TaxTMI 
TaxTMI 
2006 (12) TMI 262
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....ments were made within the grace period. If so paid, it may be allowed. Coming to the employer's contribution, Tribunal is taking the view constantly that if the payment is made within (beyond) the year but before the due date for filing the return, to this extent assessee's claim is to be allowed. Assessing Officer may verify the date of payment. If it is found that it is paid within (beyond) the year but before the due date for filing the return, to that extent employer's contribution may be allowed. Order accordingly. 4. The third ground of objection by the assessee is directed against the order of the CIT(A) in confirming the disallowance of Rs. 32,328/- being payment made to clubs for availing the facilities and services of the clubs. 5. Considering the rival submissions and also the decisions cited, particularly the decision of the jurisdictional High Court in the case of Otis Elevator Co. (India) Ltd. v. CIT [1992] 195 ITR 682 (Bom.); Hon'ble Gujarat High Court in the case of Gujarat State Export Corporation Ltd. v. CIT [1994] 209 ITR 649 and Hon'ble Madras High Court in the case of CIT v. Sundaram Industries Ltd. [1999] 240 ITR 335 (Mad.); we are of the view that ther....
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....ss amount of marketing receipts allocated to various units as certain expenses have been incurred for earning these receipts and these expenses should be allocated to marketing receipts. In other words, it was contended, only net marketing receipts should be reduced from the profits of the new industrial undertaking while computing the profits derived from the new industrial undertakings for the purpose of deduction under section 80HH. Aggrieved by the above order assessee is in appeal before the Tribunal. 9. The facts leading to the dispute, briefly narrated, are as under : Assessee had two new industrial undertakings at Lote Parshuram, Taluka Khed, District Ratnagiri, a backward area in the State of Maharashtra. While computing the profits derived from the new industrial undertakings, assessee claimed deduction under section 80HH, including the marketing receipts amounting to Rs. 34,25,032/- and interest at Rs. 67,482/-. While computing the profits of the new industrial undertakings, Assessing Officer excluded the gross marketing receipts and interest received and proportionately allocated expenses incurred at research and development unit at Govindi at Rs. 75,70,059/....
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....ings at Lote Parshuram and the research and development unit at Govandi are independent and separate. The expenditure incurred in the research and development unit does not reduce the profits of the new industrial undertakings in any way. Rather, this expenditure is relatable to the business carried on by the assessee in general. In fact, the research and development work is done to develop new products for promoting the future business of the assessee. The results of research activity at the research and development work is done to develop new products for promoting the future business of the assessee. The results of research activity at the research and development unit cannot be presumed to be automatically utilised in the new industrial undertakings. In any case, no new product was manufactured in the eligible units, which emanated as a result of research and development activities of the assessee-company at least during the relevant previous year. Relying upon the decision of the Hon'ble Madras High Court in the case of Bush Boake Allen (India) Ltd. v. Asstt. CIT [2005] 273 ITR 152 , learned counsel submitted, were there was no research and development expenses pertaining to t....
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....by the assessee. He further submitted that the profits should be derived from the business, which would be the subject-matter of exemption and there must be profits out of the business carried on by the assessee and the expression "profits" used in the section connotes positive profit earned from the business alone, which can be the subject-matter of exemption. Hence, learned Departmental Representative submitted, the claim of the assessee is liable to be rejected. 14. We have heard the rival submissions and gone through the orders of the Revenue authorities and the decisions cited. The deduction under section 80HH is granted to an industrial undertaking on profits and gains derived by an industrial undertaking. The term "derived from" is narrower than the term "attributable to" as settled by the decision of the Hon'ble Supreme Court in the case of CIT v. Sterling Foods [1999] 234 ITR 5791, therefore, it is only the profits of an industrial undertaking which are eligible for deduction under section 80HH. The assessee may be engaged in multiple business activities and the profits from such activities cannot become eligible for deduction under section 80HH merely because these are....
