DCIT, CHENNAI V. M/s. W.S.Industries (India) Limited, CHENNAI

ITA 966/CHNY/2005

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3899 (ITAT-CHENNAI)
• Duration Of Justice: 11 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2001-2002
• Appeal Filed On: 19-04-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH IRS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Depreciation; Business expenditure; Valuation report; Scheme of amalgamation; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 43B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . ! , '!# BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO.966/MDS/2005 ' $ %$ / ASSESSMENT YEAR : 2001-2002 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(3) CHENNAI-34 VS. M/S. W.S. INDUSTRIES (INDIA) LTD, NO.108, MOUNT POONAMALLEE ROAD, PORUR, CHENNAI 600 116. [PAN AAACW 0572E] ./ I.T.A. NO.1840/MDS/2005 ' $ %$ / ASSESSMENT YEAR : 2001-2002 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(3) CHENNAI-34 VS. M/S. S.S.B. INDUSTRIES LTD, NOW AMALGAMATED WITH M/S. W.S. INDUSTRIES (INDIA) LTD, NO.108, MOUNT POONAMALLEE ROAD, PORUR, CHENNAI 600 116. [PAN AAACS 8770L] ( / APPELLANT) ( /RESPONDENT) &' ( ) / APPELLANT BY : SHRI. A.V. SREEKANTH, IRS, JCIT. *+&' ( ) /RESPONDENT BY : SHRI. R. VIJAYARAGHAVAN, ADVOCATE ( , / DATE OF HEARING : 11-07-2016 -.% ( , / DATE OF PRONOUNCEMENT : 08-09-2016 ITA NO.966 & 1840/MDS/2005 :- 2 -: / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THESE APPEALS FILED BY THE DEPARTMENT ARE DIRECT ED AGAINST DIFFERENT ASSESSEE ORDERS OF THE COMMISSIONER OF IN COME-TAX (APPEALS), CHENNAI FOR THE ASSESSMENT YEAR 2001-200 2 PASSED U/S.143(3) AND 250 OF THE INCOME TAX ACT, 1961 (H EREIN AFTER REFERRED TO AS THE ACT). SINCE THE ISSUES IN THESE APPEALS ARE COMMON IN NATURE, THESE APPEALS ARE CLUBBED, HEARD TOGETHE R, AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE, F IRST, WE TAKE UP APPEAL IN ITA NO.966/MDS/2005, ASSESSMENT YEAR 2001 -2002 FOR ADJUDICATION. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S IN THE BUSINESS OF MANUFACTURERS OF ELECTRO PORCELAIN PROD UCTS AND FILED RETURN OF INCOME ON 31.10.2001 DECLARING A LOSS OF =21,35,28,690/- AND THE RETURN OF INCOME WAS PROCESSED U/S.143(1) O F THE ACT ON 18.10.2002. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED. IN RESPON SE TO NOTICE, THE LD. AUTHORISED REPRESENTATIVE APPEARED FROM TIME TO TIM E, FURNISHED INFORMATION AND SUBMITTED RECORDS FOR THE ASSESSMEN T PURPOSE. THE LD. ASSESSING OFFICER ON VERIFICATION OF THE RECORDS AN D FINANCIAL STATEMENTS FOUND THAT THE ASSESSEE COMPANY HAS MADE CONTRIBUTION OF ITA NO.966 & 1840/MDS/2005 :- 3 -: PROVIDENT FUND OF EMPLOYERS AND EMPLOYEES AND ESI C ONTRIBUTION OF EMPLOYER WAS PAID AFTER DUE DATE PRESCRIBED UNDER S PECIFIED ACT. THE LD. ASSESSING OFFICER DISALLOWED PROVIDENT FUND EMP LOYER CONTRIBUTION OF =58,24,485/-, ESI CONTRIBUTION OF =16,71,483/- A ND EMPLOYEES PROVIDENT FUND CONTRIBUTION OF =53,54,826/-. AGGRIE VED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 3.1 IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE ARGUED THAT THE LD. ASSE SSING OFFICER IS NOT CORRECT IN MAKING DISALLOWANCE UNDER THE AMENDED LA W AND OMISSION OF APPLICABILITY OF THE PROVISIONS. THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) CONSIDERED THE SUBMISSIONS AND JUDICIAL D ECISIONS FOUND THAT THE ASSESSEE COMPANY HAS PAID ESI AND PF CONTRIB UTION BEFORE DUE DATE OF FILING OF RETURN U/S.139 (1) OF THE ACT. T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) RELIED ON THE DECISION OF ITAT, KOLKATA IN THE CASE OF JAGATDAL JUTE & INDUSTRIES LIMITED VS. DCIT (2004) 1 SOT 210 (KOL) WERE IT WAS HELD THAT AMENDMENT TO SEC. 43B OF THE ACT WITH EFFECT FROM 01.04.2004 WOULD HAVE RETROSPECTIVE APP LICATION AND THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED T HE LD. ASSESSING OFFICER TO DELETE THE ADDITION OF =58,24,485/-, E MPLOYERS CONTRIBUTION OF PF AND =16,71,483/- EMPLOYERS ESI CONTRIBUTION . AGGRIEVED BY ITA NO.966 & 1840/MDS/2005 :- 4 -: THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE REVENUE HAS ASSAILED AN APPEAL BEFORE TRIBUNAL. 3.2 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE DISALLOWANCE U/S.43B OF THE ACT IN RESPECT OF EMPLO YERS CONTRIBUTION AND LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO ERRED IN CONSIDERING THE AMENDMENT EFFECTIVE FROM 01.04.20 04 AND PRAYED FOR ALLOWING THE APPEAL. 3.3 CONTRA, THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND VEHEMENTLY OPPOSED TO THE GROUNDS. 