TaxTMI 
TaxTMI 
2017 (8) TMI 1474
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....ctions to the proposed disallowance. In response, the assessee filed detailed submissions stating that the payment is not only for non-competing, but is also for several other services rendered by M/s Kapil Chit Fund Pvt. Ltd to the assessee and therefore, the payment was revenue in nature. It was also submitted that the assessee did not derive any benefit of enduring nature and therefore, it cannot be termed as capital expenditure. The assessee further submitted that the TDS also was deducted u/s 194J of the I.T. Act in respect of the non compete fee paid and was credited to the govt. a/c and likewise M/s. Kapil Chit Fund (P) Ltd also had offered this receipt of non-compete fee as revenue for assessment purposes for the A.Y 2012-13. The AO, however, was not convinced with the assessee's contentions and held that the non- compete fee is capital in nature and hence disallowed the same and brought it to tax. Aggrieved, the assessee preferred an appeal before the CIT (A) who confirmed the order of the AO and the assessee is in further appeal before us. 3. The learned Counsel for the assessee reiterated the submissions made by the assessee before the authorities below while the learne....
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....her such treatment in the hands of the recipient would clinch the issue? In our opinion, it would not, because the nature of the payment could be capital in the hands of the payer, while it could be revenue receipt in the hands of the payee. For example, in the hands of the purchaser of a machinery, the payment would be capital in nature, while in the hands of the seller, it could be revenue receipt. Therefore, the contention of the assessee that because the receipt in the hands of the recipient i.e. the holding company has been accepted as a revenue receipt, it should be treated as revenue expenditure in the hands of the assessee is not acceptable. 6. The second argument is that the non-compete agreement is for a short period of 5 years and no enduring benefit has enured to the assessee. 7. The learned DR had relied upon the decision of the Hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd vs. CIT reported in (1955) 27 ITR 34 (S.C) in support of his contention that such payment was capital in nature while the learned Counsel for the assessee had relied upon various other cases in support of his contention. Let us, therefore, consider the applicability of the d....
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....eriod as against the case of the assessee before us as the competition to be avoided is only from its parent company and is also initially for a period of 5 years only. Therefore, in our opinion, the decision of the Hon'ble Supreme Court is not applicable to the facts of the case before us. ii) The learned Counsel for the assessee had relied upon the following case law: a) CIT vs. Coal Shipment P Ltd reported in (1971) 82 ITR 902 (S.C) wherein the Hon'ble Supreme Court was considering the case of an assessee which had entered into an agreement with another exporter, was not to export coal but to assist the assessee in procuring coal for shipment in return of payment from the assessee and the agreement could be terminated at any time. The Hon'ble Supreme Court held that the payment related to the actual shipment of coal and therefore, such expenditure is allowable as a deduction. b) CIT vs. Andhra Fuels (P) Ltd reported in (2016) 70 Taxmann.com 271 (A.P). In this case the Hon'ble jurisdictional High Court was considering the case of an assessee who had entered into a non-compete fee agreement for a period of 3 years to ward off competition in the territories of....
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.... payment and the nature of the benefit enured to the assessee by such payment. On formation of Assessee Company, the holding company wanted the assessee company to benefit by taking over its business in northern Telangana Districts. By virtue of the non-compete agreement, the holding company has lost part of its territory and consequently a source of income and it is compensated by receipt of 1% of the annual turnover. What is to be seen in this case is whether the assessee has gained anything by virtue of this agreement. The assessee has gained the business of the holding company i.e. the income generating area and also not having its holding company as its competitor. Whether this benefit is enduring in nature. Perhaps not. Because, by the agreement dated 10.04.2010, the period of non-competing was 5 years only. It was further extended by a further period of 5 years by agreement dated 10.04.2015 and the payment is payable every year. Thus, the payment is for warding off competition from its holding company in a particular area and thereby generating revenue therefrom. 9. In all the decisions relied upon by the learned Counsel for the assessee, the covenant or restriction for non....