Deputy Commissioner of Income Tax Vs. Goodricke Group Ltd. - Court Judgment

Excerpt:
- orders. bandyopadhyay, a.m., :this is a departmental appeal against the order of the commissioner (appeals) passed on 9-12-1994. the facts of the case are rather somewhat peculiar.2. the assessing officer passed the assessment order under section 143 (3) of the income tax act, 1961 for this year on 27-3-1989 (this order will henceforth be called the first assessment order). the commissioner (appeals) decided the appeal against this order along with another appeal for the assessment year 1986-87 by his common order dated 4-1-1990 (this commissioner (appeals) and his order will henceforth be called the first commissioner (appeals) and the first commissioner (appeals) s order). in the said order the first commissioner (appeals) set aside certain issues and remitted the same back to the file of the assessing officer for fresh examination after the commissioner (appeals) himself having taken certain positive decisions with regard to the issues raised before him. the order passed by the assessing officer in giving effect to the first order of the commissioner (appeals), as mentioned above, dealt with the issues remitted to him in certain manners. this order was again appealed against by the assessee and the commissioner (appeals) passed a fresh order on 23-3-1992 (this commissioner (appeals) and his order in this regard will henceforth be called as the second commissioner (appeals) and the order of the second commissioner (appeals) respectively). thereafter, the assessing officer passed a fresh order under section 143 (3), read with section 250 on 22-3-1993 (this order of the assessing officer will be called henceforth the third order passed by the assessing officer). as against the said order, the commissioner (appeals) came up with another order dated 9-12-1994 which is being impugned before us by the department (this commissioner (appeals) and this order of the commissioner (appeals) are henceforth being called respectively as the third commissioner and the third order of the commissioner (appeals) ) .3. in this appeal against the order of the third commissioner (appeals), the first issue, which has been raised by the department, relates to the deletion of the addition of rs. 48,07,733 made on account of expenditure towards consultancy services. in the first order passed by the assessing officer, the matter was discussed in detail to the effect that a payment of rs. 49,17,000 was made by the assessee to m/s. t.m. & m.c. (p.) ltd. (hereinafter referred to as tmmc) during the relevant year. the payment was stated to have been made in terms of the agreement dated 26-7-1983 with that concern. the payment was again stated to be consisting of two different elements viz. (i) for rendering the consultancy services for the tea season of 1983 and (ii) for restraining tmmc not to undertake any consultancy services regarding the techniques used by the company in plantation in the states of assam, west bengal, kerala, tamil nadu and tripura for a period of five years commencing from 1-4-1983. the assessing officer held that the portion of payments towards restraining tmmc not to undertake any consultancy services for a period of five years resulted in a benefit of enduring nature to the assessee-company being for preventing competition. he thus held that this portion of the payment should be treated as capital expenditure. the assessing officer also discussed that tmmc while appearing before him furnished the detailed bifurcation regarding the quantum of payment pertaining to the two different aspects and that while an amount of rs. 1,09,267 had been paid for the services actually rendered, the other amount of rs. 48,07,733 pertained to restrictive clause under the agreement. the assessing officer thus allowed the amount of rs. 1,09,267 as revenue expenditure and disallowed the balance amount of rs. 48,07,733 as capital expenditure.4. the first commissioner (appeals) took into consideration the various aspects related to the issue. he discussed that there were certain shortcoming in the terms of the agreement to the effect that the agreement did not offer the necessary protection to the assessee to justify the payment of such a heavy amount. the commissioner (appeals) also discussed the provisions of termination of the agreement by both the sides as per clauses 4,5 and 6 of the agreement. ultimately, he held as below:'considering these defects which to my mind are very serious defects i cannot accept the justification for making such a huge payments for the reason stated, when the same cannot even be really guaranteed for the reason discussed above. considering all these, i agree with the dc that the payment made by the appellant to tm & mc in order to prevent the latter from offering the same services to other tea gardens as discussed above is not wholly for business purposes. the disallowance made by him is upheld in principal.'the commissioner (appeals) thereafter discussed that, however, the claim of the assessee regarding the amount relating to this matter (the disallowance) needed to be looked into. he also discussed that the assessing officer had obtained information regarding the amount from tmmc without allowing any opportunity to the assessee to cross-examine the said other party on this point. in the interest of justice, the commissioner (appeals) directed the assessing officer to allow opportunity to the assessee to cross-examine tmmc for this purpose. the commissioner (appeals), however, ended his discussion in this regard as below:'... it does not mean the mere denial by the appellant regarding the amount paid would mean the quantum is in dispute. if tm & mc have reflected this amount in their returns for the purpose of taxation, it would have to be accepted as the amount involved.'5. it appears that at the