HEIDELBERG CEMENT INDIA LTD ( FORMERLY KNOWN AS INDORAMA CEMENT LTD), MUMBAI V. ADDL CIT RG 10(3), MUMBAI

ITA 3411/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75761 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 20-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 28-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBER DAS MR SURENDRA KUMAR
• Assessee Lawyers: F V IRANIN H GAJANIA
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI . . , . . , BEFORE SHRI B R MITTAL, JM & SHRI SHRI SHRI SHRI B R BASKARAN , AM , AM , AM , AM ./I.T.A. NO. 3411/MUM/2011 ( ' ' ' ' ' '' ' / ASSESSMENT YEAR :2008-09) HIDELBERG CEMENT INDIA LD (FORMERLY KNOWN AS INDORAMA CEMENT LTD) VILLAGE KHER KARAVI PO GODAB TALUKA PEN - DIST RAIGAD MUMBAI 400107 / VS. THE ADDL COMMR OF INCOME TAX RANGE 10(3), MUMBAI ./PAN : AAACI2389D ( % /APPELLANT ) ( &'% / RESPONDENT ) % ( / APPELLANT BY : SHRI F V IRANI/N H GAJANIA &'% ( / RESPONDENT BY : SHRI PITAMBER DAS/ MR SURENDRA KUMAR ( + /DATE OF HEARING : 27.02.2014 ( + / DATE OF PRONOUNCEMENT : 28 TH , FEB 2014 / O R D E R PER PER PER PER B R BASKARAN, AM : : : : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 18.2.2011 PASSED BY THE LD CIT(A) - 22, MUMBAI AND IT RELATES TO THE AY 2008-09. 2 THE ASSESSEE IS ASSAILING THE DECISION OF THE LD CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.80.88 LACS PAID AS NON-COMPETE F EE TO AN EXECUTIVE DIRECTOR TREATING THE SAME AS CAPITAL EXPENDITURE. M/S HELDELBERG CEMENT INDIA LTD 2 3. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE S TATED IN BRIEF: THE ASSESSEE COMPANY WAS FORMERLY KNOWN AS INDORAMA CEMENT LTD. IT WAS LATER MERGED WITH M/S MYSORE CEMENT LTD UNDER A SCHEME OT AMALGAMATIO N APPROVED BY THE HONBLE HIGH COURT OF BOMBAY. SUBSEQUENTLY, IT WAS TAKEN O VER BY HEIDELBERG CEMENT GROUP AND THE NAME OF THE COMPANY WAS CHANGED INTO THE PRESENT NAME. ONE, SHRI SANJEEV PARASRAMPURIA WAS THE EXECUTIVE DIRECTO R OF THE COMPANY, WHO WAS ASSOCIATED WITH M/S INDORAMA CEMENT LIMITED AND HE WAS LOOKING AFTER THE MANAGEMENT FUNCTIONS OF THE COMPANY. UPON TAKEOVER OF THE COMPANY BY THE NEW MANAGEMENT, THE COMPANY TERMINATED THE SERVICES OF SHRI SANJEEV PARASRAMPURIA AND IN THAT CONNECTION, IT ENTERED INTO A COMPROMIS E SETTLEMENT WITH HIM ON 25.2.2008. UNDER TERMS OF THE SETTLEMENT, THE ASSE SSEE COMPANY PAID RS.80.88 LACS AS NON-COMPETE FEE TO HIM. THE ASSESSEE TRE ATED THE SAME AS REVENUE EXPENDITURE AND ACCORDINGLY CLAIMED DEDUCTION THERE OF. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO TOOK THE VIEW THAT THE PAYMENT OF NON-COMPETE FEE FALLS IN THE CATEG ORY OF CAPITAL EXPENDITURE AND ACCORDINGLY PROPOSED TO DISALLOW THE SAME. IN RES PONSE TO THE QUERY RAISED BY THE AO, THE ASSESSEE OFFERED FOLLOWING EXPLANATIONS BEF ORE THE AO: IT WAS PAID TO MR SANJEEV PARASRAMPURIA, E.D ON TE RMINATION OF HIS EMPLOYMENT WITH THE COMPANY AND WITH A CONDITION TO PROHIBIT HIM FOR ONE YEAR FROM EXERCISING ACTIVITIES WHICH COULD BE EFFE CTIVE COMPETITION WITH THE COMPANY DURING THIS PROHIBITION PERIOD EITHER BY RU NNING A PERSONAL ENTERPRISE, OR BY BEING HIRED BY A COMPETITOR. M/S HELDELBERG CEMENT INDIA LTD 3 THUS, THIS PROHIBITION IS FOR EMPLOYMENT WITH THE C OMPETITOR OR RUNNING HIS PERSONAL ENTERPRISES SIMILAR TO THE COMPANY. SO IT RELATES TO THE REVENUE OF THE COMPANY, AS SUCH IT IS REVENUE EXPENSE AND IT C AN NOT BE TREATED AS CAPITAL EXPENDITURE. 4.1 THE AO DID NOT ACCEPT THE SUBMISSIONS MADE BY T HE ASSESSEE. HE TOOK THE VIEW THAT THE ASSESSEE HAS PAID THE MONEY TO THE FO RMER EXECUTIVE DIRECTOR IN ORDER TO PROHIBIT HIM FROM EXERCISING ACTIVITIES WH ICH COULD FORM AN EFFECTIVE COMPETITION WITH THE COMPANY. THE AO, APPARENTLY, BY CONSIDERING THE CLAUSES 8 AND 9 OF THE COMPROMISE SETTLEMENT DEED, HELD THAT THE EXECUTIVE DIRECTOR HAD ACCESS TO CONFIDENTIAL INFORMATION, THE DISCLOSURE OF WHICH WILL AFFECT THE COMPANY DRASTICALLY AND HENCE HE CAN BE CONTOLLED ONLY BY E NFORCING THE CLAUSES MENTIONED IN THE SETTLEMENT DEED. ACCORDINGLY, THE AO TOOK T HE VIEW THAT THE SETTLEMENT WITH THE DIRECTOR GIVES ENDUING BENEFIT TO THE COMPANY. ACCORDINGLY, BY PLACING RELIANCE ON THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNA L, IN THE CASE OF ASIANET COMMUNICATION VS DCIT REPORTED IN (7 SOT 496) (CHEN NAI), THE AO REJECTED THE CLAIM OF THE ASSESSEE AND ADDED THE SAME TO THE TOT AL INCOME RETURNED BY THE ASSESSEE. 5. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) CONFIRMED THE ADDITION WITH THE FOLLOWING OBSERVATIONS: DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE ME IT WAS SUBMITTED BY THE APPELLANT THAT NON COMPETE FEES WAS PAID IN TE RMS OF ARTICLE 5 OF THE SAID DEED TO PROHIBIT COMPETITION OF MR. PARASRAMPU RIA FOR ONE YEAR WHICH DOESNT CREATE ANY ASSET AND HENCE IT IS REVENUE IN NATURE. THE APPELLANT DISTINGUISHED THE CASE LAW RELIED UPON BY THE A.O. STATING THAT THE RESTRICTION WAS FOR 5 YEARS WHILE IN APPELLANTS CASE IT IS ONL Y FOR ONE YEAR. THE APPELLANT ALSO