DCIT, CHENNAI vs. M/S. W.S.INDUSTRIES (INDIA) LIMITED, CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

The Brief facts of the case are that the assessee is in the 2. business of manufacturers of electro porcelain products and filed Return of income on 31.10.2001 declaring a loss of �21,35,28,690/- and the Return of income was processed u/s.143(1) of the Act on 18.10.2002. Subsequently, the case was selected for scrutiny and notice u/s.143(2) of the Act was issued. In response to notice, the ld. Authorised Representative appeared from time to time, furnished information and submitted records for the assessment purpose. The ld. Assessing Officer on verification of the records and financial statements found that the assessee company has made contribution of & 1840/Mds/2005 :- 3 -:

Provident Fund of employers and employees and ESI contribution of employer was paid after due date prescribed under specified Act. The ld. Assessing Officer disallowed Provident Fund Employer Contribution of �58,24,485/-, ESI contribution of �16,71,483/- and Employees Provident Fund contribution of �53,54,826/-. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

3.1 In the appellate proceedings, the ld. Authorised Representative of assessee argued that the ld. Assessing Officer is not correct in making disallowance under the amended law and omission of applicability of the provisions. The ld. Commissioner of Income Tax (Appeals) considered the submissions and judicial decisions found that the assessee company has paid ESI and PF contribution before due date of filing of return u/s.139 (1) of the Act. The ld. Commissioner of Income Tax (Appeals) relied on the decision of ITAT, Kolkata in the case of Jagatdal Jute & Industries Limited vs. DCIT (2004) 1 SOT 210 (Kol) were it was held that amendment to Sec. 43B of the Act with effect from 01.04.2004 would have retrospective application and the ld. Commissioner of Income Tax (Appeals) directed the ld. Assessing Officer to delete the addition of �58,24,485/-, Employer’s contribution of PF and �16,71,483/- Employer’s ESI contribution. Aggrieved by & 1840/Mds/2005 :- 4 -: the Commissioner of Income Tax (Appeals) order, the Revenue has assailed an appeal before Tribunal.

3.2 Before us, the ld. Departmental Representative argued that the ld. Commissioner of Income Tax (Appeals) erred in deleting the disallowance u/s.43B of the Act in respect of employer’s contribution and ld. Commissioner of Income Tax (Appeals) also erred in considering the amendment effective from 01.04.2004 and prayed for allowing the appeal.

3.3 Contra, the ld. Authorised Representative relied on the orders of the Commissioner of Income Tax (Appeals) and vehemently opposed to the grounds.

3.4 We heard the rival submissions and perused the material on record. The crux of the issue that the assessee company has deposited employers contribution of ESI and EPF belatedly but before due date of filing of Return of income u/s.139(1) of the Act and are covered by the provisions of Sec. 43B of the Act. We found on similar issue Juridictional High Court in the case of CIT vs. M/s. Industrial Security & Intelligence India Pvt. Ltd held as under:-

to Section 43B and amendment to first proviso by Finance Act, 2003 are curative in nature and are effective retrospectively, i.e., with effect from 1.4.1988 i.e., the date of insertion of first proviso. The Delhi High Court in the case of CIT V. Amil Ltd. reported in 321 ITR 508 held that if the assessee had deposited employee's contribution towards Provident Fund and ESI after due date as prescribed under the relevant Act, but before the due date of filing of return under the Income Tax Act, no disallowance could be made in view of the provisions of Section 43B as amended by Finance Act, 2003.’’ We respectfully following the jurisdictional High Court decision upheld the order of the Commissioner of Income Tax (Appeals) on this ground and dismiss the ground of the Revenue.

4 The next ground raised by the Department is that the ld. Commissioner of Income Tax (Appeals) erred in deleting the disallowance of �67,16,502/- towards expenditure on replacement of refractory bricks, aluminium moulds, grinding wheels etc., 4.1 The ld. Assessing Officer in the assessment proceedings found that the assessee has claimed expenditure having enduring benefit and was written off in the year and the expenditure is treated as deferred expenditure over three years as in earlier assessment & 1840/Mds/2005 :- 6 -: years and the ld. Assessing Officer following the precedent has disallowed the claim of the assessee. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

