TaxTMI 
TaxTMI 
2018 (1) TMI 1480
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.... amount of Rs. 25 lacs to be allowed in A.Y. 2003-04 and to withdraw the depreciation of Rs. 6,25,00/1- on the same". 2. "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the AO to allow the deduction u/s 80HHD on the amount of Rs. 38,02,104/- being the income earned by the appellant from the training fees without appreciating the fact that words "derived from" should be a immediate source and not source of the source and since the above income is not derived from the services provided to the foreign tourist, assessee is not entitled for deduction u/s 80HHD in respect of these receipts". 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to allow deduction u/s 80HHD on retention money written back amounting to Rs. 10,74,050/- without appreciating the fact that that words "derived from" should be a immediate source and not source of source and since the above income are not derived from services provided to the foreign tourist, assessee is not entitled for deduction u/s 80HHD in respect of these receipts". 4. "On the facts and in the circumstances of the ....
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....ion of law. (b) The Ld. CIT (A) erred in law and facts in upholding the noncompete fees of Rs. 50,00,000/- paid to Mr. Arjun Sharma as expenditure for enduring benefit and allowing deduction in 2 years as tenure of agreement is two years. The reasons given by him are contrary to the facts of the case and against provision of law. (c) The Ld. CIT (A) failed to appreciate that the disallowance of Rs. 1,00,00,000/- paid to company's employee and employee of a brand acquired by the appellant being non compete fees paid to protect the business from competition and run the business smoothly and claimed by the assessee u/s 37(1) being incurred wholly and exclusively for the business of the appellant. (d) The Ld. CIT (A) ought to have allowed compensation of Rs. 1,00,00,000/- for not competing in the business as revenue expense. The expenditure did not result in the acquisition of any asset nor enduring benefit to the assessee as it is not for elimination of competition but non compete for a short period. 2) License Fees - Rs. 1 ,05,00,000/-: (a) The Ld. CIT (A) erred in law and facts in upholding the disallowance of Rs Rs. 1,05,00,000/- bei....
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....62,504/- inextricably linked with the business of the assessee is not eligible for deduction u/s.80HHD. The reasons given by him for doing so are wrong, contrary to the facts of the case and against the provisions of law. (ii) The Ld. CIT (A) failed to appreciate the fact that the interest income is part of business income and assessed accordingly by the Ld. A.O. and accepted by Id. CIT (A) during the year and was accepted as business income for allowing deduction u/s 80HHD of the Act by Hon. ITAT in earlier years in assessee's own case. (iii) The Ld. CIT (A) has erred in law and facts in not passing order on Ground No. 3(d) of the Appeal. The Id. CIT (A) ought to have added Rs. 88,37,957/- to the profit of the business for computation of deduction u/s 80HHD of the Act being uitlisation of Reserve not accepted 1 disallowed u/s 80HHD(5) of the Act and added to the profit & gains of business. 5) Disallowance u/s. 14 A : (i) The Ld CIT (A) erred in law and facts in upholding the disallowance of Rs. 21,62,346/- being proportionate of Head Office Expenses Rs. 6,45,974/- and fees paid for Management consultancy Services Rs. 15,16,372/, u/s 14A of t....
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....) also allowed gain on Foreign Exchange Fluctuation for Rs. 1,85,88,507/- which was not considered by AO for eligible receipt and further directed the AO for to re-computing the receipt of Rs. 31,30,99,313/- received from Hotels and operators and Rs. 66,39,877/- Thus, further aggrieved by the order of ld. CIT(A), the assessee as well as Revenue has filed their cross appeal before us raising their grounds of appeal which we have referred above. ITA No.2075/M/2007 by assessee 5. We have heard Sh. Percy J Pardiwala learned Sr Advocate for the assessee (ld AR) assisted by Ms. Jay Bhansali Advocate and the Ms Padmaja, ld. CITDR ('ld DR') assisted by Ms. Pooja Swaroop ld JCIT. First, we are taking the appeal filed by the assessee. Ground No. 1 relates to disallowance of payment of Non-Compete Fees. The ld. AR for the assessee argued that the assessee entered into agreement with Ms Anita Shirodkar and Arjun Sharma and paid Rs. 50 lakh each to both of them on account of non-compete fees. The assessee by way of agreement dated 30.06.201 has acquired the right to use the license name 'Tour Club' for a fixed period so that the assessee could exploit the Middle East market where the stre....