RELIED UPON SEVERAL CASE LAWS. HOWEV ER, ON PERUSAL OF 3 M/S HELDELBERG CEMENT INDIA LTD 4 JUDGMENTS. IT IS NOTED THAT IN THE CASE OF EICHER LT D (SUPRA) (*173 TAXMAN 251) THE FACTS ARE DIFFERENT SINCE IN THAT CASE IT WAS NOT CLEARLY BROUGHT ON RECORD AS TO HOW LONG THE RESTRICTIVE COVENANT WAS TO LAST BUT IT WAS NEITHER PERMANENT NOR EPHEMERAL AND IN THAT SENSE THE ADVAN TAGE WAS HELD AS NOT OF ENDURING NATURE AND HENCE THE SAME WAS TREATED A S REVENUE. IN THE CASE OF PREMIER OPTICAL PVT. LTD.,(*170 TAXMAN 167) ALSO THE FACTS WERE DIFFERENT SINCE THE HONBLE ITAT NOTED THAT THE AGREEMENT IN QUESTION WAS DIRECTLY RELATED TO THE SALE PRODUCTION CAPACITY OF TWO CHEM ICALS WHICH IN TURN HAD EFFECT OF CARRYING ON ASSESSEES BUSINESS EFFICIENT LY AND PROFITABLY AND HENCE THERE WAS NO ENDURING BENEFIT, CONSEQUENTLY, THE NA TURE WAS HELD TO BE REVENUE. THE OTHER CASE LAW OF AMWAY INDIA ENTERPRIS ES (*111 ITD 112) IS NOT DIRECTLY ON NON- COMPETE FEES HENCE NOT RELEVAN T. FURTHER, A PERUSAL OF ARTICLE 5 OF THE AGREEMENT (COMPROMISE SETTLEMENT) DATED 25.02.2008 IN CASE OF APPELLANT, IT IS NOTED THAT THE PROHIBITION IS FOR ONE YEAR AND COVERS TERRITORY OF FOUR COUNTRIES I.E. INDIA, BANGLADESH, PAKISTAN AND AFGHANISTAN. BY PUTTING SUCH A TERRITORIAL RESTRICTION, THE ASSE SSEE HAS ACQUIRED THE BUSINESS OF THESE COUNTRIES WHICH COULD HAVE BEEN C ARRIED ON BY MR. PARASRAMPURIA IN THESE COUNTRIES. FURTHER, AS PER A RTICLE 8,. SHRI PARASRAMPUTIA WILL NOT DISCLOSE THE CONFIDENTIAL I NFORMATION ACQUIRED DURING HIS EMPLOYMENT WITH THE COMPANY WHICH INCLUDES ANY INFORMATION CONCERNING METHODS, PROCESSES, SYSTEMS, INVENTIONS, PLANS, FORMULA, COMPUTER PROGRAMS, SOFTWARE, RESEARCH AND DEVELOPME NT OR INTELLECTUAL PROPERTY OF THE COMPANY AS DEFINED IN CLAUSE 8.5.. THUS, THE NON COMPETE FEE IS ALSO IN LIEU OF THESE ASSETS. FURTHER, IN CL AUSE 9.1, MR. PARASRANIPURIA HAS BEEN DEPRIVED OF HIS ENTITLEMENT TO CLAIM ANY R IGHTS OVER INTELLECTUAL PROPERTY. IN PARA 9.3. THE INTELLECTUAL PROPERTY HA S BEEN DEFINED AS THE PATENT TRADE MARK, COPYRIGHT, KNOW-HOW ETC. THESE A SSETS, AS PER SECTION 32 OF IT ACT ARE CAPITAL ASSETS ON WHICH DEPRECIATI ON IS ALLOWABLE. ON THIS GROUND ALSO NON COMPETE FEES RECEIVED BY THE APPELL ANT IS NOTHING BUT IN LIEU OF THESE CAPITAL ASSETS AND HENCE CAPITAL IN N ATURE. FURTHER, IN FOLLOWING CASES ON IDENTICAL FACTS HONBLE ITAT HELD SUCH REC EIPTS TO BE CAPITAL IN NATURE. I) DCIT VS SARAF CHEMICALS LTD 102 ITD 356 II) MONTGOMERY WATSON CONSULTANTS