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....s. 19. The issue raised in ground No. 8 is regarding CIT(A)'s direction to the Assessing Officer to reduce 90 per cent of marketing receipts as reduced by proportionate salary on field staff and other expenses related while computing profits of business in accordance with clause (baa) of Explanation to section 80HHC of the Act. 20. This issue has been dealt with by the assessment order vide para 7 of his order, observing as under : "The assessee-company had not claimed deduction under section 80HHC in the return of income as the business income was less than 90 per cent of interest received. This fact has been stated in the covering letter filed with the return of income. However, on the presumption that after completion of the assessment, the assessed business income would be positive, the assessee-company submitted Form 10CCAC duly certified by the auditor. The auditor has quantified NIL deduction on the basis of the returned income. In the note submitted along with the statement of deduction under section 80HHC, the assessee-company has stated that on completion of assessment deduction under section 80HHC should be computed on the basis of assessed income. However....
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....ven hereinabove vide paras 11, 12 and 13 of our order, is also part of the arguments in support of ground No. 8. As such, these arguments have not been repeated. Learned counsel invited our attention to clause III, i.e., the object for which the company is established, particularly item (12), which is already reproduced hereinabove vide para 12 of our order. Learned counsel submitted, the memorandum of association expressly provides that one of the objects of the company is to undertake sales and distribution agencies for the products of other concerns. Thus the marketing receipts are very part of the operational income of the assessee. Hence, learned counsel submitted, CIT(A) went wrong in directing the Assessing Officer to reproduce the profits of the business by 90 per cent of the net marketing receipts for the purpose of computing deduction under section 80HHC of the Act. Learned counsel submitted, the order of the CIT(A) is to be modified to this extent. 24. The learned Departmental Representative, on the other hand, supported the order of the CIT(A). 25. We have heard the rival submissions, gone through the orders of the Revenue authorities and the decisions cited by th....
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....the fact that the alleged enduring benefit was in the revenue field and that the period of 5 years was long in a company's life. It is also the case of the assessee that the CIT(A) erred in holding that part of the payment made to M/s Lyka Labs Ltd. was attributable to parting with the marketing information being in the nature of capital asset and that the expenditure attributable thereto was of capital nature. Without prejudice to above, it is the case of the assessee that the CIT(A) having held that marketing information was capital asset akin to know-how, he ought to have allowed depreciation on the amount of Rs. 6 crores being cost of information. It is also the case of the assessee that the CIT(A) went wrong in enhancing the income of the assessee by withdrawing deduction of Rs. 1,00,00,000/- allowed under section 35AB of the Act. 29. Assessing Officer noticed, during the year under consideration, assessee started marketing of formulations based on Nitroyglycerine. Assessee paid an amount of Rs. 6 crores to M/s Lyka Labs Ltd. towards supply of marketing information, clinical data, scientific details in respect of formulations based on bulk Nitroglycerine. Out of total amoun....
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.... before the CIT(A) that the know-how obtained by the assessee is not covered under section 35AB. The know-how covered under section 35AB is industrial information or technique that is likely to assist in manufacture or processing of goods. The information, which assists in the marketing of products in the initial stages, is not know-how contemplated or covered by the provisions of section 35AB. The entire expenditure incurred, it was submitted, is of revenue nature and accordingly to be allowed. 32. CIT(A) agreed with the assessee that the know-how covered by section 35AB does not cover the information with regard to marketing of products in the initial stage. On going through the agreement entered into with M/s Lyka Labs Ltd., CIT(A) observed, the information which is to be passed on to the assessee under the agreement in no way assist the manufacture or processing of goods. CIT(A) however held, though allowing deduction to the assessee under section 35AB was not correct, at the same time he held, this expenditure did not appear to be of revenue nature either, particularly in view of clause 4 and 8 of the agreement between the parties. He held, the expenditure is of capital in ....
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.... made by the assessee is in the nature of capital expenditure. He held, firstly, the payment was for passing certain information to the assessee, which cannot be passed on to a third party. CIT(A) held, this is of capital nature. Assessee contended before the CIT(A) that the restriction not to compete or to pass the information for three years or five years cannot be treated as long-term benefit. For the above proposition, assessee relied upon the decision of the Hon'ble Madras High Court in the case of CTT v. G.D. Naidu [1987] 165 ITR 63 . Assessee further relied upon the decision of the Hon'ble Supreme Court in the case of CTT v. British India Corpn. Ltd. [1987] 165 ITR 51 (SC), wherein the Hon'ble Supreme Court held, seven years is not a long time and allowed the expenditure as revenue character. Assessee also relied upon the decisions of the Hon'ble Supreme Court in the case of CTT v. Best & Co. (P) Ltd. [1966] 60 ITR 11 (SC) and in the case of Gillinders Abruthnot & Co. Ltd. v. CIT [1964] 53 ITR 283 (SC). Regarding the nature of expenditure for obtaining the marketing information, assessee relied upon the following decisions : (i) CIT v. Service Station Equipment (P) ....