3.4 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE CRUX OF THE ISSUE THAT THE ASSESSEE CO MPANY HAS DEPOSITED EMPLOYERS CONTRIBUTION OF ESI AND EPF BE LATEDLY BUT BEFORE DUE DATE OF FILING OF RETURN OF INCOME U/S.139(1) OF THE ACT AND ARE COVERED BY THE PROVISIONS OF SEC. 43B OF THE ACT. WE FOUND ON SIMILAR ISSUE JURIDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/S. INDUSTRIAL SECURITY & INTELLIGENCE INDIA PVT . LTD HELD AS UNDER:- 5. WE FIND THAT THE TRIBUNAL HAS RIGHTLY RELIED O N THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V . ALOM EXTRUSIONS LTD. REPORTED IN 319 ITR 306, WHERE BY, THE SUPREME COURT HELD THAT OMISSION OF SECOND PROV ISO ITA NO.966 & 1840/MDS/2005 :- 5 -: TO SECTION 43B AND AMENDMENT TO FIRST PROVISO BY FINANCE ACT, 2003 ARE CURATIVE IN NATURE AND ARE EFFECTIVE RETROSPECTIVELY, I.E., WITH EFFECT FROM 1 .4.1988 I.E., THE DATE OF INSERTION OF FIRST PROVISO. THE DELHI HIGH COURT IN THE CASE OF CIT V. AMIL LTD. REPORTED IN 321 ITR 508 HELD THAT IF THE ASSESSEE HAD DEPOSITED EMPLOYEE'S CONTRIBUTION TOWARDS PROVIDENT FUND AND ESI AFTER DUE DATE AS PRESCRIBED UNDER THE RELEVANT ACT, BUT BEFORE THE DUE DATE OF FILING OF RETURN UNDER T HE INCOME TAX ACT, NO DISALLOWANCE COULD BE MADE IN VI EW OF THE PROVISIONS OF SECTION 43B AS AMENDED BY FINA NCE ACT, 2003. WE RESPECTFULLY FOLLOWING THE JURISDICTIONAL HIGH COURT DECISION UPHELD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) ON THIS GROUND AND DISMISS THE GROUND OF THE REVENUE. 4 THE NEXT GROUND RAISED BY THE DEPARTMENT IS THAT TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE OF =67,16,502/- TOWARDS EXPENDITURE ON REPLACEMENT OF REFRACTORY BRICKS, ALUMINIUM MOULDS, GRINDING WHEEL S ETC., 4.1 THE LD. ASSESSING OFFICER IN THE ASSESSMENT PRO CEEDINGS FOUND THAT THE ASSESSEE HAS CLAIMED EXPENDITURE HAV ING ENDURING BENEFIT AND WAS WRITTEN OFF IN THE YEAR AND THE EX PENDITURE IS TREATED AS DEFERRED EXPENDITURE OVER THREE YEARS AS IN EARL IER ASSESSMENT ITA NO.966 & 1840/MDS/2005 :- 6 -: YEARS AND THE LD. ASSESSING OFFICER FOLLOWING THE P RECEDENT HAS DISALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INC OME TAX (APPEALS). 4.2 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE FINDINGS AND NA TURE OF EXPENSES WERE THE ASSESSEE IS WRITING OFF AS DEFERRED EXPE NDITURE. IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 1996-97, TH E LD. ASSESSING OFFICER DISALLOWED THE CLAIM AND WAS SUBSEQUENTLY REVERSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE ORDER IN ITA NO.75/99-00, DATED 08.10.1999. THE LD. COMMISSIONER OF INCOME T AX (APPEALS) DISCUSSED AT PARA 4.1.1 ON THE COST, CONDITIONS, US AGE ALONGWITH JUDICIAL DECISIONS AND RELIED ON THE ORDERS OF PRED ECESSOR FOR THE ASSESSMENT YEARS 1996-97, 1997-98, 1999-2000 AND 20 00-2001 AND DIRECTED THE LD. ASSESSING OFFICER TO DELETE THE AD DITION. AGGRIEVED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE LD. REVENUE HAS ASSAILED AN APPEAL BEFORE TRIBUNAL. 4.3 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE AR GUED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION IRRESPECTIVE OF THE FACT THAT THE DEPARTME NT HAS FILED AN ITA NO.966 & 1840/MDS/2005 :- 7 -: APPEAL ON THE SAME ISSUE FOR EARLIER YEARS AND THE NATURE OF EXPENSES BEING CAPITAL EXPENDITURE HAVING ENDURING BENEFIT A ND FURTHER LD. COMMISSIONER OF INCOME TAX (APPEALS) RELIED ON THE DECISIONS OF THE PREDECESSOR WITHOUT CONSIDERING THE APPEALS FILED B Y THE DEPARTMENT AND THE ACTION OF THE LD. COMMISSIONER OF INCOME TA X (APPEALS) IS NOT WITH ACCORDANCE WITH LAW AND PRAYED FOR ALLOWING TH E APPEAL. 4.4 CONTRA, THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND ARGUED THAT IN EARLIER ASSESSMENT YEARS THE MATTER WAS REMITTED TO THE LD. ASSESSING OFFICER AND THE LD. ASSESSING OFFICER HAS DELETED THE ADDITION AND PRAYED FOR DISMISSING THE REVENUE APPEAL. 4.5 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD AND JUDICIAL DECISIONS. WE FOUND THAT THE D ISPUTED ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE AND WAS REMITTED TO THE LD. ASSESSING OFFICER FURTHER THE LD. ASSES SING OFFICER HAS ALLOWED THE CLAIM OF THE ASSESSEE. WE RELY ON THE CO-ORDINATE BENCH DECISION IN ASSESSEES OWN CASE IN ITA NO.118 & 200 2/MDS/2000, ASSESSMENT YEARS 1996-97 & 1997-98 DATED 10 TH MARCH, 2006, WHEREIN IT WAS HELD AT PARA 6 AND 7 AS UNDER:- ITA NO.966 & 1840/MDS/2005 :- 8 -: 6. IN REVENUES APPEAL FOR ASSESSMENT YEARS 1996 -97 AND 1997-98, THE FIRST COMMON ISSUE RELATES TO DELETION OF ADDITION ON ACCOUNT OF DEFERRED TOOLS EXPENDITURE. THE ASSESSEE IN THE PROCESS OF MANUFACTURING INSULATOR S INCURRED AN EXPENDITURE OF = 1,17,05,116/- FOR PURCHASE OF REFRACTORIES USED IN THE KILN AND KILN CAR. THE AS SESSEE CAPITALIZED 2/3 RD OF THE EXPENDITURE AMOUNTING TO =78,03,411/- IN THE BOOKS OF ACCOUNT. HOWEVER, IN COMPUTATION OF INCOME, THE ENTIRE AMOUNT WAS CLAIME D AS REVENUE EXPENDITURE. IT WAS EXPLAINED BEFORE ASSES SING OFFICER THAT THE LIFE OF REFRACTORY BRICKS WAS ABOU T THREE YEARS AND THEREFORE 1/3 IS WRITTEN OFF EVERY YEAR. SINCE THE AMOUNT WAS ON ACCOUNT OF REPLACEMENT OF REFRACTORY BRICKS, THE ENTIRE EXPENDITURE FOR PURCHASE WAS CLAIMED AS DEDUCTION. ON APPEAL LD. COMMISSIONER OF INCOME TA X (APPEALS) HELD