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....harma, it was argued that non-compete agreement with him is only in respect of destination management services and not for whole tour and travel business carried by Tour Club Express Travel and Tours Pvt. Ltd. The ld. CIT(A) wrongly allowed the expenditure as a revenue expenditure. The learned DR for the revenue relied upon the decision in Madras Industrial Investment Corporation Ltd v/s CIT [225 ITR 802(SC)] and decision of Bombay High Court in Taparia Tools Ltd. v/s JCIT(2003) 260 ITR 102(Bombay). 6. We have considered the rival submission of the parties and perused the material available on record. The AO treated the expenditure as capital expenditure holding that in the books of account, the assessee has shown the amount paid for non-compete fees for intangible asset. Right to restrain competitor is a valuable commercial asset. Further the amount spent on acquisition of intangible asset is to be treated as capital expenditure and depreciation is allowable on such intangible asset, thus, the entire amount of Rs. 1,00,00,000/- was treated as Capital expenditure. Since agreement with Anita Shirodkar was executed on 30.06.2011, the depreciation was allowed @ 25%. However, the da....
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....enduring nature. There was also nothing to show that the amount of Rs. 4 crores was drawn out of the capital of the assessee. On a cumulative appreciation of the facts, it was clear that the Commissioner (Appeals) and the Tribunal did not err in concluding that the payment of noncompete fee by the assessee was a business expenditure and not a capital expenditure." 7. Further, the Hon'ble Delhi High Court in case of CIT Vs. Career Launcher India Ltd. (supra) while considering the substantial question of law whether Tribunal is correct in allowing non-compete fee of Rs. 5,40,000/- by assessee as a revenue expenditure solely on the basis of agreement period and mode of payment. The Hon'ble High Court passed the following order: "It is necessary to keep the nature of the assessee's business in mind before judging the allowability by the payment. The assessee is engaged in the business of running learning centers for preparing/coaching students to face competitive examinations held by IIM, IIT, Institute of Information Technology, etc. In conducting the classes for the students, the assessee has to rely on faculty members of repute. 'V' and 'S' were such ....
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....territories for one year was allowed as revenue expenditure holding as under: "We have heard the rival contentions and carefully perused the record. We notice that the learned Commissioner of Income-tax (Appeals) has upheld the addition on the following reasoning : (a) The prohibition imposed under article 5 covers territory of four countries., viz., India, Bangladesh, Pakistan and Afghanistan. By putting such a territorial restriction, the assessee has acquired business o countries which could have been carried on by Mr. Parasrampuria in these countries. (b) The non-compete fee of Rs. 80.88 lakhs was paid in lieu of article 8, which discusses about the confidential information. (c) As per clause 9, Mr. Parasrampuria is deprived of his entitlement to claim any rights over intellectual property, which constitute capital assets in terms of section 32 of the Act. However, a careful perusal of the "compromise settlement" would show that Mr. Parasrampuria was appointed as executive director of M/s. Indo-rama Cements Ltd. from April 1, 2001, onwards. His term of appointment was renewed from time to time and last renewal was to expire by March ....
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.... 8 would show that the said clause only provide that the payee should maintain all confidential information strictly confidential. As submitted by the learned authorised representative, this is an usual clause, which is normally incorporated in separation agreements. Even otherwise, it is expected from anybody that he should not divulge any confidential information, which was acquired or obtained during the course of employment. Under article 9, it is provided that all intellectual property in any work or material developed, discovered, invented, designed and/or authored by the executive director, either individually or in conjunction with any other employee/consultant of the company, during the course of his employment with the company, shall belong to and are the absolute property of the company. In our view, it may not be correct to presume that an employee working in a research organisation shall become owner of any intellectual property developed by the company by employing such a person. A careful reading of article 9 would show that the payee is precluded from making such a claim, for the reason that the said intellectual property is developed etc. during the course....
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....e. The decision relied by ld. DR for the Revenue in Taparia Tools Ltd. (supra) has been overruled by Hon'ble Supreme Court in Taparia Tools Ltd. vs. JCIT (372 ITR 605) and the decision of Madras Industrial Investment Corporation Ltd. v/s CIT [225 ITR 802(SC)] is not applicable on the facts of the present case as the said case relates to proportionate deduction spread over a period on discount of debenture. In the result, Ground No.1(a) to 1(d) of the appeal are allowed. 10. Ground No. 2 relates to disallowance of license fees of Rs. 1,05,00,000/-. The ld. AR of the assessee argued that assessee paid license fees to leverage its strength and to expand business activities in Middle East market for incoming customer to India. The assessee paid the license fee for expanding its existing business in regions outside India. The expenses incurred toward license fee for a limited period is a revenue in nature and allowable as business expenses under section 37. The sum of Rs. 1.00 Crore was paid for the use of "Tour Club Mark." The copy of agreement is placed on record. The assessee has neither acquired any capital asset nor any enduring benefit. The license fee was paid for use of mark ....
