TaxTMI 
TaxTMI 
2019 (2) TMI 37
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.... ('the Act') read with Rule 8D of the Income-Tax Rules, 1962 ('the Rules'). 1.2 On the facts and circumstances of the case, the learned CIT(A) erred in confirming the mechanical application of Rule 8D of the Rules without recording satisfaction against the claim of the Appellant. 1.3 The Appellant prays that additional disallowance of Rs. 71,02,401 under Section 14A of the Act be deleted. Ground 2 - Depreciation at 10% on temporary shed as against 100% claim of depreciation is unwarranted 2.1 On the facts and circumstances of the case, the learned CIT(A) erred in confirming the restriction of depreciation at 10% on the temporary shed as against 100% depreciation claimed by the Appellant. 2.2 The Appellant prays that depreciation be allowed at 100% on temporary shed as against 10% under the Act. Ground 3 - Depreciation at 10% on electrical fitting as against 15% claim of depreciation is unwarranted 3.1 On the facts and circumstances of the case, the CIT(A) erred in reclassifying electrical fitting under the block of Furniture and fittings, thereby resulting in restriction of depreciation at 10% as against 15% depreciation claimed by the Appellant. 3.2 The....
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....plied that it had an approved investment policy for minimizing risk and investments were made based on the guidelines received from its investment advisors. As per the assessee , apart from signing of the forms, management did not spend any significant time for managing the investment portfolio. Assessee also pointed out that it had made suo-motu disallowances u/s.14A of the Act for meeting the expenditure of two staff who were engaged in the investment transactions. 7. However, ld. Assessing Officer was not impressed by the above reply. According to him, assessee did not maintain any separate account for the expenditure relating to the investments giving rise to exempt income. As per the ld. Assessing Officer, assessee also did not give details of the ratio applied for computing the suo-motu disallowances made by it. In other words, as per ld. Assessing Officer, assessee had not given any basis how it arrived at the suo-motu disallowance for the respective years. As per the ld. Assessing Officer, investments whether it yielded exempt income or not, had to be considered for computing the disallowance. Nevertheless, he restricted the disallowance only to the indirect expenditure sp....
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.... be excluded. We are afraid we cannot accept this line of argument, since this issue is no more res-integra. Hon'ble Apex Court in the case of Maxopp Investment Ltd (supra) after considering various judgments of the various High Courts on this issue had held as under at paras 31 to 41 of its judgment. ''31. We have given our thoughtful consideration to the argument of counsel for the parties on both sides, in the light of various judgments which have been cited before us, some of which have already been taken note of above. 32. In the first instance, it needs to be recognised that as per section 14A(1) of the Act, deduction of that expenditure is not to be allowed which has been incurred by the assessee "in relation to income which does not form part of the total income under this Act". Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business exp....
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....t of expenses comes into play as that is the principle which is engrained in section 14A of the Act. This is so held in Walfort Share and Stock Brokers P. Ltd., relevant passage whereof is already reproduced above, for the sake of continuity of discussion, we would like to quote the following few lines therefrom* : "The next phrase is, 'in relation to income which does not form part of total income under the Act'. It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A . . . The theory of apportionment of expenditure between taxable and non- taxable has, in principle, been now widened under section 14A." 35. The Delhi High Court, therefore, correctly observed that prior to introduction of section 14A of the Act, the law was that when an assessee had a composite and indivisible business which had elements of both taxable and non-taxable income, the entire expenditure in respect of the said business was deductible and, in such a case, the principle of apportionment of the expenditure relating to the non-taxable income did not apply. The principle of apportionment was made availabl....
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....his would not be limited only to co-operative societies/banks claiming deduction under section 80P(2)(a)(i) of the Act but would also be applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies. 38. From this, the Punjab and Haryana High Court pointed out that this circular carves out a distinction between "stock-in-trade" and "investment" and provides that if the motive behind purchase and sale of shares is to earn profit, then the same would be treated as trading profit and if the object is to derive income by way of dividend then the profit would be said to have accrued from investment. To this extent, the High Court may be correct. At the same time, we do not agree with the test of dominant intention applied by the Punjab and Haryana High Court, which we have already discarded. In that event, the question is as to on what basis those cases are to be decided where the shares of other companies are purchased by the assessees as "stock-in-trade" and not as "investment". We proceed to discuss this aspect hereinafter. 39. In those cases, where shares are held as stock-in- trade, the main purpose is to trade in those shares and earn profits therefro....
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....never dividend is declared by the investee-company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove. 41. Having regard to the language of section 14A(2) of the Act, read with rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the Assessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo motu disallowance under section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the Assessing Officer was not accepting th....
