TaxTMI 
TaxTMI 
TaxTMI 
2018 (8) TMI 1999
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt. B) Alternatively and without prejudice to the above, the CIT(A) erred in disallowing u/s 37(1) non-compete fees of Rs. 20,00,000/- paid during Financial Year 2005-06, as not being expenditure laid out or expended wholly and exclusively for the purposes of appellant's business. 2) The CIT(A) erred in restoring disallowance made by AO u/s 14A r.w.r 8D of Rs. 22,89,595/- incurred towards direct interest expenditure and Rs. 86,52,415/- towards administrative expenditure back to the file of AO for his fresh adjudication and not accepting the disallowance offered by the appellant u/s 14A of Rs. 37,29,108/- (being Rs. 14,39,513/- towards administrative expenses and Rs. 22,89,595/- towards interest expenses). 3) The CIT(A) erred in confirming the disallowance made by AO towards the amount amortized in respect of the appellant's Employees' Stock Option Scheme (ESOP) of Rs. 64,75,000/- under section 37(1) of the Act. 4) A) The CIT(A) erred in not deciding Annual Letting Value of the premises at Taj building as per municipal valuation u/s 23(1)(a). B) The CIT(A) erred in rejecting appellant's contention that fair market rent of the premises at Taj Building ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emlatha Ramaiah as non compete fee vide separate agreements dated 30.08.2005 for not carrying on any similar business for a period of five years from the detailed agreement. 5. The Ld. A.R. submitted that this is a commercial right and will fall under the ambit of intangible assets and reasoned that the assessee rightly claimed the depreciation @ 25%. The Ld. A.R. submitted that the belief of the AO is fallacious and wrong for the reason that the AO disallowed the depreciation merely on a wrong notion that the assessee has 78% of the interest in the partnership in M/s. Landmark and therefore there was no need to pay the non compete fee to the existing partners in the partnership firm. The Ld. A.R. further argued that the Ld. CIT(A) has erroneously confirmed the order of the AO on the same belief that there was no need to pay the non compete fee to the existing partners. Whereas as a matter of fact, the assessee has paid non compete fee to the continuing partner in order to protect its interest to the tune of 78% in the business of M/s. Landmark which is a valuable commercial right. The Ld. A.R. also relied on three decisions namely; "1. Principal CIT vs Zydus Wellness Ltd ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s been made with an intent to avoid taxes is wrong ,misleading and fallicious. After going through the non compete agreements dated 30.08.2005 and considering the facts that assessee acquired 78% of the interest in the partnership firm, we are of the firm view that any payment which is made for not competing with the firm for the period of five years is evidently falls within the ambit of non compete fee as the payment was made to protect the business interest of the assessee as the assessee's cost of investment in the said firm was Rs. 91.51 crores which was made by way of capital contribution to the tune of Rs. 3.9 crores and Rs. 87.61 for acquiring the rights in the said partnership. In our opinion, the finding of the Ld. CIT(A) is fallacious and wrong and can not be sustained. In this case, the assessee has made payment of non compete fee and rightly treated and classified under intangible assets and claimed depreciation thereon @25%. The case of the assessee is supported by a series of decisions as referred to above. In the said decisions it has been held that the depreciation has to be allowed on the non compete fee. Accordingly, we set aside the order of Ld. CIT(A) and direc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on granting of Employee Stock Options Scheme has been amortized as per the SEBI guidelines and the same is a revenue expenditure and was rightly claimed by the assessee. Therefore, the order of Ld. CIT(A) upholding said disallowance is fallacious and against the legal propositions as laid down by the various judicial forums. The Ld. A.R. relied on a series of decisions in defence of his arguments namely; "1. PVP Ventures Ltd v. CIT [2012] 23 taxmann.com 286 (Madras-High Court) 2. New Delhi Television Ltd. v. CIT [2017] 398 ITR 57 (Delhi High Court) 3. Biocon Ltd. v. DOT [2013] 35 taxmann.com 335 (Bangalore Tribunal) (SB) 4. M/s Accenture Services Pvt. Ltd. v. DCIT [2010] ITA/4540/MUM/08 (Mumbai Tribunal) 14. The Ld. D.R., on the other hand, relied on the order of authorities below. 15. Having heard the rival submissions of both the parties and considering the facts on record, we find that in this case the assessee has amortized the expenses in connection with Employee Stock Options Scheme as per SEBI guidelines and claimed the same as revenue expenditure which according to the AO was not correct and he disallowed the same by holding that same is of capital in natur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 23 clearly provide that the ALV of the property has to be considered to be the sum for which the property might reasonable be excepted to let from year to year or the actual rent received; whichever is higher. In the present case, the fair market value has been established by the AO to be much higher than the actual rent received. It is not the case of the appellant that the lease in question was subject to the rent control act and therefore the standard rent was to be considered. In such a scenario, as per the legal position obtaining, the AO was expected to arrive at reasonable rent expected from the said property. The contention of the AR that the AO was legally bound to consider the rateable value fixed by Municipal Authorities as the basis for working out the ALV is misplaced since the municipal valuation was only one of the criteria available with the AO to determine the reasonable rent expected from the said property. The AO has rightly placed reliance on a number of judicial pronouncements in his order to support that the adoption of municipal rateable value was not binding on him. Further, there is no merit in the AR's contention that the comparison by the AO with the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... A.R. in defence of his argument relied on the following decisions: "9. MV. Sonavala v. CIT [1989] 42 Taxman 123 (Bombay High Court) 10. Smt. Smitaben N. Ambani v. Commissioner of Wealth [2009]323 ITR_104_ (Bombay High Court) 11. Tip Top Typography v. CIT [2014] 48 taxmann.com 191 (Bombay High Court)" The Ld. Counsel submitted that the municipal valuation for Taj Building premises as shown in the property tax bill is Rs. 1,31,300/- whereas the actual rent received for the premise is Rs. 11,32,704/-. Therefore as against the municipal valuation of Rs. 1,31,300/- the actual rent received for the leased premises of Rs. 11,32,704/- should be taken as the actual rent is higher than the municipal valuation. The Ld. A.R. alternatively submitted that if the composite of rent and hire charges for the furniture and fixtures are taken together that could be taken the ALV and in defence of his proposition the Ld. A.R. relied on the following decisions: "1. Shambhu Investment (P.) Ltd. vs. CIT (2003) 129 Taxman 70 (Supreme Court) 2. CIT vs. Shambhu Investment (P.) Ltd. "(2001) 116 Taxman 795 (Calcutta High Court) 3. Dudhsagar Investments (P) Ltd. vs. ACIT (2014) 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss the building is located at a different location and after ascertaining the rent of the said property at @ Rs. 60.50 per sq. ft. determined the market rate at Rs. 60.50 plus 30% of the said rate and thus ALV was fixed at Rs. 72 per sq. ft. per month. The AO thus calculated the ALV at Rs. 35,50,000/-. The Ld. Counsel has also pointed out during the course of hearing that the building leased out by the assessee known as Taj Building was erroneously misconstrued by the AO as Taj Hotel and the whole process of determination of ALV went with wrong parameters and presumptions. We find merit in the submissions of the Ld. A.R. that the Belvedere, a government owned building at Breach Candy is not at all comparable as the two are located at different localities in Mumbai and thus we are in agreement with the arguments of the Ld. A.R. that the said estimation is fallacious and suffer from several infirmities. After perusal of provisions of section 23, we find that the annual value of any property has to be determined as per the provision of section 23(1)(a) or 23(1)(b). In the present case, the property is let out and therefore the rent received is Rs. 11,32,704/- and the same has to be tr....