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....ng Works Ltd. v. CIT (1971) 81 ITR 273 (Bom)]." The CIT(A) held that the payment made to M/s Lyka Labs Ltd. by way of non-compete fee is capital expenditure and five years is sufficient to hold as long period and the benefit as enduring nature. In support of the view that five years is a long period, CIT(A) relied upon the decisions in the case of CIT v. Hindustan Pilkington Glass Works [1983] 139 ITR 581 (Cal.); Assam Bengal Cement Co. Ltd. v. CIT (1955) 27 ITR 34 (SC) and CIT v. Coal Shipments (P) Ltd. (1971) 82 ITR 902 (SC). Thus, he held that part of the payment is attributable to non-compete agreement and is capital in nature. 36. Coming to other part of the payment, such as parting of marketing information, CIT(A) held that M/s Lyka Labs Ltd. invested substantial resources for generating the information. The information that M/s Lyka Labs Ltd. parted therefore is capital asset. He further considered the fact that the assessee started marketing formulations based on Nitroglycerine during this period. Thus the information obtained by the assessee altogether is for new product. He has further taken note that M/s Lyka Labs Ltd. undertook not to disclose information to any t....
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....submitted, by this the assessee is only trying to increase the business by expanding its existing business. Assessee is already in this field. Assessee was manufacturing Nitroglycerine, which is similar business, for which agreement is also entered into. Learned counsel submitted, inviting our attention again to paper book p. 8, cl. 1 of the agreement, wherein it is stated that Lyka shall supply and provide to the assessee clinical data, scientific details reports on clinical trials carried on by Lyka in the past few years, valuable market information more particularly set out in the schedule thereto as 'scientific and marketing know-how'. It is for this the assessee paid Rs. 6 crores and not for non-compete clause. Learned counsel repeated, assessee is already in the field of manufacturing Nitroglycerine, in other words, assessee is already in this line of business and is trying to expand the market, for which purpose the payment is made. Relying upon the 'decision of the Hon'ble Supreme Court in the case of Alembic Chemical Works Co. v. CIT (1980) 77 CTR (SC) 1: (1989) 177 ITR 377 (SC) learned counsel submitted, the decision of the CIT(A) is liable to be reversed, as the facts in....
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....considered as capital or revenue nature, fairly comprehensively. To stress the point, learned counsel particularly brought our attention to the following observation of the Tribunal : "What is relevant in determining whether an expenditure is of capital or revenue nature is the purpose of the outlay and its intended object and effect, considered in a common sense way having regard to business realities. The test of enduring benefit is not a certain or conclusive test and cannot be applied mechanically without regard to the particular facts and circumstances of a given case. It is not every advantage of enduring nature acquired by an assessee-that brings the case within the principle laid down in the enduring benefit test; what matters is the nature of the advantage in a commercial sense, and it is only where the advantage is in the capital field that the expenditure would be on capital account. If the advantage consists of merely facilitating the assessee's trading operations or enabling the management or conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue acc....
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.... because its payment is spread over a number of years. It is the intention and object with which the asset is acquired, that determines the nature of the expenditure incurred over it, and not the method or the manner in which the payment is made, or the source of such payment. If the expenditure is recurring and is incurred during the course of business or manufacture, it would be revenue expenditure. Simply because the payment in the hands of the recipient has been considered a capital receipt, it is not necessary that in all cases it will have the same character in the hands of the person who has made the payment and vice versa. It is the true nature of the expenditure that is relevant and not the name or description or treatment given to it by the assessee in his books of account or other documents." 40. Learned counsel submitted, assessee was having the knowledge of manufacturing of products, i.e. to say, formulations based on bulk drug Nitroglycerine. As per the agreement, M/s Lyka Labs Ltd. was only to supply to the assessee the clinical data, reports on clinical trials, other scientific details in respect of formulations, source of manufacture of formulations, statewise l....