THAT THE EXPENDITURE INCURRED DID NO T RESULT IN ANY ENDURING ADVANTAGE AND THE EXPENDITURE WAS INCU RRED DURING THE COURSE CARRYING ON OF BUSINESS AND THERE FORE THE ENTIRE EXPENDITURE WAS ALLOWABLE AS DEDUCTION. HE, THEREFORE, DELETED THE ADDITION. BEFORE US, LD. D EPARTMENTAL REPRESENTATIVE SUBMITTED THAT UNLESS TOOLS ARE ACT UALLY USED DURING THE YEAR CANNOT BE ALLOWED AS DEDUCTION. CONSUMABLES ARE ALLOWED AS DEDUCTION ON ACTUAL USE BASIS. IF THE ASSESSEE HAS PURCHASED EXCESS TOOLS OVER AND ABOVE ACTUAL USED, THE SAME WILL BE IN NATURE OF CAPITAL EXPENDITURE. THE BURDEN IS ON THE ASSESSEE TO PROV E THAT THE TOOLS WERE USED FOR THE PURPOSE OF BUSINESS DUR ING THE YEAR. THE LD. AUTHORISED REPRESENTATIVE ON THE OTH ER HAND SUBMITTED THAT TOOLS HAVE BEEN DURING THE YEAR AND THEREFORE ASSESSEE WAS ENTITLED FOR DEDUCTION OF THE ENTIRE AMOUNT. 7. WE HAVE HEARD BOTH THE PARTIES. REFRACTIVE BRIC KS ARE USED IN KILN. THE REPLACEMENT OF CONSUMABLES IS ALL OWABLE DEDUCTION ON ACTUAL USE BASIS. THE ASSESSING OFFIC ER HAS NOT EXAMINED WHETHER THE EXPENDITURE CLAIMED AS DEDUCTI ON RELATES TO ALL THE REFRACTIVE BRICKS WHICH HAVE BEE N PUT TO USE/REPLACED DURING THE YEAR. ACCORDINGLY IN OUR V IEW, THE MATTER SHOULD BE RESTORED TO THE FILE OF ASSESSING OFFICER WHO WILL EXAMINE FROM THE RECORDS OF ASSESSEE WHETHER T HE EXPENDITURE CLAIMED AS DEDUCTION RELATES TO CONSUMA BLES USED IN THE YEAR ITSELF. IF ANY OF EXPENDITURE RELA TE TO CONSUMABLES WHICH WERE FORMING PART OF CLOSING STOC K AS ON THE LAST DAY OF ACCOUNTING YEAR, THE SAME WILL NOT BE ALLOWED AS DEDUCTION. THE ASSESSING OFFICER WILL EXAMINE T HE MATTER IN THE LIGHT OF ABOVE DIRECTIONS AND DECIDE THE ISS UE AFRESH. ITA NO.966 & 1840/MDS/2005 :- 9 -: WE REMIT THE DISPUTED ISSUE TO THE FILE OF LD. ASSE SSING OFFICER AND TO PASS THE ORDER ON MERITS AS IN EARLIER YEARS. THE G ROUND OF THE EVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 5 THE THIRD GROUND RAISED BY THE REVENUE THAT THE LD . COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE ADDITION MADE BY THE ASSESSING OFFICER ON NON COMPETE FEE. 5.1 THE ASSESSEE COMPANY ENTERED INTO AN AGREEMENT WITH M/S. ALSTOM INSTRUMENT TRANSFORMERS (P) LIMITED ON 27.11 .2000 IN RESPECT OF BUSINESS ACTIVITIES AND NON COMPETENT FEE. AS P ER THE AGREEMENT, THE ASSESSEE COMPANY HAS AGREED NOT TO CONTINUE THE BUSINESS ACTIVITIES OF THE POWER CONTROL DIVISION FOR A PER IOD OF SEVEN YEARS FROM 27.11.2000 AND ALSO REFRAINED FROM CARRYING ON RELEVANT ACTIVITIES FOR A PERIOD OF SEVEN YEARS AS PER THE ARTICLES/CLA USES MENTIONED IN NON COMPETE FEE AGREEMENT. FURTHER ANOTHER AGREEM ENT WAS ENTERED ON 07.09.2000 IN THE NATURE OF ASSET PURCHA SE AGREEMENT WITH ALSTOM T & D, A COMPANY INCORPORATED AND THIS AGREEMENT IS FOR SPECIFIC SALE OF ASSETS OF POWER CONTROL DIVISION OF THE ASSESSEE COMPANY. THE LD. ASSESSING OFFICER PERUSED THE ART ICLE OF AGREEMENTS. AS PER THE CONDITIONS, THE SELLER AGREES WITH THE P URCHASER TO USE ITA NO.966 & 1840/MDS/2005 :- 10 -: SELLERS NAME FOR LIMITED PERIOD. THE AGREEMENT ENTE RED ON 07.09.2000 DEALS WITH TAKING OVER OF SERVICES OF EMPLOYEES. T HE ASSESSEE COMPANY RECEIVED NON COMPETE FEE FOR THE REASONS S PECIFIED IN THE NON COMPETE FEE AGREEMENT ENTERED ON 27.11.2000. T HE FEE IS PAID TO THE SELLER TO RESTRAIN FROM COMING INTO THE BUSI NESS FOR LIMITED PERIOD AND SHALL NOT BECOME A COMPETITOR TO THE PUR CHASER. BUT THE LD. ASSESSING OFFICER INTERPRETED THAT NON COMPETE FEE IS IN THE NATURE OF GOODWILL PERTAINING TO THE BUSINESS OF THE POWER CONTROL DIVISION AT DEVANAHALLI, BANGALORE IN ADDITION TO THE CONSIDER ATION PAID FOR THE TRANSFER OF ASSETS. THE LD. ASSESSING OFFICER TREA TED THE NON COMPETE FEE AS GOODWILL AND WHEREAS GOODWILL IS A CAPITAL ASSET WITHIN THE MEANING OF SEC.45 R.W.S 55(2)(A) OF THE ACT W.E.F. 01.04.1995 AND LD. ASSESSING OFFICER RELIED ON THE APEX COURT DECISIO N OF B.C. SRINIVASA SHETTY 128 ITR 294 WERE IT WAS HELD THAT IN THE CASE OF TRANSFER OF GOODWILL, A CAPITAL ASSET WHICH HAD NO COST OF ACQ UISITION, NO CAPITAL GAINS WOULD RESULT. HOWEVER, SINCE THE AMENDMENT W AS EFFECTED DEFINING GOODWILL AS A CAPITAL ASSET WITHIN THE MEA NING OF SEC. 55(2)(A) OF THE ACT. CONSIDERING THE AMENDED LAW AN D INTERPRETATIONS THE LD. ASSESSING OFFICER TREATED NON COMPETE FEE O F =15 CRORES AS LONG TERM CAPITAL GAINS AS THE GOODWILL HAS NO COS T OF ACQUISITION AND MADE AN ADDITION. AGGRIEVED BY THE ORDER, THE A SSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). ITA NO.966 & 1840/MDS/2005 :- 11 -: 5.2 IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISE D REPRESENTATIVE ARGUED THAT THE LD. ASSESSING OFFICE R ERRED IN TREATING =15 CRORES RECEIVED AS NON COMPETE FEE AS SALE OF GOODWILL IGNORING THE TERMS OF AGREEMENT WHICH CLEARLY SHOWS THAT THE AMOUNT PAID IS FOR SELLER TO RESTRAIN FROM COMPETITION FOR NEXT S EVEN YEARS. FURTHER, THE LD. ASSESSING OFFICER