Jurispruden tiol – Tomorrow' s cases Legal Corner Icon — the image was hosted by the publisher and was not captured.

By Vijay Kumar

Income Tax

Non-compete fee paid to ward off competition but no period recorded in agreement - Since no capital asset created nor any advantage of enduring nature acquired, it is business expenditure, eligible for deduction : Delhi HC

WHETHER an expenditure is capital or revenue in nature is a complex issue which can be decided based on facts of the individual case. In this high-profile case, involving Eicher Ltd, where a payment of Rs four crore was made as a non-compete fee to one of its employees and a rival company which had joined hands to come out with a potential competition in the two-wheeler segement , the High Court has held that since the assessee did not acquire any capital asset by paying non-compete fee and merely neutralised competition for a while, such an expenditure cannot be treated as capital expenditure. What makes it further clear is the fact that it was no clear from the records how long the restrictive covenant was to last - it was neither permanent nor ephemeral. In simple words, the assessee did not acquire any advantage of an enduring nature. There is also no evidence to indicate that the fee of Rs four crore was taken out of the capital of the assessee. Thus, such an expenditure is to be treated as business expenditure, eligible for deduction.

Customs

Customs – valuation - Merely because supplier was holding 30% of equity in share capital of buyer does not establish mutuality of interest - Burden to prove undervaluation lies on Revenue : Supreme Court

No doubt, the exporter was holding 30% of the equity in the share capital of the importer but the holding of the equity in the share capital does not establish the mutuality of interest as the respondent did not hold any equity in the unit of the supplier.

There is no doubt that the respondent had imported the identical goods at a higher price prior to the agreement dated 16th April 2001/23rd April 2001, but, the respondent had purchased goods in question at a lesser price from the exporter only after the said agreement subject to the condition that the respondent shall purchase 100% of its annual requirement from the same exporter.

The burden to prove that the goods in question were under-valued by the respondent lies on the Revenue which the Revenue has failed to discharge.

Service Tax

Security Services utilized by appellant for residential colony – whether eligible for Cenvat Credit – Matter remanded as Commissioner( A) has passed a non-speaking order : Tribunal

THE issue in this appeal before the Tribunal is regarding availment of Cenvat credit on the input service (security agency) utilized by the appellants for residential colony which is adjacent to the factory.

It is the contention of the Revenue that the security services utilized by the appellant would not fall under the category of input service for residential colony used directly or indirectly in the manufacture of final products. The adjudicating authority upheld the charges alleged in the show cause notice and confirmed the demand. The appellants aggrieved by such order preferred an appeal before the Commissioner (Appeals) who also upheld the order-in-original.

So, they are now before the Tribunal.

The appellant vociferously argued that the issue involved in this case requires de novo adjudication proceedings as the first appellate authority had not given any findings on merits inasmuch as he has only reproduced the findings that have been arrived at by the lower adjudicating authority & not given any findings against the grounds of appeal filed by the appellants.

See our columns tomorrow for the judgements