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....rs; whereas in the instant case of the assessee it is less than 1/3 of the period with regard to disclosure of information. Relying upon the decision of the Hon'ble Gujarat High Court in then case of CIT v. Power Build Ltd. [2000] 244 ITR 19 1 (Guj.), learned counsel submitted, even if the assessee obtained an advantage of enduring nature, since the assessee is already in the same line of business and ventured into any new unit engaged in manufacturing and the advantage or benefit even if acquired is for facilitating the existing business, the expenditure cannot be treated as capital but it is only revenue expenditure. He particularly relied upon the following observation of the Hon'ble High Court : "The assessee, carrying on business of manufacturing various types of motors and weighing machines, was assessed for the assessment year 1979-80. Before the Assessing Officer, the copy of the agreement, dated 31st March, 1976, was filed. The said agreement as thereafter amended on 3rd March, 1977. In view of the original agreement, the assessee company was under obligation to return the books, technical data capers, drawings relating to the products authorised to be manufacture....
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....iture is for expanding the already existing field and it is therefore revenue expenditure. 44. Further, relying upon the decision of the Hon'ble Madras High Court in the case of CIT v. Simpson & Co. Ltd. (1999) 239 ITR 83 learned counsel submitted this was a case wherein the assessee claimed a sum of Rs. 20,56,956/- representing a lump sum payment to its foreign collaborator towards import of technical know-how documentation relating to a new three cylinder diesel engine. Assessing Officer held that the amount paid was capital as the assessee had the benefit of technical know-how indefinitely for the reason that for the first ten years this technical know-how will be assessee's exclusive domain and there was no restriction even for the use of know-how beyond the period of ten years. CIT(A) accepted assessee's claim. Learned counsel submitted, in this case the Hon'ble High Court held that the agreement is entered into for the purpose of running the business more profitably and effectively and with a view to yield profit to the assessee in the already existing field; as such the payment should be regarded as revenue in nature. Coming to the instance case, learned counsel submitted....
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.... Japanese company, for obtaining technical know-how for the manufacture of precision tools such as hobs, gear shaper cutters, broaches, shaving cutters, etc. Assessee's claim of revenue expenditure was disallowed by the Assessing Officer. Hon'ble High Court held that the collaboration was in the field of existing business; as such the payment to be treated as revenue expenditure. Learned counsel also relied upon the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT v. Venkateswara Hatchery (P) Ltd. (1997) 227 ITR 116 2 the same proposition. In this case the Hon'ble High Court held : "what is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowed. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of assessee's business more efficiently or more profitably, leaving the fixed capital untouched, the expenditure would be treated under revenue account and not otherwise". Learned counsel also relied upon the decision of the Hon'ble Madras High Court in the case of CIT v. Aquapump Ind....
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....The further circumstance that the agreement pertained to a product already in the line of the appellant's established business and not to a new product indicated that what was stipulated was an improvement in the operations of the existing business and its efficiency and profitability not removed from the area of the day-to-day business of the appellant's established enterprise. The financial outlay under the agreement was for the better conduct and improvement of the existing business and was revenue in nature and was allowable as a deduction in computing the business profits of the appellant." "It would be unrealistic to ignore the rapid advances in research in antibiotic medical microbiology and to attribute a degree of endurability and permanence to the technical know-how at any particular stage in this fast changing area of medical science. The state of the art in some of these areas of high priority research is constantly updated so that the know-how could not be said to bear the element of the requisite degree of durability and non-ephemerality to share the requirements and qualifications of an enduring capital asset. The rapid strides in science and technology in t....