4.2 In the appellate proceedings, the ld. Commissioner of Income Tax (Appeals) considered the findings and nature of expenses were the assessee is writing off as deferred expenditure. In the assessee’s own case in assessment year 1996-97, the ld. Assessing Officer disallowed the claim and was subsequently reversed by the Commissioner of Income Tax (Appeals) vide order in dated 08.10.1999. The ld. Commissioner of Income Tax (Appeals) discussed at para 4.1.1 on the cost, conditions, usage alongwith judicial decisions and relied on the orders of predecessor for the assessment years 1996-97, 1997-98, 1999-2000 and 2000-2001 and directed the ld. Assessing Officer to delete the addition. Aggrieved by the Commissioner of Income Tax (Appeals) order, the ld. Revenue has assailed an appeal before Tribunal.

4.3 Before us, the ld. Departmental Representative argued that the ld. Commissioner of Income Tax (Appeals) erred in deleting the addition irrespective of the fact that the Department has filed an & 1840/Mds/2005 :- 7 -: appeal on the same issue for earlier years and the nature of expenses being capital expenditure having enduring benefit and further ld. Commissioner of Income Tax (Appeals) relied on the decisions of the predecessor without considering the appeals filed by the Department and the action of the ld. Commissioner of Income Tax (Appeals) is not with accordance with law and prayed for allowing the appeal.

4.4 Contra, the ld. Authorised Representative relied on the orders of the Commissioner of Income Tax (Appeals) and argued that in earlier assessment years the matter was remitted to the ld. Assessing Officer and the ld. Assessing Officer has deleted the addition and prayed for dismissing the Revenue appeal.

4.5 We heard the rival submissions, perused the material on record and judicial decisions. We found that the disputed issue was considered by the Tribunal in assessee’s own case and was remitted to the ld. Assessing Officer further the ld. Assessing Officer has allowed the claim of the assessee. We rely on the Co-ordinate Bench decision in assessee’s own case in & 2002/Mds/2000, assessment years 1996-97 & 1997-98 dated 10th March, 2006, wherein it was held at para 6 and 7 as under:- & 1840/Mds/2005 :- 8 -:

‘’6. In Revenue’s appeal for assessment years 1996-97 and 1997-98, the first common issue relates to deletion of addition on account of deferred tools expenditure. The assessee in the process of manufacturing insulators incurred an expenditure of � 1,17,05,116/- for purchase of refractories used in the kiln and kiln car. The assessee 2/3rd capitalized of the expenditure amounting to �78,03,411/- in the books of account. However, in computation of income, the entire amount was claimed as revenue expenditure. It was explained before Assessing Officer that the life of refractory bricks was about three years and therefore 1/3 is written off every year. Since the amount was on account of replacement of refractory bricks, the entire expenditure for purchase was claimed as deduction. On appeal ld. Commissioner of Income Tax (Appeals) held that the expenditure incurred did not result in any enduring advantage and the expenditure was incurred during the course carrying on of business and therefore the entire expenditure was allowable as deduction. He, therefore, deleted the addition. Before us, ld. Departmental Representative submitted that unless tools are actually used during the year cannot be allowed as deduction. Consumables are allowed as deduction on actual use basis. If the assessee has purchased excess tools over and above actual used, the same will be in nature of capital expenditure. The burden is on the assessee to prove that the tools were used for the purpose of business during the year. The ld. Authorised Representative on the other hand submitted that tools have been during the year and therefore assessee was entitled for deduction of the entire amount.

& 1840/Mds/2005 :- 9 -: we remit the disputed issue to the file of ld. Assessing Officer and to pass the order on merits as in earlier years. The ground of the evenue is allowed for statistical purpose.

5 The third ground raised by the Revenue that the ld. Commissioner of Income Tax (Appeals) erred in deleting the addition made by the Assessing Officer on non compete fee.

5.1 The assessee company entered into an agreement with M/s.

Alstom Instrument Transformers (P) Limited on 27.11.2000 in respect of business activities and non competent fee. As per the agreement, the assessee company has agreed not to continue the business activities of the Power Control Division for a period of seven years from 27.11.2000 and also refrained from carrying on relevant activities for a period of seven years as per the articles/clauses mentioned in non compete fee agreement. Further another agreement was entered on 07.09.2000 in the nature of Asset Purchase Agreement with Alstom T & D, a company incorporated and this agreement is for specific sale of assets of power control division of the assessee company. The ld. Assessing Officer perused the article of agreements.