stage of passing the second order, the assessing officer merely repeated the earlier order without affording a chance of cross-examining tmmc to the assessee. when the matter came up before the second commissioner (appeals), he found that there was no evidence of any examination having been carried out in spite of the direction given in appeal. he, however, noted that the failure on the part of the assessing officer in that regard did not form an appellate ground before him.the second commissioner (appeals) thereafter discussed the question as to why the first commissioner (appeals) having upheld the disallowance in principle kept the issue open to the extent of granting an opportunity to the assessee to examine tmmc before the assessing officer. the commissioner (appeals) discussed in that connection as below:'the answer, though inferential in nature, is clearly to the effect that the commissioner (appeals) was of the belief that there was some business consideration in the payment of rs. 48,07,744 to restrain tmc from giving advice, consultancy etc. to other tea garden owners. the word wholly preceding the words for business purpose appearing at the bottom portion of page 8 of the appeal order is the proof of such inference. the other proof of such inference is the emphasis of the commissioner (appeals) on the word amount, i.e., the amount of payment to tmc that was claimed as deduction. naturally, for the quantification of the amount, further verification was necessary and the appellant, in fairness, was given the opportunity by way of its presence along with tmc before the assessing officer, who would decide upon such amount on examination of evidence, both oral and documentary.'thus, the second commissioner (appeals) admitted that the partial restoration, as had been made by the first commissioner (appeals), was subject to certain specific directions for carrying out an exercise in the evaluation of evidence and that the said directions had not been implemented by the assessee, nor was such non-implementation challenged by the assessee before the second commissioner (appeals). thus, the assessment remained where it was when the last appellate order was passed on 4-1-1990.6. the strange fact, however, is that instead of restoring the matter back to the file of the assessing officer once more for carrying out the non-implemented direction of the first commissioner (appeals), the second commissioner (appeals) engaged himself in listening to various arguments on behalf of the assessee even against the disallowance of the portion of the expenses relating to restrictive clause in principle. after making various smoky discussions, the second commissioner (appeals) finally held as below:'the conclusion that flows out of the discussion above, on its own strength and motion, is quite clear. the issue arising from the disallowance of rs. 48,07,733 has to again go back to the assessing officer for fresh examination. accordingly, the issue is restored for a de novo decision subject to the direction to the appellant that it should furnish to the assessing officer such evidence as it ought to have in course of the original assessment proceeding to establish the bona fide in its claim. the assessing officer is under direction to carry out the fresh exercise according to the tests laid down in the judicial presidents as referred above.it thus appears that the second commissioner (appeals) went beyond his mandate and declared the entire issue once more open.7. in the third order passed by the assessing officer, he made certain discussions once more about the disallowed portion of the payment being of capital nature. he stressed the point that the agreement had been made for a full period of five years and held that, therefore, the assessee was to receive an enduring benefit of the nature of restraining others from getting the relevant information and in that way preventing competition in the line of its business. he also found out that as per the version of tmmc, the amount of rs.48,07,733 related to the restraining clause. thus for the third time the assessing officer resorted to the disallowance of the old amount of rs. 48,07,733.8. when the matter once more came up before the third commissioner (appeals), he took into consideration the allowability of the expense as such. he discussed in detail by relying on the judgment of the supreme court in the case of alembic chemical works co. ltd v. cit : [1989]177itr377(sc) , another judgment of the supreme court in the case of devidas vithaldas & co. v. cit : [1972]84itr277(sc) and also a judgment of the bombay high court in the case of premier automobiles ltd v. cit (1984) 150 itr 282 ; and ultimately came to the conclusion that because of the presence of the termination clause at will by either of the parties in the agreement under consideration and in view of the circumstances in general the assessee could not be considered as having received any benefit of enduring nature. he thus held that the entire amount under consideration was allowable as revenue expense and thus deleted the entire disallowance.9. at the stage of hearing of the appeal before us, against this last order of the commissioner (appeals), the learned departmental representative strongly contends that the restrictive clause tantamounted to an effort on the part of the assessee to restrain competition in the line of its business, that the restrictive clause was supposed to operate for a period of five years and hence that it must be held that what the assessee received by way of payment of the amount of rs. 48,07,733 was nothing but a benefit of enduring nature. in support of this contention, the learned departmental representative relied on a judgment of the allahabad high court in the case of neel kamal talkies v. cit : [1973]87itr691(all) in which it has been held that a benefit towards