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....ted to the operation of working of the looms which constituted the profit-making apparatus of the assessee and this was expenditure laid out for profit increasing. It was part of the cost of operating, Hon'ble Supreme Court held. 48. Learned counsel submitted, in the instant case of the assessee the facts are very similar. Prior to entering into agreement with M/s Lyka Labs Ltd., assessee was in the pharmaceutical business and was actually manufacturing the bulk drug Nitroglycerine. Assessee already had the knowledge of manufacture of formulations based on Nitroglycerine. It did not enter into the agreement with M/s Lyka Labs Ltd. for venturing into a new business. The agreement basically provided that M/s Lyka Labs Ltd. would furnish marketing know-how primarily to the assessee. The non-compete clause for five years was inserted into the agreement to enhance profitability of the products of the assessee because if M/s Lyka Labs Ltd. uses the know-how to manufacture identical products, the profitability of the assessee's products would definitely suffer due to inevitable competition. Learned counsel submitted, it is not a fact that by virtue of this agreement the assessee would ....
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.... does not make the expenditure one of capital nature. (g) The advantage gained by acquiring technical knowledge could not be regarded as of enduring value due to fast changing technology, especially in the pharmaceutical field. The rapid strides in science and technology in the field should make us a little slow and circumspect in too readily pigeonholing an outlay as capital. (h) The products cannot be new for all time to time (come), as the novelty attached to the new product would wane and the tag of newness of the products would wear off after some years of production. So just because the know-how is utilised for an indefinite period for making a product hitherto not made by the assessee, it cannot be said that the expenditure incurred for the said know-how is capital expenditure. (i) The limitations placed in an agreement on the right of the appellant in dealing with the know-how and the conditions as to non-disclosure of the know-how, pertains more to the use of the know-how than to its exclusive acquisition. (j) The expenditure incurred in connection with an agreement to ward off competition, irrespective of the duration of enforceability ....
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....capital expenditure. Assessee paid further Rs. 11,000/- and Rs. 3,000/- for survey report on extra melkral alcohol. Assesses wanted these reports to put to a better use its by products, viz., molasses. Assessee was not producing any alcohol during the period. Assessing Officer treated this also as capital expenditure. Tribunal confirmed the view of the Revenue authorities. The Hon'ble High Court on further appeal confirmed the decision of the Tribunal. 52. In reply, learned counsel distinguished the facts and contended that the assessee had the knowledge of manufacturing the products, i.e. formulations based or bulk drug Nitroglycerine "arid the assessee was only at the most trying to obtain the latest technology and was trying to expand its market viability. Learned counsel submitted, this in fact supports assessee's case. 53. Who have heard the rival submissions, gone through the orders of the Revenue authorities and the decisions cited by the' contending parties. We are of the view that the appeal by the assessee on this ground is liable to be allowed. From the facts narrated above, it is seen that the assessee was already in the field of producing bulk drugs and pharmaceu....
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....keting know-how possessed by M/s Lyka labs Ltd vide agreement dated 20th January, 1998. The scientific and marketing know-how to be provided by M/s Lyka Labs Ltd. consists of the following : "5. Lyka shall not disclose-to any third party any information pertaining to business of USV which comes in its possession in the course of discharging its obligations hereunder unless the same is in public domain. Schedule referred to above Scientific and marketing know-how. (a) Clinical data, scientific details and reports on clinical trials carried out by Lyka in respect of the formulations based on the bulk drug Nitroglycerine. (b) Source of manufacture of formulations from the bulk drug Nitroglycerine. (c) Break-up of statewise list of wholesalers, stockists and dealers of the formulations. (d) Break-up of statewise sales of formulations for last 5 years. (e) Break-up of statewise list of specialists, doctors, cardiologists and institutions as shortlisted by Lyka with respect to the formulations referred to in the above agreement. (f) Visual aid designs, copies of promotional material used." The assessee and M/s Lyka L....
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....apital nature. In this regard, we would like to first mention that nature of expenditure has to be looked in the hands of the party who is inclining it and not the party, who is receiving it. It is not in dispute that the information generated by M/s Lyka Labs Ltd. by investing substantial resources is connected with the marketing of the products (as mentioned in the agreement), which necessarily implies the incurrence of expenditures of revenue nature such as salaries, travelling, collection of statistical data through various Government/business associations, trade associations, etc. All these expenses are basically of revenue nature and incurred in a regular course and as such are allowable. Hence, one time payment made by the assessee company to M/s Lyka Labs Ltd. does not alter the basic nature of these expenses particularly in the context of present business environment where various activities are being outsourced and various entities undertake such activities on contract basis or on its own and sell such informations and data like any other goods which can be used by other business entities as raw material or support services to carry out it's operations or expand it's acti....