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.... name and only assessee has power to terminate the brand agreement. The consideration of payment of Rs. 1.05 crore made by assessee is not only for use of brand name but paid for acquiring absolute right on the brand name and that expenditure incurred on acquisition of brand name is capital in nature. The Hon'ble Apex Court in case of CIT vs. IAEC (Pumps) Ltd. (supra) held that license fee paid for use of patent and design was on revenue account. The fact of the said case was that under an agreement entered by assessee with a foreign company, the assessee was granted a license to use its patents and designs exclusively in India. The agreement was for duration of 10 years, with the parties having the option to extend or renew the agreement. The foreign company undertook not to surrender its patents without the consent of the assessee and to make available to the assessee any improvements, modifications and additions to designs. It had also undertaken to enable the assessee to defend any counterfeit by others. The Hon'ble Supreme Court in case of Devidas Vithaldas & Co. Vs. CIT (84 ITR 277) held that where expenditure is for acquisition of goodwill, expenditure is capital in nature, ....
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....001-02 the single issue was restored to the file of AO to decide the claim in accordance with the order of special bench in case of Amway India Enterprises vs. DCIT (2008) 301 (AT) 1 (Del) (SB). Thus, considering the decision of co-ordinate bench, both the part of this ground of appeal are restored back to the file of AO to decide the same in accordance with the decision of Tribunal inc assessee's own case in ITA No. 5562, 5400/M/2005 dated 23.02.2011. Thus, this ground of appeal is allowed for statistical purpose. 15. Ground no.5 relates to disallowance under section 14A of the Act of Rs. 21,62,346/-. The ld. AR of the assessee argued that during the year the assessee received dividend and interest on various investments. The investments were made out of own funds and not from borrowed fund. The AO accepted that assessee has sufficient fund. There was negligible allocation in the nature of expenses incurred at Head Office level so far as time spent on earning such income. The AO disallowed Rs. 21,62,346/- under section 14A on estimated. Out of which Rs. 15,16,372/ relates to Management Consultancy Services and Rs. 6,45,974/- for Head Office Expenses . The ld. AR of the assessee....
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....d to Arjun Sharma is revenue expenditure. Hence, ground no.1 of appeal raised by revenue is dismissed. 19. Ground No.2 relates to deletion of addition in respect of training fees of Rs. 38,02,104/-.The ld. DR for the Revenue relied upon the order of AO. On the other hand, the ld. AR of the assessee argued that the training fees are derived in the course of business of Tour & Travels of the assessee and ought to be considered for the purpose of deduction under section 80HHD of the Act. Once, the AO treated the training fees as business income, it is not open for him to exclude the same while computing deduction under section 80HHD. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon'ble Bombay High Court in case of CIT vs. Alfa Lavel (India) Ltd. (266 ITR 418) and decision of Tribunal in ACIT vs. Eastern International Hotels Ltd. (100 ITD 154). 20. We have considered the rival submission of the parties and have gone through the order of authorities below. During the assessment proceeding, the AO observed that in the details of miscellaneous income the assessee has shown to have received Rs. 38,02,104/- as training fees for staff use in Tour....
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....it derived in the course of business of tour and travels. In support of this submission, the ld. AR of the assessee relied upon the decision of Hon'ble Bombay High Court in case of CIT vs. Alfa Lavel (India) Ltd. (266 ITR 418) and decision of Tribunal in ACIT vs. Eastern International Hotels Ltd. (100 ITD 154). 22. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have noted that the AO has assessed the said amount under the head "Profit & Gain from Business and Profession". We have further noted that the co-ordinate bench of Mumbai Tribunal in ACIT vs. Eastern International Hotels (supra) held that where interest income received by assessee had been assessed under the head "Profit & Gain from Business and Profession" same cannot be treated as non-business income for the purpose of deduction under section 80HHD of the Act. The co-ordinate bench relied upon the decision of Alfa Lavel India Ltd. (supra) on contest of interpretation of section 80HHC holding that where the AO had assessed interest received by assessee as a part of business profit under the head "Profit & Gain from Business and Profession", he cannot trea....
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.... goods of eligible industrial undertaking. Further, the Hon'ble High Court in CIT vs. United Riceland Ltd., while relying upon the Rachana Udhyog (supra) and Syntel Limited (supra) also allowed the currency exchange gain. Thus, in view of the above factual and legal discussion, we do not find any illegality or infirmity in the order passed by ld. CIT(A). In the result, Ground no.4 of the appeal is dismissed. 25. Ground No. 5 & 6 relates to exclusion of receipts of Rs. 31,30,99,313/- passed onto other hoteliers and receipts of Rs. 69,83,040/- being unrealized tour receipts for computing deduction under section 80HHD of the Act. The ld. DR for the Revenue relied upon the order of AO. The ld. AR of the assessee argued that under section 80HHD, the deduction is calculated as a percentage of profit derived from services provided to foreign tourist. "Profit derived from services provided to its foreign tourist" shall be the amount which bears to the profit of the business as computed under the head "Profit & Gain from Business and Profession", the same proportion as foreign tourist bears to the total receipt of business carried by the assessee. The formula is:- profit derived from ser....