preventing competition for a period of five years could be considered to be a benefit of enduring nature and hence the payment made towards obtaining such a benefit would have to be considered as capital payment. in support of his general proposition that any expenditure laid out for the purpose of preventing competition would be of capital nature of learned departmental representative has placed reliance on the following judgments :(1) cit v. hindustan pilkington glass works : [1983]139itr581(cal) (2) chelpark. co. ltd v. cit : [1991]191itr249(mad) (3) assam bengal cement co. ltd v. cit : [1955]27itr34(sc) .so far as the apportionment of quantum of payment is concerned, the learned departmental representative strongly argued that even the second commissioner (appeals) had not disputed such apportionment.alternatively, the learned departmental representative tried to argue that the payment was made for extra-commercial consideration and was not related to the actual business needs of the assessee, as was held by the first commissioner (appeals) .10. on the other hand, the learned counsel for the assessee has strongly supported the order of the third commissioner (appeals) by arguing that by making the payment no capital asset was actually acquired by the assessee, nor even was any enduring benefit obtained by the assessee. he argued that although it is correct that any payment made to ward off the competitors would be a capital expenditure, so far as the present case is concerned, there was no warding off the competitors by the restrictive clause in the agreement under consideration. the following judgments have been relied upon by the learned counsel, in support of his contention:1. cit v. electro steelcastings ltd. : [1995]215itr541(orissa) 2. cit v. hyderabad asbestos cement products ltd. : [1984]150itr517(ap) 3. cit v. madras auto service (p) ltd. : [1998]233itr468(sc) 4. cit v. kirloskar tractors ltd. : [1998]231itr849(bom) 5. cit v. cominco binani zinc ltd. : [1993]204itr56(cal) 6. cit v. coal shipments (p.) ltd. : [1971]82itr902(sc) .11. when we deeply examine the facts of the case, we find that the first commissioner (appeals) had indeed held in principle that the amount paid to tmmc in terms of the restrictive clause of the agreement with that concern is not an allowable item inasmuch as the said portion of the expense cannot be considered to be wholly for the business of the assessee. the disallowance of this portion of the payment was thus upheld by him in principle. the issue was set aside and remitted back to the file of the assessing officer merely for the purpose of quantification of the disallowable portion out of the total payment. the entire subsequent proceedings should, therefore, have remained circumscribed by the above limits of consideration, as laid down by the first commissioner (appeals). strangely enough, however, the second commissioner (appeals) crossed the said limit and threw open the entire matter for fresh consideration by the assessing officer, which was certainly not within his powers. another curious aspect of the matter is that although the order of the first commissioner (appeals) greatly hampered the interest of the assessee, whereas that of the second commissioner (appeals) came in the way of the department, neither of the parties took any efforts to challenge the respective findings of the first and second commissioner (appeals). whatever the matters may be, the facts are that the disallowance stands confirmed by the first commissioner (appeals), being unchallenged by the assessee. the further proceedings may, therefore, be considered within the parameters laid down by the first commissioner (appeals) in his order and any other findings given by the subsequent commissioner (appeals), or any fresh directions to the assessing officer to reconsider the matter, will have to be treated as beyond their respective powers and will thus have to be considered as non est. therefore, we refuse to take cognizance of all the arguments put forward by both the sides about whether the expenditure under consideration should be treated as capital or revenue expenditure. the first commissioner (appeals) has already held the portion of the expenses relating to the restrictive clause, to be disallowable.in terms of the direction of the first commissioner (appeals), therefore, the only issue which remained in the subsequent proceedings was the quantification of the amount pertaining to the disallowable element out of the total payment. the assessing officer merely stated at the stage of the first assessment that tmmc had furnished the apportionment of the expenses before him to the effect that rs. 48,07,733 was towards the restramment of the trade and the meagre amount of rs. 1,09,267 related to the services actually rendered. this so-called statement of tmmc is no where on our record. during the subsequent proceedings also, the department was not in a position to substantiate this version by catching hold of tmmc and allowing the assessee a chance of cross-examining that concern with regard to the apportionment of the expenses under consideration. hence, we attach little value to the so-called apportionment of the expenses as considered in all the orders of the assessing officer. even looking from the angle of reality also, it would seem quite inconceivable that the assessee would spend over rs. 48 lakhs simply for keeping information relating to services rendered by tmmc to it, away for others; whereas the value of the services itself is of a meagre amount of rs. 1 lakh and odd. in fact, the consideration for the services actually rendered should out-weigh the payment made by the assessee towards the restrictive clause. in the present case, in the absence of any positive information in this regard, therefore, we are tempted to make an estimated apportionment of the total