TaxTMI 
TaxTMI 
2010 (7) TMI 685
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....etition agreement appellant acquired benefit of enduring nature and, as such, the expenditure was capital expenditure. 2. That on the facts and circumstances of the case and in law, the CIT(A) erred in upholding the addition of Rs. 39,90,120 being the fee paid to Registrar of Companies. 3. That on the facts and circumstances of the case in law, the CIT(A) erred in upholding disallowance of Rs. 20,00,000 being professional fee paid to the Architect. 3.1 That without prejudice and in alternative, CIT(A) erred in not allowing benefit of depreciation though the fee paid to Architect was in connection with acquisition of capital asset." 2. Accordingly the present appeal was fixed for hearing before Spl. Bench. M/s Hind Coca Cola Beverages P. Ltd., Gurgaon through ITA No. 1890/D/07 and M/s Reed Elsevier through ITA No. 4297/D/07 have joined as interveners as in these appeals the question regarding non-compete fees is involved. 3. Facts in the case of Tecumseh India P. Ltd. (ITA No. 3759/D/03): - These facts as emerged from the assessment order, order of CIT(A) and from the documents enclosed in the paper books are that the assessee is wholly owned subs....
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....ct to acquisition proceedings and purchase of the same will be subject to those acquisition proceedings and then in clause 3 it is stated about the amount to be paid as "purchase price" and the total consideration has been referred to as the purchase price of the compressor division assets which were described in article 1 and the Ballabgarh land and building referred to in article 1 and 2 for a total sum of Rs. 52.5 crores. 6. According to rider provided in clause 3.5 of the MOU, it is mentioned that Tecumseh purchase of raw materials and work in progress pursuant to Clause. 1.2 (the condition for purchasing all raw and work in progress inventory of the compressor division and component operation), the agreed base lying for such purchase will be Rs. 5.25 crores and any adjustment to that amount (up or down) shall be based upon a physical inventory at closing date and will be reimbursed locally by the appropriate party. 7. In the said MOU, it is also agreed that Tecumseh will assume 600 Whirlpool employees currently engaged in the compressor division operations at Faridabad or component operations at Ballabgarh and list of such employees was to be provided by Whirlpool India ....
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.... - j. "Whirlpool shall sign and deliver to Tecumseh India, against the receipt of full consideration specified therein, a Non-Compete Agreement in the form as contained in Appendix "M" undertaking not to compete with Tecumseh India in the manufacture, sale or repair of compressors in India, except that Whirlpool shall be entitled to sell and install compressors purchased from Tecumseh India to persons under its service arrangements, subject to the provisions of the supply agreements." 11. Before AO copy of annexure "M", as mentioned in Section 9(j), is not filed. However, a copy of non-competence agreement was filed which is dated 10th July, 1997. Copy of Annexure "M" is also not filed before us. Therefore, the non- compete agreement entered into by the assessee with Tecumseh-India can be considered to be the same as appendix "M" attached to the agreement. The amount mentioned in non-compete agreement is Rs.2.65 crores. If the same is added to the aforesaid aggregate sum of Rs. 49.85 crore then the total amount paid by the assessee to Whirlpool India will be an amount of Rs. 52.50 crore which is the total sum agreed to be paid by the assessee for whole of the transactio....
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.... parties of the one part and Tecumseh USA being party of the other part. It was contended by ld. Counsel that incidentally Tecumseh India had not even been incorporated as the same was incorporated on 30.01.1997 (reference in this regard was made to MOU copy of which is placed at pages 28 to 36 of paper book no. III. 15. Ld. AR submitted that the AO and Ld. CIT (A) both have accepted the fact that the non-compete agreement dated 10th July, 1997 was a stand-alone agreement and thus, the payments of Rs. 2.65 crore was treated as non-compete fees simplicitor and from that stand point it has to be seen that whether the expenditure is capital or revenue in nature. 16. It was pleaded that the three agreements envisaged three different subject matters and were executed on and were to be effective from different dates; they are also not with the same parties. To describe more particularly it was submitted as under: a) The Purchase Agreement was executed on 2.7.97 between Tecumseh India and Whirlpool and contained the terms of purchase of the 'Compressor Division' and 'Related Operations' of Whirlpool. b) The non-compete agreement was between Whirlpool Corporation US....
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....consideration "specified therein" a non-compete agreement. Reading of the preamble and such clause shows that it speaks of an event yet to take place after the acquisition of undertaking by the assessee. Non-compete agreement is specifying the application of the Whirlpool India, the period, the consideration and the relevant clauses which are yet to be done subsequently after the business was taken over on 2nd July, 1997. 3.1 In similar manner, the preamble E(iv) speaks of supply agreement which does not give details of the said agreement and which also has yet to see the light of the day subsequently after the purchase which was made effective from 14th July, 1997 3.2 Thus, it will be incorrect to plead that there was only one agreement and subsequent agreements dated 10th July, 1997 was not a non-compete agreement but was to be dovetailed into a purchase agreement by construing the payment of Rs. 2.65 crore towards the initial cost of acquisition of the business. 18. It was further pleaded that law in respect of interpretation of agreements is stated in the provisions of law and in judicial pronouncements as under:- * Section 91 of the Evidence Act, 1872 expr....
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....R 1973, 2609 has held: "In construing document one must have regard, not to the presumed intention of the parties but to the meaning of the words they have used. If two interpretations of the document are possible, the one which would give effect and meaning to all its parts should be adopted and for the purpose, the words creating uncertainty in the document can be ignored (page 2609)". • In Delta International Ltd. Vs. Shyam Sunder Ganeriwala (1999) 4 SCC 345 it was held: i. Where terms of the agreement are vague or having double meaning one which is lawful should be preferred. (page 545) ii. Where the parties were capable of understanding their rights fully, expressly agreed that the document should be construed one way, no interference should be drawn so as to construe it in a different way. (page 545). 19. It was submitted by Ld. AR that non-compete fees is not in the nature of capital and reliance was placed on the following decisions:- "7. (i) Assam Bengal Cement Co. Ltd. Vs. CIT 21 ITR 34 (SC) [pages 1 to 15 PB No. VI]. In this decision, the Hon'ble Court at page 9 has observed as under:- "The distinction was thus....