INDIA P LTD VS AC IT 90 ITD 324 III) TECUMESH INDIA (P) LD V ACIT 132TTJ (DEL.SPL. BENCH) IN VIEW OF THESE FACTS AND LEGAL POSITION AS DISCUS SED ABOVE, I AM OF THE CONSIDERED OPINION THAT THE AO WAS JUSTIFIED IN TRE ATING THE NON COMPETE FEES PAID BY THE APPELLANT AS CAPITAL IN NATURE WHI CH IS UPHELD. (* SUPPLEMENTED) M/S HELDELBERG CEMENT INDIA LTD 5 AGGRIEVED BY THE ORDER OF THE LD CIT(A), THE ASSESS EE HAS FILED THIS APPEAL BEFORE US. 6. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE ASSESSEE HAS DEDUCTED TAX AT SOURCE FROM THE NON-COMPETE FEE. HE FURTHER SUBMITTED THAT THE THE PAYEE HAS ALSO DECLARED THE SAID RECEIPT AS HIS INCOME IN THE INCOME TAX RETURN FILED BY HIM AND ALSO PAID THE TAX THEREON. THE LD COUNSEL FURTHER SUBMITTED THAT THE IMPUGNED AMOUNT OF RS.80.88 LAKHS WAS PAID IN TERMS OF ARTICLE 5 OF THE AGREEMENT. HE FURTHER SUBMITTED THAT THE ARTICLES 8 AND 9 ARE STANDARD TYPE OF CLAUSES, WHICH ARE INVARIABILY INCORPORATED IN ALL THE SETTLEMENT DEEDS. HE FURTHER SUBMITTED THAT THE PAYEE WAS NOT PAID ANY COMPENSAT ION UNDER CLAUSE 8 AND 9 AND HENCE THE TAX AUTHORITIES ARE NOT CORRECT IN PRESUM ING THAT THE AMOUNT OF RS.80.88 LAKHS RELATE TO THOSE CLAUSES ALSO. HE FURTHER SUB MITTED THAT THE RESTRICTION IMPOSED ON THE ASSESSEE UNDER ARTICLE 5 WILL BE IN EFFECT FOR A PERIOD OF ONE YEAR ONLY. ACCORDINGLY HE SUBMITTED THAT THE ASSESSEE D ID NOT GET ANY ENDURING BENEFIT FROM UNDER THE COMPROMISE SETTLEMENT. THE LD COUNS EL FURTHER SUBMITTED THAT THE VARIOUS CASE LAWS RELIED UPON BY THE TAX AUTHOR ITIES ARE DISTINGUISHABLE. HE SUBMITTED THAT THE PERIOD OF RESTRICTION IN THOSE C ASES WERE 5 YEARS AND MORE. HE FURTHER SUBMITTED THE SPECIAL BENCH OF TRIBUNAL, IN THE CASE OF TECUMSEH INDIA (P) LTD (2010)(127 ITD 1)(DELHI)(SB), IN PARA 132 OF TH E ORDER, HAS CATEGORICALLY HELD THAT THE QUESTION OF DEDUCTION OF NON-COMPETE FEE S HOULD BE CONSIDERED PURELY ON THE BASIS OF APPRECIATION OF FACTS OF EACH CASE. H E SUBMITTED THAT THE NON-COMPETE FEE WAS PAID TO THE ERSTWHILE DIRECTOR OF THE COMPA NY IN ORDER TO PROHIBIT HIM TO M/S HELDELBERG CEMENT INDIA LTD 6 TAKE EMPLOYMENT SOMEWHERE ELSE OR TO DO BUSINESS ON HIS OWN, WITH THE BELIEF THAT IF HE INDULGES IN SUCH KIND OF ACTIVITIES, IT MAY AFFECT THE REVENUE OF THE ASSESSEE COMPANY. ACCORDINGLY HE CONTENDED THAT TH E IMPUGNED PAYMENT SHOULD BE CONSIDERED AS A REVENUE EXPENDITURE, SINCE IT WA S PAID CONSIDERING THE REVENUE ASPECT OF THE ASSESSEE COMPANY. THE LD COUNSEL PLA CED STRONG RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. EICHER LTD (2008)(302 ITR 249)(DELHI) AND SUBMITTED THAT THE HONBLE HIGH COURT HAS CATEGORICALLY HELD THAT THE NON-COMPETE FEE CANNOT BE CONSIDERED AS CA PITAL EXPENDITURE, IF THE RESTRICTIONIS NEITHER PERMANENT NOR EPHEMERAL WITH NO ENDURING ADVANTAGE OR ACQUISITION OF CAPITAL ASSET. 