As per the conditions, the seller agrees with the purchaser to use & 1840/Mds/2005 :- 10 -: sellers name for limited period. The agreement entered on 07.09.2000 deals with taking over of services of employees. The assessee company received non compete fee for the reasons specified in the non compete fee agreement entered on 27.11.2000. The fee is paid to the seller to restrain from coming into the business for limited period and shall not become a competitor to the purchaser. But the ld. Assessing Officer interpreted that non compete fee is in the nature of Goodwill pertaining to the Business of the Power Control Division at Devanahalli, Bangalore in addition to the consideration paid for the transfer of assets. The ld. Assessing Officer treated the non compete fee as Goodwill and whereas Goodwill is a capital asset within the meaning of Sec.45 r.w.s 55(2)(a) of the Act w.e.f. 01.04.1995 and ld. Assessing Officer relied on the Apex Court decision of B.C. Srinivasa Shetty 128 ITR 294 were it was held that in the case of transfer of goodwill, a capital asset which had no cost of acquisition, no capital gains would result. However, since the amendment was effected defining Goodwill as a capital asset within the meaning of Sec.

55(2)(a) of the Act. Considering the amended law and interpretations the ld. Assessing Officer treated non compete fee of �15 crores as Long Term Capital Gains as the Goodwill has no cost of acquisition and made an addition. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). & 1840/Mds/2005 :- 11 -:

5.2 In the appellate proceedings, the ld. Authorised Representative argued that the ld. Assessing Officer erred in treating �15 crores received as non compete fee as sale of Goodwill ignoring the terms of agreement which clearly shows that the amount paid is for seller to restrain from competition for next seven years. Further, the ld. Assessing Officer has elaborately discussed in the assessment order about the terms and conditions but has erred in concluding that non compete fee is nothing but a Goodwill on transfer of assets. Apart from the clarifications on the agreements, the ld. Authorised Representative has explained the reasons for transfer of assets and History of the company and products manufactured by the assessee company. The buyer company M/s. Alstom, is a subsidiary of international company and the ld. Commissioner of Income Tax (Appeals) has discussed at page 6 to 8 of his order and also considered the submissions by the assessee company supporting the grounds for treating it as non compete fee. The ld. Commissioner of Income Tax (Appeals) perused the findings of the ld. Assessing Officer and also agreements pertaining to assets purchased, supplementary agreement and non compete agreement. The ld. Authorised Representative apart from submitting the factual aspects has relied on the judicial decisions and explained that there was amendment to provisions to Sec. 28(v)(a) of the Act were it is a specific provision & 1840/Mds/2005 :- 12 -: was brought into the statute were a sum received or receivable in cash or kind under an agreement for not carrying out any activity in relation to any business inserted from Finance Act, 2002 with effect from 01.04.2003 and is applicable from assessment year 2003-2004 and therefore non compete fee is not taxable for assessment year 2001-02.

The ld. Authorised Representative relied on the decisions of Bikramjet Singh vs. CED 265 ITR 606 and CIT vs. K. Raffiudden 242 ITR 57.

The ld. Commissioner of Income Tax (Appeals) considered detailed submissions of the assessee, agreements and the opinion filed separately on the issue of non compete fees. The assessee has sold assets of the unit near Bangalore by agreement dated 07.09.2000 and as per the terms the assessee obtained sale consideration for assets and non compete fee. The purchaser has paid non compete fee to restrain the assessee company from competition. The ld. Commissioner of Income Tax (Appeals) found that the ld. Assessing Officer formed an opinion on non compete fee being in the nature of Goodwill and made an addition which is not logical. The ld. Commissioner of Income Tax (Appeals) at page 12 para 6.2.2 of his order has discussed elaborately in his order and directed the ld. Assessing Officer to delete the addition of �15 crores. Aggrieved by the Commissioner of Income Tax (Appeals) order, the ld. Revenue has assailed an appeal before Tribunal. & 1840/Mds/2005 :- 13 -:

5.3. Before us, the ld. Departmental Representative argued that the ld. Commissioner of Income Tax (Appeals) erred in deleting the addition made by the ld. Assessing Officer of �15 Crores in respect of non compete fee and ignored the reputation of assessee company whose assets are acquired by the foreign company. The assessee company has substantial goodwill and was acquired by the foreign company though named as non compete fee. The ld. Commissioner of Income Tax (Appeals) further failed to appreciate that there are two separate agreements for purchase of assets and non compete fee and these agreements are lacks lawful meaning. The goodwill of the assessee company is an intangible asset. The purchaser company is incorporated in France and one of the leaders in electrical business and having operations worldwide and competing with the assessee company which is having a bushing unit being transferred and calculation of goodwill is without any methodology and relied on the judicial decisions and prayed for allowing the appeal. Further, the ld. Departmental Representative filed written submissions explaining that non compete fee paid is nothing but transfer of goodwill pertaining to bushing division plant and assessed to tax under the head Capital gains. Further the ld. Assessing Officer found that the assessee company had transferred entirely the bushing industry unit and & 1840/Mds/2005 :- 14 -: therefore payment of non compete fee does not arise and referred to the decision of the Co-ordinate Bench in the case of & 3537/Mad/2009, dated 26.09.2013 in the case of M/s. Alstom T & D India Ltd vs. ACIT were issue on acquisition of the Assets was dealt and the difference between consideration paid and value of net assets taken over is considered as goodwill and similarly on the Co-ordinate Bench decision of Pentamedia Graphics Ltd vs. DCIT in ITA No.1780/Mds/2009, 1768 & 1733/Mds/2010 dated 11th June, 2012 were the treatment of non compete fee received by the assessee was considered as goodwill for allowing the buyer to use the name.

Further, the ld. Departmental Representative also relied on the decision of Indo Tech Electric Co vs. DCIT 99 ITD 325 on the non compete fee. Similarly M/s. Alstom T & D India Ltd vs. ACIT, in & 3537/Mds/2009, decision of Co-ordinate Bench of the Tribunal considered goodwill on transfer of assets and depreciation claim on goodwill. The ld. Departmental Representative submitted that as per the directions of the Tribunal for earlier assessment years depreciation was granted to the assessee company. With these submissions and explanations, the ld. Departmental Representative prayed for set aside of the order of Commissioner of Income Tax (Appeals) and restore the ld. Assessing Officer order. & 1840/Mds/2005 :- 15 -:

5.4 The ld. Authorised Representative relied on the findings of the ld. Commissioner of Income Tax (Appeals) and dealt on Sec.28(va) of the Act inserted by Finance Act, 2002 which shall not be applicable to assessee company assessment year 2001-02 being prior to assessment year 2003-2004 and supported his arguments with judicial decisions and filed paper books I, II & III with details of ledger accounts, asset valuation report, asset purchased agreements, supplementary agreements, non compete agreements, financial statements and relied on the amended provisions and supported with Apex Court decision in the case of Guffic Chem P. Ltd vs. CIT 332 ITR 602 and vehemently emphasized that the non compete fee is a capital receipt and is not taxable prior to amendment to Sec. 28(va) of the Act which is effective from assessment year 2003-2004 and prayed for dismissing the appeal of the Revenue on this ground.

5.5 We heard the rival submissions, perused the material on record, judicial decisions and paper books. The ld. Departmental Representative contention that the assessee company received non compete fee which is in the nature of goodwill on transfer of assets.

The ld. Assessing Officer has considered the facts on goodwill as the assets were transferred and no business activities are carried on by the assessee company as per agreements. The ld. Departmental & 1840/Mds/2005 :- 16 -:

Representative is emphasizing on the concept of taxability of goodwill and to treat non compete fee as taxable receipt. The facts explain that the assessee company has entered into two separate agreements the assets purchase agreement dated 07.09.2000 referred at paper book I page no.59 to 107 and the supplementary agreement entered on 27.11.2000 mentioning the values and the non compete agreement entered on 27.11.2000 referred at page 114 to 131. The grievance of the ld. Departmental Representative that the transfer of assets of assessee’s Bushing divisions plant to M/s. Alstom Instrument Transformers (P) Limited is purely in the nature of business transaction and non compete fee agreements shall not be separately considered and the said sum to be treated as goodwill. We perused the paper book No.I at page 35 were the 1st Annual Report of purchaser company was filed. On perusal of the notice of Annual General Meeting (AGM) the first AGM was held in July, 2001 and the said company was incorporated with Registrar of Companies, New Delhi dated 28th August, 2000 and the Books of account are closed on 31st March, 2001. This annual report explains the background of the company as this is the first year after incorporation and during the financial year 2000-2001. The assessee company acquired assets and liabilities from a existing concern in November, 2000. The assessee company and M/s. SSB Industries Limited are subsequently & 1840/Mds/2005 :- 17 -: amalgamated as M/s. W.S. Industries (India) Ltd. No doubt the assessee promoter company is based in France and have international worldwide transactions. But in India for Business transaction and to achieve the objects the assessee company was incorporated with valuable investments in August, 2000. We perused the Annual Report of M/s. Alstom Instrument Transformers (P) Limited (purchaser company) at page 56 of paper book, notes on accounts were the company has mentioned about the goodwill and non compete fee under schedule 19 of Significant Accounting Policies at G.

Goodwill treatment is referred as under:-

‘’Goodwill arising from the take over of Assets and Liabilities of our existing concern is amortized over a period of 5 years’’.

The purchaser company wanted their brand image in this country and also don’t want to compete with the assessee company on Bushing unit division and hence entered into a non compete agreement on 27.11.2000. The contention of the ld. Departmental Representative that the parent company M/s. Alstom T & D France with worldwide operations are with a reputation and the assessee company competing on activities and payment of non compete fee analogy cannot accepted. The purchasing company incorporated in India and made huge investments in sectors and wants to enter into bigger & 1840/Mds/2005 :- 18 -: projects for its existence and Brand image and paid non compete fees to the assessee company �15 crores. Further, the ld. Departmental Representative argued to treat non compete fee as a goodwill on transactions whereas assessee company entered into two agreements separately for assets purchase and non compete fee and the Department cannot interpret the clauses and presume that in the guise of consideration of non compete fee the assessee company cannot claim as capital receipt. Further the purchasing company case was dealt by the Co-ordinate Bench of Tribunal on allowing depreciation on goodwill. The ld. Departmental Representative relied on case of M/s. Pentamedia Graphics (supra) which pertains to the non compete fee paid to the sister concern by the said company but in the present case non compete fee is paid by international company which does not have business connection or holding of equity in assessee company and hence cannot be prime facie be accepted. In the case of Indo Tech Electric Co vs. DCIT (supra) being partnership firm were on transfer of assets partnership seized to exist and the Tribunal considered the transaction as part and parcel of goodwill but in the present case, the transaction is between two registered companies having separate legal entities and transferor company still exist after transfer of assets. In the case of purchaser company for the assessment year 2003-2004, the Tribunal has directed the ld. & 1840/Mds/2005 :- 19 -:

Assessing Officer to verify the valuation of goodwill and allow deprecation and accordingly, the ld. Assessing Officer has granted depreciation. We also perused the financial statements of the purchaser company at page 52 of paper book were the purchaser company at Sl. No.10 Schedule treated the non compete fee under Deferred Revenue Expenditure and written off during the financial year �77,19,447/- and the same was debited to Profit and Loss account under schedule 16 under Other Costs. There is no dispute of payment of non compete fee by the purchasing company considering the circumstances and evidence discussed and now we peruse the provisions of Sec. 28(va) of the Act as under:-

‘’(va) any sum, whether received or receivable in cash or kind, under an agreement for– (a) not carrying out any activity in relation to any business ; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services. Provided that sub-clause (a) shall not apply to— (i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head ‘Capital gains’ ; & 1840/Mds/2005 :- 20 -:

(ii) any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone Layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India. Explanation For the purposes of this clause,–

(i) “agreement” includes any arrangement or understanding or action in concert,–

(A) whether or not such arrangement, understanding or action is formal or in writing ; or (B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings ;

(ii) ‘service’ means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging’’. the non compete fee receipt has been made taxable from the assessment year 2003-2004 under the provisions of Sec.28(va) of the Act. We support our view that the payment of non compete fee prior to 1st April, 2003 is in the nature of Capital Receipt and relying on the decisions of Guffic Chem P. Ltd(supra) and CIT vs. Hackbridge Hewittic & Easun Ltd (2015) 92 CCH 0095 Chen HC wherein it was held that & 1840/Mds/2005 :- 21 -: where there was no intention to acquire goodwill of the assessee, the, non-compete fee received by the assessee could not be treated as goodwill and it was not taxable as income. Similar issue was considered by the Co-ordinate Bench of the Tribunal in the case of M/s. TTK Healthcare Ltd vs. ACIT in assessment year 2000-2001, vide order dated 15th June, 2007 where it was held that as under:-

‘’15. Again, the Hon'ble Madras High Court in the case of Commissioner of Income : Tax Vs. Saraswathi Publicities (1981) 132 ITR 207 has held that, "Compensation for agreeing to refrain from carrying on competitive business is Capital receipt not liable to tax". In that case, the assessee had secured the rights for distribution and exhibition of advertisement films, with a right to enter into agreement with other persons for distribution and exhibition. The assessee entered into an ag5reement with which had similar agreements with various firms for the purpose of seeing that the business of each other did not suffer by competition in certain states. The agreement were extended and modified. Under the agreement of 16th May, 1965, the assessee agreed not to represent or otherwise do business in film shows and any sort of advertisement on the cinema screens for Hindustan Lever Ltd or Lintas Ltd in the agreed area. The assessee had agreed also to ‘’taking over and handling’’ the said business on the business with Hindustan Lever Ltd or handle any film advertising business till the end of 1975. In consideration of these terms, Blaze agreed to pay the assessee a sum of ₹1,50,000/-. The assessee’s claim that this amount was a capital receipt not liable to tax was negative by the Income Tax Officer but upheld by the AAC and the Tribunal. On a reference ; ‘’Held, that as the receipt was referable to the restrictive covenant, it was a capital receipt not liable to income tax’’ 16. In the background of above discussion, we are of the considered opinion that the sum of ₹3,44,92,800/- received by the assessee in this case pursuant to a restrictive covenant amounts to non compete fee which & 1840/Mds/2005 :- 22 -: was not taxable for the relevant assessment year. Hence, we set aside the order of authorities below and decide the issue in favour of the assessee’’.

So considering the apparent facts, judicial decisions and the amendments/ Act, we are of the opinion that non compete fee is taxable from the assessment year 2003-2004 only and we also rely on Delhi High Court decision of CIT vs. HCL Infosystems Ltd 385 ITR 35 (Delhi) were it was held that ‘’dismissing the appeal, that as a result of the termination of the joint venture agreement, a bundle of rights of the assessee would stand extinguished, which included the right to manufacture computers using HP know-how and HP labels, trade-marks and patents. At the same time, the assessee's right to manufacture its own computers was not taken away by the termination and that stood revived. The assessee's income earning apparatus was impaired and its source of income got sterilised. Therefore, the amount received by the assessee upon termination of the joint venture agreement was in the nature of a capital receipt. Till April 1, 2003, there was no provision under which the capital gains arising from the transfer of a trade-mark or brand name associated with a business could be brought to tax. Similarly, the capital gains arising from the transfer of a right to carry on business or negative non-compete right also could not be brought to tax at the relevant time. The amendments were prospective in nature. Thus the receipt of ₹6080.95 lakhs by the assessee as a result of the termination of the & 1840/Mds/2005 :- 23 -: joint venture agreement was a capital receipt, and in the light of section 55(2)(a) of the Act as it stood at the relevant assessment year 1998-99, the amount could not be brought to capital gains tax’’. and the present assessment year of the assessee company is assessment year 2001-02 and the payment of non compete fee cannot be taxed and we uphold the order of Commissioner of Income Tax (Appeals) on this ground and dismiss the ground of the Revenue.

6 The last ground raised by the Revenue that ld. Commissioner of Income Tax (Appeals) erred in deleting the addition of �3,36,262/- towards temple maintenance.