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....et i.e., the right to carry on the business. ii. CIT Vs. Coal Shipment P. Ltd. 82 ITR 902 (SC) (page 16 of PB Part VI) The agreement in that case was between the assessee and M/s H.V. Low and Co. Ltd. which was an oral agreement which did not provide for a certainty of duration and the agreement could be terminated or revoked at any time. Though the arrangement ran for 5 years it automatically came to an end when Govt. of Burma made some other arrangement for its coal requirement. At page 909 the following observations from the judgment of Assam Bengal Cement Co. Ltd. Vs. CIT 27 ITR 34 (SC) were quoted: "The character of payment can be determined by looking at what is the true nature of assets which has been acquired....." The judgment in this case may be taken to have been decided on two specific aspects propounded by Mr. Palkiwala based on the facts of the case, to which the Court agreed - a. There was no certainty of the duration of the arrangement, the same can be revoked at any time and, therefore, the advantage cannot be said to be of the enduring character and expenditure cannot be held to be of capital nature; and b. The....
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.... even if this test were applied in the present case, it does not yield a conclusion in favour of the revenue. Here, by purchase of loom hours no new asset has been created. There is no addition to or expansion of the profit making apparatus of the assessee. The income-earning machine remains what was prior to the purchase of loom hours. The assessee is merely enabled to operate the profit making structure for a longer number of hours. And this advantage is clearly not of an enduring nature." It is important to note the following rules laid down by the Court: a. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in the test; b. It is only where the advantage is in the capital field that the expenditure would be disallowable on an application of the test of enduring nature; c. If the advantage consists merely in facilitating the assessee's trading operations of enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably the expenditure would be revenue even though the advantage may endure for an indefinite future. ....
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....ase of Madras Auto held that the benefit did arise to the assessee for 39 years but the expenditure cannot be held as capital because the expenditure, though did result in creation of an asset, but it did not belong to the assessee. Four earlier judgments of the Supreme Court were cited at pages 474 & 475. It was held that the decisive factor was not the period of advantage but whether expenditure resulted in creation of a capital asset in the hands of the assessee. vii. CIT Vs. Eicher Ltd., 302 ITR 249 (Del.) [Pages 66 to 72 of PB VI] Helpfully, we have the benefit of the judgment of Eicher's case (supra) on two counts viz.- (i) that this is a judgment of the jurisdictional High Court, (ii) that it has dealt with the following four cases of the Apex Court: (a) Assam Bengal Cement Co. Ltd. Vs. CIT (supra) (b) CIT Vs. Coal Shipments P. Ltd. (supra) (c) Alembic Chemical Works Ltd. Vs. CIT (supra) (d) CIT Vs. Madras Auto Service P. Ltd. (supra) The Hon'ble Court agreed with the following submissions made before the CIT(A) and ITAT (para 7 page 252 of ITR): • The payment of Rs. 4 cro....
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.... applied to the facts of the present case, the position will be as under- (i) The payment of Rs. 2.65 crores was made by way of non-compete fees as per a specific agreement executed on 10.7.97. No new asset was created thereby nor assessee's profit making apparatus was expanded or increased. The assessee did not acquire any capital asset by making the payment of non-compete fee. The assessee did not suffer any loss or diminution or erosion in capital assets. The expenditure was recorded in the books of account as deferred revenue expenditure. [Reference Eicher Ltd. (supra)]. (ii) Assessee having not acquired any capital asset in view of above, the expenditure incurred could not be treated as capial expenditure [reference Assam Bengal Cement Co. (supra) as applied by Madras Auto Service P. Ltd.] (iii) Payment towards non-compete fee was to 'project the assessee's business interests, its market position and profitability [reference Eicher Ltd. (supra)]. The expenditure incurred was merely for facilitating assessee's trading operations and to conduct the business more profitably leaving fixed capital untouched [reference Empire Jute Co. Ltd. (supra)]. ....
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.... "1. The appellant is a private limited company engaged in the manufacture and sale of aerated soft drinks. 2. The appellant had acquired running business of various bottlers and had made certain payments referred to as non- compete fees to the acquired bottling companies over and above the consideration for purchase of business of the bottlers. 3. The non-compete fees was paid to the shareholders/proprietors, etc. of companies/firms whose business was taken over by the appellant to prevent the said persons from using or sharing know-how in respect of the business (a) within a specific territory, and (b) for a maximum period of 5/10 years, as specified in the agreements executed in connection therewith. Clause 1 (a) of the agreement. 4. Know-how has been defined to mean 'all information (including that comprised in or derived from manuals, instructions, catalogues, booklets, data disks, tapes, source codes, formula cards and flowcharts) relating to the Acquired Business and the services provided or products manufactured by the Acquired Business. Clause (1) (c) of the agreement 5. The agreement could be terminated at the instance of either of t....
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....cable universally. Thus, it was submitted that enduring benefit alone cannot be a criteria to hold that whether expenditure is in the nature of capital or revenue. It was submitted that if the benefit merely facilitates in carrying on the business more profitably and efficiently, then, it can be in the nature of revenue. Reference was made to the following observations:- "The decided cases have, from time to time, evolved various tests for distinguishing between capital and revenue expenditure but no test is paramount or conclusive. There is not all embracing formula which can provide a ready solution to the problem; no touchstone has been devised. Every case has to be decided on its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. But a few tests formulated by the courts may be referred to as they might help to arrive at a correct decision of the controversy between the parties. One celebrated test is that laid down by Lord Cave L.C. in Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, 192 (HL), where the learned Law Lord stated: ".......... When an expenditure is made,....
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.... nature. It is limited in its duration to six months and, moreover, the additional working hours per week transferred to the assessee have to be utilized during the week and cannot be carried forward to the next week. It is, therefore, not possible to say that any advantage of enduring benefit in the capital field was acquired by the assessee in purchasing loom hours and the test of enduring benefit cannot help the revenue. [Emphasis supplied]" 24. It was submitted that aforementioned test was reiterated by the Apex Court in Alembic Chemical Works Co. Ltd. vs. CIT 177 ITR 377 wherein it was held that the idea of 'once for all' payment and "enduring benefit" are not to be treated as something akin to statutory conditions; nor are the notions of "capital" or "revenue" a judicial fetish. They should be flexible so as to respond to the changing economic realities of the business. The expression "asset" or "advantage of enduring benefit" was evolved to emphasize the element of sufficient degree of durability appropriate to the context. 25. It was submitted that non-compete payment is made by one party to another to restrain the second party from competing with the first party (....