expenses in this regard on the basis of the reality in life. we, therefore, hold that out of the total payment of rs. 49,17,000, rs. 30 lakhs should be considered towards the services actually rendered by tmmc to the assessee (which portion out of the total expenses is allowable as revenue expense) and the balance amount of rs. 19,17,000 should alone be treated as part of expenses related to the restrainment clause in the agreement. hence, we modify the order of the authorities below and direct that out of the total amount of rs. 49,17,000, rs. 30 lakhs be allowed as revenue expenditure whereas the balance of rs. 19,17,000 be disallowed towards capital expenses.12. in the next ground the department contends that the commissioner (appeals) has erred in directing to adopt the figure of book profit shown by the assessee as the profit on sale of green tea leaves purchased and manufactured by the assessee-company. it was represented by the assessee before the commissioner (appeals) (first) with regard to the question of determination of profit on processing of purchased green tea leaves that whereas the assessing officer had considered the gross amount relating to the business as a whole in calculating the said profit, the calculation should have been made in garden-wise manner, as has been done in the past and accepted by the department. the first commissioner (appeals) vide order dated 4-1-1990 directed the assessing officer to verify the records and to follow the same methods which had been followed in the past years unless there were specific reasons for diverting from the methods consistently followed by him.13. at the stage of the second order also, the assessing officer stuck to the same process as resorted to earlier. the second commissioner (appeals) noted that the issue had been decided in favour of the assessee by the commissioner (appeals) in his order dated 22-2-1991 for the assessment year 1987-88. the second commissioner (appeals) quoted from the said appellate order for the assessment year 1987-88 in which the commissioner (appeals) had agreed with the contention that in the given facts the book profit method appeared to be more rational than the bulk method adopted by the assessing officer for and such reason the assessing officer should be directed to adopt book profit method for working out the profit derived from sale of tea manufactured out of bought leaves. the second commissioner (appeals) thus restored the issue back to the file of the assessing officer for recalculation on the lines already indicated in the above-mentioned appellate order dated 22-2-1991 for the assessment year 1987-88.14. at the third stage also, the assessing officer reiterated his earlier method. the third commissioner (appeals) by following the specific directions given by the second commissioner (appeals) directed the assessing officer to accept the profit disclosed from tea manufactured from green leaves purchased at rs. 2,21,743, as computed by the assessee. since this particular calculation is as per the direction given by the second commissioner (appeals) against which no appeal was preferred by the department, we are of the opinion that the matter has become final and the ultimate order of the third commissioner (appeals) in directing to accept the working of the assessee is required to be sustained. we, therefore, uphold the order of the commissioner (appeals) on this issue.15. in the third ground, the department challenges the direction given by the third commissioner (appeals) to delete the interest charged under sections 139 (8) and 215 of the act. in this connection the learned departmental representative brings our attention to the order of the second commissioner (appeals) in which he had already dismissed the grounds raised by the assessee before him against levying interest under subsection 139 (8)/215. the learned departmental representative thus contends that the issue stands closed by the said order of the second commissioner (appeals) and there was no occasion for the third commissioner (appeals) to re-decide the issue.the learned counsel for the assessee admitted the position but at the same time he drew our attention to the calculation of tax as made by the assessing officer at the time of giving effect to the order of the third commissioner (appeals) in which the assessing officer has found out that the discrepancy between the assessed tax and the advance-tax paid being within the permissible limit, there would be no question of levying interest under section 215.16. so far as the question of levy of interest under section 139 (8) is concerned, we also hold that the issue, having been finalised by the second commissioner (appeals), should not have been re-decided by the third commissioner (appeals). we, therefore, allow this ground and restore the levy of interest in this regard.regarding the levy of interest under section 215, however, we find that the order of the second commissioner (appeals) upholds the levy of interest under that section in principle. however, the working of the tax will undergo change as a result of this order being passed by us. the assessing officer should consider the question of levying/non-levying interest under section 215 in accordance with his finding regarding discrepancy between the assessed tax and the advance-tax paid as per the provisions of section 215.17. ground no. 4 agitates against the order of the commissioner (appeals) (third) deleting the interest charged under section 220 (2). we order that the matter relating to charging interest under section 220 (2) should be considered on the basis that the issue is consequential to the calculation of tax to be done as a result of our present order. the assessing officer is directed to take action accordingly.18. in the result, the departmental appeal is partially allowed to the above-mentioned extent.

