Commissioner of Income Tax v. Career Launcher India Ltd

MANMOHAN, J September 20, 2010 dk

* HIGH COURT OF DELHI AT NEW DELHI Judgment Reserved on : 26th July, 2010 % Judgment Pronounced on: 20th September, 2010 + ITA 939/2010 COMMISSIONER OF INCOME TAX ..... Appellant Through: Ms. Prem Lata Bansal, Advocate versus CAREER LAUNCHER (INDIA) LIMITED ..... Respondent Through: None CORAM: HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE MANMOHAN 1. Whether reporters of the local papers be allowed to see the judgment? No 2. To be referred to the Reporter or not? No 3. Whether the judgment should be reported in the Digest? No DIPAK MISRA, CJ The present appeal preferred under Section 260A of the Income Tax Act, 1961 (for brevity "the Act") is directed against the order dated 26.6.2009 in ITA No. 1047(Del)2008 passed by the Income Tax Appellate Tribunal, Delhi Bench-B (for short "the tribunal") pertaining to the assessment year 2004-2005. 2. Though the appellant-revenue has raised number of questions, yet Ms.Prem Lata Bansal, the learned counsel for the revenue, restricted to the following questions: "(a) Whether ITAT was correct in law in allowing non- compete fee of Rs.5,40,000/- payable by the assessee to Shri Vijay Kalyan Jha and Shri Sujit as revenue expenditure? (b) Whether ITAT was correct in law in treating the expenditure as revenue without examining its nature and character as per the agreement entered into by the assessee with the payees? (c) Whether non-compete fee payable by the assessee was to ward off the competition so as to be treated as capital in nature? (d) Whether ITAT was correct in law in allowing interest of Rs.22,07,188/- paid by the assessee to Noida Authority for purchase of land as revenue expenditure? (e) Whether interest was to be capitalized by the assessee as the same was paid towards acquisition of the fixed asset? (f) Whether ITAT was correct in law in allowing a sum of Rs.4,24,259/- being advances written off by the assessee, u/s 37(1) of the Act? (g) Whether residuary provisions of Section 37(1) were applicable to write off of advances when it fell within the ambit of Section 36(1)(vii) of the Act but the deduction was not allowable due to non-fulfillment of Section 36(2) of the Act? (h) Whether provisions of Section 36(1)(vii) and Section 37(1) are mutually exclusive or the same operates in different field?" (i) Whether order passed by ITAT is perverse in law and on facts? 3. To appreciate whether the questions would give rise to any substantial question of law, it is requisite to refer to the facts in brief. In respect of the assessment year 2004-05, the assessee had paid a sum of Rs.5,40,000/- as non-compete fee to one Mr. Vijay Kalyan Jha for not entering into a similar business on 31.12.2005 and the said payment was claimed as a revenue expenditure. When a query was made as to why the said expenditure should not be treated as a capital expenditure, it was contended by the assessee that the fee was actually paid in respect of the agreement of the company with recipient Mr. Vijay Kalyan Jha and that the said sum was a proportionate amount of 9 months during the relevant previous year. It was also urged that the period of non-compete fee being very short, the assessee company did not derive any enduring benefit and, therefore, the expenditure incurred was a revenue expenditure claimed as a deduction under Section 37(1) of the Act. The assessing officer scanned the agreement and came to hold that Mr. Vijay Kalyan Jha and one Mr. Sujit paid Rs.15,00,000/- over a period from 1.3.2003 to 30.11.2003; that of the total amount, 60% amounting to Rs.9,00,000/- was to be paid towards service rendered as faculty trainer, etc., whereas the balance 40% amounting to Rs.6,00,000/- was to be treated as consideration towards non-compete fee for their agreeing not to enter the same market till 31.12.2005 and the assessing officer opined that the claim of the assessee to treat the non-compete fee as a revenue expenditure could not be accepted and it was treated as a capital expenditure. 4. In appeal, the CIT