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....nature. 59. The deductibility of the payment made by the assessee company can be viewed with another perspective. The scientific and market information has been generated by M/s Lyka Labs Ltd. by carrying out the scientific research and market research. Had this been carried out in-house, the amount excluding the amount spent on land and building and marketing information, the assessee would have been eligible for one and one-half times deduction thereon as per the provisions of section 35(2AB) of the Act. As per provision of this section, whatever amount the assessee would have spent on scientific research including clinical trials and approvals from competent authorities including the capital expenditure on plant and machinery would have been eligible for weighted deduction and the expenditure relating to marketing information and statistics would have been allowed under the normal provisions of the Act as such. 60. In view of the foregoing discussion, we are of the view that the decision of the learned CIT(A) is not correct in law and reverse the same and direct the Assessing Officer to allow the expenditure as revenue expenditure. 61. Coming to the next ground (ground ....
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....ies. On the death of Shri A.V. Gandhi, bitter quarrels ensued between the family members for acquiring/retaining the controlling interest of all the companies, including assessee company. After narrating the disputes between the parties, CLB passed an order dated 3rd April, 1998 and directed that both the orders dated 10th March, 1998 and 3rd April, 1998 should be read together. Para 8 of CLB's order dated 3rd April, 1998 has been reproduced by the Assessing Officer, which reads as under : "The family arrangement, the principal terms of which have been recorded by us effectively put to an end the extensive litigation between the parties/companies involved. The pendency of the Irrigation, adversely affected the reputation, inter alia, of USV, triggered false signals in the pharmaceutical industry, and, serious affected the business growth and prosperity of USV. We are satisfied that the money paid by USV and to be paid by USV is for the legitimate and genuine business reasons of USV." 63. On the basis of the above, Assessing Officer found that the finding of the CLB "the legitimate and genuine business reasons of USV" for parting with Rs. 12.06 crores (approximately) was....
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....otection of business of the assessee; as such this is not revenue expenditure but is one that need to be characterized as capital expenditure. Assessing Officer also relied upon the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Shiwalik Talkies Ltd. [1967] 63 ITR 83 (P&H), wherein the Hon'ble High Court held, the expenses incurred by the company to resist application to Court by shareholders under the relevant provisions of Companies Act questioning the appointment of the directors of the assessee company could not be considered as an expenditure laid out or expended wholly and exclusively for the purpose of business of the assessee company. He also relied upon the decision of the jurisdictional High Court in the case of Premier Construction Co. Ltd. v. CIT [1966] 62 ITR 176 (Bom.). In that case the tussle was between the shareholders against the Board of Directors. The shareholder filed a suit praying for declaration that the ruling of the President was illegal and invalid and subsequent resolutions passed at the meeting were also invalid and asked for relief by way of several injunctions restraining the company and its Board of Directors from giving ef....
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....ied on and carried on very well in spite of whatever disputes among the shareholders. The facts of the case do not display any cause and effect, relationship between the disputes and the business of the company as has been contended by the assessee. The inference therefore, cannot be avoided that the payment was made for purposes other than being laid out wholly and exclusively for the purpose of carrying on the business as mentioned under section 37(1) of the Act. The payment of Rs. 12,06,53,113/- was by the family members to the family members with objectives to which the assessee company and its business were total strangers. The companies having been family companies, (ii) the parties to the disputes being cognates (excepting one), Leena Gandhi Tewari and her husband having owned dominant shareholding in the assessee company through their dominance in the shareholding the American Products (P) Ltd. [(see para 10(c)(1) and ( ii)] before as well as subsequent to the orders of the CLB, (iii) the assessee company having recorded incremental growth during the subsistence of the disputes and, (iv) as concluded above, the facts of the case not disclosing any nexus between the impugned....