Judgment:
ORDER

S. Bandyopadhyay, A.M., :

This is a departmental appeal against the order of the Commissioner (Appeals) passed on 9-12-1994. The facts of the case are rather somewhat peculiar.

2. The assessing officer passed the assessment order under section 143 (3) of the Income Tax Act, 1961 for this year on 27-3-1989 (this order will henceforth be called the first assessment order). The Commissioner (Appeals) decided the appeal against this order along with another appeal for the assessment year 1986-87 by his common order dated 4-1-1990 (this Commissioner (Appeals) and his order will henceforth be called the first Commissioner (Appeals) and the first Commissioner (Appeals) s order). In the said order the first Commissioner (Appeals) set aside certain issues and remitted the same back to the file of the assessing officer for fresh examination after the Commissioner (Appeals) himself having taken certain positive decisions with regard to the issues raised before him. The order passed by the assessing officer in giving effect to the first order of the Commissioner (Appeals), as mentioned above, dealt with the issues remitted to him in certain manners. This order was again appealed against by the assessee and the Commissioner (Appeals) passed a fresh order on 23-3-1992 (this Commissioner (Appeals) and his order in this regard will henceforth be called as the second Commissioner (Appeals) and the order of the second Commissioner (Appeals) respectively). Thereafter, the assessing officer passed a fresh order under section 143 (3), read with section 250 on 22-3-1993 (this order of the assessing officer will be called henceforth the third order passed by the assessing officer). As against the said order, the Commissioner (Appeals) came up with another order dated 9-12-1994 which is being impugned before us by the department (this Commissioner (Appeals) and this order of the Commissioner (Appeals) are henceforth being called respectively as the third Commissioner and the third order of the Commissioner (Appeals) ) .

