Ita/33/2006 Of The Commissioner Of Income Tax v. M/S Hewlett Packard India Sales Pvt Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURU ON THE 9 DAY OF JANUARY 2020 BEFORE THE HON'BLE MR. JUSTICE RAVI MALIMATH AND THE HON'BLE MR. JUSTICE ASHOK S. KINAGI BETWEEN: ITANO.33/2006 1. THE COMMISSIONER OF INCOME-TAX, C.R.BUILDING, QUEENS ROAD, BANGALORE. C.R.BUILDING, QUEENS ROAD, BANGALORE. 2. THE ASST.COMMISSIOINER OF INCOME TAX CIRCLE-11(2), C.R.BUILDING, QUEENS ROAD, BANGALORE. CIRCLE-11(2), C.R.BUILDING, QUEENS ROAD, BANGALORE. …APPELLANTS (BY SRI.K.V.ARAVIND, ADVOCATE) AND: M/S HEWLETT PACKARD INDIA SALES PVT. LTD., (FORMALLY KNOWN AS M.S COMPAQ COMPUTER (INDIA) PVT. LTD., SALARPURIA ARENA, HOSUR MAIN ROAD, ADUGODI, BANGALORE. …RESPONDENT (BY SRI.PEREY PARDIWALA, SENIOUR COUNSEL FOR SRI.T.SURYANARAYANA, ADVOCATE) THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961 PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BANGALORE IN MP NO.63/Bang/2005 IN ITA NO.576/Bang/2004 DATED 27.07.2005. THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 24.10.2019 COMING ON FOR PRONOUNCEMENT THIS DAY, ASHOK S. KINAGI J, DELIVERED THE FOLLOWING: JUDGMENT This appeal is filed by the revenue under the challenging the order passed by the Income-Tax Appellate Tribunal, Bengaluru in MP No.63/Bang/2005 in ITA No.576/Bang/2004 dated 27.07.2005. 2.Brief facts of the case are that Compaq Computers Pvt. Ltd., entered into an agreement with Digital Equipments India Ltd., for purchase of part of its business under agreement dated 27.04.1999. Further agreement dated 15.07.1999 was entered into between the parties for an amount of Rs.5,00,00,000/- where non-compete fee was payable for Digital not to compete with Compaq for three years. Out of the sum of Rs.5,00,00,000/-, only a sum of Rs.1,25,00,000/- could be allowed towards non-compete fee. The balance of Rs.3,75,00,000/- was disallowed. It was found that Compaq and Digital were under the same management. Further in the books of Compaq the non-compete fee has been taken as deferred revenue expenditure and amortized for a period of 36 months. As per the books only Rs.1,25,00,000/- was debited to P&L account. The assessee, i.e., the respondent challenged the order before the Commissioner of Income Tax (Appeals) Bengaluru. The Commissioner of Income Tax vide order dated 01.01.2004 dismissed the appeal. The respondent aggrieved by the order passed by the Commissioner of Income Tax dated 01.01.2004 filed an appeal before the Income Tax Appellate Tribunal, Bengaluru Bench ‘B’ in ITA No.576/Bang/04 (Assessment year 2000-01). 3. The Income Tax Appellate Tribunal after considering the matter, recorded a finding to admit the additional grounds with respect to claiming the amount as revenue expenditure. However no findings was recorded on the additional ground. The assessee preferred MP No. 63/bang/2005 seeking adjudication of the additional ground with respect to allowance of the sum of Rs.5,00,00,000/- being the expenses incurred towards the non-compete fee. The Tribunal proceeded to hold that the assessee is entitled to claim the entire payment of Rs.5,00,00,000/- as revenue expenditure. 4. Aggrieved by the order dated 27.07.2005, the revenue has filed this appeal. This Court admitted the appeal on the following substantial question of law: “Whether the Tribunal was correct in passing the orders u/s.254 (2) of the Act that the sum of Rs.5 crores paid by the Compaq Computers (I) Ltd., is a revenue expenditure when the Tribunal in its earlier order dated 18.01.2005 had not considered this issue and the assessee had withdrawn this ground before the Appellate Commissioner and the same had been amortalized by Compaq for a period of 36 months and only Rs.1,25,00,000/- had been claimed during the current assessment year?” 5. Heard the arguments of the learned counsel for the parties and perused the orders passed by the Tribunal. 4. Aggrieved by the order dated 27.07.2005, the revenue has filed this appeal. This Court admitted the appeal on the following substantial question of law: “Whether the Tribunal was correct in passing the orders u/s.254 (2) of the Act that the sum of Rs.5 crores paid by the Compaq Computers (I) Ltd., is a revenue expenditure when the Tribunal in its earlier order dated 18.01.2005 had not considered this issue and the assessee had withdrawn this ground before the Appellate Commissioner and the same had been amortalized by Compaq for a period of 36 months and only Rs.1,25,00,000/- had been claimed during the current assessment year?” 5. Heard the arguments of the learned counsel for the parties and perused the orders passed by the Tribunal. 6. As the Tribunal has not disposed of the ground No.9 raised before the Tribunal, the Tribunal considering the decision in the case of M/s McDowell & Co. Ltd. held that the entire payment of Rs.5,00,00,000/- by the assessee is allowable as revenue expenditure and not merely 1/4[th] of payment towards non-competition fee as it does not bring in any capital asset and held that the payment is allowable under Section 37(1) of the Income Tax Act and directed the Assessing Officer to give appropriate relief after re-computing the income as per the direction of this Tribunal and modified the order of the Tribunal to the said extent. We find no error in the order passed by the Tribunal. It has followed its earlier order in the case of M/s McDowell & Co. Ltd. cited supra. 7. In view of the above discussion, the substantial question of law is answered against the revenue and in favour of the Assessee. Accordingly, the appeal is dismissed. Sd/- JUDGE Sd/- JUDGE MBS/-