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....llow the claim of the assessee for 100% depreciation on such temporary sheds built by using steel pipes and iron meshes. Ground No.2 of the assessee for all the years stands allowed. 15. Alluding to the third common ground which is on restriction of depreciation claimed on electrical fittings, ld. Counsel for the assessee submitted that the electrical fittings were eligible for 15% depreciation, whereas lower authorities had given the rates available for buildings. As per the ld. Authorised Representative such electrical fittings were to be considered as part of plant and machinery and was eligible for 15% depreciation. 16. Per contra, ld. Departmental Representative strongly supported the orders of the lower authorities. 17. We have considered the rival contentions and perused the orders of the authorities below. It is not disputed that electrical fittings if considered as part of building is eligible for only 10% depreciation. Claim of the assessee is that these fittings were to be considered as part of plant and machinery. However nothing has been brought on record to show that electrical wiring, switches, sockets, other fittings were part of any plant and machinery. Accordin....
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....on at the rate of 60% on the above items. Orders of the lower authorities on this issue are set aside and the claim is allowed. Ground No.4 of the assessee stands allowed. 21. This leaves us with one another ground which is appear in the appeal of the assessee for the assessment year 2014-15. This ground is reproduced hereunder:- ''Ground 5 - Disallowance of payment of non-compete fees of Rs, 12,35,58,502 is unwarranted. 5.1 On the facts and circumstances of the case, the CIT(A) erred in confirming disallowance of Rs. 12,35,58,502 towards non-compete fees claimed by the Appellant as revenue expenditure. 5.2 On the facts and circumstances of the case, the CIT(A) erred in confirming the rejection of the Appellant's alternative claim for allowing expenditure over the period of the noncompete agreement (i.e. 18 months) 5.3 On the facts and circumstances of the case, the CIT(A) erred in confirming rejection of the Appellant's alternative claim for depreciation on the non-compete fee under the block of intangible asset under the Act. 5.4 The Appellant prays that disallowance of non-compete fees be deleted or alternatively claim for expenditure over the period of agreem....
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....versal Ltd vs. JCIT(2012) 26 Taxmann.com 268 (Madras HC) (iv) CIT vs. (Late) GD Naidu and others (1986) 24 Taxmann 255 268 (Madras HC) (v) Asianet Communications Ltd vs. CIT(2018 ) 96 26 Taxmann.com 399 (Madras HC) (vi) Hatsun Agro Products Ltd. vs. JCIT (2018) 99 26 Taxmann.com 220 (Madras HC) (vii) Hidelberg Cement India Ltd vs. ACIT( 2015) 55 26 Taxmann.com 336 (Mumbai ITAT) 24. Per contra, ld. Departmental Representative submitted that even though the tenure of the agreement was only for eighteen months, it had a linkering effect. According to him, non compete agreement placed at paper book pages 273 to 285, clearly indicated that Shri. V. Shankar could not even recruit any person from the assessee company during the tenure of such agreement. This, according to him, clearly gave rise to an enduring benefit. As per the ld. Departmental Representative , the difference should be seen with reference to the long lasting benefit accruing to the assessee due to the restriction placed on Shri. V. Shankar from weaning away the employees. Hence, as per the ld. Departmental Representative, expenditure was incurred in the capital field and rightly disallowed by the lower authoriti....
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....months prior thereto or is employed by the Company; or (b) with a view to use the specific knowledge or skills of such person for the benefit of any Person carrying on Company's Activities; or Cc) to terminate or breach a contractual or any other relationship with the Company' Nothing in this Clause 2.2 shall apply to an individual who has ceased to be employed by the Company for a period of at least 12 (twelve) months prior thereto or an individual who has applied for employment with the founder or his affiliates or with any Person who is being assisted by the Founder, in response to a general solicitation for such employment made by the Founder or his Affiliates or by any Person who is being assisted by the Founder, whether by way of newspaper advertisements or other medium As the Founder has, from, time to time, had dealings with the Customers as set out In Schedule I, the Founder, undertakes that during the Restricted Period, the Founder: 2.3.1 shall not, directly or indirectly; 2.3.2 shall procure that his Affiliates shall not; or 2.3.3 shall not, directly or indirectly assist any Person; for the purposes of carrying, facilitating or assisting any Company's....
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.... agreement not to carry on business of which goodwill is sold - One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business. Any contractual term that imposes restraint on a contracting party from engaging in any business for a reasonable term must be backed by consideration. Therefore, the non-compete compensation is but a consideration paid to the party who is kept out of competing business during the term of the contract. 47.The non-compete compensation, from the stand point of the payee of such compensation, is so paid in anticipation that absence of a competition from the other party to the contract may secure a benefit to the party paying the compensation. There is no certainty that such benefit would accrue. In other words, inspite of the fact that a competitor is kept out of the competition, one may still suffer loss. If it were to be a capital expenditure whether or not....