3. In this appeal against the order of the third Commissioner (Appeals), the first issue, which has been raised by the department, relates to the deletion of the addition of Rs. 48,07,733 made on account of expenditure towards consultancy services. In the first order passed by the assessing officer, the matter was discussed in detail to the effect that a payment of Rs. 49,17,000 was made by the assessee to M/s. T.M. & M.C. (P.) Ltd. (hereinafter referred to as TMMC) during the relevant year. The payment was stated to have been made in terms of the agreement dated 26-7-1983 with that concern. The payment was again stated to be consisting of two different elements viz. (i) for rendering the consultancy services for the tea season of 1983 and (ii) for restraining TMMC not to undertake any consultancy services regarding the techniques used by the company in plantation in the States of Assam, West Bengal, Kerala, Tamil Nadu and Tripura for a period of five years commencing from 1-4-1983. The assessing officer held that the portion of payments towards restraining TMMC not to undertake any consultancy services for a period of five years resulted in a benefit of enduring nature to the assessee-company being for preventing competition. He thus held that this portion of the payment should be treated as capital expenditure. The assessing officer also discussed that TMMC while appearing before him furnished the detailed bifurcation regarding the quantum of payment pertaining to the two different aspects and that while an amount of Rs. 1,09,267 had been paid for the services actually rendered, the other amount of Rs. 48,07,733 pertained to restrictive clause under the agreement. The assessing officer thus allowed the amount of Rs. 1,09,267 as revenue expenditure and disallowed the balance amount of Rs. 48,07,733 as capital expenditure.

4. The first Commissioner (Appeals) took into consideration the various aspects related to the issue. He discussed that there were certain shortcoming in the terms of the Agreement to the effect that the agreement did not offer the necessary protection to the assessee to justify the payment of such a heavy amount. The Commissioner (Appeals) also discussed the provisions of termination of the agreement by both the sides as per clauses 4,5 and 6 of the agreement. Ultimately, he held as below:

'Considering these defects which to my mind are very serious defects I cannot accept the justification for making such a huge payments for the reason stated, when the same cannot even be really guaranteed for the reason discussed above. Considering all these, I agree with the DC that the payment made by the appellant to TM & MC in order to prevent the latter from offering the same services to other tea gardens as discussed above is not wholly for business purposes. The disallowance made by him is upheld in principal.'

The Commissioner (Appeals) thereafter discussed that, however, the claim of the assessee regarding the amount relating to this matter (the disallowance) needed to be looked into. He also discussed that the assessing officer had obtained information regarding the amount from TMMC without allowing any opportunity to the assessee to cross-examine the said other party on this point. In the interest of justice, the Commissioner (Appeals) directed the assessing officer to allow opportunity to the assessee to cross-examine TMMC for this purpose. The Commissioner (Appeals), however, ended his discussion in this regard as below:

'... it does not mean the mere denial by the appellant regarding the amount paid would mean the quantum is in dispute. If TM & MC have reflected this amount in their returns for the purpose of taxation, it would have to be accepted as the amount involved.'

5. It appears that at the stage of passing the second order, the assessing officer merely repeated the earlier order without affording a chance of cross-examining TMMC to the assessee. When the matter came up before the second Commissioner (Appeals), he found that there was no evidence of any examination having been carried out in spite of the direction given in appeal. He, however, noted that the failure on the part of the assessing officer in that regard did not form an appellate ground before him.

