DEEPAK CLASSES DADAR (P) LTD, MUMBAI V. ITO 5(1)(3), MUMBAI

ITA 5105/MUM/2009

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3378 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 16-11-2015
• Assessment Year: 2000-2001
• Appeal Filed On: 08-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: S C TIWARI
• Keywords: Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI B.R.BASKARAN (AM) AND SHRI RAM LAL NEGI (JM) ITA NO 5105/MUM/2009 ASSESSMENT YEAR: 2000-01 DEEPAK CLASSES DADAR P. LTD, 1303, ATMAJ APARTMENT, 94-C, AUGUST KRANTI MARG, OPP. CUMBALA HILL HOSPITAL, KEMPS CORNER, BOMBAY- 400036. PAN:- AAACD5740K VS. THE ITO 5(1)(3), MUMBAI. (APPELLANT) (RESPONDENT) ITA NO 5106/MUM/2009 ASSESSMENT YEAR: 2000-01 DEEPAK CLASSES BORIVALI P. LTD, 1303, ATMAJ APARTMENT, 94-C, AUGUST KRANTI MARG, OPP. CUMBALA HILL HOSPITAL, KEMPS CORNER, BOMBAY- 400036. PAN:- AAACD2120J VS. THE ITO 5(1)(3), MUMBAI. (APPELLANT) (RESPONDENT) ITA NO 5477/MUM/2009 ASSESSMENT YEAR: 2000-01 DEEPAK CLASSES MALAD P. LTD, 1303, ATMAJ APARTMENT, 94-C, AUGUST KRANTI MARG, OPP. CUMBALA HILL HOSPITAL, KEMPS CORNER, BOMBAY- 400036. PAN:- AAACD7787J VS. THE ITO 5(1)(3), MUMBAI. (APPELLANT) (RESPONDENT) & 2 ITA NO 5105-06/MUM/2009 & ITA NO 5477-78/MUM/2009 ASSESSMENT YEAR: 2000-01 ITA NO 5478/MUM/2009 ASSESSMENT YEAR: 2000-01 DEEPAK CLASSES VILE PARLE P. LTD, 1303, ATMAJ APARTMENT, 94-C, AUGUST KRANTI MARG, OPP. CUMBALA HILL HOSPITAL, KEMPS CORNER, BOMBAY- 400036. PAN:- AAACD1864G VS. THE ITO 5(1)(3), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. S.C.TIWARI RESPONDENT BY : SHRI. B.S.BIST. DATE OF HEARING: 10 /03/2016 DATE OF PRONOUNCEMENT: 09/06/20 16 O R D E R PER RAM LAL NEGI, JM THESE FOUR APPEALS HAVE BEEN FILED BY THE ASSE SSEE AGAINST FOUR SEPARATE ORDERS, PASSED BY THE LD. CIT(APPEALS)- V, MUMBAI. SINCE ALL THE FOUR APPEALS PERTAIN TO THE SAME ASSESSEE FOR THE ASSESSMENT YEA R 2000-2001 AND THE ISSUES INVOLVED ARE IDENTICAL (EXCEPT THE CONCERNED PARTIES AND THE AMOUNT INVOLVED), ALL THE FOUR APPEALS WERE CLUBBED AND HE ARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. 2. SINCE THE FACTS AND CIRCUMSTANCES OF ALL THE FO UR CASES ARE COMMON, WE DISCUSS THE BRIEF FACTS OF ITA NO. 5105/M/2009, WHI CH HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER DATED 25.06.2009 PASSED BY T HE CIT(A). 