The Commissioner Of Income Tax,Chennai v. M/S.citadel Aurobindo Bitotech Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 18.08.2021 CORAM : THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMAND THE HONOURABLE MR.JUSTICE SATHI KUMAR SUKUMARA KURUP T.C.A.NOS.1087 TO 1089 AND 1119 OF 2015 The Commissioner of Income Tax,Chennai. ...Appellant in all appeals Vs M/s.Citadel Aurobindo Bitotech Ltd.,No.43, Main Road,Velachery, Chennai – 600 042.PAN: ...Respondent in all appeals T.C.A.Nos.1087 to 1089 of 2015: APPEALS under Section 260A ofthe Income Tax Act against the common order dated 08.04.2015made in ITA.Nos.467, 468 & 469/Mds/2015 on the file of theIncome Tax Appellate Tribunal, 'C' Bench, Chennai for theassessment years 2002-03, 2004-05 and 2005-06 respectively. And against the O/o. Commissioner of Income Tax (Appeals)-1,121, Mahatma Gandhi Road, Nungambakkam, Chennai-34, and made inITA.No.173/07-08/A-1, ITA.No.210/07-08/A-1, ITA.No.174/07-08/A-1dated 25.11.2014, and against the Assistant Commissioner ofIncome Tax, Company Circle-1(3), Chennai-34, and made inGIR.No.PAN.No. , order dated 28.09.2007 respectively,for the assessment years 2005-06, 2004-05 & 2002-03. T.C.A.No.1119 of 2015: APPEAL under Section 260A of the IncomeTax Act against the order dated 26.06.2015 made inITA.No.2761/Mds/2014 on the file of the Income Tax AppellateTribunal, 'D' Bench, Chennai for the assessment year 2003-04. And Against the O/o. Commissioner of Income Tax (Appeals)-1,121, Mahatma Gandhi Road, Nungambakkam, Chennai-34, and made inITA.No.41/06-07/A-1, dated 30.07.2014, and against the AssistantCommissioner of Income Tax, Company Circle-1(3) Chennai and madein GIR.No.PAN.No. , dated 28.02.2006 for the assessmentyear 2003-2004. https://hcservices.ecourts.gov.in/hcservices/ For Appellantin all T.C.As: M/s.R.Hemalatha Senior Standing CounselFor Respondentin all T.C.As: Mr.M.V.Swaroop COMMON JUDGMENT (Delivered by T.S.Sivagnanam,J) T.C.A.Nos.1087 to 1089 of 2015 have been filed by therevenue under Section 260A of the Income Tax Act, 1961 ['theAct' for brevity] challenging the common order dated 08.04.2015passed by the Income Tax Appellate Tribunal [hereinafterreferred to as “the Tribunal”], 'C' Bench in ITA.Nos.467, 468 &469/Mds/2015 for the assessment years 2002-03, 2004-05 and 2005-06 respectively. T.C.A.No.1119 of 2015 has been filed by the revenue underSection 260A of the Income Tax Act, 1961 ['the Act' for brevity]challenging the order dated 26.06.2015 passed by the Income TaxAppellate Tribunal [hereinafter referred to as “the Tribunal”],'D' Bench in ITA.No.2761/Mds/2014 for the assessment years 2003-04. 3.The following substantial questions of law arises forconsideration in all the four appeals:“1.Whether on the facts and circumstances ofthe case, the Tribunal was right in allowingdepreciation on non compete fee at 25%? 2.Is not the finding of the Tribunal badespecially when non compete fee paid does notconfer upon the assessee any right which could beused in the business as it only restrains the otherperson from carrying on his business in competitionwith the assessee's business?” 4.We have heard M/s.R.Hemalatha, learned senior standingcounsel appearing for the appellant/revenue and Mr.M.V.Swaroop,learned counsel appearing for the respondent/assessee. 5.It is not in dispute that the substantial questions of lawwhich have been framed for considered have been answered againstthe revenue and in favour of the assessee by the Division Benchof this Court in the case of Commissioner of Income Tax, LTU, https://hcservices.ecourts.gov.in/hcservices/ Chennai vs. Areva T & D India Ltd. [(2021) 434 ITR 604 (Mad)].In the said decision, the second substantial question of lawwhich fell for consideration are the questions of law in theinstant case before us. The said question was answered againstthe revenue and in favour of the assessee in the following terms: 4.We have heard M/s.R.Hemalatha, learned senior standingcounsel appearing for the appellant/revenue and Mr.M.V.Swaroop,learned counsel appearing for the respondent/assessee. 5.It is not in dispute that the substantial questions of lawwhich have been framed for considered have been answered againstthe revenue and in favour of the assessee by the Division Benchof this Court in the case of Commissioner of Income Tax, LTU, https://hcservices.ecourts.gov.in/hcservices/ Chennai vs. Areva T & D India Ltd. [(2021) 434 ITR 604 (Mad)].In the said decision, the second substantial question of lawwhich fell for consideration are the questions of law in theinstant case before us. The said question was answered againstthe revenue and in favour of the assessee in the following terms: “14. In the decision in the case of AsianetCommunications Ltd. Vs. CIT, Chennai [reported in(2018) 257 Taxman 473], a Division Bench of thisCourt, to which, one of us (TSSJ) was a party, hadconsidered the same issue as to, where the noncompete fee paid by the assessee was for thepurpose of its business and it did not entail anenduring benefit to the assessee in its business,whether the payment of such fee was to be allowedas revenue expenditure. In this decision, the Courttook note of the decision of the Delhi High Courtin the case of Sharp Business System and it hasbeen held as follows :“36. So far as the decision in SharpBusiness System (supra) is concerned, aspointed out earlier, in paragraph 5 of thejudgment, it has referred to the decision ofthis Court in G.D.Naidu. The discussion is inparagraph 9 and the conclusion is in paragraph10. 