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....diture was made in order to secure a long lease, a new and more suitable business premises at a lower rent. The assessee could not claim depreciation. The expenditure was in the nature of revenue. Ld. Counsel invited our attention towards the following observations of the Hon'ble Supreme Court from the said decision:- "All these cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as a revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expenses have been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. In the present case also, since the asset created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusi....
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....ision in the case of Coal Shipment Ltd. does not lay down any rigid rule that all expenditure relating to warding off competition would constitute capital expenditure. It is only when the expenditure brings into existence a benefit of enduring nature would such payment of non-compete fees be treated as capital expenditure and not otherwise. 33. He submitted that on reading of the decision in the case of Coal Shipment Ltd. (supra) in juxtaposition with the later decision of the Hon'ble Supreme Court in Empire Jute Mills (supra), it can be gathered that only when the expenditure incurred by the assessee brings into existence benefit of enduring nature in the capital field, would such payment of non-compete fees be treated as capital expenditure and not otherwise. 34. Ld. Counsel referred to the decision of Hon'ble Delhi High Court in the case of CIT vs. Eicher Ltd. (supra) wherein non-compete fees was held to be allowable business deduction and he submitted that Hon'ble Delhi High Court has held that by making payment of non-competition fees, the assessee did not acquire any capital asset and, therefore, such expenditure could not be treated as capital expenditure. He submitted....
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....R 650 (AP) where a sum of Rs.21,600/- paid by the assessee to 16 individuals who were prospective bidders at an auction to prevent them from competing was held to be in the nature of revenue as the amount paid to the prospective bidders had reduced the lease amount which was to be paid by the assessee to run its ferries. iv) The following decisions of Tribunal: (a) Padhare Dhru and Co. vs. ACIT (1995) 54 ITD 746 (Mum) wherein the payment made to retiring partner of a law firm to restrain him from starting his individual practice for 2 years was held to be revenue expenditure. (b) Modipon Ltd. vs. Inspecting Asstt. Commissioner 52 TTJ (Del) 477 wherein lumpsum payment to retiring employee to restrain him from entering into any independent business which could be detrimental to assessee was held to be revenue in nature. (c) Smartchem Technologies Ltd. vs. ITO (2005) 97 TTJ (Ahd) 818 wherein payment as non-compete fees was claimed u/s 37 of the Act. In the said case the assessee had purchased VBC's plant for manufacturing nitric acid and ammonium nitrate and paid Rs.6 crore as non-compete fees the deduction of which was claimed u/s 37 of the Ac....
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....ore, such expenditure was capital in nature. As against that in the present case by making non-compete payments, the assessee did not acquire any monopoly rights in order to eliminate any competitor. The payment was made to protect an already acquired business. Therefore, the decision in Assam Bengal Cement Ltd. is not applicable to the facts of the assessee's case. 38.2 Referring to the decision in the case of CIT vs. Coal Shipment Pvt. Ltd. (supra), it was submitted that nowhere in the said decision it is described that enduring benefit refers to a fixed tenure. It was submitted that on the contrary it has been held that what would constitute enduring benefit would depend upon facts and circumstances of each case and it was held that where the agreement could be terminated at the volition of the parties, as in the present case, the payment would be on revenue account. Thus, it was submitted that rather the said case advances the proposition canvassed by the assessee. 38.3. It was submitted that in the case of Empire Jute Mills (supra) it has been held that merely because an expenditure results in a benefit of enduring nature would not, by itself, lead to the conclusion that....
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....e assessee falls within the category for which the payment was held to be allowable by the Calcutta High Court. 39. The decision of Allahabad High Court in the case of Neel Kamal Talkies vs. CIT (supra) also could not be applied to the case of his client as in that case by incurring the expenditure the assessee had ensured complete monopoly over the business of exhibiting films in Bijnore. As against that, in the present case, there is no question of any monopoly being created by the assessee. He pleaded that Ld. DR has placed lot of emphasis on the decisions of the Madras High Court in Chelpark v. CIT, 199 ITR 249, decision of the Madhya Pradesh High Court in Grover Soaps Pvt. Ltd., 220 ITR 299 and that of the Madras High Court in Tamil Nadu Dairy Development Corpn., 239 ITR 142. In this regard it is submitted that all the three decisions relied upon by the Ld. Sr. DR proceeded on a finding by the Tribunal that by incurring the expenditure in dispute, the assessee had acquired benefit of enduring nature. However, in the present case it is for this Special Bench to first adjudicate whether payment of non-competition fee brought into existence an asset/advantage of enduring benef....
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.... be terminated by either of the parties. • The gestation period of 5 years was necessary since the appellant had returned to the Indian markets after approx 20 years. • The bottlers were free to carry on other businesses and, in fact, did carry on such business. • No new profit earning apparatus was acquired by the appellant." Arguments of Shri S.D. Kapila 41. It was submitted by Ld. Counsel that a particular expense whether it is capital or revenue has to be examined on the basis of facts of each case and those facts are to be seen from the view point of the payer and not from the view point of payee. He submitted that it is not necessary that the expenditure is paid by separate agreement which can be defined in one agreement and paid by another agreement. He submitted that duration of restriction is not material and purpose and object of it will be material. 42. He contended that how it can be determined has been enunciated in two examples which are extreme on both sides. He referred to the decision of Hon'ble Allahabad High Court in the case of Neel Kamal Talkies v CIT(1973) 87 ITR 691(All) where the assessee being the owner of cin....
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....ssee and its parent company being on one part and M/s Whirlpool India and its parent company on the other part have to be read as part of the same transaction. She contended that from reading of all these agreements/contracts the payment of Rs. 2.65 crores is also a part of the payment made towards initial outlay and would constitute capital expenditure. (ii) The analysis of several tests laid down in the judgments of Hon'ble Supreme Court as well as several High Courts for determination as to whether the payment is for capital or revenue will reveal that test has to be applied to the particular facts and circumstances of each case and it has to be determined whether the expenditure/payment is part of the company's working expenses or it is an expenditure laid down as a part of process of profit earning or on the other hand, it is a capital lay out, being an expenditure necessary for acquisition of property or of right of a permanent character the possession of which is a condition of carrying on its trade at all? 48. Referring to aforesaid test Mrs. Aggarwal referred to the decision of Hon'ble Supreme Court in the cases of Assam Bengal Cement Co. Vs. CIT 27 ITR 34 (SC)....