3 ITA NO 5105-06/MUM/2009 & ITA NO 5477-78/MUM/2009 ASSESSMENT YEAR: 2000-01 ITA NO. 5105/M/2009 3. THE APPELLANT COMPANY IS ENGAGED IN THE BUSINES S OF COACHING FOR COMMERCE STUDENTS IN THE WESTERN SUBURBS OF WESTERN AND CENTRAL MUMBAI. SHRI. DEEPAK MISTRY IS THE MANAGING DIRECTOR OF THE APPELLANT COMPANY. M/S. PLUTO COMMERCIAL CLASSES (PCC), WHICH IS A PROPRIET ARY CONCERN OF MR. NIRAJ VOHRA, IS ALSO CARRYING ON THE SIMILAR BUSINESS AT BORIVALI, KANDIVALI, MALAD, VILE PARLE, DAHISAR, WHICH ARE SUBURBS OF MUMBAI. T HE APPELLANT FILED ITS RETURN OF INCOME ON 16/08/2000 DECLARING THE TOTAL INCOME OF RS. 14,05,630/- AFTER CLAIMING DEDUCTION OF RS. 3,00,000/- ON ACCOU NT OF NON COMPETE FEE PAID TO MR. NIRAJ VORA, PROPRIETOR OF M/S. PCC. 4. DURING THE ASSESSMENT PROCEEDING, THE APPELLANT SUBMITTED THAT THE PAYMENT OF RS. 3,00,000/- WAS MADE AS NON COMPETE F EE TO MR. NIRAJ VORA, PROPRIETOR OF M/S. PCC, UNDER AN AGREEMENT TO RESTR AIN PCC FROM CARRYING ON THE BUSINESS OF COACHING FOR A PERIOD OF TWO YEARS. THE FIXED CAPITAL OF THE APPELLANT HAS NOT CHANGED AND THEREFORE THE EXPENDI TURE INCURRED IS REVENUE IN NATURE HENCE, CLAIMED THE SAME AS REVENUE EXPENDITU RE IN THE PROFIT AND LOSS ACCOUNT. HOWEVER, THE A.O DISALLOWED THE CLAIM HOLD ING THAT THE EXPENSES INCURRED BY THE APPELLANT ARE NOT FOR THE PURPOSE O F ITS BUSINESS. 5. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BE FORE THE CIT(A). THE CIT(A) DELETED THE ADDITION HOLDING THE EXPENDITURE INCURRED BY THE ASSESSEE AS REVENUE EXPENDITURE. THE SAID ORDER WAS CHALLENGED BY THE REVENUE BEFORE THE ITAT. THE TRIBUNAL RESTORED THE ISSUE TO THE OFFICE OF THE AO OBSERVING AS UNDER:- 4 ITA NO 5105-06/MUM/2009 & ITA NO 5477-78/MUM/2009 ASSESSMENT YEAR: 2000-01 4. THE CIT(A) WHILE HOLDING THAT THE NON-COMPETE FEE PAID BY THE ASSESSEE WERE REVENUE IN NATURE, HAS NOT CONSIDERED THE FACTUAL DISCUSSION MADE BY THE ASSESSING AUTHORITY. THEREFO RE, WE FIND THAT THIS MATTER HAS TO BE RE-EXAMINED IN ACCORDANC E WITH LAW. THE ORDER OF THE CIT(A) ARE, ACCORDINGLY, SET ASIDE AND ALL THE FOUR FILES RESTORED TO THE FILE OF ASSESSING OFFICER FOR RECON SIDERING THE ISSUE AND PASSING APPROPRIATE ORDERS, IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER SHALL PROVIDE A FAIR AND REASONAB LE OPPORTUNITY OF HEARING TO ALL THE ASSESSEES. 6. AFTER HEARING THE ASSESSEE, THE ASSESSING OFFI CER AGAIN DISALLOWED THE DEDUCTION OF RS 3,00,000/- PAID ON ACCOUNT OF NON C OMPETE FEE HOLDING THAT THE APPELLANT HAS NOT INCURRED THE EXPENSES FOR THE PURPOSE OF BUSINESS AND THE EXPENDITURE IS CAPITAL IN NATURE. IN THE SECOND ROUND OF APPEAL, THE LD.CIT(A) CONFIRMED THE FINDINGS OF THE AO AND DISM ISSED THE ASSESSEES APPEAL. THE ASSESSEE HAS CHALLENGED THE IMPUGNED OR DER ON THE FOLLOWING EFFECTIVE GROUNDS:- 1. THE CIT(A)(V) HAS ERRED IN CONFIRMING THE PAYME NT OF NON- COMPLETE FEES OF A RS. 3,00,000/- AS CAPITAL EXPEND ITURE. 2. THE CIT(A)(V)HAS ALSO ERRED IN CONCLUDING THE NO N-COMPETE FEES AS NOT AN EXPENDITURE WHOLLY AND EXCLUSIVELY INCURR ED FOR THE PURPOSE OF BUSINESS. 7. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT SINCE THE AGREEMENT WAS FOR TWO YEARS ONLY, THERE CANNOT BE A NY ENDURING OR PERMANENT BENEFIT. THE ACTIVITIES OF THE ASSESSEE AND PCC ARE IN THE NATURE OF PROFESSION AND NOT A BUSINESS. THERE IS NO ACQUISITION OF CAPI TAL ASSET OR ANY ENDURING 5 ITA NO 5105-06/MUM/2009 & ITA NO 5477-78/MUM/2009 ASSESSMENT YEAR: 2000-01 BENEFIT ACCRUING TO THE ASSESSEE. THE AGREEMENT WAS ENTERED INTO JUST TO SAFEGUARD COMMERCIAL INTEREST OF THE ASSESSEE AND BONA FIDE OF PAYMENT HAS BEEN VERIFIED. THE LD. AR FURTHER SUBMITTED THAT IN THE LIGHT OF RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE COM. LTD. 124 ITR 1 , THE FINDING OF THE LD. CIT(A) ARE ERRONEOUS AND LIA BLE TO BE SET ASIDE. ON THE OTHER HAND THE LD. DR RELYING ON THE FINDING OF THE AUTHORITIES BELOW SUBMITTED THAT THERE IS NO LEGAL INFIRMITY IN THE IMPUGNED OR DER TO INTERFERE WITH THE SAME. THE LD. CIT(A) HAS PASSED THE ORDER IN ACCORD ANCE WITH THE PRINCIPLES OF LAW LAID DOWN BY THE HONBLE SUPREME COURT IN DURGA PRASAD MORE, 82 ITR 540. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE CASES RELIED UPON BY THE PA RTIES. THE ONLY ISSUE INVOLVED IN THIS CASE IS WHETHER THE NON-COMPETE FE E PAID BY THE ASSESSEE TO ITS COUNTERPART IS A CAPITAL EXPENDITURE OR A REVENUE E XPENDITURE? SECTION 37(1) OF THE ACT CONTEMPLATES THAT ANY EXPENDITURE (NOT BEIN G EXPENDITURE OF THE NATURE DESCRIBED IN SECTION 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF THE BUSINESS OR PROFESSION. AS PER THE ACCEPTED PRINC IPLES OF LAW, CAPITAL EXPENDITURE IS SOMETHING WHICH IS SPENT ONCE FOR AL L WHILE THE REVENUE EXPENDITURE IS RECURRING IN NATURE. SECONDLY, IF TH E EXPENDITURE IS TO BRING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR THE ENDURING BE NEFIT OF THE BUSINESS, THAT IS CAPITAL EXPENDITURE. IN THE PRESENT CASE SINCE THE ASSESSEE IS ENGAGED IN THE BUSINESS/PROFESSION OF RUNNING TUITION CLASSES, IT IS ESSENTIAL TO ASCERTAIN, IN THE LIGHT OF THE GENERAL PRINCIPLES OF LAW AS TO WH ETHER THE INTENTION OF THE ASSESSEE WAS TO ACQUIRE ADVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS BY PAYING NON-COMPETE FEE AS PER THE TERMS OF THE AGRE EMENT OR IT WAS A TEMPORARY MEASURE TO MAKE THE BUSINESS VIABLE FOR T WO YEARS BY RESTRAINING ITS 6 ITA NO 5105-06/MUM/2009 & ITA NO 5477-78/MUM/2009 ASSESSMENT YEAR: 2000-01 COUNTERPART FROM CARRYING ON THE SAME BUSINESS. THE RELEVANT PORTION OF THE AGREEMENT READS AS UNDER:- 5.WITH A VIEW TO POOL THE RESOURCES, BETTER UTILI SATION OF FACULTIES, TO AVOID COMPETITION, TO ENJOY ECONOMIES OF SCALE, MR MIRAJ VORA OF PCC APPROACHED MR. DEEPAK MISSED OF DCC TO MERGE THE B USINESS OF PCC WITH THAT OF DCC AND SEEING MUTUAL BENEFITS BOT H THE PARTIES SIGNED IN PRINCIPLE AGREEMENT IN THE FORM OF AN MOU DATED 19 TH APPEAL 1999. 