T.v.sundaram Iyengar & Sons Ltd., Madurai v. The Commissioner Of Income Taxmadurai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 30.11.2021 CORAM : THE HON'BLE MR.JUSTICE R. MAHADEVANANDTHE HON'BLE MR.JUSTICE MOHAMMED SHAFFIQ T.C.A.NO.684 OF 2009 T.V.Sundaram Iyengar & Sons Ltd., Madurai. ...Appellant Versus The Commissioner of Income taxMadurai. ...Respondent Appeal under Section 260A of the Income Tax Act, 1961,against the order of the Income Tax Appellate Tribunal, “B”Bench Chennai, dated 12.09.2008 passed in I.T.A.No.2122/Mds/2007against the Order of the Deputy Commissioner of Income TaxCompany Circle – I, Madurai dated 05.03.2004 passed in PANNo.AAACT0159K for the Assesment year 2001-2002 against the Orderof the Commissioner of Income Tax (Appeals)-I, madurai dated30.03.2007 passed in ITA Nos.102/04-05 against the order of theIncome Tax Appellate Tribunal Bench 'B', Chennai dated12.09.2008 passed in ITA No.2122/Mds/2007 for the Assesment year2001-2002. (Judgment of the Court was delivered by R.MAHADEVAN, J.) This tax case appeal is filed by the appellant/assessee,challenging the order dated 12.09.2008 passed by the Income TaxAppellate Tribunal 'B' Bench Chennai, in I.T.A.No.2122/Mds/2007,relating to the assessment year 2001-02. 2. By order dated 03.08.2009, this court admitted theaforesaid tax case appeal on the following substantial questionsof law: https://hcservices.ecourts.gov.in/hcservices/ "1.Whether on the facts and in thecircumstances of the case the Tribunal is justifiedin law in holding that the non-compete fee receivedby the assessee company from the UK company - Royalsun alliance Insurance plc for restraining itselffrom entering the insurance business was not acapital but a revenue receipt. 2. Whether on the facts and in the circumstancesof the case the Tribunal is justified in law inignoring material evidence and in holding that thereceipt was not a non-compete fee but is a revenuereceipt for utilization of business advantages of theassessee and whether such a conclusion was based onany material evidence. 3. Whether on the facts and in the circumstancesof the case the Tribunal is justified in law inholding that in respect of UPS and Voltage Stabilizerthe assessee is entitled to only 25% of depreciationand not 100% as claimed. 3. The learned counsel for the appellant submitted thatthe questions of law 1 & 2 raised herein have already beenconsidered and decided by this Court in favour of the assessee,in the case of Sundaram Finance Ltd., vs. Asst. Commissioner ofIncome Tax, Chennai, vide orders dated 06.03.2019 & 19.06.2019 inTCA.Nos.159 of 2009 and 1938 of 2008 respectively. For betterappreciation, the relevant paragraphs of the latter order dated19.06.2019 in T.C.A.No.1938 of 2008 are extracted hereunder:"10. The agreement entered into between theassessee and the U.K.Company is tiled as “Letter ofIntent” agreed and accepted by the parties on 5thApril, 2000 in London. The following clause is thesubject matter of interpretation:“At the instance of the U.K.Company,assessee restrained itself from interferingwith any other party and also refrained fromitself entering the insurance business. Inconsideration of this restraint and theassurance to join hands only withU.K.Company, agreed to pay lumpsum of E 2.4million to the assessee.” 11. While completing the assessment, theassessing officer cannot examine the exigency ofbusiness as to what would be the prudent decision fromthe point of view of the assessee. What is required tobe seen is the interpretation which has to be given tothe covenant in the Letter of Intent. The assessee hasbeen non-suited on the ground that they were never inthe insurance business and the covenant cannot be 11. While completing the assessment, theassessing officer cannot examine the exigency ofbusiness as to what would be the prudent decision fromthe point of view of the assessee. What is required tobe seen is the interpretation which has to be given tothe covenant in the Letter of Intent. The assessee hasbeen non-suited on the ground that they were never inthe insurance business and the covenant cannot be considered as a restrictive covenant. We do not agreewith the said finding of the assessing officer becausethere is a background which cannot be ignored by theassessing officer during the relevant point when the“Letter of Intent” was signed. It was the first time,the Government of India took a decision to permitforeign insurance companies to set up generalinsurance business in India. The entire matter wasregulated by the Government of India under therelevant regulations. Thus, several competingcompanies in India were desirous of starting insurancebusiness with foreign partnerships / Joint ventures.Therefore,commercialprudencedemandedtheU.K.Company to restrain the assessee, preventing themfrom entering into insurance business, which they hadnot done earlier, secondly, preventing the assesseefrom entering into an agreement with any other foreigninsurance company. The condition is clear and lucidand it is to be treated as a 'restrictive covenant'and merely because the assessee was not in theinsurance business is not a ground to read down thecondition. Thus, we are of the considered view thatthe interpretation given by the CIT(A) to the saidcovenant is just and proper and we do not agree withthe finding of the assessing officer as well as theTribunal in this regard. 12. Mr.T.Ravikumar, learned Senior Counsel forthe respondent / revenue vehemently contended that thefactual finding that the payment was received by theassessee before the commencement of business is thefinding, which stares against the assessee and thesame has not been challenged. In our considered view,we are afraid that such a finding cannot work againstthe assesee. The terms and conditions of the Letter ofIntent is clear, in the sense, that it is thecondition which precedes other conditions, whichrelates to 'Investment for allotment of shares'. Infact, this amount which was agreed to be paid as non-compete has been received by the assessee on23.10.2000 and immediately invested in the shares ofthe company. To be noted that all the transactions arein the same assessment year, i.e., 2001-2002. 