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.... could not appreciate the contention raised by the assessee. He held, in fact the litigation were for the division of family assets as apparently Leena and her husband Prashant could gain control over APCO and assessee company while the other family members, viz., mother and two daughters felt aggrieved that they were not given their due share in the family property. He held, this was pure and simply division of family assets, that is why the CLB order says that this was a family arrangement providing for distribution of assets. In regard to reliance place by the assessee for claiming deduction under section 37(1), CIT(A) held, Assessing Officer rightly referred to the decision in the case reported in Madurai District Central Co-operative Bank Ltd. v. ITO [1975] 101 ITR 24 (SC) to argue that it is settled law that IT Act is a permanent enactment and outside the IT law the decision does not affect the taxability or otherwise. For the above proposition, he also referred to the decision, of the Hon'ble Allahabad High Court in the case of Shailmdra Kumar v. Union of India [1989] 175 ITR 4941 CIT(A) held that the Assessing Officer was right in relying upon the decision of the jurisdicti....
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....riously affected and restricted its growth. Settlement was arrived at between the parties. Payment of Rs. 12.5 crores was ordered. Termination of tenancies in respect of certain premises, occupied by the assessee and cancellation of 900 shares of the assessee company held by Sheila Gandhi Rao and Sunita Gandhi was also ordered. It was further ordered by CLB that the disputing parties will not have any further claim of any sort against the assessee company. Settlement was claimed as deduction from the business income inasmuch as it was for the development of business of the assessee and the dispute inevitably causing some adverse publicity in the market was settled sooner than later. CLB observed vide its order dated 3rd April, 1998 : "the pendency of the litigation, adversely affected the reputation, inter alia, of USV, triggered false signals in the pharmaceutical industry, and seriously affected the business, growth and prosperity of USV. We are satisfied that the money paid by USV and to be paid by USV is for legitimate and genuine business reasons of USV". However, Assessing Officer disallowed the claim of the assessee mainly for the reasons stated below : (a) The paym....
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....ate the entire facts. The defendants' side of the story never finds place in such plaints. Normally, in such circumstances only distorted picture far away from the reality is reflected. Unless the other side of the story is also recorded, the truth cannot be arrived at. The same happened in the instant of the assessee as well and the Department appreciated only one side. 72. Vide para 7.6 of the assessee's written submission, it is submitted that around 1993-94, some of the shareholders of the assessee company, its holding company (APCO) and. some other associate companies (VP and VO) commenced various legal proceedings before various legal forums like City Civil Court, Hon'ble Bombay High Court and CLB. There were also litigations before the CLB, Principal Bench, New Delhi in petition Nos. 63 and 64 of 1993, No. 3 of 1994 and No. 43 of 1996. It is in petition Nos. 63 of 1993 that the assessee was impleaded in the proceedings before the CLB by the petitioners by riling an application dated 4th February, 1998 under regulation 44 of CLB (Regulation) Procedure, 1988, making various unsubstantiated allegations against the assessee, in order to bring its name into disrepute, like the....
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....actising doctor, neither had time nor inclination or expertise to dabble into company management and the younger two daughters were still students. The elder daughter and her husband were well qualified company managers possessing foreign qualifications and knowledge in their chosen field. After their joining, the companies prospered like never before, till the litigations in 1993. Assessing Officer states that even after the death of Shri A.V. Gandhi and before settlement of the dispute, the company was not adversely affected. But what he probably meant is that the profit-making capacity of the company did not diminish inspite of the litigations. What the Revenue failed to appreciate is that during this intervening period the growth and development of the company had come to a standstill. Between 1994 and 1998 the assessee company could not take up any ambitious plans to expand its business and increase, profitability, 74. Leamed counsel submitted, prior to commencement of litigation, two plants at Lote Parshuram near Chiplun, Maharashtra; one for manufacture of formulations and the other for manufacture of bulk drugs were set up by the assessee. During this period of litigatio....
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....major R&D Labs at Govandi, viz., Analytical Research Laboratory, Molecular Medicine Research Laboratory, Drug Delivery Research Laboratory and Chemical Process Research Laboratory. 75. Learned counsel further submitted, since the order of CLB in 1998, assessee has been able to successfully expand and get international recognition as well as enter into new contracts/collaborations. For example : (b) Assessee entered into agreement for procurement of SAP user license, which is internationally acclaimed business software. The agreement was signed on 15 day of December, 1997 and implemented the said agreement from financial year 1998-99 onwards. Assessee was ranked 3rd in the pharmaceutical industry to implement SAP. (c) Assessee set up a state of the art formulations plant at Daman in October, 2001. (d) Licencing agreements entered into with B-Brown for Glucometer. (e) Assessee obtained following certificates from various foreign authorities regarding manufacturing facilities at Chiplun : (i) European Directorate for the quality of medicines regarding Metformin Hydro chloride, Glibenclamide and Ticlopidine Hydrochloride, (ii) Th....
