TaxTMI 
TaxTMI 
2017 (1) TMI 1818
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....expenses at Rs.63,250/- and Rs.4,34,935/- respectively. 1(iii) in not appreciating the fact that the funds of the assessee company were inter-mix of borrowed and owned funds and the assessee had failed to prove that the huge borrowed funds had been fully utilized for the purpose of business only and not for earning the exempt income which is in the manner of dividend of Rs.13,86,407/- received on LIC Mutual Funds investment which were made at various intervals. 1(iv) in failing to appreciate that Rule 8D is applicable for A.Y.2008-09 for the purpose of computation of disallowance u/s. 14A; and that the assessee company did not compute the said disallowance on its own in the Return of income of the year under consideration. 2(i) in holding that the amount of Rs.12.60 Crs. Is a Revenue expenditure without appreciating the fact that the assessee itself has termed it an exceptional item under Sch. - 7 forming part of the Balance Sheet. 2(ii) in failing to appreciate that the assessee itself has submitted (vide submission dated 03/12/2013 filed before the AO during assessment) that the said payment of Rs.12.60 Crs. Is arising out of termination a....
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....sessed total loss to the tune of Rs.44,77,90,301/-. Feeling aggrieved the assessee filed an present appeal before the CIT(A) who deleted the disallowance on account of section 14A of the act and payment of compensation on exceptional items, software expenses etc. and treated the interest received from FD account to the tune of Rs.1,88,10,000/- as income from business and profession despite income from other source. Feeling aggrieved the revenue has filed the present appeal before us:- ISSUE NO.1(i) to 1(iv):- 4. Under these issues the revenue has challenged the deletion of the addition made in view of the provision u/s. 14A r.w. Rule 8D of the Act to the extent of Rs 4,34,935. The appellant received dividend of Rs.13,86,407/- from LIC Mutual Funds. The said income was exempted u/s.10(34)of the Act. The appellant did not disallow any expenditure in view of the provision u/s. 14A of the Act. The Assessing Officer disallowed the expenditure incurred to earn the exempt income by applying the provision of section 14A r.w.Rule 8D of the Act and computed the expenditure to earn the exempt income to the tune of Rs.4,98,150/-.CIT(A) reduced the to the extent of 4,34,935. in ....
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....ly from the advertising through the intermittent breaks of the programme. For the procuring the advertisement from various clients, appellant had engaged Star India Pvt. Ltd. (SIPL). A dispute arose between them, therefore the assessee company terminated the agreement and on account of termination the appellant company paid compensation to SIPL to the tune of Rs.12,60,00,000/- for advertisement and Agency Sales Termination Agreement (ASTA) of Rs.19,40,00,000/- for Restrictive Covenant Agreement (RCA). The RCA was paid for restricting the SIPL for not competing against the appellant in similar business for another 2 ½ years. The Assessing Officer disallowed the said compensation paid for ASTA and RCA treating the same as capital expenditure within the meaning of section 28(va) of the Act. It is necessary to advert the finding of the CIT(A) on record:- "4.3 I have considered the facts of the case, submission of the appellant and case laws relied upon by the appellant. The appellant had terminated the Agency Agreement which was existing between SIPL and appellant for procuring the advertising from clients. For termination of this agreement appellant had paid Rs.12,60,0....
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.... With regard to termination of RCA which is in the name of non compete fees paid by the appellant to SIPL for Rs.19,40,00,000/-, it has to be examined whether this is capital expenditure or revenue expenditure. Here it is to be kept in mind that appellant had paid the compensation for non compete fee and SIPL had received the compensation. SIPL's receiving of this amount of Rs.19,40,00,000/- will be treated as income in view of sec. 28(va) of the IT Act which is inserted in the Incometax Act from 01.04.2003. The nature of payments in the hands of the appellant can be decided by the Supreme Court decision in the case of Guffic Chem P. Ltd. 332 ITR 602 (SC) in para 7 it is held as under:- "7. Two questions arose for determination, namely, whether the amounts received by the appellant for loss of agency was in normal course of business and therefore whether they constituted revenue receipts? The second question which arose before this Court was whether the amount received by the assessee (compensation) on the condition not to carry on a competitive business was in the nature of capital receipt? It was held that the compensation received by the assessee for loss of age....
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....erefore, the receipt by appellant was in the nature of capital receipt. On examining this case law Hon'ble Supreme Court held has cleared that negative covenant is in the nature of source of loss of business and it is capital asset. This capital asset will be by recipient i.e. SIPL but the capital nature of this receipt will not change in the hands of the appellant i.e. Music Broadcast P. Ltd. so appellant had acquired a right from SIPL. This right in the form of capital asset which is eligible for depreciation u/s. 32(1)(ii) of the I.T. Act is in the nature of commercial right. Hence A.O.'s treating the payment to the negative covenant in the form of a capital expenditure is confirmed. However, as appellant has acquired the right it has to be right in the nature of commercial right, appellant is eligible for depreciation u/s. 32. 8. In concluding the whole discussion, appellant's compensation payment for the agency termination by the appellant to SIPL should be treated as revenue expenditure. This non compete fees paid by appellant to SIPL for Rs.19,40,00,000/- has to be payment for acquiring the capital asset. The A.O. is directed to allow depreciation on this asset ....
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....ances, we are of the view that the said transaction has also been dealt by the CIT(A) in accordance with law specifically in view of the circumstances when no distinguishable facts and law have been produced before us. In view of the observations made above, we are of the view that the CIT(A) has decided the said issues judiciously and correctly which is not require to be interfere with at this appellant stage. Accordingly, these issues are decided in favour of the assessee against the revenue. ISSUE NO.3(i) to 3(ii):- 10. Under these issues the revenue has challenged the treatment of computer software license fees amounting to Rs.1,01,92,000/- as revenue expenditure. The contention of the Revenue is that it should be treated as capital expenditure. Before going further, it is necessary to advert the finding of the CIT(A) on record:- "5.1 I have considered the facts of the case. This issue has come into consideration in CIT(A) order for A.Y.2009- 10 wherein in para 2.3 it is held as under:- 2.3 I have considered the facts of the case. The appellant has satisfactorily explained that the charge paid to Netmagic Solutions P. Ltd. Rs.24,28,069/-, Quantumlink Com....
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....he revenue has already dealt this issue while deciding the matter in the A.Y.2009-10 in which the said transaction has been treated as revenue expenditure. On the basis of the said decision, the present issue has been decided by the CIT(A) in favour of the assessee in the present A.Y. i.e. 2008-09. Nothing came into the notice that the finding of the CIT(A) for the A.Y.2009-10 on this issue is under challenged or not. No distinguishable facts have been produced before us to which it can be assumed that the said transaction is capital in nature. No law contrary to the law relied by the CIT(A) has been produced before us. Therefore, in view of the said circumstances, we are of the view that the CIT(A) has decided the matter judiciously and correctly which is not require to be interfere with at this appellate stage. Accordingly this issue is being decided in favour of assessee against the revenue. ISSUE NO.4:- 12. Under this issue the revenue has challenged the order of the CIT(A) in which he held that the interest income amounting to Rs.1,88,10,000/- is a business income whereas the Assessing Officer has rightly treated the said income as income from other sources. On verificat....