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....iding the issue the below mentioned three agreements should be read together to arrive at the true character and import of the agreements and the nature of the transactions and payments made pursuant thereto: - a) Memorandum of Understanding dated 4.11.1996. b) Agreement dated 2.7.1997 between Whirlpool of India and Tecumseh India Pvt. Ltd. c) The non-competition agreement dated 10.7.1997. 52. Referring to each of the agreements, ld. Standing Counsel submitted that the relevant facts which imports the consideration for a proper determination of the nature of the payment towards non-compete fee are as under: - "Memorandum of Understanding on 4.11.1996 a) The M/s Tecumseh Product Co. of Michigan, a leading global compressor manufacturer entered into a Memorandum of Understanding on 4.11.1996 with M/s Whirlpool of India Ltd. and Whirlpool Corporation, and expressed its interest in purchasing the Compressor Division of M/s Whirlpool of India Ltd., wherein Tecumseh was to become a strategic and key supplier to Whirlpool for compressors. The two companies had agreed to the framework by which the said transaction was to be accomplished. ....
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....and Tecumseh India (a wholly owned subsidiary of Tecumseh Product Co.) have negotiated for the acquisition of the Compressor Division and related operations of Whirlpool, and that Tecumseh India would engage in the business of manufacture, sale and repair of compressors and further that Whirlpool would not compete with Tecumseh India in the manufacture, sale and repair of compressors as per clause 9(j) of the Agreement. iii) Clause 9(j) is extracted herein below : "Whirlpool shall sign and deliver to Tecumseh India against the receipt of full consideration specified therein : (a) Non-Compete Agreement in the form as contained in Appendix (M) undertaking not to compete with Tecumseh India in the manufacture, sale or repair of compressors in India except that Whirlpool shall be entitled to sell and install compressors purchased from Tecumseh India to persons under its service arrangement, subject to the provisions of the Supply Agreement." iv) It is submitted that the said agreement also envisaged the purchase of the Ballabgarh land measuring 105,983 sq. mtrs. and building and facilities situated at Ballabgarh where the entire operations of the Compressor D....
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....he entire Compression Division along with the employees. The entire business of the Compressor Division of Whirlpool was eliminated as no manufacture of compressors could be carried out by Whirlpool India and the sale of such compressors by Whirlpool India was confined to the supply of such compressors by M/s Tecumseh India to Whirlpool." 53. Then ld. Standing Counsel referred to the various judicial pronouncements, wherein several tests have been laid down: - "Analysis of the several tests laid down in the judgments of the Supreme Court as well as several High Courts (1) The Supreme Court has in several decisions held that in order to decide whether the expenditure is of revenue or capital nature one has to look at the expenditure from the commercial point of view. Though, the asset acquired being of enduring nature is one of the age old tests, yet in the judgment of the Hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. vs. CIT (1955) 27 ITR 34 (SC) the relevant tests are as follows: (a) Expenditure may be treated as properly attributable to capital when it is made not only once and for all but with a....
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....9; the phrase of Lord Blackburn in United Collieries Ltd. v. Inland Revenue Commrs. 1930 SC 215 at p. 220. As general conceptions it may not be difficult to distinguish between the profit-yielding subject and the process of operating it. In the same way expenditure and outlay upon establishing, replacing and enlarging the profit yielding subject may in a general way appear to be of a nature entirely different from the continual flow of working expenses which are or ought to be supplied continually out of the returns of revenue. The latter can be considered, estimated and determined only in relation to a period or interval of time, the former as a point of time. For the one concerns the instrument of earning profits and the other the continuous process of its use or employment for that purpose". (2) In the case of Commissioner of Income-Tax Vs. Coal Shipment Pvt. Ltd. - (1971) 82 ITR 902 W, the Hon'ble Supreme Court has approved the following : (i) In the case of Robert Addie and Sons' Collieries Ltd. v. Commissioner of Inland Revenue ([1924] 8 T. C. 671, 676.), Lord President Clyde gave the following test: "It is necessary accordingly to attend to the....
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....s. H. V.Low & Co. Ltd. were related to the actual shipment of coal in the course of the trading activities of the respondent and had no relation to the capital value of the assets and the payments were not related to or tied up in any way to any fixed sum agreed to between the parties and hence were held to be revenue in nature." 54. Concluding her arguments it was submitted that capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source, whether it is drawn from the capital or the income of the concern is certainly in the nature of the capital expenditure. The asset which the company had acquired irrespective of the fact whether the consideration paid was a recurring payment or was in lumpsum would be in the nature of capital asset. She submitted that by making payment of so called non-compete fee the assessee had acquired protection for its business as a whole as it took over the entire compressor division of Whirlpool. It was not a part of the working of the business but went to appreciate the whole of the capital asset and it was part of initial outlay and to make it more profit yielding. The advantage derive....
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....5.25 Cr. (iii) Real Estate: 25.10 Cr. Total 49.85 Cr. 58. Then Sh. Gupta referred to clause 9(j) of the agreement dated 2nd July, 1997 which read as under:- "Whirlpool shall sign and deliver to Tecumseh India, against the receipt of full consideration specified therein a Non-Compete agreement in the form as contained in Appendix "M" undertaking not to compete with Tecumseh India in the manufacture, sale or repair of compressors in India, except that Whirlpool shall be entitled to sell and install compressors purchased from Tecumseh India to persons under its service arrangements, subject to the provisions of the supply agreements." 59. It was submitted that this clause provides for non-compete agreement and no time limit has been provided for and there is no stipulation regarding revocation of the same. Thus, it was submitted that the nature of non-compete agreement is a perpetual along with purchase of factory, land, machine, buildings, employees, know-how, etc. and no scope whatsoever has been left for future business to Whirlpool India Ltd. 60. Ld. DR submitted that non-compete agreement dated 10th July, 1997 is the fall out of earlier agreeme....