6.1 HE FURTHER SUBMITTED THAT, IN THE CASE OF T ECUMSEH INDIA (P) LTD (SUPRA), THE NON-COMPETE FEE FORMED PART OF THE MOU ENTERED FOR PURCHASE OF COMPANY. HOWEVER, THE ASSESSEE THEREIN CLAIMED THAT THE NON- COMPETE AGREEMENT SHOULD BE CONSIDERED ON STAND ALONE BASIS. THE SAID CLAIM WA S REJECTED BY THE SPECIAL BENCH OF TRIBUNAL, SINCE THE NON-COMPETE AGREEMENT EMANAT ED FROM THE MOU ONLY. HE SUBMITTED THAT THE IMPUGNED COMPROMISE SETTLEMENT D OES NOT EMANATE FROM THE MOU FOR PURCHASE OF COMPANY. FURTHER THE PAYEE HAS BEEN PAID THE NON-COMPETE FEE APART FROM THE OTHER NORMAL ENTITLEMENTS LIKE N OTICE PERIOD SALARY, BONUS ETC. THE LD COUNSEL SUBMITTED THAT THE ASSESSING OFFICE R HAS ALLOWED DEDUCTION OF THE ABOVE SAID ITEMS, BUT HAS TREATED THE NON-COMPETE A LONE AS CAPITAL EXPENDITURE. THE LD COUNSEL FURTHER SUBMITTED THAT THE ASSESSEE MIGHT HAVE DERIVED BENEFIT ONLY FOR A SHORT PERIOD OF ONE YEAR ONLY AND IT CAN NOT BE CONSIDERED AS A PAYMENT M/S HELDELBERG CEMENT INDIA LTD 7 MADE FOR PROFIT AUGMENTING APPARATUS. ACCORDINGLY HE CONTENDED THAT THE IMPUGNED PAYMENT SHOULD BE ALLOWED AS A DEDUCTION. 7. ON THE CONTRARY, THE LD D.R SUBMITTED THAT T HE COMPROMISE SETTLEMENT AGREEMENT ENTERED BETWEEN THE ASSESSEE AND SHRI SAN JEEV S PARASRAMPURIA SHOULD BE READ AS A WHOLE. THOUGH UNDER ARTICLE 5 IT IS STATED THAT THE RESTRICTION IS FOR ONE YEAR ONLY, YET THERE IS NO SUCH TIME RESTRI CTION PRECRIBED IN ARTICLE 8 AND 9. AS PER ARTICLE 8, THE PAYEE SHOULD MAINTAIN ALL CON FIDENTIAL INFORMATION , WHICH HE MAY HAVE HAD ACCESS OR ACQUIRED OR RECEIVED BY VIRT UE OF HIS EMPLOYMENT. AS PER ARTICLE 9, ALL INTELLECTUAL PROPERTY IN ANY WORK OR MATERIAL DEVELOPED, DISCOVERED, INVENTED, DESIGNED AND/OR AUTHORED BY THE PAYEE, EI THER INDIVIDUALLY OR IN CONJUCTION WITH ANY OTHER EMPLOYEE DURING THE COURS E OF HIS EMPLOYMENT WITH THE COMPANY, SHALL BELONG TO AND ARE THE ABSOLUTE PROPE RTY OF THE COMPANY. BY INVITING OUR ATTENTION TO THESE CLAUSES, THE LD D.R SUBMITTED THAT THE ASSESSEE COMPANY HAS ACQUIRED THE INTELLECTUAL RIGHTS ON PER MANENT BASIS AND CONSEQUENTLY ACQUIRED AN ENDURING BENEFIT. HE FURTHER SUBMITTED THAT