HAS ELABORATELY DISCUSSED IN THE ASSESSMENT ORDER ABOUT THE TERMS AND CONDITIONS BUT HAS ERRED IN CONCLUDING THAT NON COMPETE FEE IS NOTHING BUT A GOODWILL ON TRANSF ER OF ASSETS. APART FROM THE CLARIFICATIONS ON THE AGREEMENTS, THE LD. AUTHORISED REPRESENTATIVE HAS EXPLAINED THE REASONS FOR TRANSF ER OF ASSETS AND HISTORY OF THE COMPANY AND PRODUCTS MANUFACTURED BY THE ASSESSEE COMPANY. THE BUYER COMPANY M/S. ALSTOM, IS A SUBSI DIARY OF INTERNATIONAL COMPANY AND THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS DISCUSSED AT PAGE 6 TO 8 OF HIS ORDE R AND ALSO CONSIDERED THE SUBMISSIONS BY THE ASSESSEE COMPANY SUPPORTING THE GROUNDS FOR TREATING IT AS NON COMPETE FEE. THE LD . COMMISSIONER OF INCOME TAX (APPEALS) PERUSED THE FINDINGS OF THE LD . ASSESSING OFFICER AND ALSO AGREEMENTS PERTAINING TO ASSETS PURCHASED, SUPPLEMENTARY AGREEMENT AND NON COMPETE AGREEMENT. THE LD. AUTH ORISED REPRESENTATIVE APART FROM SUBMITTING THE FACTUAL AS PECTS HAS RELIED ON THE JUDICIAL DECISIONS AND EXPLAINED THAT THERE WA S AMENDMENT TO PROVISIONS TO SEC. 28(V)(A) OF THE ACT WERE IT IS A SPECIFIC PROVISION ITA NO.966 & 1840/MDS/2005 :- 12 -: WAS BROUGHT INTO THE STATUTE WERE A SUM RECEIVED OR RECEIVABLE IN CASH OR KIND UNDER AN AGREEMENT FOR NOT CARRYING OUT ANY ACTIVITY IN RELATION TO ANY BUSINESS INSERTED FROM FINANCE ACT, 2002 WIT H EFFECT FROM 01.04.2003 AND IS APPLICABLE FROM ASSESSMENT YEAR 2003-2004 AND THEREFORE NON COMPETE FEE IS NOT TAXABLE FOR ASSESS MENT YEAR 2001-02. THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE DEC ISIONS OF BIKRAMJET SINGH VS. CED 265 ITR 606 AND CIT VS. K. RAFFIUDDE N 242 ITR 57 . THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSI DERED DETAILED SUBMISSIONS OF THE ASSESSEE, AGREEMENTS AND THE OPI NION FILED SEPARATELY ON THE ISSUE OF NON COMPETE FEES. THE A SSESSEE HAS SOLD ASSETS OF THE UNIT NEAR BANGALORE BY AGREEMENT DATE D 07.09.2000 AND AS PER THE TERMS THE ASSESSEE OBTAINED SALE CONSIDE RATION FOR ASSETS AND NON COMPETE FEE. THE PURCHASER HAS PAID NON C OMPETE FEE TO RESTRAIN THE ASSESSEE COMPANY FROM COMPETITION. TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) FOUND THAT THE LD. ASSESSING OFFICER FORMED AN OPINION ON NON COMPETE FEE BEING IN THE NATURE OF GOODWILL AND MADE AN ADDITION WHICH IS NOT LOGICAL. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AT PAGE 12 PA RA 6.2.2 OF HIS ORDER HAS DISCUSSED ELABORATELY IN HIS ORDER AND DI RECTED THE LD. ASSESSING OFFICER TO DELETE THE ADDITION OF =15 CRO RES. AGGRIEVED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE LD. REVENUE HAS ASSAILED AN APPEAL BEFORE TRIBUNAL. ITA NO.966 & 1840/MDS/2005 :- 13 -: 5.3. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION MADE BY THE LD. ASSESSING OFFICER OF =15 C RORES IN RESPECT OF NON COMPETE FEE AND IGNORED THE REPUTATION OF ASSE SSEE COMPANY WHOSE ASSETS ARE ACQUIRED BY THE FOREIGN COMPANY. THE ASSESSEE COMPANY HAS SUBSTANTIAL GOODWILL AND WAS ACQUIRED BY THE FOREIGN COMPANY THOUGH NAMED AS NON COMPETE FEE. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER FAILED TO APPRECIAT E THAT THERE ARE TWO SEPARATE AGREEMENTS FOR PURCHASE OF ASSETS AND NON COMPETE FEE AND THESE AGREEMENTS ARE LACKS LAWFUL MEANING. THE GO ODWILL OF THE ASSESSEE COMPANY IS AN INTANGIBLE ASSET. THE PURCH ASER COMPANY IS INCORPORATED IN FRANCE AND ONE OF THE LEADERS IN EL ECTRICAL BUSINESS AND HAVING OPERATIONS WORLDWIDE AND COMPETING WITH THE ASSESSEE COMPANY WHICH IS HAVING A BUSHING UNIT BEING TRANS FERRED AND CALCULATION OF GOODWILL IS WITHOUT ANY METHODOLOGY AND RELIED ON THE JUDICIAL DECISIONS AND PRAYED FOR ALLOWING THE APPE AL. FURTHER, THE LD. DEPARTMENTAL REPRESENTATIVE FILED WRITTEN SUBMISS IONS EXPLAINING THAT NON COMPETE FEE PAID IS NOTHING BUT TRANSFER OF GOO DWILL PERTAINING TO BUSHING DIVISION PLANT AND ASSESSED TO TAX UNDER TH E HEAD CAPITAL GAINS. FURTHER THE LD. ASSESSING OFFICER FOUND T HAT THE ASSESSEE COMPANY HAD TRANSFERRED ENTIRELY THE BUSHING INDUST RY UNIT AND ITA NO.966 & 1840/MDS/2005 :- 14 -: THEREFORE PAYMENT OF NON COMPETE FEE DOES NOT ARISE AND REFERRED TO THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE O F ITA NOS.3536 & 3537/MAD/2009, DATED 26.09.2013 IN THE CASE OF M/S. ALSTOM T & D INDIA LTD VS. ACIT WERE ISSUE ON ACQUISITION OF THE ASSETS WAS DEALT AND THE DIFFERENCE BETWEEN CONSIDERATION PAID AND V ALUE OF NET ASSETS TAKEN OVER IS CONSIDERED AS GOODWILL AND SIMILARLY ON THE CO-ORDINATE BENCH DECISION OF PENTAMEDIA GRAPHICS LTD VS. DCIT IN ITA NO.1780/MDS/2009, 1768 & 1733/MDS/2010 DATED 11 TH JUNE, 2012 WERE THE TREATMENT OF NON COMPETE FEE RECEIVED BY THE ASSESSEE WAS CONSIDERED AS GOODWILL FOR ALLOWING THE BUYER TO U SE THE NAME. FURTHER, THE LD. DEPARTMENTAL REPRESENTATIVE ALSO RELIED ON THE DECISION OF INDO TECH ELECTRIC CO VS. DCIT 99 ITD 3 25 ON THE NON COMPETE FEE. SIMILARLY M/S. ALSTOM T & D INDIA LTD