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.... a period of 5 years with the Assessee, under Cl. (b) (pg. 19)they agreed "not to disclose trade secrets, processes, and information to any party nor to use such trade secrets, processes or information for their own benefit under any circumstances" without any time limit. This way again the non-compete agreement virtually became a "perpetual non-compete agreement", notwithstanding time limit of 5 years provided in Cl.(a). 63. It was further submitted that as per settled law, the terms of agreement should be read as a whole in order to construe its proper meaning. Reference was made to Explanation to Section 91 of the Indian Evidence Act, 1872 to contend that when the contracts, etc. are contained in more than one document, all the documents containing the contract should be properly gone through. It was submitted that Section 91 of Indian Evidence Act provide as under:- "91. Evidence of terms of contracts, grants and other dispositions of property reduced to form of documents.-When the terms of a contract, or of a grant, or of any other disposition of property, have been reduced to the form of a document, and in all cases in which any matter is required by law to be red....
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....part of the same transaction of initial outlay, the ITAT being highest fact finding authority is not debarred from going into the factual aspects of the matter brought before it and it will not be proper to overlook the facts which are clear from the record. To contend that ITAT has such power, Ld. DR has relied upon the following decisions:- (i) Kapur Chand Shrimal Vs. CIT 131 ITR 451 (SC) : " It is well known that an appellate authority has the jurisdiction to correct all errors in the proceedings under appeal and issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by any statute". (ii) CIT Vs. Manohar Glass Works 232 ITR 302 (All) : "The Appellate Tribunal, being the last fact finding body, is under a legal obligation to record a correct finding of fact and as and when it finds some difficulty in recording a correct finding of fact on account of contradictions in the factual position, it may remand the matter back to the A.O to the lower authority to state correct facts".A-13 68. Replying to the ar....
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....ngal Cement Co. Ltd v CIT:27ITR 34(SC) - A decision rendered by 4-Judge Bench. (ii) CIT vs Coal Shipment Pvt Ltd: 82 ITR 902(SC) - A decision rendered by 3-Judge Bench. 73. It was submitted that in Assam-Bengal Cement Company's case the assessee had acquired from Government of Assam lease right of lime stone quarry for the purpose of carrying on manufacture of cement. In addition to rent and royalties two sums were paid as protection fees by the lessor, agreed not to grant any lease, permit or prospecting licence to any other party without a condition that no lime stone should be used for the manufacture of cement and on these facts the observations of Hon'ble Court were as under:- "The asset which the company had acquired in consideration of this recurring payment was in the nature of a capital asset, the right to carry on its business unfettered by any competition from outsiders within the area. It was a protection acquired by the company for its business as whole. It was not a part of the working of the business but went to appreciate the whole of the capital asset and making it more profit yielding. The expenditure made by the company in acquiring this adva....
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....s market position & profitability. • The assessee did not acquire any capital asset by making the payment of non-compete fee. • From the record, it is not known how long the non-compete agreement was to last, hence the advantage is not enduring in nature. • There was nothing to show that it was drawn out of the capital of the assessee. AFORESAID PROPOSITIONS AS APPLIED TO THE FACTS OF THE PRESENT CASE AND WHY THE SAME WOULD NOT BE APPLICABLE: a. Payment of Rs. 2.65 Crore was made by way of non- compete fees as per MOU and subsequent agreements. The time limit prescribed as per the agreement was for a maximum period of "Perpetuity " and a minimum period of 5 years as noted in the agreements. b. It is not the case of the Revenue that the assessee acquired any capital asset. Rather according to the Revenue, what the assessee has acquired was an "enduring advantage ",as held in the cases of Assam Bengal Cement Co. Ltd v CIT:27ITR 34(SC) & CIT Vs. Coal Shipment Pvt. Ltd. 82 ITR 902(SC). c. "Enduring advantage" does not mean that an advantage should last forever. Apparently the a....
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....d.) (pg 43 of Departmental Paper Book) (v) Tamilnadu Diary Development Corpn. Ltd. Vs. CIT (1996) 239 ITR 142.(MAD) (pg 26 of Departmental Paper Book) 79. It was submitted that the decision of Hon'ble Delhi High Court in the case of CIT vs. Eicher Ltd. (supra) shall not be applicable to the assessee's case since in that case the period of validity of the restrictive covenant was not specified whereas in the present case agreement shows it is either perpetual or effective at least for five years. 80. It was submitted that assessment year under consideration is assessment year 1998-99 and the assessee company has not been able to show any proof that the agreement has not lasted its full term of five years i.e., upto 2004. Mere claim that agreement could be terminated at will is in sharp contrast to Clause 4 of non-compete agreement which mentions the benefit and binding effect as under:- "This Agreement shall be binding upon the promissors and their respective successors and the assigns and shall inure to the benefit of Tecumseh India and the respective successors and assigns. This agreement has been entered into for the benefit of and may be enforced by ....
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....'ble Supreme Court in the case of Virtual Software Systems Ltd. vs. CIT (2007) 287 ITR 83 (SC) in which Hon'ble Supreme Court has laid down a general proposition on precedent, holding that where the predominant majority of the High Courts have taken a certain view of the interpretation of a certain provision, the Supreme Court would lean in favour of the predominant view. The same view should be applied in this case as well since majority of High Courts have held non-compete fee to be "capital" in nature. 85. It was submitted that benefit derived by the assessee is in the "capital field", since this amount is paid from the same "capital" out of which the payment for land, building, machinery, etc. of the "Compressor Division" and its related operations amounting to Rs.46.25 crore was paid for and duly capitalized in its books. 86. In rebuttal of the argument of Shri Ajay Vohra, Ld. DR submitted as follows:- "1. Shri Ajay Vohra, the Ld. Counsel for the Interveners, Hindustan Coca Cola Beverages Pvt. Ltd., has emphasised a lot in his arguments that there has been substantial change in the judicial thinking ever since the days of (1) Assam Bengal Cement Ltd. Vs. CIT 27 ....
