The Commissioner Of Income Tax-1 v. M/S. Everest Advertising Pvt. Ltd

ASN IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.6539 OF 2010 The Commissioner of Income Tax-1. v. M/s. Everest Advertising Pvt. Ltd. ..Appellant. ..Respondent. Mr. Vimal Gupta,Sr. Advocate with Ms. Padma Divakar for the Appellant.None for the Respondent. CORAM : J.P. DEVADHAR AND M.S. SANKLECHA, JJ. DATE : 4[th] December, 2012 PC: Two questions of law raised by the revenue in this appeal read thus: a)Whether on the facts and circumstances of the case and in law, the ITAT is right in deleting the dis-allowance of the sum of Rs.67,50,000/- paid by respondent to it's outgoing Chairman without appreciating the fact that the same payment was made by the respondent not only for acquiring an enduring benefit by stopping it's outgoing Chairman in competing with the respondent in the similar line of business but also to consolidate the respondent's business and therefore the same expenditure is a capital expenditure? b)Whether on the facts and in the circumstances of the case and in law, the ITAT is right in relying on the judgment of Special Bench of ITAT in Oman International Bank (reported in 286 ITR (AT) 08 (Mum) to upheld the finding of CIT(A) that after the amendment to Sec. 36(1)(vii) of the Act it is no longer required for the respondent to prove that the debt has become bad for claiming the deduction? 2)The assessment year involved herein is 1998-99. 3)One Mr. Darius Kapadia Chairman and full-time Director of the respondent-assessee company had resigned from the service of the company in the assessment year in question. According to the assessee, exit of Mr. Darius Kapadia from the service of the assessee company would be detrimental to the interest of the business unless he was restrained from carrying on similar business. Accordingly, a sum of Rs.67,50,000 was paid by the assessee to the said out going Chairman thereby restraining him from competing with the business of the assessee for a period of three years. As per the said agreement Mr. Kapadia was not to enter into any relationship of any industry including the provisions of advertisement services, advisory services, financial services, employment services with any of the appellant's clients and sister concerns of its clients etc. According to the revenue, the payment of Rs.67.50 lacs could not be allowed as revenue expenditure as the expenditure was capital in nature. ASN 4)The ITAT in Para-13 of its order has recorded a finding that the object of making payment was to derive an advantage by eliminating the competition over a period of three years and the said period cannot be considered as sufficiently long period so as to ward off competition from Mr. Kapadia for a long time in future or forever so as to hold that benefit of enduring nature is received from such payment. The Tribunal has recorded a finding that exit of Mr. Kapadia would have immediate impact on the business of the assessee- company and in order to protect the business interest the assessee had paid the said amount to ward off the competition. In our opinion, the decision of the Tribunal is based on finding of facts and therefore, first question cannot be entertained. 5)As regards the second question is concerned, the Counsel for the revenue states that the said question stands answered against the revenue by the decision of the Apex Court in the case of T.R.F. Ltd. v. Commissioner of Income Tax reported in (2010) 323 ITR 397 (S.C.). Hence, second question cannot be entertained. 6) The appeal is dismissed with no order as to costs. (M.S.SANKLECHA, J.) (J.P. DEVADHAR, J.)