The second Commissioner (Appeals) thereafter discussed the question as to why the first Commissioner (Appeals) having upheld the disallowance in principle kept the issue open to the extent of granting an opportunity to the assessee to examine TMMC before the assessing officer. The Commissioner (Appeals) discussed in that connection as below:

'The answer, though inferential in nature, is clearly to the effect that the Commissioner (Appeals) was of the belief that there was some business consideration in the payment of Rs. 48,07,744 to restrain TMC from giving advice, consultancy etc. to other tea garden owners. The word wholly preceding the words for business purpose appearing at the bottom portion of page 8 of the appeal order is the proof of such inference. The other proof of such inference is the emphasis of the Commissioner (Appeals) on the word amount, i.e., the amount of payment to TMC that was claimed as deduction. Naturally, for the quantification of the amount, further verification was necessary and the appellant, in fairness, was given the opportunity by way of its presence along with TMC before the assessing officer, who would decide upon such amount on examination of evidence, both oral and documentary.'

Thus, the second Commissioner (Appeals) admitted that the partial restoration, as had been made by the first Commissioner (Appeals), was subject to certain specific directions for carrying out an exercise in the evaluation of evidence and that the said directions had not been implemented by the assessee, nor was such non-implementation challenged by the assessee before the second Commissioner (Appeals). Thus, the assessment remained where it was when the last appellate order was passed on 4-1-1990.

6. The strange fact, however, is that instead of restoring the matter back to the file of the assessing officer once more for carrying out the non-implemented direction of the first Commissioner (Appeals), the second Commissioner (Appeals) engaged himself in listening to various arguments on behalf of the assessee even against the disallowance of the portion of the expenses relating to restrictive clause in principle. After making various smoky discussions, the second Commissioner (Appeals) finally held as below:

'The conclusion that flows out of the discussion above, on its own strength and motion, is quite clear. The issue arising from the disallowance of Rs. 48,07,733 has to again go back to the assessing officer for fresh examination. Accordingly, the issue is restored for a de novo decision subject to the direction to the appellant that it should furnish to the assessing officer such evidence as it ought to have in course of the original assessment proceeding to establish the bona fide in its claim. The assessing officer is under direction to carry out the fresh exercise according to the tests laid down in the judicial presidents as referred above.

It thus appears that the second Commissioner (Appeals) went beyond his mandate and declared the entire issue once more open.

7. In the third order passed by the assessing officer, he made certain discussions once more about the disallowed portion of the payment being of capital nature. He stressed the point that the agreement had been made for a full period of five years and held that, therefore, the assessee was to receive an enduring benefit of the nature of restraining others from getting the relevant information and in that way preventing competition in the line of its business. He also found out that as per the version of TMMC, the amount of Rs.48,07,733 related to the restraining clause. Thus for the third time the assessing officer resorted to the disallowance of the old amount of Rs. 48,07,733.

8. When the matter once more came up before the third Commissioner (Appeals), he took into consideration the allowability of the expense as such. He discussed in detail by relying on the judgment of the Supreme Court in the case of Alembic Chemical Works Co. Ltd v. CIT : [1989]177ITR377(SC) , another judgment of the Supreme Court in the case of Devidas Vithaldas & Co. v. CIT : [1972]84ITR277(SC) and also a judgment of the Bombay High Court in the case of Premier Automobiles Ltd v. CIT (1984) 150 ITR 282 ; and ultimately came to the conclusion that because of the presence of the termination clause at will by either of the parties in the agreement under consideration and in view of the circumstances in general the assessee could not be considered as having received any benefit of enduring nature. He thus held that the entire amount under consideration was allowable as revenue expense and thus deleted the entire disallowance.