VS. ACIT, IN ITA NO.3536 & 3537/MDS/2009 , DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL CONSIDERED GOODWILL ON TRANSFER OF ASSETS AND DEPRECIATION CLAIM ON GOODWILL. THE LD. DEPARTMENTAL REPRESENTA TIVE SUBMITTED THAT AS PER THE DIRECTIONS OF THE TRIBUNAL FOR EARL IER ASSESSMENT YEARS DEPRECIATION WAS GRANTED TO THE ASSESSEE COMPANY. WITH THESE SUBMISSIONS AND EXPLANATIONS, THE LD. DEPARTMENTAL REPRESENTATIVE PRAYED FOR SET ASIDE OF THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND RESTORE THE LD. ASSESSING OFFICER ORD ER. ITA NO.966 & 1840/MDS/2005 :- 15 -: 5.4 THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DE ALT ON SEC.28(VA) OF THE ACT INSERTED BY FINANCE ACT, 2002 WHICH SHA LL NOT BE APPLICABLE TO ASSESSEE COMPANY ASSESSMENT YEAR 2001-02 BEING PRIOR TO ASSESSMENT YEAR 2003-2004 AND SUPPORTED HIS ARGUMEN TS WITH JUDICIAL DECISIONS AND FILED PAPER BOOKS I, II & III WITH D ETAILS OF LEDGER ACCOUNTS, ASSET VALUATION REPORT, ASSET PURCHASED A GREEMENTS, SUPPLEMENTARY AGREEMENTS, NON COMPETE AGREEMENTS, FINANCIAL STATEMENTS AND RELIED ON THE AMENDED PROVISIONS AN D SUPPORTED WITH APEX COURT DECISION IN THE CASE OF GUFFIC CHEM P. LTD VS. CIT 332 ITR 602 AND VEHEMENTLY EMPHASIZED THAT THE NON COMPETE FE E IS A CAPITAL RECEIPT AND IS NOT TAXABLE PRIOR TO AMENDMENT TO S EC. 28(VA) OF THE ACT WHICH IS EFFECTIVE FROM ASSESSMENT YEAR 2003-2 004 AND PRAYED FOR DISMISSING THE APPEAL OF THE REVENUE ON THIS GROUND . 5.5 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORD, JUDICIAL DECISIONS AND PAPER BOOKS. THE LD . DEPARTMENTAL REPRESENTATIVE CONTENTION THAT THE ASSESSEE COMPAN Y RECEIVED NON COMPETE FEE WHICH IS IN THE NATURE OF GOODWILL ON T RANSFER OF ASSETS. THE LD. ASSESSING OFFICER HAS CONSIDERED THE FACTS ON GOODWILL AS THE ASSETS WERE TRANSFERRED AND NO BUSINESS ACTIVITIES ARE CARRIED ON BY THE ASSESSEE COMPANY AS PER AGREEMENTS. THE LD. DE PARTMENTAL ITA NO.966 & 1840/MDS/2005 :- 16 -: REPRESENTATIVE IS EMPHASIZING ON THE CONCEPT OF T AXABILITY OF GOODWILL AND TO TREAT NON COMPETE FEE AS TAXABLE RE CEIPT. THE FACTS EXPLAIN THAT THE ASSESSEE COMPANY HAS ENTERED INTO TWO SEPARATE AGREEMENTS THE ASSETS PURCHASE AGREEMENT DATED 07.0 9.2000 REFERRED AT PAPER BOOK I PAGE NO.59 TO 107 AND THE SUPPLEMEN TARY AGREEMENT ENTERED ON 27.11.2000 MENTIONING THE VALUES AND THE NON COMPETE AGREEMENT ENTERED ON 27.11.2000 REFERRED AT PAGE 1 14 TO 131. THE GRIEVANCE OF THE LD. DEPARTMENTAL REPRESENTATIVE T HAT THE TRANSFER OF ASSETS OF ASSESSEES BUSHING DIVISIONS PLANT TO M/ S. ALSTOM INSTRUMENT TRANSFORMERS (P) LIMITED IS PURELY IN THE NATURE OF BUSINESS TRANSACTION AND NON COMPETE FEE AGREEMENTS SHALL NOT BE SEPARA TELY CONSIDERED AND THE SAID SUM TO BE TREATED AS GOODWILL. WE PE RUSED THE PAPER BOOK NO.I AT PAGE 35 WERE THE 1 ST ANNUAL REPORT OF PURCHASER COMPANY WAS FILED. ON PERUSAL OF THE NOTICE OF ANN UAL GENERAL MEETING (AGM) THE FIRST AGM WAS HELD IN JULY, 2001 AND THE SAID COMPANY WAS INCORPORATED WITH REGISTRAR OF COMPANIE S, NEW DELHI DATED 28 TH AUGUST, 2000 AND THE BOOKS OF ACCOUNT ARE CLOSED ON 31 ST MARCH, 2001. THIS ANNUAL REPORT EXPLAINS THE BACK GROUND OF THE COMPANY AS THIS IS THE FIRST YEAR AFTER INCORPORATI ON AND DURING THE FINANCIAL YEAR 2000-2001. THE ASSESSEE COMPANY ACQ UIRED ASSETS AND LIABILITIES FROM A EXISTING CONCERN IN NOVEMBER, 20 00. THE ASSESSEE COMPANY AND M/S. SSB INDUSTRIES LIMITED ARE SUBSE QUENTLY ITA NO.966 & 1840/MDS/2005 :- 17 -: AMALGAMATED AS M/S. W.S. INDUSTRIES (INDIA) LTD. NO DOUBT THE ASSESSEE PROMOTER COMPANY IS BASED IN FRANCE AND H AVE INTERNATIONAL WORLDWIDE TRANSACTIONS. BUT IN INDIA FOR BUSINESS TRANSACTION AND TO ACHIEVE THE OBJECTS THE ASSESSEE COMPANY WAS INCORPORATED WITH VALUABLE INVESTMENTS IN AUGUST, 2000. WE PERUSED THE ANNUAL REPORT OF M/S. ALSTOM INSTRUMENT TRANSFO RMERS (P) LIMITED (PURCHASER COMPANY) AT PAGE 56 OF PAPER BOOK, NOTE S ON ACCOUNTS WERE THE COMPANY HAS MENTIONED ABOUT THE GOODWILL A ND NON COMPETE FEE UNDER SCHEDULE 19 OF SIGNIFICANT ACCOUNTING PO LICIES AT G. GOODWILL TREATMENT IS REFERRED AS UNDER:- GOODWILL ARISING FROM THE TAKE OVER OF ASSETS AND LIABILITIES OF OUR EXISTING CONCERN IS AMORTIZED OVER A PERIOD OF 5 YEARS . THE PURCHASER COMPANY WANTED THEIR BRAND IMAGE IN T HIS COUNTRY AND ALSO DONT WANT TO COMPETE WITH THE ASSESSEE COMPA NY ON BUSHING UNIT DIVISION AND HENCE ENTERED INTO A NON COMPETE AGREEMENT ON 27.11.2000. THE CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT THE PARENT COMPANY M/S. ALSTOM T & D FRANCE WI TH WORLDWIDE OPERATIONS ARE WITH A REPUTATION AND THE ASSESSEE COMPANY COMPETING ON ACTIVITIES AND PAYMENT OF NON COMPETE FEE ANALOGY CANNOT ACCEPTED. THE PURCHASING COMPANY INCORPORA TED IN INDIA AND MADE HUGE INVESTMENTS IN SECTORS AND WANTS TO ENTER INTO BIGGER ITA NO.966 & 1840/MDS/2005 :- 18 -: PROJECTS FOR ITS EXISTENCE AND BRAND IMAGE AND PAID NON COMPETE FEES TO THE ASSESSEE COMPANY =15 CRORES. FURTHER, THE LD . DEPARTMENTAL REPRESENTATIVE ARGUED TO TREAT NON COMPETE FEE AS A GOODWILL ON TRANSACTIONS WHEREAS ASSESSEE COMPANY ENTERED INTO TWO AGREEMENTS SEPARATELY FOR ASSETS PURCHASE AND NON COMPETE FEE AND THE DEPARTMENT CANNOT INTERPRET THE CLAUSES AND PRESUME THAT IN THE GUISE OF CONSIDERATION OF NON COMPETE FEE THE ASSESSE E COMPANY CANNOT CLAIM AS CAPITAL RECEIPT. FURTHER THE PURCHASING C OMPANY CASE WAS DEALT BY THE CO-ORDINATE BENCH OF TRIBUNAL ON ALLO WING DEPRECIATION ON GOODWILL. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON CASE OF M/S. PENTAMEDIA GRAPHICS (SUPRA) WHICH PERTAINS TO THE NON COMPETE FEE PAID TO THE SISTER CONCERN BY THE SAID COMPANY BUT IN THE PRESENT CASE NON COMPETE FEE IS PAID BY INTERNATIONAL COMPA NY WHICH DOES NOT HAVE BUSINESS CONNECTION OR HOLDING OF EQUITY IN AS SESSEE COMPANY AND HENCE CANNOT BE PRIME FACIE BE ACCEPTED. IN T HE CASE OF INDO TECH ELECTRIC CO VS. DCIT (SUPRA) BEING PARTNERSHIP FIRM WERE ON TRANSFER OF ASSETS PARTNERSHIP SEIZED TO EXIST AND THE TRIBUNAL CONSIDERED THE TRANSACTION AS PART AND PARCEL OF GO ODWILL BUT IN THE PRESENT CASE, THE TRANSACTION IS BETWEEN TWO REGIST ERED COMPANIES HAVING SEPARATE LEGAL ENTITIES AND TRANSFEROR COMPA NY STILL EXIST AFTER TRANSFER OF ASSETS. IN THE CASE OF PURCHASER COMPAN Y FOR THE ASSESSMENT YEAR 2003-2004, THE TRIBUNAL HAS DIRECTE D THE LD. ITA NO.966 & 1840/MDS/2005 :- 19 -: ASSESSING OFFICER TO VERIFY THE VALUATION OF GOODW ILL AND ALLOW DEPRECATION AND ACCORDINGLY, THE LD. ASSESSING OFF ICER HAS GRANTED DEPRECIATION. WE ALSO PERUSED THE FINANCIAL STATEM ENTS OF THE PURCHASER COMPANY AT PAGE 52 OF PAPER BOOK WERE THE PURCHASER COMPANY AT SL. NO.10 SCHEDULE TREATED THE NON COMPE TE FEE UNDER DEFERRED REVENUE EXPENDITURE AND WRITTEN OFF DURING THE FINANCIAL YEAR =77,19,447/- AND THE SAME WAS DEBITED TO PROFIT AND LOSS ACCOUNT UNDER SCHEDULE 16 UNDER OTHER COSTS. THERE IS NO DISPUTE OF PAYMENT OF NON COMPETE FEE BY THE PURCHASING COMPANY CONSID ERING THE CIRCUMSTANCES AND EVIDENCE DISCUSSED AND NOW WE PER USE THE PROVISIONS OF SEC. 28(VA) OF THE ACT AS UNDER:- (VA) ANY SUM, WHETHER RECEIVED OR RECEIVABLE IN C ASH OR KIND, UNDER AN AGREEMENT FOR (A) NOT CARRYING OUT ANY ACTIVITY IN RELATION TO AN Y BUSINESS ; OR (B) NOT SHARING ANY KNOW-HOW, PATENT, COPYRIGHT, TRADE-MARK, LICENCE, FRANCHISE OR ANY OTHER BUSINES S OR COMMERCIAL RIGHT OF SIMILAR NATURE OR INFORMATION O R TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR PROVISION FOR SERVICES. PROVIDED THAT SUB-CLAUSE (A) SHALL NOT APPLY TO (I) ANY SUM, WHETHER RECEIVED OR RECEIVABLE, IN CAS H OR KIND, ON ACCOUNT OF TRANSFER OF THE RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THIN G OR RIGHT TO CARRY ON ANY BUSINESS, WHICH IS CHARGEA BLE UNDER THE HEAD CAPITAL GAINS ; ITA NO.966 & 1840/MDS/2005 :- 20 -: (II) ANY SUM RECEIVED AS COMPENSATION, FROM THE MULTILATERAL FUND OF THE MONTREAL PROTOCOL ON SUBSTANCES THAT DEPLETE THE OZONE LAYER UNDER THE UNITED NATIONS ENVIRONMENT PROGRAMME, IN ACCORDANCE WITH THE TERMS OF AGREEMENT ENTERED INTO WITH THE GOVERNMENT OF INDIA. EXPLANATION FOR THE PURPOSES OF THIS CLAUSE, (I) AGREEMENT INCLUDES ANY ARRANGEMENT OR UNDERSTANDING OR ACTION IN CONCERT, (A) WHETHER OR NOT SUCH ARRANGEMENT, UNDERSTANDING OR ACTION IS FORMAL OR IN WRITING ; OR (B) WHETHER OR NOT SUCH ARRANGEMENT, UNDERSTANDING OR ACTION IS INTENDED TO BE ENFORCEABLE BY LEGAL PROCEEDINGS ; (II) SERVICE MEANS SERVICE OF ANY DESCRIPTION WHI CH IS MADE AVAILABLE TO POTENTIAL USERS AND INCLUDES THE PROVISION OF SERVICES IN CONNECTION WITH BUSINESS O F ANY INDUSTRIAL OR COMMERCIAL NATURE SUCH AS ACCOUNTING, BANKING, COMMUNICATION, CONVEYING OF NEWS OR INFORMATION, ADVERTISING, ENTERTAINMENT, AMUSEMENT, EDUCATION, FINANCING, INSURANCE, CHIT FUNDS, REAL ESTATE, CONSTRUCTION, TRANSPORT, STORAG E, PROCESSING, SUPPLY OF ELECTRICAL OR OTHER ENERGY, BOARDING AND LODGING. THE NON COMPETE FEE RECEIPT HAS BEEN MADE TAXABLE F ROM THE ASSESSMENT YEAR 2003-2004 UNDER THE PROVISIONS OF SEC.28(VA) OF THE ACT. WE SUPPORT OUR VIEW THAT THE PAYMENT OF NON COMPETE FEE PRIOR TO 1 ST APRIL, 2003 IS IN THE NATURE OF CAPITAL RECEIPT AN D RELYING ON THE DECISIONS OF GUFFIC CHEM P. LTD(SUPRA) AND CIT VS. HACKBRIDGE HE WITTIC & EASUN LTD (2015) 92 CCH 0095 CHEN HC WHEREIN IT WAS HELD THAT ITA NO.966 & 1840/MDS/2005 :- 21 -: WHERE THERE WAS NO INTENTION TO ACQUIRE GOODWILL OF THE ASSESSEE, THE, NON-COMPETE FEE RECEIVED BY THE ASSESSEE COULD NOT BE TREATED AS GOODWILL AND IT WAS NOT TAXABLE AS INCOME. SIMILAR ISSUE WAS CONSIDERED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M /S. TTK HEALTHCARE LTD VS. ACIT IN ITA NO.2713/MDS/ 2004, ASSESSMENT YEAR 2000-2001, VIDE ORDER DATED 15 TH JUNE, 2007 WHERE IT WAS HELD THAT AS UNDER:- 15. AGAIN, THE HON'BLE MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME : TAX VS. SARASWATH