6.1 The ld. Assessing Officer in the scrutiny assessment found that the assessee company has claimed �3,36,262/- as temple expenses included under employees welfare and was disallowed being not relating to assessee’s business. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

6.2 In the appellate proceedings, the ld. Authorised Representative explained that inside the factory premises there is a & 1840/Mds/2005 :- 24 -: temple complex with deities and having entrance from inside and outside factory. The temple was constructed after the factory was setup which is more than three decades and the employees frequently visit the temple and was under direct control of management of the company. The maintenance expenses are met by assessee company and further employees participating in temple activities shall give them immense satisfaction and peace by engaging in prayer whenever they have time and cultural activities are conducted for the welfare of the employees. The ld. Commissioner of Income Tax (Appeals) considered the findings of the ld. Assessing Officer and the submissions of the assessee company and further found that the staff welfare expenses are allowed as Business expenses u/s.37(1) of the Act and relied on the of Punjab & Haryana High Court in the case of Atlas Cycle Industries Ltd vs. CIT 143 ITR 458 (P & H) and Gujarat High Court in the decision of Commercial Ahmedabad Mills Co. Ltd vs. CIT 204 ITR 505 (Guj)and deleted the addition. Aggrieved by the order, the Revenue filed an appeal before Tribunal.

6.3 Before us, the ld. Departmental Representative argued that such expenses are allowed only for carrying out the business and & 1840/Mds/2005 :- 25 -: expenses incurred on temple authorities does not relate to assessee’s business and prayed for deleting the addition.

6.4 Contra, the ld. Authorised Representative relied on the orders of the Commissioner of Income Tax (Appeals) and vehemently opposed the grounds.

6.5 We heard the rival submissions, perused the material on record and judicial decisions. The ld. Departmental Representative contention that temple expenses are not related to assessee’s business and claim under employee’s welfare is not allowable. The explanations of the ld. Departmental Representative cannot be accepted as the company incurs expenditure in maintaining the temple were the employees attend the temple to have spirituality, improve moral thinking, obtain peace and indirectly if the employees are sound, motivated and healthy with spiritual deeds there is feel good factor while working for the assessee company and in return it increases the efficiency productivity and usage of manpower in the company activities and such expenses are wholly and exclusively incurred to have indirect benefit to the company. We are of the considered view that considering the apparent facts, the ld. Commissioner of Income Tax (Appeals) has rightly dealt on this issue and also relied on the & 1840/Mds/2005 :- 26 -: judicial decisions, which we are not inclined to interfere and uphold the order of Commissioner of Income Tax (Appeals) on this ground.

The ground of the Revenue is dismissed.

7 The appeal of the Revenue in is partly allowed.

8 Now, we take up of assessment year 2001-2002:- The sole substantive ground raised by the Department being payment of non compete fee of �1 Crore by M/s. Alstom Instrument Transformers (P) Ltd on taking over of assets.

8.1 The Brief facts of the case are that the assessee company is engaged in manufacturer of Condenser Bustings, Arc Chambers, lightning arresters, varistor blocks etc and filed Return of income for the assessment year 2001-02 on 31.10.2001 with total income of �26,26,600/- and calculated tax liability u/s.115JB of the Act. The Return of income was processed u/s.143(1) of the Act. Subsequently, the case was selected for scrutiny and notice u/s.143(2) of the Act was issued. As

per the scheme of amalgamation of M/s. W.S. Industries (India) Limited, the assessee company was amalgamated with effect from 01.04.2001 vide Jurisdictional High Court order in Company Petition No.130/2001 & 1840/Mds/2005 :- 27 -:

dated 11.12.2002, the assets and liabilities are transferred to the purchaser M/s. Alstom Instrument Transformers (P) Limited as per agreement entered in respect of Bushing Division at Bangalore. The assessee has entered into Assets purchase agreement and non compete fee agreement of �1 crore separately. The ld. Assessing Officer made addition of �1 crore of non compete fee as taxable. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

8.2 In the appellate proceedings, the ld. Commissioner of Income Tax (Appeals) deleted the addition made by the ld. Assessing Officer. Aggrieved by the order, the Revenue has assailed an appeal before Tribunal.

8.3 We heard the rival submissions, perused the material on records and judicial decisions. We have decided similar issue in of assessment year 2001-2002 of M/s. W.S. Industries (India) Ltd at para 5.5 and accordingly, non compete fee is not taxable in the hands of the assessee and the ground of the Revenue is dismissed.

9 The appeal of the Revenue in for assessment year 2001-2002 is dismissed. & 1840/Mds/2005 :- 28 -:

10 In the result, the appeals of the Revenue in is partly allowed and ITA No. 1840/Mds/2005 is dismissed.

Order pronounced on Thursday, the 8th day of September, 2016, at Chennai.