THE CLAIM OF DEDUCTION OF TDS FROM THE PAYMENT MADE AS NON-COMPETE FEE OR THE CLAIM THAT THE PAYEE HAS OFFERED THE SAME AS HIS INCOME ARE NOT THE DECIDING FACTORS. THE LD COUNSEL, BY PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ASSAM BENGAL CEMENT CO. LTD VS. CIT (1955)(27 ITR 34) SUB MITTED THAT THE ANNUAL PAYMENTS MAY ALSO FALL IN THE CATEGORY OF CAPITAL E XPENDITURE. THE LD D.R FURTHER PLACED STRONG RELIANCE ON THE DECISION OF LD CIT(A) . M/S HELDELBERG CEMENT INDIA LTD 8 8. IN THE REJOINDER, THE LD A.R SUBMITTED THAT THE ASSESSEE IS ENTITLED TO RECOVER THE AMOUNT PAID AS NON-COMPETE FEE FROM THE PAYEE, IF HE VIOLATES ARTICLE 5. HOWEVER, NO SUCH CONSEQUENCE IS PROVIDED IN THE COM PROMISE SETTLEMENT DEED FOR VIOLATING ARTICLE 8 AND 9. ACCORDINGLY HE SUBMITTE D THAT THE TAX AUTHORITIES ARE NOT CORRECT IN PLACING UNDUE RELIANCE ON ARTICLES 8 AND 9, SINCE THEY ARE STANDARD TERMS, WHICH ARE NORMALLY INCLUDED IN SUCH KIND OF SETTLEM ENT DEEDS. HE FURTHER SUBMITTED THAT IN THE CASE OF ASSAM BENGAL CEMENT C O. LTD, THE LEASE PERIOD WAS 20 YEARS AND HENCE THE SAID DECISION CANNOT BE TAKE N SUPPORT OF BY THE REVENUE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. WE NOTICE THAT THE LD CIT(A) HAS UPHELD THE ADDITION O N THE FOLLOWING REASONING:- (A) THE PROHIBITION IMPOSED UNDER ARTICLE 5 COVERS TERRITORY OF FOUR COUNTRIES., VIZ., INDIA, BANGALADESH, PAKISTAN AND AFGHANISTAN. BY PUTTING SUCH A TERRITORIAL RESTRICTION, THE ASSESSEE HAS AC QUIRED BUSINESS OF THESE COUNTRIES WHICH COULD HAVE BEEN CARRIED ON BY MR. P ARASRAMPURIA 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. (C) AS PER CLAUSE 9, MR. PARASRAMPURIA IS DEPRIVE D OF HIS ENTITLEMENT TO CLAIM ANY RIGHTS OVER INTELLECTUAL PROPERTY, WHICH CONSTITUTE CAPITAL ASSETS IN TERMS OF SEC. 32 OF THE ACT. 9.1 HOWEVER, A CAREFUL PERUSAL OF THE COMPROMIS E SETTLEMENT WOULD SHOW THAT MR. PARASRAMPURIA WAS APPOINTED AS EXECUTIVE DIRECTO R OF M/S INDORAMA CEMENTS LTD FROM 1.4.2001 ONWARDS. HIS TERM OF APPOINTMENT WAS RENEWED FROM TIME TO TIME AND LAST RENEWAL WAS TO EXPIRE BY 31.3.2009. BEFORE THE EXPIRY OF THE TIME PERIOD CITED ABOVE, HE HAS BEEN TERMINATED FROM THE SERVICE AND HENCE, AS PER THE M/S HELDELBERG CEMENT INDIA LTD 9 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 31.08.2008 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 COM PENSATORY 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 EMPLO YMENT WITH THE COMPANY, HE SHALL BE PROHIBITED, DURING THE PERIOD