Indian Kanoon - Search engine for Indian Law

(b) Whether the Tribunal is correct in concluding that the payments under consideration should be considered as capital expenditure due to enduring benefit in spite of the limited period of the operation of the restraint contract read with other crucial facts? "

4. We have heard Mr.S.Sridhar, learned counsel for the appellants and Mr.T.R.Senthilkumar, learned Standing Counsel appearing for the respondent.

5. The Appellant/Assessee in T.C.A.Nos. 783 and 784 of 2005, is a partnership firm by name M/s. Sharp Industries. They are engaged in the manufacture and sale of 1/2 HP monobloc pumps. They filed a Return of Income on 29.10.1993. A notice was issued under Section 143(2) of the Income Tax Act, 1961 and after enquiry, the Assessing Officer found that the Assessee had entered into agreements with two persons by name K.K.Ramasamy and K.Jagannathan on 30.4.1992 and 1.4.1993 respectively. Under the said agreements, K.K.Ramasamy and K.Jagannathan agreed not to produce or market a range of monobloc pumps, in consideration of the Assessee firm paying a compensation at the rate of 3.0% of its sales turnover to K.K.Ramasamy and 0.5% of its sales turnover to K.Jagannathan.

6. Since the agreements dated 30.4.1992 and 1.4.1993 were termed at will, and also since the consideration payable to K.K.Ramasamy and K.Jagannathan, were annual payments depending upon the total sales turnover, the agreements themselves appear to have been terminated subsequently.

7. However, the Assessing Officer treated the amounts paid to K.K.Ramasamy and K.Jagannathan, as capital expenditure at the hands of the Assessee and this finding was confirmed by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. Therefore, M/s. Sharp Industries has come up with the above appeals T.C.A.No.783 and 784 of 2005 in respect of the Assessment Years 1993-94 and 1994-95.