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....e above, learned counsel submitted, the orders of the Revenue authorities are liable to be set aside. 78. An support of assessee's contention that the litigation expenses incurred to protect the business of the assessee is revenue expenditure as against the litigation expenses incurred for the purpose of creating, curing or completing assessee's title to the capital is capital expenditure, reliance was placed upon the decision of the Hon'ble Supreme Court in the case of Dalmia Jain & Co. Ltd. v. CIT [1971] 81 FTR 754. Learned counsel, again brought our attention to the decision of the Tribunal, Mumbai Bench in the case of Echjay Industries Ltd. v. CIT [2002] 257 FTR 1 (Mumbai)(AT). In this case the Tribunal held that the expenditure incurred out of business expediency like settling the feud between the majority and minority shareholders does not increase the capital of the assessee and such expenditure could only be treated as wholly and exclusively incurred in the course of carrying on of the business and therefore it was deductible. Learned counsel further relied upon the decision of the Hon'ble Delhi High Court in the case of South Asia Industries (P) Ltd. v. CTT [1981] 132 I....
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.... rival submissions, gone through the orders of the Revenue authorities and the decisions cited by the contending parties. First we will take up the contentions of the Revenue that the litigations were in fact only division of family assets and for controlling of the business of the assessee. Considering the facts and circumstances of the case and the dispute between the contending parties, CLB has already given a finding in its order that the pendency definitely affected the reputation and gave false signal in the pharmaceutical industry and seriously affected the growth and prosperity of the assessee company. Even if the starting point of the dispute is controlling of the assets, these findings of the CLB cannot be discarded out of context. The facts brought on record clearly show, as we have mentioned in para 70 of the order that the assessee was ranking 23rd in December, 1994. Subsequently from December, 1995 to December, 1998 it was lagging somewhere between 30 to 36. In December, 1999, immediately after the settlement, its rank went up to 23 and by April, 2000, it was 19, which itself shows that the settlement has taken the assessee out of the trouble period. The contention of....
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....S. Mohan Lai v. R. Kondiah AIR 1979 SC 1132, which reads as under : "It is not a sound principle of construction to interpret expressions used in one Act with reference to their use in another Act, more so if the two Acts in which the same word is used are not cognate Acts. Neither the meaning nor the definition of the term in one statute affords a guide to the construction of the same term in another statute and the sense in which the term has been understood in the several statutes does not necessarily throw any light on the manner in which the term should be. understood generally. On the other hand, it is a sound, and indeed, a well known principle of construction that meaning of words and expressions used in an Act must take their colour from the context in which they appear." From the above it is clear that their Lordships observed that for interpretation of the meaning of the words and expressions used in one Act may not have the same meaning in another Act. It is not to say that the facts found out by a competent authority cannot be taken at all into consideration, to arrive at the 82. Coming to the decision relied upon by the Revenue authorities in the case M....
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....the purpose of carrying on its business." Coming to the instant case of the assessee, the facts are distinguishable. Had the dispute not settled, the continuance of business of the assessee itself would have jeopardized. 84. The decision of the jurisdictional High Court, relied upon by the learned CIT(A), in the case of Premier Construction Co. Ltd. (supra) is also distinguishable on facts. This was a case wherein a dispute arose between the directors of the company and its shareholders. Their lordships held that the company is not justified in claiming the expenses incurred by it in the said litigation as expenses of its business. However, their Lordships further held : "In order that the expense of a civil litigation could be permissible as an expense wholly and exclusively laid out for the purpose of the business of the assessee, the expense must have been incurred by the assessee in its character as a trader and the transaction in respect of which the proceedings were taken must have arisen out of, or must have been incidental to, the assessee's business. An assessee could be said to have incurred the expenditure In his character as a trader if the litigation was necessary t....