6. AS PART OF THE COMMERCIAL UNDERSTANDING BETWEEN THE PARTIES TO THE MOU, IT WAS AGREED THAT THE PCC SHALL NOT COMPE TE AND/OR CARRY ON THE COACHING PROFESSION OR ASSIST ANY PERSON TO CARRY ON THE PROFESSION OF OR PARTICIPATE IN ANY MANNER WHATSOEV ER THROUGH ANY PERSON IN ANY BUSINESS PROFESSION SIMILAR OR IDENTI CAL TO THAT OF THE COMPANY.. [4] THE TERM OF THIS AGREEMENT SHALL BE THE LONGER OF (I) THE PERIOD OF 2 (TWO) YEARS FROM THE EFFECTIVE DATE, UNLESS TERMINATED EARLIER; OR (II) THE PERIOD ENDING WITH ADMISSION PROCEDURES F OR THE ACADEMIC YEAR2001/02. 9. THE CONTENTS OF AGREEMENT DO NOT SUGGEST THAT T HE INTENTION OF THE ASSESSEE WAS TO ACQUIRE ADVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS SINCE THE PCC IS RESTRAINED ONLY FOR TWO YEARS. PAR A 5 AFORESAID OF THE AGREEMENT MAKES IT EXPLICIT THAT THE ARRANGEMENT WA S MADE WITH A VIEW TO POOL THE RESOURCES, BETTER UTILIZATION OF FACULTIES AND TO AVOID COMPETITION. SO THE ARRANGEMENT WAS MADE FOR A PERIOD OF TWO YEARS FOR MAKING THE BUSINESS MORE VIABLE AND PROFITABLE. AO HAS VERIFIED THE GENUINEN ESS OF THE TRANSACTION. HENCE, IN OUR CONSIDERED VIEW, THE AMOUNT PAID BY T HE ASSESSEE TOWARDS NON- 7 ITA NO 5105-06/MUM/2009 & ITA NO 5477-78/MUM/2009 ASSESSMENT YEAR: 2000-01 COMPETE FEE CANNOT BE TREATED AS CAPITAL EXPENDITUR E. WE, THEREFORE, HOLD THAT THE NON-COMPETE FEE PAID BY THE ASSESSEE IN THIS CA SE IS REVENUE EXPENDITURE AND THE SAME WAS PAID EXCLUSIVELY FOR THE PURPOSE O F BUSINESS. ACCORDINGLY, THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) IS SET ASIDE. AO IS DIRECTED TO ALLOW THE NON- COMPETE FEE PAID BY THE ASSESSEE AS REVENUE EXPENDITURE. ITA NOS. 5106, 5477 & 5778/M/2009 10. THE ISSUES URGED AND FACTS PREVAILING IN THESE APPEALS ARE IDENTICAL IN NATURE AND SINCE WE HAVE ALREADY DECIDED THE IDENTI CAL GROUNDS OF APPEAL IN FAVOUR OF THE ASSESSEE IN ITA NO 5105/M/2009 AFORES AID, WE DECIDE THE GROUNDS OF APPEAL IN ITA NO 5106/M/2009, 5477/M/200 9 AND 5778/M/2009 IN FAVOUR OF THE ASSESSEE FOR THE SAME REASONS AND SET ASIDE THE IMPUGNED ORDERS PASSED BY THE LD. CIT(A). ACCORDINGLY, AO I S DIRECTED TO ALLOW THE NON- COMPETE FEE PAID BY THE ASSESSEE AS REVENUE EXPENDI TURE. 11. IN THE RESULT, ALL THE FOUR APPEALS FILED BY TH E ASSESSEE FOR THE ASSESSMENT YEAR 2000-01 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH JUNE 2016 SD/- SD/- ( B.R.BASKARAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 09/06/2016 8 ITA NO 5105-06/MUM/2009 & ITA NO 5477-78/MUM/2009 ASSESSMENT YEAR: 2000-01 / 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 PRAMILA