I PUBLICITIES (1981) 132 ITR 207 HAS HELD THAT, 'COMPENSATION FOR AGREEING TO REFRAIN FROM CARRYING ON COMPETITIVE BUSINESS IS CAPITAL RECEIPT NOT LIABLE TO TAX'. IN THAT CASE, THE ASSESSEE HAD SECURED THE RIGHTS FOR DISTRIBUTION AND EXHIBITION OF ADVERTISEMENT FILMS, WITH A RIGHT TO ENTER INTO AGREEMENT WITH OTHER PERSONS F OR DISTRIBUTION AND EXHIBITION. THE ASSESSEE ENTERED I NTO AN AG5REEMENT WITH WHICH HAD SIMILAR AGREEMENTS WITH VARIOUS FIRMS FOR THE PURPOSE OF SEEING THAT THE BU SINESS OF EACH OTHER DID NOT SUFFER BY COMPETITION IN CERTAIN STATES. THE AGREEMENT WERE EXTENDED AND MODIFIED. UNDER THE AGREEMENT OF 16 TH MAY, 1965, THE ASSESSEE AGREED NOT TO REPRESENT OR OTHERWISE DO BUSINESS IN FILM SHOWS AN D ANY SORT OF ADVERTISEMENT ON THE CINEMA SCREENS FOR HIN DUSTAN LEVER LTD OR LINTAS LTD IN THE AGREED AREA. THE AS SESSEE HAD AGREED ALSO TO TAKING OVER AND HANDLING THE SAID BUSINESS ON THE BUSINESS WITH HINDUSTAN LEVER LTD O R HANDLE ANY FILM ADVERTISING BUSINESS TILL THE END O F 1975. IN CONSIDERATION OF THESE TERMS, BLAZE AGREED TO PAY T HE ASSESSEE A SUM OF 1,50,000/-. THE ASSESSEES CLAIM THAT THIS AMOUNT WAS A CAPITAL RECEIPT NOT LIABLE T O TAX WAS NEGATIVE BY THE INCOME TAX OFFICER BUT UPHELD BY TH E AAC AND THE TRIBUNAL. ON A REFERENCE ; HELD, THAT AS THE RECEIPT WAS REFERABLE TO THE RE STRICTIVE COVENANT, IT WAS A CAPITAL RECEIPT NOT LIABLE TO IN COME TAX 16. IN THE BACKGROUND OF ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT THE SUM OF 3,44,92,800/- RECEIVED BY THE ASSESSEE IN THIS CASE PURSUANT TO A RESTRICTIVE COVENANT AMOUNTS TO NON COMPETE FEE WHI CH ITA NO.966 & 1840/MDS/2005 :- 22 -: WAS NOT TAXABLE FOR THE RELEVANT ASSESSMENT YEAR. HENCE, WE SET ASIDE THE ORDER OF AUTHORITIES BELOW AND DEC IDE THE ISSUE IN FAVOUR OF THE ASSESSEE. SO CONSIDERING THE APPARENT FACTS, JUDICIAL DECISI ONS AND THE AMENDMENTS/ ACT, WE ARE OF THE OPINION THAT NON COM PETE FEE IS TAXABLE FROM THE ASSESSMENT YEAR 2003-2004 ONLY AND WE ALSO RELY ON DELHI HIGH COURT DECISION OF CIT VS. HCL INFOSYSTEM S LTD 385 ITR 35 (DELHI) WERE IT WAS HELD THAT DISMISSING THE APPEAL, THAT AS A RESULT OF THE TE RMINATION OF THE JOINT VENTURE AGREEMENT, A BUNDLE OF RIGHTS OF THE ASSESSEE WOULD STAND EXTINGUISHED, WHICH INCLUDED T HE RIGHT TO MANUFACTURE COMPUTERS USING HP KNOW-HOW AND HP LABELS, TRADE-MARKS AND PATENTS. AT THE SAME TIME, THE ASSESSEE'S RIGHT TO MANUFACTURE ITS OWN COMPUTERS WAS NOT TAKEN AWAY BY THE TERMINATION AND THAT STOOD REVIVE D. THE ASSESSEE'S INCOME EARNING APPARATUS WAS IMPAIRED AN D ITS SOURCE OF INCOME GOT STERILISED. THEREFORE, THE AMO UNT RECEIVED BY THE ASSESSEE UPON TERMINATION OF THE JO INT VENTURE AGREEMENT WAS IN THE NATURE OF A CAPITAL RE CEIPT. TILL APRIL 1, 2003, THERE WAS NO PROVISION UNDER WHICH THE CAPITAL GAINS ARISING FROM THE TRANSFER OF A TRADE-MARK OR BRAND NAME ASSOCIATED WITH A BUSINESS COULD BE BROUGHT TO TAX. SIMILARLY, THE CAPITAL GAINS ARISING FROM THE TRANSFER OF A RI GHT TO CARRY ON BUSINESS OR NEGATIVE NON-COMPETE RIGHT ALSO COULD NOT BE BROUGHT TO TAX AT THE RELEVANT TIME. THE AMENDMENTS WERE PROSPECTIVE IN NATURE. THUS THE RECEIPT OF 6080.95 LAKHS BY THE ASSESSEE AS A RESULT OF THE TERMINATIO N OF THE ITA NO.966 & 1840/MDS/2005 :- 23 -: JOINT VENTURE AGREEMENT WAS A CAPITAL RECEIPT, AND IN THE LIGHT OF SECTION 55(2)(A) OF THE ACT AS IT STOOD AT THE RELEVANT ASSESSMENT YEAR 1998-99, THE AMOUNT COULD NOT BE BROUGHT TO CAPITAL GAINS TAX. AND THE PRESENT ASSESSMENT YEAR OF THE ASSESSEE C OMPANY IS ASSESSMENT YEAR 2001-02 AND THE PAYMENT OF NON COMP ETE FEE CANNOT BE TAXED AND WE UPHOLD THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS GROUND AND DISMISS THE GROUND OF THE REVENUE. 6 THE LAST GROUND RAISED BY THE REVENUE THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE ADDITION OF =3,36,262/- TOWARDS TEMPLE MAINTENANCE. 6.1 THE LD. ASSESSING OFFICER IN THE SCRUTINY ASS ESSMENT FOUND THAT THE ASSESSEE COMPANY HAS CLAIMED =3,36,262/- AS TEMPLE EXPENSES INCLUDED UNDER EMPLOYEES WELFARE AND WAS DISALLOWED BEING NOT RELATING TO ASSESSEES BUSINESS. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INC OME TAX (APPEALS). 6.2 IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISE D REPRESENTATIVE EXPLAINED THAT INSIDE THE FACTORY PR EMISES THERE IS A ITA NO.966 & 1840/MDS/2005 :- 24 -: TEMPLE COMPLEX WITH DEITIES AND HAVING ENTRANCE FR OM INSIDE AND OUTSIDE FACTORY. THE TEMPLE WAS CONSTRUCTED AFTER THE FACTORY WAS SETUP WHICH IS MORE THAN THREE DECADES AND THE EM PLOYEES FREQUENTLY VISIT THE TEMPLE AND WAS UNDER DIRECT CO NTROL OF MANAGEMENT OF THE COMPANY. THE MAINTENANCE EXPEN SES ARE MET BY ASSESSEE COMPANY AND FURTHER EMPLOYEES PARTICIPA TING IN TEMPLE ACTIVITIES SHALL GIVE THEM IMMENSE SATISFACTION AND PEACE BY ENGAGING IN PRAYER WHENEVER THEY HAVE TIME AND CULTURAL AC TIVITIES ARE CONDUCTED FOR THE WELFARE OF THE EMPLOYEES. THE LD . COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE FINDINGS OF THE LD. ASSESSING OFFICER AND THE SUBMISSIONS OF THE ASSESSEE COMPAN Y AND FURTHER FOUND THAT THE STAFF WELFARE EXPENSES ARE ALLOWED A S BUSINESS EXPENSES U/S.37(1) OF THE ACT AND RELIED ON THE OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF ATLAS CYCLE INDUSTRIES LTD VS. CIT 143 ITR 458 (P & H) AND GUJARAT HIGH COURT IN THE DECISION O F COMMERCIAL AHMEDABAD MILLS CO. LTD VS. CIT 204 ITR 505 (GUJ)AND DELETED THE ADDITION. AGGRIEVED BY THE ORDER, THE REVENUE FILE D AN APPEAL BEFORE TRIBUNAL. 