AND WITHI N THE TERRITORY SPECIFIED BELOW, FROM EXERCISING ACTIVITIES WHICH COULD BE IN EFFECTIVE COMPETITION WITH THE COMPANY DURING THE PROHIBITION PERIOD EITHER BY RUNNING A PERSONAL ENTERPRISE OR BY BEING HIRED BY A COMPETITOR AND HA VING 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 KNOWLEDGE OF ANY PRA CTICE SPECIFIC TO THE COMPANY OR ITS GROUP WHICH HE HAS ACQUIRED DURING H IS 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 COMPA NY AND SHALL COVER THE FOLLOWING TERRIROTY : INDIA, BANGLADESH, PAKISTAN AND AFGHANISTAN. 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 EF FECTIVE ENFORCEMENT OF THIS NON-COMPETITION CLAUSE. THIS SUM WILL BE IN A DDITION TO THE AMOUNTS PAYABLE UNDER ARTICLES 2 AND 3 ABOVE, AND WILL BE P AID IMMEDIATELY UPON SIGNING THIS AGREEMENT. IT CAN BE NOTICED THAT IT IS CLEARLY PROVIDED IN TH E ABOVE SAID CLAUSE THAT THE COMPENSATION OF 200000 USD IS PAID FOR ENFORCEMENT OF THIS CLAUSE. HENCE, IN OUR M/S HELDELBERG CEMENT INDIA LTD 10 VIEW, THE CONCLUSION REACHED BY THE TAX AUTHORITIES THAT THE IMPUGNED COMPENSATION IS ALSO PAID FOR ENFORCING CLAUSES 8 A ND 9 DOES NOT APPEAR TO BE CORRECT. 9.2 A CAREFUL READING OF CLAUSE 8 WOULD SHOW TH AT THE SAID CLAUSE ONLY PROVIDE THAT THE PAYEE SHOULD MAINTAIN ALL CONFIDENTIAL INF ORMATION AS STRICTLY CONFIDENTIAL. AS SUBMITTED BY LD A.R, THIS IS A USUAL CLAUSE, WHI CH IS NORMALLY INCORPORATED IN THE SEPARATION AGREEMENTS. EVEN OTHERWISE, IT IS EXPECT ED FROM ANYBODY THAT HE SHOULD NOT DIVULGE ANY CONFIDENTIAL INFORMATION, WH ICH WAS ACQUIRED OR OBTAINED DURING THE COURSE OF EMPLOYMENT. 9.3 UNDER ARTICLE 9, IT IS PROVIDED THAT ALL IN TELLECTUAL PROPERTY IN ANY WORK OR MATERIAL DEVELOPED, DISCOVERED, INVENTED, DESIGNED AND/OR AUTHORED BY THE EXECUTIVE DIRECTOR, EITHER INDIVIDUALLY OR IN CONJUN CTION WITH ANY OTHER EMPLOYEE/CONSULTANT OF THE COMPANY, DURING THE COUR SE OF HIS EMPLOYMENT WITH THE COMPANY, SHALL BELONG TO AND ARE THE ABSOLUTE P ROPERTY OF THE COMPANY. IN OUR VIEW, IT MAY NOT BE CORRECT TO PRESUME THAT AN EMPLOYEE WORKING IN A RESEARCH ORGANIZATION SHALL BECOME OWNER OF ANY INTELLECTUAL PROPERTY DEVELOPED BY THE COMPANY BY EMPLOYING SUCH A PERSON. A CAREFUL READ ING OF ARTICLE 9 WOULD SHOW THAT THE PAYEE IS PRECLUDED FROM MAKING SUCH A CLAI M, FOR THE REASON THAT THE SAID INTELLECTUAL PROPERTY IS DEVELOPED ETC. DURING THE COURSE OF HIS EMPLOYMENT WITH THE COMPANY. IT IS NOT THE CASE THAT THE PAYEE HIMSELF HAS DEVELOPED SOME INTELLECTUAL PROPERTY AND THE ASSESSEE COMPANY HAS ACQUIRED THE SAME. HENCE, WE ARE OF THE M/S HELDELBERG CEMENT INDIA LTD 11 VIEW THAT THE LD CIT(A) AND AO WERE NOT RIGHT IN TA KING THE VIEW THAT THE ASSESSEE COMPANY HAS PAID THE IMPUGNED COMPENSATION TO ACQUI RE THE INTELLECTUAL PROPERTY FROM THE PAYEE PERMANENTLY. SUCH A VIEW DOES NOT E MANATE FROM A CAREFUL READING OF ARTICLE 9. 