TaxTMI 
TaxTMI 
TaxTMI 
2017 (12) TMI 131
X X X X Extracts X X X X
X X X X Extracts X X X X
....al is as to whether the amount of Rs. 70 lakhs paid by the Appellant/Assessee (hereinafter referred as 'Assessee') to M/s. Shriram Mobiles Limited (hereinafter referred as 'SML') is a non-compete fee and whether the Assessee is entitled to deduction on the ground that it is a revenue expenditure. Brief Background 4. The Assessee claims to be the Indian Arm of the GKN group based in Germany and engaged in the manufacture and sale of front wheel drive axle assembly for vehicles. It is the Assessee's case that some of its customers during the relevant period included companies such as Maruti Udyog Limited and Bajaj Tempo. According to the Assessee, it was the market leader in manufacturing of these products. 5. The Assessee was in the process of expanding its manufacturing capacity and since demand for axles was increasing and new models of cars were coming into the market, it entered into an agreement dated 16th February 1995, for purchase of assets and liabilities of a newly set up factory, established by a company named Shriram Mobiles Limited in Madras. According to the Assessee, the consideration in the said agreement was in two parts first Rs. 1.30 Crores towards the net asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er Ltd.[2008] 302 ITR 249 (Del) (hereinafter 'Eicher Ltd.') wherein a Division Bench of this Court held that a noncompete fee is in the nature of business/revenue expenditure. It was further submitted that the SLP against this judgment was also dismissed. Submissions of the Revenue 10. Mr. Asheesh Jain, learned Senior Standing Counsel appearing for the Revenue, heavily relied upon the judgment of this Court in Sharp Business System v. Commissioner of Income Tax [2012] 254 CTR 233 (Delhi) (hereinafter 'Sharp Business System') to submit that a non-compete fee for a period of seven years was held to be a capital expenditure and not a revenue expenditure. He submitted that the Assessee obtained a benefit of an enduring nature by ensuring that competition was eliminated at the inception itself. Agreement dated 16th February 1995 11. Before embarking upon and deciding the question of law framed in this case, it is important to discuss the nature of the agreement entered into between the Assessee and SML. In fact, the clauses in the agreement tell a different tale. 12. It is surprising to note that none of the authorities beginning from the AO to the ITAT have referred to the clauses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evious communication either oral or written between the parties hereto with respect to the subject matter hereof or any Confidential Information as defined in sub-article (b) below except with prior written consent of other party or to comply with law or guidelines issued by any regulatory authority. (b) For the purpose of sub-article (a) the expression "Confidential Information" shall mean information relating to the products, services, business, personnel or commercial activities of the other party or its affiliates including but not restricted to formulas, compilations, programs, devices, concepts, inventions (whether or not patentable), designs, methods, technique, marketing and commercial strategies, process, data concepts, customer, client and contact lists and know - how, unique combinations of separate items which individually may or may not be confidential, which information is not generally known to the public and either derives economic value, actual or such that the other party or its affiliates has a legitimate interest in maintaining its secrecy. All documents will be considered CONFIDENTIAL INFORMATION whether or not marked with any proprietary notice or legend when....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... necessary sanctions and approvals required for compliance of the agreement - Cl. 14 14. The above clauses of the agreement go to show that the amount of Rs. 70 lakhs is not merely payment towards the noncompete clause but also towards various other obligations which were imposed upon SML and had a direct bearing on the final execution and implementation of the agreement. To argue that the entire consideration was towards the non-compete fee would therefore be an incorrect statement, inasmuch as the clauses of the agreement do not reflect so. The emphasis in the agreement is towards the takeover of the assets of SML, and it was to ensure that the agreement bears fruition that the consideration of Rs. 70 lakhs has been apportioned for various obligations and covenants imposed on SML. 15. Under these circumstances, the question that is to be decided is whether the expenditure of Rs. 70 lakhs incurred is of capital or revenue in nature. The consideration of Rs. 70 lakhs is clearly towards ensuring that there is no impediment in the smooth transfer of SML's factory to the Asssessee. It should be complete and final. From the facts placed before the Court, there really did not appear t....