6.3 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT SUCH EXPENSES ARE ALLOWED ONLY FOR CARRYING OUT TH E BUSINESS AND ITA NO.966 & 1840/MDS/2005 :- 25 -: EXPENSES INCURRED ON TEMPLE AUTHORITIES DOES NOT RE LATE TO ASSESSEES BUSINESS AND PRAYED FOR DELETING THE ADDITION. 6.4 CONTRA, THE LD. AUTHORISED REPRESENTATIVE RELIE D ON THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND VEHEMENTLY OPPOSED THE GROUNDS. 6.5 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORD AND JUDICIAL DECISIONS. THE LD. DEPARTMENTA L REPRESENTATIVE CONTENTION THAT TEMPLE EXPENSES ARE NOT RELATED TO ASSESSEES BUSINESS AND CLAIM UNDER EMPLOYEES WELFARE IS NOT ALLOWABLE . THE EXPLANATIONS OF THE LD. DEPARTMENTAL REPRESENTATIVE CANNOT BE A CCEPTED AS THE COMPANY INCURS EXPENDITURE IN MAINTAINING THE TEMPL E WERE THE EMPLOYEES ATTEND THE TEMPLE TO HAVE SPIRITUALITY, IMPROVE MORAL THINKING, OBTAIN PEACE AND INDIRECTLY IF THE EMPLO YEES ARE SOUND, MOTIVATED AND HEALTHY WITH SPIRITUAL DEEDS THERE I S FEEL GOOD FACTOR WHILE WORKING FOR THE ASSESSEE COMPANY AND IN RET URN IT INCREASES THE EFFICIENCY PRODUCTIVITY AND USAGE OF MANPOWER IN THE COMPANY ACTIVITIES AND SUCH EXPENSES ARE WHOLLY AND EXCLUSI VELY INCURRED TO HAVE INDIRECT BENEFIT TO THE COMPANY. WE ARE OF TH E CONSIDERED VIEW THAT CONSIDERING THE APPARENT FACTS, THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY DEALT ON THIS ISSUE AND ALSO RELIED ON THE ITA NO.966 & 1840/MDS/2005 :- 26 -: JUDICIAL DECISIONS, WHICH WE ARE NOT INCLINED TO IN TERFERE AND UPHOLD THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) O N THIS GROUND. THE GROUND OF THE REVENUE IS DISMISSED. 7 THE APPEAL OF THE REVENUE IN ITA NO.966/MDS/2005 IS PARTLY ALLOWED. 8 NOW, WE TAKE UP ITA NO.1840/MDS/2005 OF ASSESSMENT YEAR 2001-2002:- THE SOLE SUBSTANTIVE GROUND RAISED BY T HE DEPARTMENT BEING PAYMENT OF NON COMPETE FEE OF =1 CRORE BY M/S. AL STOM INSTRUMENT TRANSFORMERS (P) LTD ON TAKING OVER OF ASSETS. 8.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE COMPANY IS ENGAGED IN MANUFACTURER OF CONDENSER BUSTINGS, ARC CHAMBERS, LIGHTNING ARRESTERS, VARISTOR BLOCKS ETC AND FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2001-02 ON 31.10.2001 WITH TOTAL IN COME OF =26,26,600/- AND CALCULATED TAX LIABILITY U/S.115JB OF THE ACT. THE RETURN OF INCOME WAS PROCESSED U/S.143(1) OF THE ACT. SUB SEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED. AS PER THE SCHEME OF AMALGAMATION OF M/S. W.S. INDUSTR IES (INDIA) LIMITED, THE ASSESSEE COMPANY WAS AMALGAMATED WITH EFFECT FR OM 01.04.2001 VIDE JURISDICTIONAL HIGH COURT ORDER IN COMPANY PET ITION NO.130/2001 ITA NO.966 & 1840/MDS/2005 :- 27 -: DATED 11.12.2002, THE ASSETS AND LIABILITIES ARE TR ANSFERRED TO THE PURCHASER M/S. ALSTOM INSTRUMENT TRANSFORMERS (P) L IMITED AS PER AGREEMENT ENTERED IN RESPECT OF BUSHING DIVISION AT BANGALORE. THE ASSESSEE HAS ENTERED INTO ASSETS PURCHASE AGREEMENT AND NON COMPETE FEE AGREEMENT OF =1 CRORE SEPARATELY. THE LD. ASS ESSING OFFICER MADE ADDITION OF =1 CRORE OF NON COMPETE FEE AS TAXABLE . AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSI ONER OF INCOME TAX (APPEALS). 8.2 IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSI ONER OF INCOME TAX (APPEALS) DELETED THE ADDITION MADE BY T HE LD. ASSESSING OFFICER. AGGRIEVED BY THE ORDER, THE REVENUE HAS AS SAILED AN APPEAL BEFORE TRIBUNAL. 8.3 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORDS AND JUDICIAL DECISIONS. WE HAVE DECIDED SI MILAR ISSUE IN ITA NO.966/MDS/2005 OF ASSESSMENT YEAR 2001-2002 OF M/ S. W.S. INDUSTRIES (INDIA) LTD AT PARA 5.5 AND ACCORDINGLY, NON COMPET E FEE IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE AND THE GROUND OF THE REV ENUE IS DISMISSED. 9 THE APPEAL OF THE REVENUE IN ITA NO.1840/MDS/2005 F OR ASSESSMENT YEAR 2001-2002 IS DISMISSED. ITA NO.966 & 1840/MDS/2005 :- 28 -: 10 IN THE RESULT, THE APPEALS OF THE REVENUE IN ITA NOS.966/MDS/2005 IS PARTLY ALLOWED AND ITA NO. 1840 /MDS/2005 IS DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 8TH DAY OF S EPTEMBER, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ) (G. PAVAN KUMAR) / JUDICIAL MEMBER / CHENNAI 0 / DATED: 08.09.2016 KV 1 ( *',23 43%, / COPY TO: 1 . &' / APPELLANT 3. 5, () / CIT(A) 5. 389 *',' / DR 2. *+&' / RESPONDENT 4. 5, / CIT 6. 9:$ ; / GF