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....ing the income chargeable under the head "profits & gains of business or profession", would become otiose. It is again a settled law that any interpretation which makes a section of statute otiose should be avoided. 2 The Counsel of the Intervener also relied on the decision of the Supreme Court in CIT V. Madras Auto Service : 233 ITR 468 (SC) to argue that in the current judicial thinking, the length of time over which the enduring advantage may enure, is not determinative of the nature of the expense as long as the advantage is not in the capital field. In this connection, it is brought to the notice of the Hon'ble Bench that the decision in the above case related to the expenditure incurred by the assessee on a tenanted building which was to go back to the landlord at the end of the period of tenancy and the landlord allowed the benefit of reduced rent to the assessee. In those peculiar circumstances, the expense was held to be "revenue" in nature. Hence the ratio of the said case is not applicable to the present one. 3. Shri Vohra also relied on the decision of CIT Vs. Late G.D. Naidu (1987) 165 ITR 63(Mad.) But the said decision has been impliedly ov....
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....eatre owner. This argument is wholly fallacious since the assessee could not have stopped any other new cinema-hall to come up in that town through such non-compete agreement. Freedom to profess a business or profession is a fundamental right and any number of new theatres can come up in any town. Thus what the assessee got is reprieve from competition by an existing competitor, not complete monopoly status. Therefore, his argument that only in a case where a monopoly is created, such expense should be treated as "capital" expenditure & otherwise not, falls flat." DECISION 87. We have carefully considered the rival submissions in the light of the material placed before us. The first contention of Ld. Counsel of the assessee is that non-compete agreement, for the purpose of allowability or otherwise of the non-compete amount, should be considered separately from what was paid by the assessee to acquire the business activity of transformers and its related facilities from Whirlpool India Ltd. For contending so, the reliance has been placed on the fact that the Assessing Officer and CIT (A) both have considered the said agreement on stand alone point. In other words, the content....
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....52.5 crores and allocation of purchase price for various assets was to be determined at the further meeting of the parties and according to clause 3.5 the base price retained for purchase of raw materials and work in progress was kept at 5.25 crores being 10% of the total purchase price agreed. Though clause 3 of the MOU has reference to Article 1 and Article 2, but copy of the same has not been furnished in the paper book filed before us. 91. To ascertain that for what the total payment of Rs.52.5 crores was made, one has to look into the agreement dated 2nd July, 1997 which was entered into in furtherance of MOU by the 'to be established local Indian entity', namely, Tecumseh India and Whirlpool India Ltd. wherein a total sum of Rs.49.85 crores was determined for the various assets. More particularly, these allocated payments are described in para 9 of this order. 92. Broadly stated, the purchase price paid for the sale and purchase of Compressor Division and related operation and facilities excluding the raw materials, work in progress and the land and building at Ballabhgarh was a sum of Rs.19.50 Crore (Clause 2 of the Agreement) purchase price for inventory i.e., raw mat....
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....e so as to say that one could be fulfilled without fulfilling the other. Thus, there is no force in the contention of the Ld. Counsel of the assessee that the non-compete fees payment should be considered and viewed on stand alone basis. The same is hereby rejected. 96. It will also be incorrect to say that the Assessing Officer has considered such payment on stand alone basis as all the agreements namely; MOU, final agreement, non-compete agreement and supply agreement were produced before the Assessing Officer and he has discussed all these agreements in the assessment order. It is mentioned by the Assessing Officer in the assessment order that the assessee company was incorporated on January 30, 1997 and it is a fully owned subsidiary of a non-resident company known as M/s Tecumseh Products Company, Michigan, USA. The company started business of acquiring the Compressor Division of M/s Whirlpool India Ltd. in the month of July, 1997. For such purchase, the assessee entered into an MOU on 4th November, 1996 and a final agreement was executed on 2nd July, 1997 according to which an amount of Rs.46.25 crore was paid to M/s Whirlpool India Ltd. for various items like inventory, b....
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....of limestone quarries for a period of 20 years for the purpose of carrying on the manufacture of cement in consideration of payment of yearly rents and royalties. In addition, the assessee agreed to pay two further sums as protection fees which was in lieu of lessor giving an undertaking not to grant lease, permit or a prospecting licence with regard to limestone to any other party without a condition that the limestone given will not be used for the purpose of manufacturing cement. 99.1. Their Lordships, referring to various decisions, have come to the conclusion that under clause 4, the lessors undertook not to grant any lease permit or prospecting licence regarding limestone to any other party in respect of the group of quarries called the Durgasil area without a condition therein that no limestone shall be used for the manufacturing of cement. The consideration of Rs.5000/- per annum was to be paid by the assessee company to the lessor during the whole period of the lease and such advantage or benefit was to inure for the whole period of lease. It was held to be enduring benefit of the whole of the business of the company and, thus, falling within the Viscount Cave's test th....
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.... 101. Now, coming to the decision in the case of Coal Shipment Pvt. Ltd. (supra). In that case the assessee was one of the companies which exported coal from India to Burma before the Second World War. The shipment of coal to Burma Railways before the war was the subject of open tender. After the cessation of hostilities in 1946, it became possible to resume the export of coal to Burma. In order to overcome the difficulties in the conduct of trade, following the war, the principals of coal trade in Bengal formed an association styled as "Coal Exporters and Charters Association" of which the assessee company as well as M/s H.V. Low & Co. Ltd. were two of the major members of the Association. When M/s H.V. Low & Co. Ltd. learnt the resumption of the coal export to Burma by the assessee company in 1946, they also expressed an intention to export coal to Burma. There upon the two companies came to an understanding and arrived at a mutual arrangement on the following lines:- (i) M/s H.V. Low & Co. Ltd. would not export coal to Burma during the subsistence of the agreement. (ii) M/s H.V. Low & Co. Ltd. would assist the respondent in procuring coal for shipment to Bur....
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.... and for all," but with a view to bringing into existence an asset or advantage for the enduring benefit of the trade which in general circumstances can be properly attributable not to revenue, but to capital. 101.4. In that case the House of Lords dealt with a fund which was created by the respondent company as a nucleus of a pension fund for its employees. After handing over the money to trustees for the employees, the company claimed that the money should be charged to revenue. Such claim of the assessee was rejected on the ground that the payment of money created for itself an enduring benefit or advantage which was of a capital nature. Thus, it was observed by their Lordships that while deciding a question that whether a particular expenditure is in the nature of revenue or capital, the courts have to bear in mind that whether it was an expenditure forming "part of the cost of income earning machine or structure" as opposed to part of "the cost of performing the income-earning operations. 101.5. Then, their Lordships referred to the decision in the case of Robert Addie and Sons' Collieries Ltd. v. Commissioner of Inland Revenue, 1924 8 TC 671 wherein the test of true nat....
