TaxTMI 
TaxTMI 
2017 (4) TMI 1387
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....iduals, Mr.Raja KSP Ganesan and Mr.R.G.Chandramogan, a father and son duo, in 1970. The firm was converted into a Private Limited Company in 1986 and in 1995, the Appellant initiated the process of conversion from Private Limited to a Public Limited Company to facilitate growth and expansion in business. The individuals had nurtured the business from inception and continued their association with the entity over the years. Intellectual property had been developed by them and the brand name 'ARUN' had been transferred by Mr.R.G.Chandramogan to the Appellant in April 1987. The individuals were highly experienced in the business of dairy based frozen food products. The Appellant thus wanted to ensure that the association with the indiv....
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....ion of persons of in any other form." 3. The expenditure of Rs. 400 lakhs incurred on non-compete fee, Rs. 300 lakhs to Mr.Chandramohan and Rs. 100 lakhs to Mr.Raja Ganesan, was claimed as expenditure in the computation of income in respect of A Y 1996-97. The Assessing Authority was of the view that the benefit obtained under the agreement was an enduring one, and consequently held the same to be capital, liable to be disallowed. 4. The Commissioner of Income Tax (Appeals) before whom an Appeal was filed, reversed the order of assessment. The Commissioner of Income Tax (Appeals) held that the restriction placed on the directors resulted in a business advantage and the payments were thus revenue in nature. The Tribunal, in an appeal filed....
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....ns Pvt. Limited. The main ground on which the payment has been held to be capital is that the restrictive covenant gives an enduring benefit which falls squarely in the capital field. 8. The Revenue would rely on two judgments of the Supreme Court in the case of Alembic Chemical Works Co. Ltd vs CIT (177 ITR 377) and CIT vs Coal Shipment Private Limited (82 ITR 902) and a decision of the Madras High Court in the case of Chelpark Company Limted vs. CIT (191 ITR 249). The assessee, on the other hand, would rely on a decision of this Court in the case of Carborandum Universal Limited vs. Joint Commissioner of Income Tax, Special Range -1, Chennai (2012) 26 taxmann.com 268. 9. The question before us is the categorization of expenditure of non....
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....is it expenditure necessary for the acquisition of property or of rights of a permanent character, the possession of which is a condition of carrying on its trade at all?" It is clear from the above discussion that the payment made by the assessee for purchase of loom hours was expenditure laid out as part of the process of profit earning. It was, to use Lord Sumner's words, an outlay of a business "in order to carry it on and to earn a profit out of this expense as an expense of carrying it on". [John Smith and Son v. Moore [1921] 12 TC 266 (HL)]. It was part of the cost of operating the profit-earning apparatus and was clearly in the nature of revenue expenditure.' 'there may be cases where expenditure, even if incurred for obtainin....
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....advantage of restraining the individuals from engaging in competition is in the field of facilitating its own business and rendering it more profitable. Since there is no increase in fixed capital, the payment does not encroach in the capital field. 13. The payments made towards restrictive covenants ensured the continued presence and support of the individuals in its business operations. Equally importantly, it also ensured credibility in public perception and reassured potential investors that the performance of the company would remain optimum through this continued association. Though there was no actual or impending threat of the Directors severing their ties with the company or starting competing businesses, the possibility was alway....