TaxTMI 
TaxTMI 
2018 (8) TMI 1803
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.... was justified in law in holding that payment of non compete fee is a revenue expenditure and an allowable deduction?" 3. A few facts relevant for the decision of the controversy involved as narrated in ITA No. 193 of 2013 may be noticed. The assessee company is engaged in the business of manufacturing and sale of bulk drugs, films based on polymers of propylene, leather finishing foils as also treasury operations, services to joint ventures/associates company. It is also marketing a range of BOPP Films, a versatile flexible packaging materials etc having multi business and located setup. Return declaring NIL income was filed on 28.10.2005 by the assessee company which was processed accordingly. Later the case was taken up for scrutiny. Notices under Sections 143(2)/142(1) of the Act alongwith detailed questionnaire were issued and served upon the assessee. Assessment was completed under Section 143(3) of the Act on 28.12.2007 at Nil income after setting off brought forward losses. The Assessing Officer while making assessment made disallowance of expenses on account of non compete fee payment. The Assessing Officer disallowed the claim of expenses of Rs. 84,35,140/- which was ma....
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....question was to eliminate competition of a rival exporter, the benefit which enured to the respondent was of an enduring nature and as such, the payment should be treated as capital expenditure. We find ourselves unable to accede to this contention because we find that the arrangement between the respondent and M/s. H. V. Low & Co. Ltd. was not for any fixed term but could be terminated at any time at the volition of any of the parties. Although an enduring benefit need not be of an ever-lasting character, it should not, at the same time,, be so transitory and ephemeral that it. can be terminated at any time at the volition of any of the parties. Any other view would have the effect of rendering the word 'enduring' to be meaningless. No cogent ground or valid reason has been given to us in support of the contention that even though the benefit from the arrangement to the respondent may not be of a permanent. or enduring nature, the payments made in pursuance of that arrangement would still be capital expenditure......." Identical question arose before the Madras High Court in M/s Hatsun Agro Products Limited vs. The Joint Commissioner of Income Tax, Special Range XI, Chen....
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....pense 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 obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. ... What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. 11. Thus, the test of enduring benefit cannot be applied blindly without regard to the facts and circumstances that arise in the given case. We find that the conclusion of the Tribunal that the payment has an endur....
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....t whether expenditure had been incurred for business purposes or not was to be viewed from the point of view of the businessman. Reliance was placed on judgment of the Apex Court in SA Builders vs. CIT and another, (2007) 288 ITR 1 holding that the expression 'commercial expediency' was an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. It was further observed that the expenditure may not have been incurred under any legal obligation but yet it is allowable as business expenditure if it was incurred on the ground of commercial expediency. It was concluded that since on the issue whether the expenditure was of revenue or capital in nature, two opinions were possible, therefore, the view taken by the CIT(A) was upheld. Thus, the Tribunal in the present case of the assessee for the assessment year in question rightly upheld the order passed by the CIT(A) holding the payment of non-compete fee to be allowable as revenue expenditure. The relevant findings recorded by the Tribunal in this regard read thus:- "34. We have heard the rival contention and perused the facts of the case. We find that identical issue came up....
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.... by the A.O. 43. Both the learned authorized representatives and the learned DR have referred to several case laws as to whether payment of non-compete fee is capital or revenue expenditure. In our opinion, it is not necessary to deal with the case law cited on the above assessee and it is suffice to say that the issue whether the above expenditure is of revenue or capital in nature is at most an issue on which two opinions are possible, moreso, considering that the learned CIT(A) in assessee's own case for the assessment year 2001-02 allowed similar claim.' 34.1. We have also perused four decisions referred to by the learned DR. Except for the decision of Hon'ble Delhi High Court in the case of Pitney Bowes India (P) Limited (supra), all other decisions deal with the issue whether the amount received as non compete fee is a capital or revenue receipt. The said decisions are of no relevance in the present case. As regards, the decision of Pitney Bowes (supra), we agree with the learned AR that the decisions too are not applicable in the present case since the same pertained to payment of non compete fee in relation to transfer of business. the case of the assessee infact is s....