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....wo other companies, namely Bhokana Corporation Ltd. and Bancroft Mines Ltd. formed a group for carrying on business of copper mining. Due to steep fall in copper prices, they decided voluntarily to cut their production by 10%. It was agreed that Bancroft Mines Ltd. should cease production for one year and the respondent company and Bancroft Mines Ltd. should undertake between them the whole group programme for the year reduced by the overall cut of 10% and, in turn, agreed to pay a sum to Bancroft Mines Ltd. to compensate it for the abandonment of the production for the year and the question arose that whether such expenditure would be capital in nature. It was held by the court that the compensation paid was an allowable deduction. It was held that the expenditure was not for the purpose of acquiring a business or a benefit of long-term or enduring contract and their Lordships observed as follows:- "Although we agree that payment made to ward off competition in business to a rival dealer would constitute capital expenditure if the object of making that payment is to derive an advantage by eliminating the competition over some length of time, the same result would not foll....
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....overnment of Hyderabad, the Municipality and the assessee whereby the company undertook: (i) to supply water to the Municipality and provide water pipelines; (ii) to supply electricity for street lighting in the municipality and put up a transmission line therefore; and (iii) to create the main road from the factory to the Railway Station. In return, the respondent was not liable to pay Municipal rates and taxes for a period of 15 years. During the year under consideration a sum of Rs.2,09,459/-was expended towards installation of water pipelines and accessories outside the factory premises which were to belong to and be maintained by Municipality and which also came under the ownership of Municipality and such expenditure was held to be revenue in nature. It was held by the Apex Court that since the installation and accessories were the assets of the Municipality and not of the assessee, the expenditure did not result in bringing into existence any capital asset for the company. The advantage secured by the assessee by incurring the expenditure was absolution or immunity from liability to pay municipal rates or taxes for a period of 15 years and if liabilities had to be paid the p....
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....tal expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business. The expression "asset or advantage of enduring nature" was evolved to emphasise the element of a sufficient degree of durability appropriate to the context. (d) What is relevant is the purpose of the deal and it is intended to do and effect, considered in a commonsense way having regard to the business realities and in a given case, the test of "enduring benefit" might breakdown. 105. In the case of CIT Vs. Madras Auto Service (P) Ltd., 223 ITR 468 (SC) the assessee had obtained premises on lease for 39 years. Under the lease agreement assessee demolished existing construction and constructed new building to suit its business at its own expenses. The assessee in no circumstances was entitled for any compensation on account of putting up new construction and it should be treated as tenant subject to payment of rent lower than the rent prevailing in the market. The expenses incurred on construction were claimed as revenue expenditure and these were held allowable on the ground that the asset created by such expenditure di....
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....e fees by the assessee was a business expenditure and not a capital expenditure and in this view of the situation it was held that no substantial question arises for consideration. 107. If we peruse all the aforementioned decisions which have laid down various tests to consider a question that whether a particular expenditure will be capital or revenue, one thing is clear that the line of demarcation between the capital expenditure and revenue expenditure is very thin. Therefore, it is not desirable for any court to do that which the Parliament has abstained from doing - i.e., to formulate precise rules for the guidance or embarrassment of businessmen in the conduct of business affairs. Justice Bhagwati while describing such situation in the decision of Assam Bengal Cement Company (supra) has referred to the quotation of Lord Macnaghten in Dovey v. Cory (1901) AC 477 at p.488. Similarly, the observations of Rowlatt, J. from the decision in the case of Countless Warwick Steamship Co. Ltd. vs. Ogg (1924) 2 K.B. 292 at p.298 have been reproduced where it is stated that it is very difficult to lay down any general rule which is both sufficiently accurate and sufficiently exhaustive ....
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....sam Bengal Cement Company Ltd. (supra) have referred to the Full Bench decision of Lahore High Court in the case of Benarsidas Jagannath [1947] 15 ITR 185 wherein it was observed as under:- "2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade : vide Viscount Cave, .C., in Atherio vs. British Insulated and Helsby Cables Ltd. If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sump payment brings in a capital asset, then that puts the business on another footing altogether. Thus, if labour saving machinery was acquired, the cost of such acquisition cannot be deducted out of the profits by claiming that it relieves the annual labour bill, the business, has acquired a new asset, that is, machinery. The expressions 'enduring benefit' or 'of a permanent character' were introduced to make it clear that the asset or the right acquired must have enough durability to justify its be....
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.... determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequences. 116. It was observed that it is only in those cases where the above test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. In that circumstances, if the expenditure was part of the fixed capital of the business, then, it would be of a nature of capital expenditure and if it was the part of the circulating capital then it will be in the nature of revenue expenditure. It will be useful to reproduce the following observations of their Lordships from Assam Bengal Cement Company (supra)'s case:- "This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the principles which emerge from the authorities. In cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business i....
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....me Court in the case of Assam Bengal (supra) wherein their Lordships have observed that these tests are mutually exclusive and have to be applied to the facts of each particular case in the manner indicated above. It was observed that in the great diversity of human affairs and the complicated nature of business operations it is difficult to lay down a test which would apply to all situations and, thus, one has to apply these criteria one after the other from the business point of view and come to the conclusion whether on a fair appreciation of the whole situation the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure. The question is a question of fact to be determined by the IT authorities of an application of the broad principles laid down above and the Courts of Law would not ordinarily interfere with such findings of fact if they have been arrived at on a proper appreciation of those principles. Reference can be made to the following observations of their Lordships from the said decision: "These tests are thus mutually exclusive and have to be applied to the facts of each particulars case in the manner above indic....