13. In the light of the above, we are of theclear view that the CIT(A) was fully justified inholding that the amount received by the assessee was acapital receipt and was right in deleting the additionmade by the assessing officer. Further, we note thatthe amount has been credited to the capital receipt account in the balance sheet for the year ending31.03.2001 and the amount does not come anywherewithin the inclusive definition of Income as envisagedin Section 2(24). 14. At this juncture, it will be beneficial torefer to the decision of Hon'ble Supreme Court inGuffic Chem (P) Ltd., V. Commissioner of Income Tax &Another reported in (2011) 332 ITR 0602. The Hon'bleSupreme Court has held that 'payment received as non-competition fee under a negative covenant has to betreated as a capital receipt till the Assessment Year2003-04'. The said decision supports the case of theassessee. 15. The learned counsel appearing for theassessee referred to the decision of the assessee'sown case in TCA No.159 of 2009 dated 06.03.2019, whichpertains to the capital subsidy received by theassessee from the U.K.Company. 14. At this juncture, it will be beneficial torefer to the decision of Hon'ble Supreme Court inGuffic Chem (P) Ltd., V. Commissioner of Income Tax &Another reported in (2011) 332 ITR 0602. The Hon'bleSupreme Court has held that 'payment received as non-competition fee under a negative covenant has to betreated as a capital receipt till the Assessment Year2003-04'. The said decision supports the case of theassessee. 15. The learned counsel appearing for theassessee referred to the decision of the assessee'sown case in TCA No.159 of 2009 dated 06.03.2019, whichpertains to the capital subsidy received by theassessee from the U.K.Company. 16. It is the submission of Mr.Ravikumar, learnedSenior Standing Counsel for the respondent / revenuethat the substantial question of law No.1 pertains tocapital subsidy and in fact, the decision would ensurein favour of the Revenue. We do not agree with thesaid submission as the Letter of Intent provides“additional investment” at the instance of theassessee and the condition stated 'if at the time offinalisation of shareholders agreement it is foundthat assessee is required to further infuse equityduring the initially agreed pay-back period,U.K.Company will make a compensatory payment toassessee in an amount to be mutually agreed, beforethe finalisation of the stakeholders agreement'. 17. Thus, we are of the clear view that the orderpassed by the Tribunal dated 31.07.2007 reversing theorder passed by CIT(A) calls for interference. In thelight of the above, the appeal filed by the assesseeis allowed and the order passed by the tribunal is setaside and the order passed by the CIT(A) dated13.01.2005 is restored and the substantial question oflaw framed is answered in favour of the assessee. Nocosts." 4. As regards the third question of law, the learnedcounsel for the appellant fairly submitted that the same hasalready been considered and decided by this court by order dated18.01.2019 in TCA No.23 of 2019, wherein, it was held that the https://hcservices.ecourts.gov.in/hcservices/ assessee would be entitled to depreciation at 60% on UPS andVoltage Stabilizer, the relevant paragraphs of which are usefullyreproduced below: "4...with regard to the rate of depreciation thatcan be claimed for UPS and Routers, the Tribunal inthe impugned order relied upon earlier decision of theChennai Tribunal as well as the decision of the HighCourt of Delhi in the case of CIT vs. OrientalCeramics and Industries Limited reported in (20130 358ITR 49 (Del.) and held that the assessee would beentitled to depreciation at 60%. Therefore, we are ofthe considered view that the finding rendered by theTribunal is just and proper. 5. An UPS which is capable of givinguninterrupted power supply for a computer of astipulated period has not been established to have aindependent usage by placing any material. If therevenue disputes that the UPS can independentlyfunction, then the Assessing Officer should havematerial to the said effect. We are informed that theconfiguration of the power output for the UPS isdesigned to suit the equipment for which it shallsupply uninterrupted power. Similarly, Routers alsoare to be considered as an integral part of computer.6. This Court had an occasion to consider as towhether the printers are eligible for depreciation at60%. In the case of CIT vs. Cactus Imaging India (P)Ltd., reported in [2018] 406 ITR 406 (Mad) and heldthat the assessee was entitled to depreciation at60%. We find that there is no finding recorded by theTribunal on the said head. Accordingly, SubstantialQuestion of Law No.1 stands rejected. " Therefore, the learned counsel agreed that the depreciation valueof the UPS and stabilizer can be fixed at 60% instead of 100% asclaimed by the assessee. 5. There is no serious objection on the side of therespondent/revenue on the above submissions made by the learnedcounsel for the petitioner. Therefore, the learned counsel agreed that the depreciation valueof the UPS and stabilizer can be fixed at 60% instead of 100% asclaimed by the assessee. 5. There is no serious objection on the side of therespondent/revenue on the above submissions made by the learnedcounsel for the petitioner. 6.In the light of the aforesaid decisions and taking noteof the submissions made by the learned counsel appearing for bothsides, we hold that the questions of law 1 and 2 are decided infavour of the assessee and against the revenue; and the thirdquestion of law is decided to the effect that the assessee isentitled to the depreciation at 60% as against 25% assessed bythe respondent / revenue. 7. Accordingly, the Tax case Appeal stands allowed to theextent as indicated above. No costs. Sd-Assistant Registrar(CS-IX) // True Copy // av/rsh Sub Assistant Registrar To 1.The Commissioner of Income Tax (Appeals)-I Madurai. 2.The Income Tax Appellate Tribunal, 'B' Bench Chennai, 3.The Assistant Commissioner of Income Tax, Company Circle I, Madurai. +1cc to Mr.M.Swaminathan, Advocate SR.No.62497 T.C.A.No.684 of 2009 GSM(CO)RVM(12/01/2022)