37. In paragraph 9 of the judgment, theCourt has not discussed the decision ofG.D.Naidu, though it has referred to it inparagraph 5 of the judgment. This is pointedout because, the Court has discussed thedecision in Blaze & Central (P.) Ltd. (supra),which was distinguished in G.D.Naidu. We findthat in paragraph 9 of the judgment, the Courtafter referring to Empire Jute Co. Ltd. (supra)and Alembic Chemical Works Co. Ltd. (supra),has pointed out that the single test, that is,whether the payment results in an enduringbenefit cannot be conclusive in a decision asto whether an expenditure qualifies as onefalling or in the capital field and that thedecisions have emphasized the need to shiftfrom a narrower field to a broader one, toascertain the real nature of the advantage,which the taxpayer would derive. 38. Thus, the test to be applied followingEmpire Jute Co. Ltd. (supra) is to see as towhether it added to the capital of theassessee, whether a new asset was created andwhether there was an addition or expansion of 38. Thus, the test to be applied followingEmpire Jute Co. Ltd. (supra) is to see as towhether it added to the capital of theassessee, whether a new asset was created andwhether there was an addition or expansion of the profit making apparatus of the assessee andwhether the assessee acquired source of profitor income when such investment was made.However, the Court in our respectful view,applied the test, which does not flow from thetest laid down in Empire Jute Co. Ltd. (supra)by observing that the test is one ofascertaining whether from commercial angle andthe advantage results in a capital field or itis the expenditure falls legitimately withinthe revenue field. Ultimately, the Court heldthat the arrangement for a period of 7 years isan enduring benefit. This in our respectfulview, does not fulfil the test laid down byEmpire Jute Co. Ltd. (supra) and in fact, theCourt itself had pointed out that is not theconclusivetesttodeterminewhetherexpenditure is in capital field or revenue.Thus, for the above reasons, we are not inrespectful agreement with the reasoning givenby the Hon'ble Division Bench in Sharp BusinessSystem (supra).39. It would be relevant to note that, inthe case of Sharp Business System (supra), theJoint-venture company was incorporated in theassessment year 2001-02 and in the first yearof business, with a view to warding offcompetition, it entered into agreement bypaying a non-compete fee of Rs.73 Crores to L&T Ltd., of setting-up or undertaking orassisting in the setting-up or undertaking anybusiness in India, of selling, marketing andtrade of electronic office products for sevenyears and this amount was treated as deferredrevenue expenditure in the assessees books ofaccounts and written-off over correspondingperiod of seven years. 40. There is a marked difference in thefactual position in Sharp Business System(supra) and the factual position in the case onhand where the assessee's business continues toremain the same, and this is also one morereason to hold that the decision in SharpBusiness System (supra) is not applicable tothe facts of the case apart from thereservation expressed by us above.”15. In the decision of this Court in the caseof Asianet Communications Ltd., the Courtdistinguished the decision of the Delhi High Courtin the case of Sharp Business System. We would hasten to add that the facts in the case of SharpBusiness System were couched differently in thesense that a sum of Rs.73 Crores was paid to M/s.L& T Ltd., as consideration for the latter insetting-up or undertaking or assisting in thesetting-up or undertaking any business in India, ofselling, marketing and trade of electronic officeproducts for seven years. The facts of the case ofthe assessee before us are entirely different. Thisaspect had been noted by the Tribunal in paragraph11 of the impugned order. The Tribunal also tooknote of the fact that in the assessee's own case,the High Court of Delhi decided the issue in favourof the assessee.” 6.Thus, following the above decision the tax case appealsare dismissed and the substantial questions of law are answeredagainst the revenue. No costs. Sd/- Assistant Registrar(CS VI) //True Copy// cse Sub Assistant Registrar To 1. The Income Tax Appellate Tribunal, 'C' Bench, Chennai. 2. The Income Tax Appellate Tribunal, 'D' Bench, Chennai. 'D' Bench, Chennai. 3. The Commissioner of Income Tax (Appeals)-1, 121, Mahatma Gandhi Nagar, Nungambakkam, Chennai-34. 121, Mahatma Gandhi Nagar, Nungambakkam, Chennai-34. 4. The Assistant Commissioner of Income Tax, Company Circle - I(3), Chennai. +2ccs to Mr.T.Ravikumar, Advocate, S.R.Nos.41561 & 41548 T.C.A.Nos.1087 to 1089 & 1119 of 2015 RR(CO)PM/20/09/2021