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....tection fee the assessee has been held to have acquired an asset or advantage as per decision of Hon'ble Supreme Court in the case of Assam Bengal (supra). 119. It may be true that a particular length of time may not be determinative of deciding whether a particular expenditure can be termed to have provided enduring benefit but according to the aforementioned decisions it does neither mean permanent nor ephemeral. But at the same time if the restrictive covenant is to last for 5 years that has also been held to be giving enduring benefit in the case of Assam Bengal. 120. The ratio of decision in the case of Madras Auto Services (supra) is also of no avail in the cases of non compete payments as in that case the incurring of expenses did not create any asset as against that it has been clearly held by the Hon'ble Supreme Court in the case of Assam Bengal (supra) that protection fee paid by the assessee had acquired an asset or advantage of an enduring nature which enured for the benefit of the whole of the business. Similar is the position of other decisions relating to laying down electricity lines, which did not become the property/asset of the assessee and therefore, the e....
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....with, what is a recurring expense for running a business, as against, an expense undertaken for the benefit of the business as a whole; (iv) an expense incurred for acquisition of a source of profit or income would in the absence of any contrary circumstance, be in the nature of capital expenditure. As against this, an expenditure which enables the profit making structure to work more efficiently leaving the source or the profit making structure untouched, would be in the nature of revenue expenditure. In other words, expenditure incurred to fine tune trading operations to enable the management to run the business effectively, efficiently and profitably leaving the fixed assets untouched would be an expenditure of a revenue nature even though the advantage obtained may last for an indefinite period. To that extent, the test of enduring benefit or advantage could be considered as having broken down; (v) expenditure incurred for grant of License which accords 'access' to technical knowledge, as against, 'absolute' transfer of technical knowledge and information would ordinarily be treated as revenue expenditure. In order to sift, in a manner of speaking, the grain f....
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.... agreement' is part & parcel of the entire transaction. The assessee had acquired a business concern in India with its outlay (more particularly described elsewhere in this order) and the entire transaction was outlined in the MOU dated 4th November, 1996. The relevant portion of clause 3 of MOU which regulates "the purchase price" of the transaction has already been reproduced in para 88 and 89 of this order wherein aggregate amount of Rs.52.5 crore was determined as the total purchase price for the Compressor Division assets referred to in Article 1 and the Ballabgarh land and building as referred to in Article 2. The purchase price itself states that the amount of Rs.52.5 crore was to be paid as a total purchase price for the Compressor Division assets and Ballabhgarh land and building. 124. The MOU was implemented through agreement dated 2nd July, 1997 which also states about execution of non-compete agreement in clause 9 (j) which read as under:- j. "Whirlpool shall sign and deliver to Tecumseh India, against the receipt of full consideration specified therein, a Non-Compete Agreement in the form as contained in Appendix "M" undertaking not to compete with Tecumseh....
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....d be arrived at. 127. The incurring of expenditure also brought an enduring benefit to the assessee if the same is examined from the proposition of law laid down in the case of Assam Bengal Cement Company Ltd. (supra) wherein their Lordships have considered the period of five years as providing enduring advantage to the assessee irrespective of the fact that the payment was to be made annually. Their Lordships have observed that the asset which the company had acquired in consideration of such recurring payment was in the nature of capital asset which was the right to carry on its business unfettered by any competition from outsiders within the area. The protection acquired by the company was for its business as a whole. It was not a part of the working of the business, but went to appreciate the whole of the capital asset and make it more profit yielding. The relevant observations of their Lordships from the said decision are as under:- "The asset which the company had acquired in consideration of this recurring payment was in the nature of a capital asset, the right to carry on its business unfettered by any competition from outsiders within the area. It was a protect....
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....m outsider within the area, but in the case of the assessee there were several competitors and what the assessee had got only the non-compete agreement from one party, namely, "Whirlpool India" from which it had purchased the manufacturing related facilities. This proposition of the assessee also cannot be accepted as it is not necessary that the assessee should acquire monopoly rights while warding off the competition. Reference in this regard can be made to the following observations of Hon'ble Supreme Court from the decision in the case CIT vs. Coal Shipment Pvt. Ltd. (supra) where it was observed that even in a case where payment is made to ward off competition in business to a rival dealer would constitute capital expenditure:- "Although we agree that payment made to ward off competition in business to a rival dealer would constitute capital expenditure if the object of making that payment is to derive an advantage by eliminating the competition over some length of time, the same result would not follow if there is no certainty of the duration of the advantage and the same can be put to an end at any time. How long the period of contemplated advantage should be in ord....
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....discussion, we restore the cases of the interveners to the Division Bench to be decided only after ascertaining the facts as also the similarity of the facts with those discussed in the case of the present assessee. Therefore, the cases of the interveners be placed before the Division Bench to be decided in accordance with the law after bringing out the facts on record. 133. So far as it relates to ground No.2 the issue is discussed by the Assessing Officer in para 3 of the impugned assessment order. The assessee has increased its authorized share capital and for that purpose it has incurred an expenditure of Rs.39,90,120/- being on account of fee paid to Registrar of Companies. The Assessing Officer relying on the following decisions of Hon'ble Supreme Court has disallowed this amount:- i) Punjab State Industrial Development Corporation Ltd. vs. CIT 225 ITR 792; ii) Brook Bond India Ltd. vs. CIT 225 ITR 798 (SC). 134. Before Ld. CIT (A) it was pleaded that company's investment in working capital as on 31st March, 1998 was Rs.24,79,41,453/- and investment in fixed assets as on 31st March, 1998 was Rs.44,52,68,614/- and it was submitted that even if ROC fees ....
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....wed. 20. The learned D.R. on the other hand supported the orders of the lower authorities. 21. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. We find that the Assessing Officer has disallowed the deduction claimed by the assessee of Rs. 50,80,172/- in connection with the issue of equity shares following the decision of the Hon'ble Supreme Court in Brooke Bond (India) ltd. vs. C.I.T. [225 ITR 798]. The contention of the assessee is that the increase in the share capital was to meet the needs for working capital. It is the submission of the assessee that the Tribunal in Laxmi Auto Components Ltd. (Supra) has observed that where the expenses were incurred for increasing the share capital which was in to meet the need for working capital then the expenditure was allowable as revenue expenditure. We find that both the lower authorities has not brought on record the entire facts of the case whether the increase in the share capital by the assessee was for working capital or for fixed capital. Further, we find that the learned C.I.T.(A) has observed in his order that for the assessment year 1990-....