9.4 THE TERRITORIAL RESTRICTION PRESCRIBED IN AR TICLE 5, IN OUR VIEW, DOES NOT LEAD TO A CONCLUSION THAT MR. PRASRAMPURIA WAS CARRYING ON ANY 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 COUR SE OF ARGUMENTS, THE LD A.R CATEGORICALLY SUBMITTED THAT THE PAYEE DID NOT CARR Y ON BUSINESS IN THOSE TERRITORIES. HENCE, IN OUR VIEW, THE LD CIT(A) HAS ENTERTAINED T HE SAME ONLY ON SURMISES AND PRESUMPTIONS. 10. THE FOREGOING DISCUSSIONS WOULD SHOW THAT ALL THE THREE REASONS CITED BY THE LD CIT(A) TO CONFIRM THE ADDITION HAS FAILED. WE A LSO NOTICE THAT THE PERIOD OF PROHIBITION / RESTRICTION IS FOR A PERIOD OF ONE YE AR ONLY. IN OUR VIEW, THE PERIOD OF ONE YEAR CANNOT BE CONSIDERED AS A LONG PERIOD WHIC H WOULD GIVE AN ENDURING BENEFIT TO THE ASSESSEE. HENCE, WE AGREE WITH THE CONTENTIONS OF LD A.R THAT THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN TH E CASE OF EICHER LTD (SUPRA) SHALL BE APPLICABLE TO THE INSTANT CASE. ACCORDING LY WE HOLD THAT THE ASSESSEE COULD NOT BE SAID TO HAVE DERIVED ANY ENDURING BENEFIT OU T OF THE PAYMENT OF NON- COMPETE FEE REFERRED 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. M/S HELDELBERG CEMENT INDIA LTD 12 ACCORDINGLY, IN OUR VIEW, IT CANNOT BE CONSIDERED A S A CAPITAL EXPENDITURE. HENCE, IN OUR VIEW, THE TAX AUTHORITIES WERE NOT JUSTIFIED IN DISALLOWING THE CLAIM OF RS.80.88 LAKHS TREATING THE SAME AS CAPITAL EXPENDI TURE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE AO TO ALLOW T HE CLAIM OF RS.80.88 LAKHS REFERRED ABOVE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED. / '/ ( ( ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH , FEB 2014 . ( 28TH, FEB 2014 ( SD/- SD/- ( B R MITTAL ) ( B R BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 7 DATED 28 TH , FEB 2014 .../ RAJ , SR. PS M/S HELDELBERG CEMENT INDIA LTD 13 ( &: ;: ( &: ;: ( &: ;: ( &: ;:/ COPY OF THE ORDER FORWARDED TO : 1. % / THE APPELLANT 2. &'% / THE RESPONDENT. 3. <() / THE CIT(A)- 4. < / CIT 5. : &, , / DR, ITAT, MUMBAI 6. ' / GUARD FILE. / BY ORDER, ': & //TRUE COPY// / // / ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI