT - 3(2), MUMBAI V. M/s. KUONI TRAVELS (I) LTD., MUMBAI

ITA 1924/MUM/2007

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0748 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 08-06-2017
• Assessment Year: 2002-2003
• Appeal Filed On: 05-03-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: WITH MS POOJA SWAROOP; S PADMAJA CIT DR WITH
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Earning of tax free income; Question of law; Cost of acquisition; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 80HHC; 14A; 80IB; 37(1); 32; 37; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH F, MU MBAI BEFORE SHRI B.R.BASKARAN,ACCOUNTANT MAMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 1924/MUM/2007(ASSESSMENT YEAR- 2002-03) DCIT 3(3)(1), ROOM NO. 609, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI- 400020. VS. M/S SOTC TRAVEL SERVICES PVT. LTD. (PREVIOUSLY KNOWN AS KUONI TRAVELS (INDIA) PVT. LTD.),NOW MERGED WITH TRAVEL CORPORATION (INDIA) LTD. KUONI HOUSE, N.F. ROAD, BEHIND TAJ MAHAL HOTEL, COLABA, MUMBAI- 400001 PAN: AAACS0170L (APPELLANT) (RESPONDENT) ITA NO. 2075/MUM/2007(ASSESSMENT YEAR- 2002-03) M/S SOTC TRAVEL SERVICES PVT. LTD. (PREVIOUSLY KNOWN AS KUONI TRAVELS (INDIA) PVT. LTD.),NOW MERGED WITH TRAVEL CORPORATION (INDIA) LTD. KUONI HOUSE, N.F. ROAD, BEHIND TAJ MAHAL HOTEL, COLABA, MUMBAI- 400001 PAN: AAACS0170L VS. DCIT 3(3)(1), ROOM NO. 609, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. P. J. PARDIWALLA SR. ADVOCATE WITH MS JAY BHANSHALI ADVOCATES REVENUE BY : SHRI S. PADMAJA CIT DR WITH & WITH MS POOJA SWAROOP ( SR DR) DATE OF HEARING : 15.12.2017 DATE OF PRONOUNCEMENT : 19.01.2018 ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 2 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THESE CROSS APPEAL UNDER SECTION 253 OF THE INCOME- TAX ACT (THE ACT) ARE DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME TAX (APPEALS)-III [THE CIT(A)], MUMBAI DATED 21.12.2006 FOR THE ASSES SMENT YEAR 2002-03. THE REVENUE IN ITS APPEAL ITA NO. 1924/MUM/2007 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ' ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO NOT TO TREAT THE P AYMENT OF RS. 50 LACS PAID TO MR. ARJUN SHARMA AS NON COMPETE FEES AS CAP ITAL EXPENDITURE BUT TO ALLOW THE AMOUNT OF RS. 25 LACK OUT OF THE S AME AS A DEDUCTION IN A.Y. 2002-03 AS A REVENUE EXPENDITURE AND THE REMAI NING AMOUNT OF RS. 25 LACS TO BE ALLOWED IN A.Y. 2003-04 AND TO WI THDRAW THE DEPRECIATION OF RS. 6,25,00/1- ON THE SAME'. 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE DEDUC TION U/S 80HHD ON THE AMOUNT OF RS. 38,02,104/- BEING THE INCOME EARN ED BY THE APPELLANT FROM THE TRAINING FEES WITHOUT APPRECIATING THE FAC T THAT WORDS 'DERIVED FROM' SHOULD BE A IMMEDIATE SOURCE AND NOT SOURCE O F THE SOURCE AND SINCE THE ABOVE INCOME IS NOT DERIVED FROM THE SERV ICES PROVIDED TO THE FOREIGN TOURIST, ASSESSEE IS NOT ENTITLED FOR DEDUC TION U/S 80HHD IN RESPECT OF THESE RECEIPTS'. 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION U/S 80HHD ON RETENTION MONEY WRITTEN BACK AMOUNTING TO RS. 10,74 ,050/- WITHOUT APPRECIATING THE FACT THAT THAT WORDS 'DERIVED FROM ' SHOULD BE A IMMEDIATE SOURCE AND NOT SOURCE OF SOURCE AND SINCE THE ABOVE INCOME ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 3 ARE NOT DERIVED FROM SERVICES PROVIDED TO THE FOREI GN TOURIST, ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 80HHD IN RESPECT OF THESE RECEIPTS'. 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE DEDUC TION U/S 80HHD IN RESPECT OF GAINS FROM FOREIGN EXCHANGE FLUCTUATION AMOUNTING TO RS.1,85,88,507/- WITHOUT APPRECIATING THE FACT THAT FOREIGN EXCHANGE FLUCTUATION GAIN RECEIVED BY THE ASSESSEE DOES NOT EMANATE FROM THE SERVICES PROVIDED BY THE ASSESSEE TO THE FOREIGN TO URIST'. 5. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO RE-COMPUTE THE DEDUCTION ALLOWABLE U/S 80HHD AFTER EXCLUDING THE RECEIPTS OF RS. 31,30 ,99,313/- PASSED ON BY THE ASSESSEE TO OTHER HOTELS AND TRAVEL AGENTS F ROM THE TOTAL RECEIPTS IN RESPECT OF WHICH THE ASSESSEE ISSUED CERTIFICATE IN FORM NO. 10CCAE TO THE RECIPIENT TO ENABLE HIM TO CLAIM THE DEDUCTI ON U/S 80HHD WITHOUT APPRECIATING THE FACT THAT TO WORK OUT THE PROPORTIONATE AMOUNT CORRECTLY, BOTH THE NUMERATOR AND DENOMINATOR SHOUL D BE FOUND OUT ON A UNIFORM BASIS AND WHEN THE AO EXCLUDED THE RECEIPTS PASSED ON BY THE ASSESSEE TO THE HOTELS AND TRAVEL AGENTS FROM THE N UMERATOR IN FORMULA GIVEN IN SECTION 80HHD(3). THEREFORE, THESE RECEIPT S ARE ALSO REQUIRED TO BE EXCLUDED FROM THE DENOMINATOR I.E. THE TOTAL RECEIPTS OF THE BUSINESS TO WORK OUT PROPER DEDUCTION U/S 8OHHD.' 6. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE THE REC EIPTS OF RS. 66,39,877/- FROM THE TOTAL RECEIPTS OF THE BUSINESS WHILE COMPUTING THE DEDUCTION ALLOWABLE U/S 8OHHD WITHOUT APPRECIATING THAT THESE AMOUNTS REALIZED AFTER 31.09.2002 FOR NOT ENTERING THE NUMERATOR I.E. THE RECEIPTS EARNED BY THE ASSESSEE FROM THE RENDERING OF THE SERVICE TO THE FOREIGN TOURIST. THEREFORE, THESE RECEIPTS WOULD AL SO NOT ENTER THE DENOMINATOR IN THE FORMULA TO WORK OUT DEDUCTION U/ S 8OHHD PROPERLY'. ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 4 7. 'THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON TH E ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED.' 2. THE ASSESSEE IN ITS CROSS APPEAL HAS RAISED THE FOL LOWING GROUNDS OF APPEAL : 1) NON-COMPETE FEES - RS. 1,00,00,000/-. (A ) THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPHOLDI NG THE NON COMPETE FEES OF RS. 50,00,000/- PAID TO MS. ANITA S HIRODKAR AS CAPITAL EXPENDITURE AND DISALLOWING THE SAME AS REVENUE EXP ENSES U/S 37 OF THE ACT. THE REASONS GIVEN BY HIM ARE CONTRARY TO THE F ACTS OF THE CASE AND AGAINST PROVISION OF LAW. (B) THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPHOL DING THE NON- COMPETE FEES OF RS. 50,00,000/- PAID TO MR. ARJUN S HARMA AS EXPENDITURE FOR ENDURING BENEFIT AND ALLOWING DEDUC TION IN 2 YEARS AS TENURE OF AGREEMENT IS TWO YEARS. THE REASONS GIVEN BY HIM ARE CONTRARY TO THE FACTS OF THE CASE AND AGAINST PROVISION OF L AW. (C) THE LD. CIT (A) FAILED TO APPRECIATE THAT THE D ISALLOWANCE OF RS. 1,00,00,000/- PAID TO COMPANY'S EMPLOYEE AND EMPLOY EE OF A BRAND ACQUIRED BY THE APPELLANT BEING NON COMPETE FEES PA ID TO PROTECT THE BUSINESS FROM COMPETITION AND RUN THE BUSINESS SMOO THLY AND CLAIMED BY THE ASSESSEE U/S 37(1) BEING INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE APPELLANT. (D) THE LD. CIT (A) OUGHT TO HAVE ALLOWED COMPENSAT ION OF RS. 1,00,00,000/- FOR NOT COMPETING IN THE BUSINESS AS REVENUE EXPENSE. THE EXPENDITURE DID NOT RESULT IN THE ACQUISITION OF AN Y ASSET NOR ENDURING BENEFIT TO THE ASSESSEE AS IT IS NOT FOR ELIMINATIO N OF COMPETITION BUT NON COMPETE FOR A SHORT PERIOD. 2) LICENSE FEES - RS.1 ,05,00,000/-: (A) THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPHOL DING THE DISALLOWANCE OF RS RS. 1,05,00,000/- BEING LICENSE FEES PAID FOR USE OF THE BRAND NAME. THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO THE FACTS OF THE CASE AND AGAINST THE P ROVISIONS OF LAW. ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 5 (B) THE LD CIT (A) FAILED TO APPRECIATE THAT THE IN COME OUT OF USE OF THE BRAND NAME HAS BEEN OFFERED TO TAX. HENCE THE LICEN SE FEES PAID TO EARN SUCH INCOME IS ALLOWABLE U/S. 37 (1) OF THE ACT. (C) THE LD. CIT (A) OUGHT TO HAVE ALLOWED LICENSE F EES PAID FOR RS. 1,05,00,000/- PAID FOR THE USE OF TRADE MARK FOR A CERTAIN PERIOD OF TIME. THE TOUR CLUB BRAND HAS ENABLED IT TO ENTER NEW MAR KETS OVERSEAS (MIDDLE EAST) AND ENHANCE ITS INCOME AND HENCE LICE NSE FEES ARE FULLY ALLOWED U/S 37(1) OF THE ACT. 3) UTILIZATION OF RESERVE RS. 88,37,9571-: (A) THE LD CIT (A) ERRED IN LAW AND FACTS IN UPHOLD ING THE DISALLOWANCE OF UTILIZATION OF TOURISM RESERVE RS. 88,37,957/- U TILIZED IN ACCORDANCE WITH THE CONDITIONS LAID DOWN IN SEC. 80HHD (4) (B) OF THE ACT AS PER SUB SECTION (5) OF THE SECTION 80HHD. THE REASONS G IVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO THE FACTS OF THE CA SE AND AGAINST THE PROVISIONS OF LAW. (B) THE LD CIT (A) FAILED TO APPRECIATE THE FACT TH AT AMOUNT OF RS. 78,01,588/- INCURRED FOR ACQUISITION OF NEW CARS AS PROMOTED IN SUB SEC. 4 (B) OF 80HHD AND RS. 10,36,369/- INCURRED ON RTO TAXES, PAID FOR ALL CARS/COACHES ACQUIRED BY THE ASSESSEE WHICH IS PART OF ACQUISITION COST AND TO BRING ASSET TO ITS INTENDED USE. (C) THE LD CIT (A) HAS NOT PROPERLY CONSTRUED THE P ROVISIONS OF LAW IN REJECTING UTILIZATION OF TOURISM RESERVE U/S. 80HHD (4)(B) OF THE ACT EVEN THOUGH THE CONDITIONS LAID DOWN IN THE SAID SE CTIONS ARE FULLY SATISFIED BY THE APPELLANT. (D) THE LD CIT (A) ALSO ERRED IN LAW & FACTS FOR UP HOLDING AND NOT DISCUSSING TO ADD THE AMOUNT DISALLOWED AS ABOVE, U NDER THE HEAD OF 'PROFIT & GAINS OF BUSINESS' IN CALCULATING THE DED UCTION U/S 80HHD. THIS IS CONTRARY TO THE PROVISIONS OF THE ACT SINCE SECTION 80HHD(5), WHICH PROVIDES THAT AMOUNT, NOT SO UTILIZED, SHALL BE DEEMED TO BE THE PROFITS OF THE PREVIOUS YEAR IN WHICH NOT UTILISED. HENCE, THE AMOUNT OF RS. 88,37,957/- SHOULD BE ELIGIBLE TO BE INCLUDED I N 'PROFITS AND GAINS OF BUSINESS' FOR CALCULATION OF DEDUCTION U/S 80HHD. ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 6 4) DEDUCTION U/S 80HHD : (I) THE LD CIT (A) ERRED IN LAW AND FACTS IN UPHOLD ING THAT THE INTEREST INCOME OF RS. 3,61,62,504/- INEXTRICABLY LINKED WIT H THE BUSINESS OF THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S.80HHD. T HE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO THE FACTS O F THE CASE AND AGAINST THE PROVISIONS OF LAW. (II) THE LD. CIT (A) FAILED TO APPRECIATE THE FACT THAT THE INTEREST INCOME IS PART OF BUSINESS INCOME AND ASSESSED ACCORDINGLY BY THE LD. A.O. AND ACCEPTED BY ID. CIT (A) DURING THE YEAR AND WAS ACC EPTED AS BUSINESS INCOME FOR ALLOWING DEDUCTION U/S 80HHD OF THE ACT BY HON. ITAT IN EARLIER YEARS IN ASSESSEE'S OWN CASE. (III) THE LD. CIT (A) HAS ERRED IN LAW AND FACTS IN NOT PASSING ORDER ON GROUND NO. 3(D) OF THE APPEAL. THE ID. CIT (A) OUGH T TO HAVE ADDED RS. 88,37,957/- TO THE PROFIT OF THE BUSINESS FOR C OMPUTATION OF DEDUCTION U/S 80HHD OF THE ACT BEING UITLISATION OF RESERVE NOT ACCEPTED 1 DISALLOWED U/S 80HHD(5) OF THE ACT AND A DDED TO THE PROFIT & GAINS OF BUSINESS. 5) DISALLOWANCE U/S. 14 A : (I) THE LD CIT (A) ERRED IN LAW AND FACTS IN UPHOLD ING THE DISALLOWANCE OF RS.21,62,346/- BEING PROPORTIONATE OF HEAD OFFIC E EXPENSES RS. 6,45,974/- AND FEES PAID FOR MANAGEMENT CONSULTANCY SERVICES RS.15,16,372/, U/S 14A OF THE ACT, ON THE ESTIMATED BASIS. THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG AND CONTRARY TO THE FACTS OF THE CASE AND AGAINST THE PROVISIONS OF LAW. THE DISALLO WANCE IS MADE WITHOUT ANY BASIS, EVIDENCE OF EXPENSES BEING INCUR RED FOR EARNING TAX- FREE INCOME. (II) THE LD. CIT (A) FAILED TO APPRECIATE THE FACT THAT THESE EXPENSES ARE NOT INCURRED IN RELATING TO INCOME NOT FORMING PART OF THE TAXABLE INCOME AND DISALLOWANCE U/S 14A CANNOT BE MADE ON E STIMATED, ADHOC AND ARBITRARY BASIS. THESE EXPENSES WERE INCURRED W HOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE APPELLANT HENCE THE DISALLOWANCE REQUIRED TO BE DELETED . ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 7 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN THE BUSINESS OF TOUR OPERATOR AND TRAVEL AGENT, FILED ITS RETURN OF INCOME FOR RELEVANT AY ON 28.12.2002 DECLARING TOTAL INCOME OF RS. 12,13,39,305/-. SUBSEQUENTLY, A REVISED RETURN WAS FILED ON 30.03.2 004 DECLARING TOTAL INCOME OF RS. 11,75,79,781/-. IN THE REVISED RETURN, THE A SSESSEE CLAIMED THE DEDUCTION OF RS. 6,89,17,108/- UNDER SECTION 80HHD. THE ASSE SSMENT WAS COMPLETED ON 17.03.2005 UNDER SECTION 143(3) OF THE ACT. THE ASSESSING OFFICER (AO) WHILE FRAMING THE ASSESSMENT ORDER MADE THE ADDITIO N OF RS.1,00,00,00/- BY DISALLOWING THE AMOUNT OF COMPENSATION TO PAID ON ACCOUNT OF NON-COMPETE FEES (RS. 50LACKS EACH TO SMT.ANITA SIRODKAR AND ARJUN SHARMA), DISALLOWED RS. 1,05,00,000/- ON ACCOUNT OF LICENSE FEES HOLDIN G THAT EXPENDITURE NOT ELIGIBLE FOR DEDUCTION. DISALLOWANCE U/S 14A OF RS. 21,62,346/-, DISALLOWED RS. 88,37,957 ON ACCOUNT OF UN-UTILIZATION OF RESER VE U/S 80HHD AND THE DEDUCTION U/S 80HHD (I) INTEREST INCOME ON DEPOSIT RS.3,61,62,504/-,(II) DISALLOWED RS. 38,02,104/- ON ACCOUNT OF TRAINING ( III) RETENTION MONEY WRITTEN BACK OF RS. 10,74,050/-. 4. ON APPEAL BEFORE THE LD. CIT(A) THE ADDITION ON ACC OUNT OF NON-COMPETE FEE OF RS. 50,00,000/- PAID TO ANITA SIRODKAR WAS SUSTA INED, HOWEVER FOR PAYMENT TO ANIL SHARMA IT WAS ALLOWED FOR 50% AND WITHDREW THE DEPRECIATION, SUSTAINED THE ADDITIONS OF LICENSE FEES OF RS. 1,0 5,00,000/- AND DISALLOWANCE OF UN-UTILIZED RESERVE OF RS. 88,37,957/- OF 80HHD, INTEREST INCOME OF RS. 3,61,62,504/- (CLAIMED U/S 80HHD) AND DISALLOWANCE U/S 14A. HOWEVER, THE ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 8 PART OF DISALLOWANCE UNDER SECTION 80HHD OF RS.38,0 2,104/- ON ACCOUNT OF TRAINING AND RETENTION MONEY WRITTEN BACK OF RS. 1 0,74,050/- WAS DELETED. THE LD CIT(A) ALSO ALLOWED GAIN ON FOREIGN EXCHANGE FLUCTUATION FOR RS. 1,85,88,507/- WHICH WAS NOT CONSIDERED BY AO FOR EL IGIBLE RECEIPT AND FURTHER DIRECTED THE AO FOR TO RE-COMPUTING THE RECEIPT OF RS. 31,30,99,313/- RECEIVED FROM HOTELS AND OPERATORS AND RS.66,39,877/- THUS, FURTHER AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE AS WELL AS REVENU E HAS FILED THEIR CROSS APPEAL BEFORE US RAISING THEIR GROUNDS OF APPEAL WH ICH WE HAVE REFERRED ABOVE. ITA NO.2075/M/2007 BY ASSESSEE 5. WE HAVE HEARD SH. PERCY J PARDIWALA LEARNED SR ADVO CATE FOR THE ASSESSEE (LD AR) ASSISTED BY MS. JAY BHANSALI ADVOCATE AND THE MS PADMAJA, LD. CIT- DR (LD DR) ASSISTED BY MS. POOJA SWAROOP LD JCIT . FIRST, WE ARE TAKING THE APPEAL FILED BY THE ASSESSEE. GROUND NO. 1 RELATES TO DISALLOWANCE OF PAYMENT OF NON-COMPETE FEES. THE LD. AR FOR THE ASSESSEE AR GUED THAT THE ASSESSEE ENTERED INTO AGREEMENT WITH MS ANITA SHIRODKAR AND ARJUN SHARMA AND PAID RS. 50 LAKH EACH TO BOTH OF THEM ON ACCOUNT OF NON- COMPETE FEES. THE ASSESSEE BY WAY OF AGREEMENT DATED 30.06.201 HAS A CQUIRED THE RIGHT TO USE THE LICENSE NAME TOUR CLUB FOR A FIXED PERIOD SO THAT THE ASSESSEE COULD EXPLOIT THE MIDDLE EAST MARKET WHERE THE STRENGTH O F BRAND LIES. SMT. ANITA WAS ONE OF THE DIRECTOR OF TOUR CLUB EXPRESS TRAVEL & TOUR PVT LTD AND THE AMOUNT OF RS. 50 LACKS WAS PAID TO HER FOR NOT DOIN G SIMILAR BUSINESS FOR FIVE ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 9 YEARS. THE ASSESSEE CLAIMED THE SAID EXPENDITURE AL LOWABLE UNDER SECTION 37 OF THE ACT. THE ASSESSING OFFICER DISALLOWED THE EN TIRE PAYMENT MADE TO ANITA SORODKAR CONSIDERED THIS AS VALUABLE BUSINESS RIGHT WHICH IS TANGIBLE ASSET ALLOWING THE DEPRECIATION UNDER SECTION 32 OF THE A CT. THE LEARNED COMMISSIONER (APPEALS) UPHELD THE DISALLOWANCE ON T HE GROUND THAT IT IS ENDURING BENEFIT TO THE ASSESSEE AND THEREFORE CAPI TAL IN NATURE AND CANNOT BE ALLOWED AS DEDUCTION. THE ASSESSEE ALSO ENTERED WIT H THE AGREEMENT WITH ARJUN SHARMA WHO WAS EMPLOYEE OF TOUR CLUB EXPRESS TRAVEL & TOUR PVT. LTD. AND COO OF ITS INBOUND DIVISION. THIS AGREEMEN T PUT RESTRICTION ON ANIL SHARMA FOR NOT CARRYING ON THE BUSINESS IN THE AREA OF DESTINATION MANAGEMENT SERVICES FOR TWO YEARS AND PAID RS. 50 L AKH. THE ASSESSING OFFICER DISALLOWED HOLDING THAT IT IS A CAPITAL EXP ENDITURE AND ASSESSEE WOULD BE ENTITLED FOR DEPRECIATION. THE AO FURTHER HELD T HAT ASSESSEE ENTERED INTO AGREEMENT WITH ARJUN SHARMA ON 23 RD OF MARCH 2002, APPRECIATION IS ALLOWABLE ONLY AT THE RATE OF 12.5%. HOWEVER THE CO MMISSIONER (APPEALS) ALLOWED IT IS NON-CAPITAL IN NATURE AND ALLOWS DEDU CTION IN TWO YEARS I.E. RS. 25 LACK FOR EVERY YEAR. THE LEARNED AR OF THE ASSES SEE ARGUED THAT THE FEES WERE PAID TO BOTH OF THEM TO RESTRAIN FROM BUSINESS . THE ASSESSEE HAS NOT ACQUIRED ANY ASSET BY MAKING SUCH PAYMENT TO BOTH O F THEM. IN SUPPORT HIS SUBMISSION THE LEARNED AR OF THE ASSESSEE RELIED UP ON THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CIT VERSUS EICHER LTD. (302 ITR 249) (DELHI), CIT V/S CAREER LAUNCHER INDIA LTD. (358 ITR 179 ) ( DELHI ) AND DECISION OF ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 10 TRIBUNAL IN HIDELBERG CEMENT INDIA LTD. V/S ACIT [ 2015] 55 TAXMANN.COM 336(MUMBAI TRIB). IT WAS FURTHER ARGUED THAT LEARNE D COMMISSIONER (APPEALS) RELIED UPON THE DECISION OF BOMBAY HIGH COURT IN TAPARIA TOOLS LTD VERSUS JCIT[2003] 260 ITR 102/126 TAXMAN 544 (B OMBAY) WHICH HAS BEEN REVERSED BY HONBLE SUPREME COURT VIDE [2015] 372 ITR 605(SC). ON THE OTHER HAND THE LD. DR SUPPORTED THE ORDER OF AS SESSING OFFICER. IT WAS ARGUED THAT AGREEMENT ENTERED BY ASSESSEE WITH ANIT A SHIRODKAR PROVIDES BENEFITS TO THE ASSESSEE, WHICH IS ENDURING IN NATU RE. HOWEVER, FOR AGREEMENT WITH ARJUN SHARMA, IT WAS ARGUED THAT NON-COMPETE A GREEMENT WITH HIM IS ONLY IN RESPECT OF DESTINATION MANAGEMENT SERVICES AND NOT FOR WHOLE TOUR AND TRAVEL BUSINESS CARRIED BY TOUR CLUB EXPRESS TRAVEL AND TOURS PVT. LTD. THE LD. CIT(A) WRONGLY ALLOWED THE EXPENDITURE AS A REV ENUE EXPENDITURE. THE LEARNED DR FOR THE REVENUE RELIED UPON THE DECISION IN MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD V/S CIT [225 ITR 802(SC) ] AND DECISION OF BOMBAY HIGH COURT IN TAPARIA TOOLS LTD. V/S JCIT(20 03) 260 ITR 102(BOMBAY). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO TREATED THE EX PENDITURE AS CAPITAL EXPENDITURE HOLDING THAT IN THE BOOKS OF ACCOUNT, T HE ASSESSEE HAS SHOWN THE AMOUNT PAID FOR NON-COMPETE FEES FOR INTANGIBLE ASS ET. RIGHT TO RESTRAIN COMPETITOR IS A VALUABLE COMMERCIAL ASSET. FURTHER THE AMOUNT SPENT ON ACQUISITION OF INTANGIBLE ASSET IS TO BE TREATED AS CAPITAL EXPENDITURE AND ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 11 DEPRECIATION IS ALLOWABLE ON SUCH INTANGIBLE ASSET, THUS, THE ENTIRE AMOUNT OF RS. 1,00,00,000/- WAS TREATED AS CAPITAL EXPENDITUR E. SINCE AGREEMENT WITH ANITA SHIRODKAR WAS EXECUTED ON 30.06.2011, THE DEP RECIATION WAS ALLOWED @ 25%. HOWEVER, THE DATE OF AGREEMENT WITH ARJUN SHAR MA IS 23.03.2002, HENCE, DEPRECIATION @ 12.5% WAS ALLOWED. THE LD. CI T(A) UPHELD THE ACTION OF AO FOR PAYMENT OF NON-COMPETE FEE HOLDING THAT I T IS GIVING ENDURING BENEFIT TO THE ASSESSEE AND THEREFORE, CAPITAL IN N ATURE. FOR PAYMENT TO ARJUN SHARMA, THE LD. CIT(A) HOLD THAT NON-COMPETING FEE WAS PAID FOR TWO YEARS AND ALLOWED DEDUCTION IN TWO YEARS I.E. 25,00,000/- EVERY YEAR. WE HAVE PERUSED THE NON-COMPETE AGREEMENT DATED 30.06.2011 WITH ANITA SHIRODKAR. SMT. ANITA SHIRODKAR IS ONE OF THE DIRECTOR OF TOUR CLUB EXPRESS TRAVEL AND TOURS PVT. LTD. AS PER ARTICLE-3, SMT. ANITA SHIROD KAR RECEIVED AN AMOUNT OF RS. 50,00,000/- ON ACCOUNT OF NON-COMPETE CONSIDERA TION. AS PER ARTICLE-2 OF THE AGREEMENT, SMT. ANITA SHIRODKAR DIRECTOR OF THE TOUR CLUB EXPRESS TRAVEL AND TOURS PVT. LTD. AGREED NOT TO DIRECTLY O R INDIRECTLY SHALL NOT OWN, MANAGE, ESTABLISH, ENGAGING, OPERATE OR CAUSE TO BE OPERATE, CONSULT OR BE EMPLOYED IN A COMPETITIVE BUSINESS, ENGAGED IN MARK ETING AND DISTRIBUTION SERVICES OR CARRY ON THE COMPETITIVE BUSINESS OR SO LICIT ANY CUSTOMER OR TARGET TO THE CUSTOMER. SHE ALSO UNDERTOOK NOT TO UNDERTAK E DIRECTLY OR INDIRECTLY UNDERTAKE ANY COMPETITIVE BUSINESS THROUGH RELATIVE S. THE PAYMENT OF NON- COMPETE FEES IS NOT IN DISPUTE. THE ONLY DISPUTE BE FORE US IS IF THE SAID NON- COMPETE FEE PAID BY ASSESSEE IS CAPITAL OR REVENUE EXPENDITURE. THE HONBLE ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 12 DELHI HIGH COURT IN CASE OF CIT VS. EICHER LTD. (SU PRA) WHILE CONSIDERING THE ISSUE OF NON-COMPETE FEE HELD THAT WHETHER AN EXPENDITURE OF THIS NATURE IS A CAPITAL EXPENDI TURE OR NOT WOULD DEPEND ON THE FACTS OF THE CASE. HOWEVER, IT IS NEC ESSARY TO KNOW WHETHER THE ADVANTAGE DERIVED BY THE PAYER IS OF AN ENDURING NA TURE, AND FOR THIS, ONE OF THE CONSIDERATIONS IS THE LENGTH OF TIME FOR WHICH THE NON-COMPETE AGREEMENT WOULD OPERATE, ALTHOUGH THAT IS NOT DECISIVE. WHILE THE LENGTH OF TIME FOR WHICH COMPETITION IS ELIMINATED MAY NOT STRICTLY BE DECIS IVE IN ALL CASES, YET, AT THE SAME TIME, IT SHOULD NOT BE SO BRIEF AS TO BE VIRTU ALLY TRANSITORY. WHEN THE ASSESSEE DID NOT ACQUIRE ANY CAPITAL ASSET BY MAKIN G THE PAYMENT OF NON- COMPETE FEE. IT MERELY ELIMINATED COMPETITION IN TH E TWO-WHEELER BUSINESS, FOR A WHILE. FROM THE RECORD, IT WAS NOT CLEAR HOW LONG THE RESTRICTIVE COVENANT WAS TO LAST, BUT IT WAS NEITHER PERMANENT NOR EPHEM ERAL. IN THAT SENSE, THE ADVANTAGE WAS NOT OF AN ENDURING NATURE. THERE WAS ALSO NOTHING TO SHOW THAT THE AMOUNT OF RS. 4 CRORES WAS DRAWN OUT OF THE CAP ITAL OF THE ASSESSEE. ON A CUMULATIVE APPRECIATION OF THE FACTS, IT WAS CLEAR THAT THE COMMISSIONER (APPEALS) AND THE TRIBUNAL DID NOT ERR IN CONCLUDIN G THAT THE PAYMENT OF NON- COMPETE FEE BY THE ASSESSEE WAS A BUSINESS EXPENDIT URE AND NOT A CAPITAL EXPENDITURE. 7. FURTHER, THE HONBLE DELHI HIGH COURT IN CASE OF CI T VS. CAREER LAUNCHER INDIA LTD. (SUPRA) WHILE CONSIDERING THE SUBSTANTIA L QUESTION OF LAW WHETHER TRIBUNAL IS CORRECT IN ALLOWING NON-COMPETE FEE OF RS. 5,40,000/- BY ASSESSEE AS A REVENUE EXPENDITURE SOLELY ON THE BASIS OF AGR EEMENT PERIOD AND MODE OF PAYMENT. THE HONBLE HIGH COURT PASSED THE FOLLOWIN G ORDER: IT IS NECESSARY TO KEEP THE NATURE OF THE ASSESSEE 'S BUSINESS IN MIND BEFORE JUDGING THE ALLOWABILITY BY THE PAYMENT. THE ASSESS EE IS ENGAGED IN THE BUSINESS OF RUNNING LEARNING CENTERS FOR PREPARING/ COACHING STUDENTS TO FACE COMPETITIVE EXAMINATIONS HELD BY IIM, IIT, INSTITUT E OF INFORMATION TECHNOLOGY, ETC. IN CONDUCTING THE CLASSES FOR THE STUDENTS, THE ASSESSEE HAS TO RELY ON FACULTY MEMBERS OF REPUTE. 'V' AND 'S' WERE SUCH FACULTY, WHO WERE ENGAGED BY THE ASSESSEE. IT IS ALSO NECESSARY FOR T HE ASSESSEE TO ENSURE THAT THE FACULTY MEMBERS DO NOT COMPETE WITH ITS BUSINESS BE CAUSE THAT WOULD AFFECT THE BUSINESS. IT CANNOT BE DISPUTED THAT THE POPULARITY AND SUCCESS OF THE LEARNING CENTERS RUN BY THE ASSESSEE IS IN A LARGE MEASURE D UE TO THE EFFICIENCY, KNOWLEDGE AND REPUTATION OF THE FACULTY MEMBERS. IF THE FACULTY MEMBERS LEAVE THE ASSESSEE AND DECIDE TO SET UP THEIR OWN LEARNIN G CENTERS, THAT IS MOST CERTAIN TO AFFECT THE ASSESSEE'S BUSINESS. IT WAS, THEREFORE, IN THE INTEREST OF THE ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 13 ASSESSEE'S BUSINESS THAT IT ENSURED THAT FOR SOME P ERIOD OF TIME, SUCH FACULTY MEMBERS DO NOT COMPETE WITH IT IN THE SAME BUSINESS . IT IS WITH THIS END IN VIEW THAT THE ASSESSEE MADE THE PAYMENT TO 'V' AND 'S'. THE PERIOD FOR WHICH THESE PERSONS COULD NOT COMPETE WITH THE ASSESSEE HAS BEE N FOUND BY THE TRIBUNAL TO BE A SHORT PERIOD OF 12 MONTHS. THIS IS NOT AN IRRE LEVANT CONSIDERATION TAKEN INTO ACCOUNT BY THE TRIBUNAL. THE FACT THAT THE PAY MENT WAS MADE IN MONTHLY INSTALMENTS IS NOT DECISIVE OF THE QUESTION; EVEN I F IT HAD BEEN MADE IN A LUMP SUM, THAT WOULD HAVE MADE LITTLE DIFFERENCE TO THE CONCLUSION, HAVING REGARD TO THE SHORT PERIOD OF 12 MONTHS DURING WHICH THE ABOV E TWO PERSONS WERE PROHIBITED FROM COMPETING WITH THE ASSESSEE BUSINES S. IT CANNOT BE DISPUTED ANY MORE THAT PAYMENT TO WARD OFF COMPETITION FOR A LIMITED PERIOD SHOULD BE HELD TO BE REVENUE EXPENDITURE AND NOT CAPITAL EXPE NDITURE. IF THAT IS SO, THE FACT THAT THE PAYMENT WAS MADE IN A LUMP SUM OR IN INSTALMENTS HARDLY MATTERS. THEREFORE, IN COMING TO THE CONCLUSION THA T THE PAYMENT IN QUESTIONS WAS A REVENUE EXPENDITURE, THE TRIBUNAL HAS NOT IGN ORED ANY RELEVANT MATERIAL OR TAKEN INTO ACCOUNT IRRELEVANT MATERIAL. THE TRIB UNAL WAS CERTAINLY ENTITLED TO TAKE NOTE OF THE ENTIRE CONSPECTUS OF THE FACTS OF THE CASE AND IN PARTICULAR THE PERIOD DURING WHICH THE FACULTY MEMBERS WERE PR OHIBITED FROM COMPETING WITH THE ASSESSEE'S BUSINESS. THEREFORE, THE TRIBUN AL WAS JUSTIFIED IN ALLOWING THE ASSESSEE'S CLAIM. 8. THE CO-ORDINATE BENCH OF TRIBUNAL IN HIDELBERG CEME NT INDIA LTD. VS. DCIT WHILE CONSIDERING THE ISSUE OF NON-COMPETE FEE PAID TO THE DIRECTOR WHOSE SERVICES WERE TERMINATED WHEN MANAGEMENT WAS TAKEN OVER BY COMPANY, RESTRICTING THE DIRECTOR FROM EXERCISING COMPETITIV E ACTIVITIES WITHIN SPECIFIED TERRITORIES FOR ONE YEAR WAS ALLOWED AS REVENUE EXP ENDITURE HOLDING AS UNDER: WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY PERUSED THE RECORD. WE NOTICE THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) HAS UPHELD THE ADDITION ON THE FOLLOWING REASONING : (A) THE PROHIBITION IMPOSED UNDER ARTICLE 5 COVERS TERR ITORY OF FOUR COUNTRIES., VIZ., INDIA, BANGLADESH, PAKISTAN AND AFGHANISTAN. BY PUTTING SUCH A TERRITORIAL RESTRICT ION, THE ASSESSEE HAS ACQUIRED BUSINESS O COUNTRIES WHICH CO ULD HAVE BEEN CARRIED ON BY MR. PARASRAMPURIA IN THESE COUNTRIES. (B) THE NON-COMPETE FEE OF RS. 80.88 LAKHS WAS PAID IN LIEU OF ARTICLE 8, WHICH DISCUSSES ABOUT THE CONFIDENTIAL INFORMATION. ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 14 (C) AS PER CLAUSE 9, MR. PARASRAMPURIA IS DEPRIVED OF H IS ENTITLEMENT TO CLAIM ANY RIGHTS OVER INTELLECTUAL P ROPERTY, WHICH CONSTITUTE CAPITAL ASSETS IN TERMS OF SECTION 32 OF THE ACT. HOWEVER, A CAREFUL PERUSAL OF THE 'COMPROMISE SETTL EMENT' WOULD SHOW THAT MR. PARASRAMPURIA WAS APPOINTED AS EXECUTIVE DIRECTOR O F M/S. INDO-RAMA CEMENTS LTD. FROM APRIL 1, 2001, ONWARDS. HIS TERM OF APPOINTMEN T WAS RENEWED FROM TIME TO TIME AND LAST RENEWAL WAS TO EXPIRE BY MARCH 31, 2009. B EFORE THE EXPIRY OF THE TIME PERIOD CITED ABOVE, HE HAS BEEN TERMINATED FROM THE SERVICE AND HENCE, AS PER THE EMPLOYMENT CONTRACT, HE WAS PAID COMPENSATION OF 40 0000 USD IN LIEU OF NOTICE. FURTHER HE WAS PAID 100000 USD AS BONUS. FURTHER, U NDER CLAUSE 4, THE COMPANY MAY UTILISE THE SERVICES OF MR. PARASRAMPURIA AND F OR THAT PURPOSE HE SHALL BE PAID A COMPENSATION OF 100000 USD ON AUGUST 31, 2008, WITH THE CONDITION THAT THE PROCESS OF ACQUISITION OF SHARES OF INDORAMA TAKES PLACE SM OOTHLY. IN ADDITION TO THE ABOVE, MR. PARASRAMPURIA WAS PAID 200000 USD AS COMPENSATO RY INDEMNITY UNDER ARTICLE 5. THE SAID ARTICLE 5 READS AS UNDER: 'IN VIEW OF THE INTERNATIONAL ACTIVITIES OF THE COM PANY, THE EXECUTIVE DIRECTOR AGREES THAT AFTER TERMINATION OF HIS EMPLOYMENT WITH THE C OMPANY, HE SHALL BE PROHIBITED, DURING THE PERIOD AND WITHIN THE TERRITORY SPECIFIE D BELOW, FROM EXERCISING ACTIVITIES WHICH COULD BE IN EFFECTIVE COMPETITION WITH THE CO MPANY DURING THE PROHIBITION PERIOD EITHER BY RUNNING A PERSONAL ENTERPRISE OR B Y BEING HIRED BY A COMPETITOR AND HAVING THUS THE OPPORTUNITY TO CAUSE A PREJUDICE TO THE COMPANY OR ITS GROUP BY USING FOR HIMSELF OR FOR THE PROFIT OF A COMPETITOR HIS K NOWLEDGE OF ANY PRACTICE SPECIFIC TO THE COMPANY OR ITS GROUP WHICH HE HAS ACQUIRED DURI NG HIS EMPLOYMENT WITH THE COMPANY EITHER DIRECTLY OR INDIRECTLY. THE PROHIBITION SET FORTH ABOVE SHALL APPLY DURING A PERIOD OF ONE (1) YEAR AS OF THE TERMINATION OF HIS EMPLOYMENT WITH THE COMPANY AND SHALL COVER THE FOLLOWING TERRITORY: INDIA, BANGLADESH, PAKISTAN AND AFGHANIS TAN. AS COMPENSATION FOR THE ENFORCEMENT OF THIS CLAUSE, THE EXECUTIVE DIRECTOR SHALL BE GRANTED A COMPENSATORY INDEMNITY. THE AMOUNT OF THIS INDEMNITY SHALL BE EQUAL TO 2000 00 USD GROSS (TWO HUNDRED THOUSAND) CORRESPONDING TO THE PERIOD OF EFFECTIVE ENFORCEMENT OF THIS NON- COMPETITION CLAUSE. THIS SUM WILL BE IN ADDITION TO THE AMOUNTS PAYABLE UNDER ARTICLES 2 AND 3 ABOVE, AND WILL BE PAID IMMEDIATEL Y UPON SIGNING THIS AGREEMENT.' IT CAN BE NOTICED THAT IT IS CLEARLY PROVIDED IN TH E ABOVESAID CLAUSE THAT THE COMPENSATION OF 200000 USD IS PAID FOR ENFORCEMENT OF THIS CLAUSE. HENCE, IN OUR VIEW, THE CONCLUSION REACHED BY THE TAX AUTHORITIES THAT THE IMPUGNED COMPENSATION IS ALSO PAID FOR ENFORCING CLAUSES 8 AND 9 DOES NOT APPEAR TO BE CORRECT. A CAREFUL READING OF CLAUSE 8 WOULD SHOW THAT THE S AID CLAUSE ONLY PROVIDE THAT THE PAYEE SHOULD MAINTAIN ALL CONFIDENTIAL INFORMATION STRICTLY CONFIDENTIAL. AS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE, THIS IS A N USUAL CLAUSE, WHICH IS NORMALLY INCORPORATED IN SEPARATION AGREEMENTS. EVEN OTHERWI SE, IT IS EXPECTED FROM ANYBODY THAT HE SHOULD NOT DIVULGE ANY CONFIDENTIAL INFORMA TION, WHICH WAS ACQUIRED OR OBTAINED DURING THE COURSE OF EMPLOYMENT. ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 15 UNDER ARTICLE 9, IT IS PROVIDED THAT ALL INTELLECTU AL PROPERTY IN ANY WORK OR MATERIAL DEVELOPED, DISCOVERED, INVENTED, DESIGNED AND/OR AU THORED BY THE EXECUTIVE DIRECTOR, EITHER INDIVIDUALLY OR IN CONJUNCTION WITH ANY OTHE R EMPLOYEE/CONSULTANT OF THE COMPANY, DURING THE COURSE OF HIS EMPLOYMENT WITH T HE COMPANY, SHALL BELONG TO AND ARE THE ABSOLUTE PROPERTY OF THE COMPANY. IN OUR VI EW, IT MAY NOT BE CORRECT TO PRESUME THAT AN EMPLOYEE WORKING IN A RESEARCH ORGA NISATION SHALL BECOME OWNER OF ANY INTELLECTUAL PROPERTY DEVELOPED BY THE COMPANY BY EMPLOYING SUCH A PERSON. A CAREFUL READING OF ARTICLE 9 WOULD SHOW THAT THE PA YEE IS PRECLUDED FROM MAKING SUCH A CLAIM, FOR THE REASON THAT THE SAID INTELLECTUAL PROPERTY IS DEVELOPED ETC. DURING THE COURSE OF HIS EMPLOYMENT WITH THE COMPANY. IT IS NO T THE CASE THAT THE PAYEE HIMSELF HAS DEVELOPED SOME INTELLECTUAL PROPERTY AND THE AS SESSEE-COMPANY HAS ACQUIRED THE SAME. HENCE, WE ARE OF THE VIEW THAT THE LEARNED CO MMISSIONER OF INCOME-TAX (APPEALS) AND THE ASSESSING OFFICER WERE NOT RIGHT IN TAKING THE VIEW THAT THE ASSESSEE-COMPANY HAS PAID THE IMPUGNED COMPENSATION TO ACQUIRE THE INTELLECTUAL PROPERTY FROM THE PAYEE PERMANENTLY. SUCH A VIEW DO ES NOT EMANATE FROM A CAREFUL READING OF ARTICLE 9. THE TERRITORIAL RESTRICTION PRESCRIBED IN ARTICLE 5 , IN OUR VIEW, DOES NOT LEAD TO A CONCLUSION THAT MR. PARASRAMPURIA WAS CARRYING ON A NY BUSINESS IN THOSE AREA. ON THE CONTRARY, HE WAS ONLY PROHIBITED FROM EXERCISIN G THE ACTIVITIES PRESCRIBED IN ARTICLE 5 IN THOSE FOUR COUNTRIES. DURING THE COURS E OF ARGUMENTS, THE LEARNED AUTHORISED REPRESENTATIVE CATEGORICALLY SUBMITTED T HAT THE PAYEE DID NOT CARRY ON BUSINESS IN THOSE TERRITORIES. HENCE, IN OUR VIEW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ENTERTAINED THE SAME ONLY ON SURMISES AND PRESUMPTIONS. THE FOREGOING DISCUSSIONS WOULD SHOW THAT ALL THE T HREE REASONS CITED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) TO CONFIRM THE ADDITION HAS FAILED. WE ALSO NOTICE THAT THE PERIOD OF PROHIBITION/RESTRICTION I S FOR A PERIOD OF ONE YEAR ONLY. IN OUR VIEW, THE PERIOD OF ONE YEAR CANNOT BE CONSIDER ED AS A LONG PERIOD WHICH WOULD GIVE AN ENDURING BENEFIT TO THE ASSESSEE. HENCE, WE AGREE WITH THE CONTENTIONS OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE DECISION RENDERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF EICHER LTD. [2008] 302 ITR 249 (DELHI) SHALL BE APPLICABLE TO THE INSTANT CASE. ACCORDINGLY WE HOLD THAT THE A SSESSEE COULD NOT BE SAID TO HAVE DERIVED ANY ENDURING BENEFIT OUT OF THE PAYMENT OF NON-COMPETE FEE AS REFERRED TO ABOVE. FURTHER, IT IS IN THE NATURE OF RESTRICTING ONLY ONE OF THE EMPLOYEES OF THE COMPANY THAT WAS TAKEN OVER BY THE ASSESSEE-COMPANY . 9. THUS, CONSIDERING THE ABOVE LEGAL POSITION, WHEN TH E PAYMENT WAS MADE FOR ELIMINATION OF COMPETITION BUT FOR NON-COMPETE FOR SHORT PERIOD AND THE ASSESSEE HAVE NOT DERIVED ANY ENDURING BENEFIT AND NO NEW ASSET WAS ADDED THE PAYMENT OF NON-COMPETE FEE WAS IN THE NATURE OF RESTRICTING ANITA SHIRODKAR AND ARJUN SHARMA IN EXERCISING THEIR SKIL L AND EXPERIENCE IN THE SIMILAR FIELD, CANNOT BE TREATED AS CAPITAL EXPENDI TURE. THE DECISION RELIED BY ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 16 LD. DR FOR THE REVENUE IN TAPARIA TOOLS LTD. (SUPRA ) HAS BEEN OVERRULED BY HONBLE SUPREME COURT IN TAPARIA TOOLS LTD. VS. JCI T (372 ITR 605) AND THE DECISION OF MADRAS INDUSTRIAL INVESTMENT CORPORATIO N LTD. V/S CIT [225 ITR 802(SC)] IS NOT APPLICABLE ON THE FACTS OF THE PRES ENT CASE AS THE SAID CASE RELATES TO PROPORTIONATE DEDUCTION SPREAD OVER A PE RIOD ON DISCOUNT OF DEBENTURE. IN THE RESULT, GROUND NO.1(A) TO 1(D) O F THE APPEAL ARE ALLOWED. 10. GROUND NO. 2 RELATES TO DISALLOWANCE OF LICENSE FEE S OF RS. 1,05,00,000/-. THE LD. AR OF THE ASSESSEE ARGUED THAT ASSESSEE PAID LI CENSE FEES TO LEVERAGE ITS STRENGTH AND TO EXPAND BUSINESS ACTIVITIES IN MIDDL E EAST MARKET FOR INCOMING CUSTOMER TO INDIA. THE ASSESSEE PAID THE LICENSE FE E FOR EXPANDING ITS EXISTING BUSINESS IN REGIONS OUTSIDE INDIA. THE EXPENSES INC URRED TOWARD LICENSE FEE FOR A LIMITED PERIOD IS A REVENUE IN NATURE AND ALL OWABLE AS BUSINESS EXPENSES UNDER SECTION 37. THE SUM OF RS. 1.00 CRORE WAS PAI D FOR THE USE OF TOUR CLUB MARK. THE COPY OF AGREEMENT IS PLACED ON RECO RD. THE ASSESSEE HAS NEITHER ACQUIRED ANY CAPITAL ASSET NOR ANY ENDURING BENEFIT. THE LICENSE FEE WAS PAID FOR USE OF MARK FOR GETTING NEW PLANTS IN THE EXISTING BUSINESS. THE AO DISALLOWED HOLDING AS A VALUABLE BUSINESS RIGHT AS INTANGIBLE ASSET ALLOWING DEPRECIATION. THE LD. CIT(A) UPHELD THE SA ME WITHOUT CONSIDERING THE RELEVANT PROVISION OF LAW. IN SUPPORT OF HIS SU BMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN ALPHA LAVAL INDIA LTD. VS. DCIT (266 ITR 418)AND THE DECI SION OF HONBLE APEX COURT IN CIT VS. IAEC (PUMPS) LTD. (232 ITR 316). O N THE OTHER HAND, THE LD. ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 17 DR FOR THE REVENUE SUPPORTED THE ORDER OF AUTHORITI ES BELOW. THE LD. DR ARGUED THAT THE ASSESSEE MADE THE PAYMENT FOR USE O F BRAND FOR A PERIOD OF 5 YEARS. THE AGREEMENT FOR USE OF BRAND NAME STIPULAT ES THAT ASSESSEE CAN TAKE OVER THE BRAND AT A PRICE WHICH WAS DETERMINED ON T HE BASIS OF PROFITABILITY. THE PAYMENT FOR ACQUISITION OF BRAND IS ALSO AN INT ANGIBLE ASSET. THE LD. DR RELIED UPON THE DECISION OF HONBLE SUPREME COURT I N MADRAS INDUSTRIAL INVESTMENT CORPN. LTD. VS. CIT(225 ITR 802). 11. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THERE IS NO DISPUT E ABOUT THE PAYMENT OF RS. 1,05,00,000/- PAID TO TOUR CLUB EXPRESS TRAVEL AND TOURS PVT. LTD. FOR USE OF THEIR BRAND TOUR CLUB. THE LOWER AUTHORITY TREATE D THE SAME AS CAPITAL EXPENDITURE. THE ASSESSEE ENTERED INTO LICENSE AGRE EMENT WITH TOUR CLUB EXPRESS TRAVEL AND TOURS PVT. LTD. ON 30.06.2001. A S PER ARTICLE-9.7, THE LICENSE WAS GRANTED TO USE BRAND NAME FOR A PERIOD OF 5 YEARS. THE CONSIDERATION OF LICENSE IS REFERRED IN ARTICLE-11 WHICH WAS TO BE CALCULATED IN ACCORDANCE WITH SCHEDULE-6 (PAGE 115 & 116 OF PB). THE PERUSAL OF BOOKS OF ACCOUNT REVEALS THAT THE ASSESSEE HAS CAPITALIZED T HE AFORESAID EXPENDITURE UNDER THE HEAD INTANGIBLE ASSET IN THE SCHEDULE O F FIXED ASSET (PAGE 14 OF PB). THE ASSESSEE CLAIMED ENTIRE EXPENDITURE UNDER SECTION 37 AND NO DEPRECIATION IS CLAIMED BY ASSESSEE. THE AO DISALLO WED HOLDING IT THAT EXPENDITURE IS INCURRED FOR INTANGIBLE ASSET AND TH EREFORE, CONSTITUTE A CAPITAL EXPENDITURE, THE ASSESSEE ITSELF CAPITALIZED THE EX PENDITURE AS AN INTANGIBLE ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 18 ASSET IN ITS BOOKS OF ACCOUNT. TOUR CLUB EXPRESS TR AVEL &TOUR PVT. LTD. HAD ACCOUNTED AS INCOME PROPORTIONATELY OVER A PERIOD O F 5 YEARS. THE LD. CIT(A) CONFIRMED THE ACTION OF AO HOLDING THAT THE ASSESSEE HAS GOT ABSOLUTE CONTROL OVER THE BRAND NAME AND ONLY ASSESSEE HAS P OWER TO TERMINATE THE BRAND AGREEMENT. THE CONSIDERATION OF PAYMENT OF RS . 1.05 CRORE MADE BY ASSESSEE IS NOT ONLY FOR USE OF BRAND NAME BUT PAID FOR ACQUIRING ABSOLUTE RIGHT ON THE BRAND NAME AND THAT EXPENDITURE INCURR ED ON ACQUISITION OF BRAND NAME IS CAPITAL IN NATURE. THE HONBLE APEX COURT I N CASE OF CIT VS. IAEC (PUMPS) LTD. (SUPRA) HELD THAT LICENSE FEE PAID FOR USE OF PATENT AND DESIGN WAS ON REVENUE ACCOUNT. THE FACT OF THE SAID CASE W AS THAT UNDER AN AGREEMENT ENTERED BY ASSESSEE WITH A FOREIGN COMPANY, THE ASS ESSEE WAS GRANTED A LICENSE TO USE ITS PATENTS AND DESIGNS EXCLUSIVELY IN INDIA. THE AGREEMENT WAS FOR DURATION OF 10 YEARS, WITH THE PARTIES HAVING T HE OPTION TO EXTEND OR RENEW THE AGREEMENT. THE FOREIGN COMPANY UNDERTOOK NOT TO SURRENDER ITS PATENTS WITHOUT THE CONSENT OF THE ASSESSEE AND TO MAKE AVA ILABLE TO THE ASSESSEE ANY IMPROVEMENTS, MODIFICATIONS AND ADDITIONS TO DESIGN S. IT HAD ALSO UNDERTAKEN TO ENABLE THE ASSESSEE TO DEFEND ANY COUNTERFEIT BY OTHERS. THE HONBLE SUPREME COURT IN CASE OF DEVIDAS VITHALDAS & CO. VS . CIT (84 ITR 277) HELD THAT WHERE EXPENDITURE IS FOR ACQUISITION OF GOODWI LL, EXPENDITURE IS CAPITAL IN NATURE, HOWEVER, WHERE EXPENDITURE IS NOT FOR ACQUI SITION OF GOODWILL BUT TO USE IT, EXPENDITURE WOULD BE ALLOWABLE AS REVENUE E XPENDITURE. THE DECISION RELIED BY LD. DR IN MADRAS INDUSTRIAL INVESTMENT CO RPN. LTD. (SUPRA) HAS BEEN ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 19 CONSIDERED BY HONBLE SUPREME COURT IN CASE OF TAPA RIA TOOLS LTD. VS. JCIT 9372 ITR 605). WHEREIN THE HONBLE COURT HAS HELD T HAT REVENUE EXPENDITURE INCURRED IN A PARTICULAR YEAR IS TO BE ALLOWED IN T HAT YEAR AND THE DEPARTMENT CANNOT DENY THE SAME. IT IS ONLY IN CASE THAT ASSES SEE HIMSELF WANT TO SPREAD THE EXPENDITURE OVER A PERIOD OF ENSURING YEAR, IT CAN BE ALLOWED TO BE SPREAD OVER PROVIDED THE PRINCIPLE OF MATCHING CONCEPT IS SATISFIED. THUS, CONSIDERING THE ABOVE DISCUSSED FACTUAL AND LEGAL POSITION, THE EXPENDITURE INCURRED BY ASSESSEE ON A LICENSE FEE IS REVENUE EXPENDITURE. H ENCE, THE GROUND NO.2 RAISED BY ASSESSEE IS ALLOWED. 12. GROUND NO.3 & PART OF GROUND NO. 4(III) (RS. 88,37, 957/-) RELATES TO DISALLOWANCE ON ACCOUNT OF MIS-UTILIZATION OF TOURI SM RESERVE WITH REFERENCE TO SECTION 80HHD(4) OF THE ACT. THE LD. AR OF THE A SSESSEE ARGUED THAT THE ASSESSEE HAS UTILIZED THE AMOUNT OF RESERVE CREATED IN EARLIER YEAR FOR THE PURPOSE OF PURCHASES OF COACHES AND CAR. AS PER SEC TION 80HHD(4)(B), RESERVE CAN BE UTILIZED FOR PURPOSE OF PURCHASE OF NEW CAR AND NEW COACHES BY TOUR OPERATORS. THE AO DISALLOWED HOLDING THAT PURCHASE OF CAR AND COACHES ARE MUST BE PURCHASED FOR PROVIDING SERVICE TO THE TOUR IST AND ADDED RS. 88,37,957/-. THE LD. AR OF THE ASSESSEE FAIRLY CONC EDED THAT THESE ISSUES ARE AGAINST THE ASSESSEE IN ASSESSEES OWN CASE FOR AY 2001-02 IN ITA NO. 5400- 5562/MUM/2005. THE LD. DR NOT DISPUTED THE CONTENTI ON OF THE LD. AR OF THE ASSESSEE. CONSIDERING THE SUBMISSION OF LD. AR OF T HE ASSESSEE, THE GROUNDS OF ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 20 APPEAL NO.3 AND PART OF GROUND NO.4(III) TO THE EXT ENT OF MIS-UTILIZATION OF TOURISM RESERVE IS DISMISSED. 13. GROUND NO. 4(I) & 4(II) RELATES TO DENIAL OF DEDUCT ION UNDER SECTION 80HHD OF THE ACT IN RESPECT OF INTEREST INCOME AMOUNTING TO RS. 3,61,62,504/-. THE LD. AR OF THE ASSESSEE ARGUED THAT SIMILAR GROUND OF AP PEAL WAS RAISED BY ASSESSEE FOR AY 2000-01 & 2001-02 AND THE TRIBUNAL HAS RESTORED BACK THE SIMILAR GROUND TO THE FILE OF AO. THE LD. DR NOT DI SPUTED THE CONTENTION OF LD. AR OF THE ASSESSEE. 14. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AN D FIND THAT IN ASSESSEES OWN CASE FOR AY 2000-01 & 2001-02 THE SINGLE ISSUE WAS RESTORED TO THE FILE OF AO TO DECIDE THE CLAIM IN ACCORDANCE WITH THE OR DER OF SPECIAL BENCH IN CASE OF AMWAY INDIA ENTERPRISES VS. DCIT (2008) 301 (AT) 1 (DEL) (SB). THUS, CONSIDERING THE DECISION OF CO-ORDINATE BENCH , BOTH THE PART OF THIS GROUND OF APPEAL ARE RESTORED BACK TO THE FILE OF A O TO DECIDE THE SAME IN ACCORDANCE WITH THE DECISION OF TRIBUNAL INC ASSESS EES OWN CASE IN ITA NO. 5562, 5400/M/2005 DATED 23.02.2011. THUS, THIS GROU ND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 15. GROUND NO.5 RELATES TO DISALLOWANCE UNDER SECTION 1 4A OF THE ACT OF RS. 21,62,346/-. THE LD. AR OF THE ASSESSEE ARGUED THAT DURING THE YEAR THE ASSESSEE RECEIVED DIVIDEND AND INTEREST ON VARIOUS INVESTMENTS. THE INVESTMENTS WERE MADE OUT OF OWN FUNDS AND NOT FROM BORROWED FUND. THE AO ACCEPTED THAT ASSESSEE HAS SUFFICIENT FUND. THER E WAS NEGLIGIBLE ALLOCATION ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 21 IN THE NATURE OF EXPENSES INCURRED AT HEAD OFFICE L EVEL SO FAR AS TIME SPENT ON EARNING SUCH INCOME. THE AO DISALLOWED RS. 21,62,34 6/- UNDER SECTION 14A ON ESTIMATED. OUT OF WHICH RS. 15,16,372/ RELATES T O MANAGEMENT CONSULTANCY SERVICES AND RS. 6,45,974/- FOR HEAD OF FICE EXPENSES . THE LD. AR OF THE ASSESSEE ARGUED THAT HUGE DISALLOWANCE WA S LIABLE TO BE DELETED AS THE SUPERIOR COURT AND THE TRIBUNAL HAVE TAKEN A CO NSISTENT VIEW OF RESTRICTING THE DISALLOWANCE UNDER SECTION 14A IN SUCH CASES 1 TO 2% OF EXEMPT INCOME BEING A REASONABLE DISALLOWANCE. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. 16. WE HAVE CONSIDERED THE SUBMISSION OF PARTIES AND HA VE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE YEAR, THE A SSESSEE EARNED TAX FREE INTEREST OF RS. 14,70,365/- AND DIVIDEND INCOME OF RS. 1,70,61,528/-. BEFORE THE AO, THE ASSESSEE CONTENDED THAT ONLY DIRECT EXP ENSES INCURRED FOR EARNING EXEMPT INCOME CAN BE DISALLOWED. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY AO. THE AO WORKED OUT THE DISALLOWANCE ON THE BASIS OF APPORTIONMENT IN THE RATIO OF EXEMPT INCOME TO TOTA L RECEIPT OF ASSESSEE AND FROM HEAD OFFICE EXPENSES, THE AO CALCULATED DISALL OWANCE OF RS. 21,62,346/-. THE LD. CIT(A) CONFIRMED THE ACTION OF AO HOLDING THAT DISALLOWANCE IS QUITE REASONABLE. 17. THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYEE MFG . CO. LTD V. DY. CIT [2010] 194 TAXMANN 203 (BOM) HELD THAT PRIOR TO ASSESSMENT YEAR 2008- 09, WHEN RULE 8D WAS NOT APPLICABLE, ASSESSING OFFI CER HAD TO ENFORCE ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 22 PROVISIONS OF SUB-SECTION (1) OF SECTION 14A AND FO R THAT PURPOSE, ASSESSING OFFICER WAS DUTY BOUND TO DETERMINE EXPENDITURE WHI CH HAD BEEN INCURRED IN RELATION TO INCOME WHICH DID NOT FORM PART OF TOTAL INCOME UNDER ACT BY ADOPTING A REASONABLE BASIS. THUS, CONSIDERING THE FACT OF THE PRESENT CASE AND THE FACT THAT PRIOR TO AY 2008-09 THE SUPERIOR COUR TS AND THE TRIBUNAL HAD TAKEN A CONSISTENT VIEW THAT PRIOR TO INSERTION OF RULE 8D, A REASONABLE DISALLOWANCE IS SUFFICIENT TO MEET THE REQUIREMENT OF SECTION 14A. HENCE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE @ 2% OF THE EXEMPT INCOME FOR DISALLOWANCE UNDER SECTION 14A, FOR THE YEAR UNDER CONSIDERATION. THUS, THIS GROUND OF APPEAL IS PARTLY ALLOWED. ITA NO. 1924/MUM/2007 BY REVENUE 18. GROUND NO.1 RELATES TO PARTIAL DELETION OF DISALLOW ANCE OF NON-COMPETE FEES PAID TO ARJUN SHARMA. WE HAVE NOTED THAT THE ASSESS EE HAS ALSO RAISED THE SIMILAR GROUND OF APPEAL IN ASSESSEES APPEAL FOR P ARTIAL SUSTAINING THE DISALLOWANCE OF NON-COMPETE FEES. WE HAVE ALREADY A LLOWED THE SIMILAR GROUND OF APPEAL IN FAVOUR OF ASSESSEE GRANTING FUL L RELIEF TO THE ASSESSEE HOLDING THAT NON-COMPETE FEES PAID TO ARJUN SHARMA IS REVENUE EXPENDITURE. HENCE, GROUND NO.1 OF APPEAL RAISED BY REVENUE IS D ISMISSED. 19. GROUND NO.2 RELATES TO DELETION OF ADDITION IN RESP ECT OF TRAINING FEES OF RS. 38,02,104/-.THE LD. DR FOR THE REVENUE RELIED UPON THE ORDER OF AO. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE ARGUED THAT THE TRAINING FEES ARE DERIVED IN THE COURSE OF BUSINESS OF TOUR & TRAVELS OF THE ASSESSEE AND OUGHT TO BE ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 23 CONSIDERED FOR THE PURPOSE OF DEDUCTION UNDER SECTI ON 80HHD OF THE ACT. ONCE, THE AO TREATED THE TRAINING FEES AS BUSINESS INCOME, IT IS NOT OPEN FOR HIM TO EXCLUDE THE SAME WHILE COMPUTING DEDUCTION U NDER SECTION 80HHD. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESS EE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. ALF A LAVEL (INDIA) LTD. (266 ITR 418) AND DECISION OF TRIBUNAL IN ACIT VS. EASTERN INTERNATIONAL HOTELS LTD. (100 ITD 154). 20. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDER OF AUTHORITIES BELOW. DURING THE ASSESSME NT PROCEEDING, THE AO OBSERVED THAT IN THE DETAILS OF MISCELLANEOUS INCOM E THE ASSESSEE HAS SHOWN TO HAVE RECEIVED RS. 38,02,104/- AS TRAINING FEES FOR STAFF USE IN TOURS. THE AO DISALLOWED HOLDING THAT INCOME IS NOT DERIVED FROM FOREIGN TOURIST. THE LD. CIT(A) HELD THAT TRAINING FEES FORM PART OF BUSINES S INCOME AND HAS BEEN ASSESSED BY AO UNDER THE HEAD PROFIT & GAIN FROM B USINESS AND PROFESSION AND THEREFORE, SAID INCOME IS ELIGIBLE DEDUCTION UN DER SECTION 80HHD OF THE ACT. WE HAVE FURTHER NOTED THAT THE CO-ORDINATE BEN CH OF MUMBAI TRIBUNAL IN ACIT VS. EASTERN INTERNATIONAL HOTELS (SUPRA) HELD THAT WHERE INTEREST INCOME RECEIVED BY ASSESSEE HAD BEEN ASSESSED UNDER THE HE AD PROFIT & GAIN FROM BUSINESS AND PROFESSION SAME CANNOT BE TREATED AS NON-BUSINESS INCOME FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHD OF THE ACT. THE CO-ORDINATE BENCH RELIED UPON THE DECISION OF ALFA LAVEL INDIA LTD. (SUPRA) ON CONTEST OF INTERPRETATION OF SECTION 80HHC HOLDING THAT WHERE THE AO HAD ASSESSED ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 24 INTEREST RECEIVED BY ASSESSEE AS A PART OF BUSINESS PROFIT UNDER THE HEAD PROFIT & GAIN FROM BUSINESS AND PROFESSION, HE CANNOT TRE AT THE SAID AMOUNT AS INCOME FROM OTHER SOURCES SO AS TO EXCLUDE IT FRO M THE BUSINESS PROFIT. THUS, IN VIEW OF THE ABOVE FACTUAL AND LEGAL DISCUS SION, WE DO NOT FIND ANY ILLEGALITY AND INFIRMITY IN THE ORDER PASSED BY LD. CIT(A). IN THE RESULT, GROUND NO.2 OF THE APPEAL IS DISMISSED. 21. GROUND NO.3 RELATES TO DELETING THE ADDITION OF RET ENTION MONEY OF RS. 10,74,050/- AS WRITTEN BACK, CLAIMED AS DEDUCTION U NDER SECTION 80HHD OF THE ACT. THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF AO AND ARGUED THAT THE RETENTION MONEY IS NOT DERIVED FROM THE BUSINES S ACTIVITY OF THE ASSESSEE. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE ARGUE D THAT ASSESSEE HAD GIVEN OFFICE PREMISES TAKEN ON RENT FOR FURNISHING TO VAR IOUS CONTRACTORS. CERTAIN PART OF BILLS RAISED BY CONTRACTOR WERE WRITTEN BY ASSESSEE. SOME OF THE CONTRACTOR DID NOT CLAIMED THE SAID AMOUNT FOR A PE RIOD OF THREE YEARS, THE SAID AMOUNT WAS WRITTEN BACK BY THE ASSESSEE. THE AO DIS ALLOWED THE SAID AMOUNT HOLDING THAT THE WRITE BACK DID NOT FALL WITHIN THE PHRASE DERIVED FROM VARIOUS SERVICES PROVIDED TO FOREIGN TOURIST AND T HEREFORE, COULD NOT FORM PART OF PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80HH D. HOWEVER, THE AO ASSESSED SUCH WRITE BACK UNDER THE HEAD PROFIT & G AIN FROM BUSINESS AND PROFESSION. THE LD. CIT(A) AFTER APPRECIATING THE FACT ALLOWED THE SAID DEDUCTION. IT WAS FURTHER ARGUED THAT INCOME ON ACC OUNT OF WRITE BACK REPRESENT PROFIT DERIVED IN THE COURSE OF BUSINESS OF TOUR AND TRAVELS. IN ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 25 SUPPORT OF THIS SUBMISSION, THE LD. AR OF THE ASSES SEE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. ALF A LAVEL (INDIA) LTD. (266 ITR 418) AND DECISION OF TRIBUNAL IN ACIT VS. EASTERN INTERNATIONAL HOTELS LTD. (100 ITD 154). 22. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NOTED THAT THE AO HAS ASSESSED THE SAID AMOUNT UNDER THE HEAD PROFIT & GAIN FROM BUSI NESS AND PROFESSION. WE HAVE FURTHER NOTED THAT THE CO-ORDINATE BENCH OF MUMBAI TRIBUNAL IN ACIT VS. EASTERN INTERNATIONAL HOTELS (SUPRA) HELD THAT WHERE INTEREST INCOME RECEIVED BY ASSESSEE HAD BEEN ASSESSED UNDER THE HE AD PROFIT & GAIN FROM BUSINESS AND PROFESSION SAME CANNOT BE TREATED AS NON-BUSINESS INCOME FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHD OF THE ACT. THE CO-ORDINATE BENCH RELIED UPON THE DECISION OF ALFA LAVEL INDIA LTD. (SUPRA) ON CONTEST OF INTERPRETATION OF SECTION 80HHC HOLDING THAT WHERE THE AO HAD ASSESSED INTEREST RECEIVED BY ASSESSEE AS A PART OF BUSINESS PROFIT UNDER THE HEAD PROFIT & GAIN FROM BUSINESS AND PROFESSION, HE CANNOT TRE AT THE SAID AMOUNT AS INCOME FROM OTHER SOURCES SO AS TO EXCLUDE IT FRO M THE BUSINESS PROFIT. THUS, IN VIEW OF THE ABOVE FACTUAL AND LEGAL DISCUS SION, WE DO NOT FIND ANY ILLEGALITY AND INFIRMITY IN THE ORDER PASSED BY LD. CIT(A). IN THE RESULT, GROUND NO.3 OF THE APPEAL IS DISMISSED. 23. GROUND NO.4 RELATES TO DEDUCTION UNDER SECTION 80HH D IN RESPECT OF FOREIGN EXCHANGE FLUCTUATION OF RS. 1,85,88,507/-. THE LD. DR FOR THE REVENUE RELIED ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 26 UPON THE ORDER OF AO AND ARGUED THAT THE FOREIGN EX CHANGE FLUCTUATION GAIN IS NOT DERIVED FROM THE INCOME EARNED IN FOREIGN EXCHA NGE BY PROVIDING SERVICES TO FOREIGN TOURIST. ON THE OTHER HAND, THE LD. AR O F THE ASSESSEE ARGUED THAT DURING THE RELEVANT FY, THE ASSESSEE EARNED A SUM O F RS. 1,85,88,507/- ON ACCOUNT OF FOREIGN EXCHANGE GAIN. THE ASSESSEE CLAI MED DEDUCTION AND CALCULATED AS PERCENTAGE OF PROFIT DERIVED FROM SER VICES PROVIDED TO FOREIGN TOURIST. THE GAIN ON ACCOUNT OF FOREIGN EXCHANGE FL UCTUATION IS A PART OF PROFIT DERIVED FROM SERVICES RENDERED TO FOREIGN TOURIST A ND CANNOT BE EXCLUDED WHILE COMPUTING DEDUCTION UNDER SECTION 80HHD OF TH E ACT. THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF CIT VS. SY NTEL LIMITED [ITA NO.1974 OF 2009 (BOM, HC)] DATED 15.12.2009, CIT VS. RACHAN A UDHYOG [230 CTR 72 (BOM) & CIT VS. UNITED RICELAND LTD.[ITA NO. 699 7 OF 2010 DATED 31.12.2012]. 24. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AN D PERUSED THE ORDERS OF AUTHORITIES BELOW. THE AO DISALLOWED THE DEDUCTION ON GAIN FROM FOREIGN EXCHANGE FLUCTUATION HOLDING THAT IT DOES NOT EMANA TE FROM THE SERVICES PROVIDED BY THE ASSESSEE TO FOREIGN TOURIST. THE LD . CIT(A) ALLOWED THE DEDUCTION HOLDING THAT FOREIGN EXCHANGE GAIN FORMS PART AND PARTIAL OF FOREIGN EXCHANGE SALE PROCEED AND CANNOT BE EXCLUDED WHILE COMPUTING DEDUCTION UNDER SECTION 80HHD. THE HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. SYNTEL LIMITED HELD THAT WHEN ASSESSEE RECEIVED SAL E CONSIDERATION IN DOLLARS, WHICH WERE TO RECEIVE ON DATE OF SALE. BUT ON ACCOU NT OF FLUCTUATION IN ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 27 CONVERSION RATE, THE ASSESSEE RECEIVED MORE IN TERM OF RUPEE. THUS, THE SAME CANNOT BE WITHIN THE TEETH OF LAW LAID DOWN BY HON BLE APEX COURT IN LIBERTY INDIA VS. CIT. IN RACHANA UDYOG (SUPRA), THE HONBL E BOMBAY HIGH COURT HELD THAT EXCHANGE RATE DIFFERENCE IS ALLOWABLE DED UCTION UNDER SECTION 80IB OF THE ACT WHICH IS DIRECTLY RELATED TO THE TRANSAC TION INVOLVING THE EXPORT OF GOODS OF ELIGIBLE INDUSTRIAL UNDERTAKING. FURTHER, THE HONBLE HIGH COURT IN CIT VS. UNITED RICELAND LTD., WHILE RELYING UPON TH E RACHANA UDHYOG (SUPRA) AND SYNTEL LIMITED (SUPRA) ALSO ALLOWED THE CURRENC Y EXCHANGE GAIN. THUS, IN VIEW OF THE ABOVE FACTUAL AND LEGAL DISCUSSION, WE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER PASSED BY LD. CIT(A). IN THE RESULT, GROUND NO.4 OF THE APPEAL IS DISMISSED. 25. GROUND NO. 5 & 6 RELATES TO EXCLUSION OF RECEIPTS O F RS. 31,30,99,313/- PASSED ONTO OTHER HOTELIERS AND RECEIPTS OF RS. 69,83,040/ - BEING UNREALIZED TOUR RECEIPTS FOR COMPUTING DEDUCTION UNDER SECTION 80HH D OF THE ACT. THE LD. DR FOR THE REVENUE RELIED UPON THE ORDER OF AO. THE LD. AR OF THE ASSESSEE ARGUED THAT UNDER SECTION 80HHD, THE DEDUCTION IS C ALCULATED AS A PERCENTAGE OF PROFIT DERIVED FROM SERVICES PROVIDED TO FOREIGN TOURIST. PROFIT DERIVED FROM SERVICES PROVIDED TO ITS FOREIGN TOURIST SHAL L BE THE AMOUNT WHICH BEARS TO THE PROFIT OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFIT & GAIN FROM BUSINESS AND PROFESSION, THE SAME PROPORTION AS FO REIGN TOURIST BEARS TO THE TOTAL RECEIPT OF BUSINESS CARRIED BY THE ASSESSEE. THE FORMULA IS:- PROFIT DERIVED FROM SERVICES PROVIDED TO FOREIGN TOURIST = BUSINESS PROFIT * FOREIGN ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 28 TOURIST RECEIPT/TOTAL RECEIPT. THE AO WHILE COMPUTI NG TOTAL RECEIPT (DENOMINATOR) ADDED A SUM OF RS. 31,30,99,313/-, BE ING THE AMOUNT OF CERTIFICATE ISSUED TO OTHER HOTEL AND TOUR OPERATOR IN FORM 10CCAC AND RS. 69,83,040/-, THE MONEY NOT RECEIVED TILL 30.09.2002 . IT WAS SUBMITTED THAT IT IS UNDISPUTED THAT THE SAME SHOULD NOT BE FORM PART OF TOURIST RECEIPT (NUMERATOR). IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN CA SE OF LOTUS TRANS P. LTD. AND DECISION OF TRIBUNAL IN CASE OF M/S SITA WORLD TRAVEL (INDIA) LIMITED VS. DCIT IN ITA NO. 1524/DEL/2004. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORIZES BELOW. THE AO INCLUDED FIR ST RECEIPT I.E. RS. 30.31 (APPROX) CRORE IN RECEIPT OF BUSINESS HOLDING THAT THERE IS NOT EXPRESS PROVISION IN SECTION 80HHD FOR EXCLUSION FROM THE T OTAL RECEIPT. RECEIPT NO.2 OF RS. 66.39 LAKHS WAS INCLUDED BY AO HOLDING THAT ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THESE RECEIPT A CCRUED TO THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO AY 2001-02. TH E LD. CIT(A) AFTER EXAMINING THE FACT AND SUBMISSION OF THE ASSESSEE C ONCLUDED THAT THE AMOUNT CHARGED BY ASSESSEE FROM FOREIGN TOURIST INCLUDES P AYMENT FOR LODGING, BOARDING AND LOCAL TRANSPORTATION. THE PAYMENT REC EIVED FROM FOREIGN TOURIST, THE ASSESSEE MAKES PAYMENT TO THE HOTELS AND TRAVEL AGENTS FOR LODGING AND BOARDING AND TRANSPORTATION. THESE PAYMENTS ARE TO BE TREATED AS RECEIPT OF CONCERN HOTEL OR TRAVEL AGENT FOR THE PURPOSE OF CL AIMING DEDUCTION UNDER ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 29 SECTION 80HHD BY VIRTUE OF PROVISIONS IN EXPLANATIO N-1 TO SUB-SECTION (2) OF SECTION 80HHD OF THE ACT. IT WAS FURTHER CONCLUDED THAT AS PER SUB-SECTION (2A), THE ASSESSEE HAD ISSUED CERTIFICATE IN FORM 1 0CCAC TO RECIPIENT TO ENABLE THEM TO CLAIM DEDUCTION. FROM THE FORMULA GI VEN IN SUBSECTION (3), THE PAYMENTS MADE TO HOTEL, TRAVEL AGENT IN RESPECT OF WHICH CERTIFICATE IN FORM 10CCAC HAS BEEN ISSUED ARE TO BE EXCLUDED FROM THE RECEIPT RECEIVED FROM RENDERING OF SERVICES TO FOREIGN TOURIST. THE ASSES SEE EXCLUDED RS. 31,30,99,313/- FROM ITS INCOME RECEIVED FROM RENDER ING SERVICES TO THE TOURIST. BY FOLLOWING THE DECISION OF LOTUS TRANS TRAVELS (S UPRA) WHEREIN IT WAS HELD THAT FOR THE AMOUNTS, THE ASSESSEE HAS ISSUED CERTI FICATE IN FORM 10CCAC CANNOT BE TREATED AS A RECEIPT FOR THE PURPOSE OF T OTAL BUSINESS AND ACCORDINGLY DIRECTED THE AO TO EXCLUDE THE RECEIPT OF RS. 31,30 ,99,313/- PASSED ON BY THE ASSESSEE TO OTHER HOTEL AND TRAVEL AGENT. FOR SECON D/OTHER RECEIPT OF RS. 66,39,877/- IT WAS HELD THAT THE SAID AMOUNT OF FOREIGN CURRENCY REALIZED AFTER 30.09.2009 HAVE NOT ENTERED THE NUMERATOR I.E . RECEIPT EARNED BY ASSESSEE FROM RENDERING SERVICE TO FOREIGN TOURIST WHICH WOU LD NOT ENTER THE DENOMINATOR IN THE FORMULA AND DIRECTED THE AO TO E XCLUDE THE SAME. WE HAVE NOTED THAT FINDING OF LD. CIT(A) IN ACCORDANCE WITH EXPLANATION 1 TO SUB-SECTION (2), SUB-SECTION (2) AND SUB-SECTION (3 ) OF SECTION 80HHD. NO CONTRARY MATERIAL IS BROUGHT TO OUR NOTICE TO TAKE ANY CONTRARY VIEW. THUS, WE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDE R PASSED BY LD. CIT(A). IN THE RESULT, GROUND NO.5 & 6 OF THE APPEAL ARE DISMISSED . ITA NO.1924 & 2075/M/2007- KUON I TRAVELS (INDIA) PVT. LTD. 30 27. GROUND NO. 7 & 8 ARE GENERAL WHICH DO NOT REQUIRE A NY ADJUDICATION. 28. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DAY OF JANUARY 2018. SD/- SD/-/- (B.R.BASKARAN) (PAWAN SINGH) (ACCOUNTNAT MEMBER ) JUDICIAL MEMBER MUMBAI; DATED 19/01/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/