9. At the stage of hearing of the appeal before us, against this last order of the Commissioner (Appeals), the learned Departmental Representative strongly contends that the restrictive clause tantamounted to an effort on the part of the assessee to restrain competition in the line of its business, that the restrictive clause was supposed to operate for a period of five years and hence that it must be held that what the assessee received by way of payment of the amount of Rs. 48,07,733 was nothing but a benefit of enduring nature. In support of this contention, the learned Departmental Representative relied on a judgment of the Allahabad High Court in the case of Neel Kamal Talkies v. CIT : [1973]87ITR691(All) in which it has been held that a benefit towards preventing competition for a period of five years could be considered to be a benefit of enduring nature and hence the payment made towards obtaining such a benefit would have to be considered as capital payment. In support of his general proposition that any expenditure laid out for the purpose of preventing competition would be of capital nature of learned Departmental Representative has placed reliance on the following judgments :

(1) CIT v. Hindustan Pilkington Glass Works : [1983]139ITR581(Cal)

(2) Chelpark. Co. Ltd v. CIT : [1991]191ITR249(Mad)

(3) Assam Bengal Cement Co. Ltd v. CIT : [1955]27ITR34(SC) .

So far as the apportionment of quantum of payment is concerned, the learned Departmental Representative strongly argued that even the second Commissioner (Appeals) had not disputed such apportionment.

Alternatively, the learned Departmental Representative tried to argue that the payment was made for extra-commercial consideration and was not related to the actual business needs of the assessee, as was held by the first Commissioner (Appeals) .

10. On the other hand, the learned counsel for the assessee has strongly supported the order of the third Commissioner (Appeals) by arguing that by making the payment no capital asset was actually acquired by the assessee, nor even was any enduring benefit obtained by the assessee. He argued that although it is correct that any payment made to ward off the competitors would be a capital expenditure, so far as the present case is concerned, there was no warding off the competitors by the restrictive clause in the Agreement under consideration. The following judgments have been relied upon by the learned counsel, in support of his contention:

1. CIT v. Electro Steelcastings Ltd. : [1995]215ITR541(Orissa)

2. CIT v. Hyderabad Asbestos Cement Products Ltd. : [1984]150ITR517(AP)

3. CIT v. Madras Auto Service (P) Ltd. : [1998]233ITR468(SC)

4. CIT v. Kirloskar Tractors Ltd. : [1998]231ITR849(Bom)

5. CIT v. Cominco Binani Zinc Ltd. : [1993]204ITR56(Cal)

6. CIT v. Coal Shipments (P.) Ltd. : [1971]82ITR902(SC) .

11. When we deeply examine the facts of the case, we find that the first Commissioner (Appeals) had indeed held in principle that the amount paid to TMMC in terms of the restrictive clause of the agreement with that concern is not an allowable item inasmuch as the said portion of the expense cannot be considered to be wholly for the business of the assessee. The disallowance of this portion of the payment was thus upheld by him in principle. The issue was set aside and remitted back to the file of the assessing officer merely for the purpose of quantification of the disallowable portion out of the total payment. The entire subsequent proceedings should, therefore, have remained circumscribed by the above limits of consideration, as laid down by the first Commissioner (Appeals). Strangely enough, however, the second Commissioner (Appeals) crossed the said limit and threw open the entire matter for fresh consideration by the assessing officer, which was certainly not within his powers. Another curious aspect of the matter is that although the order of the first Commissioner (Appeals) greatly hampered the interest of the assessee, whereas that of the second Commissioner (Appeals) came in the way of the department, neither of the parties took any efforts to challenge the respective findings of the first and second Commissioner (Appeals). Whatever the matters may be, the facts are that the disallowance stands confirmed by the first Commissioner (Appeals), being unchallenged by the assessee. The further proceedings may, therefore, be considered within the parameters laid down by the first Commissioner (Appeals) in his order and any other findings given by the subsequent Commissioner (Appeals), or any fresh directions to the assessing officer to reconsider the matter, will have to be treated as beyond their respective powers and will thus have to be considered as non est. Therefore, we refuse to take cognizance of all the arguments put forward by both the sides about whether the expenditure under consideration should be treated as capital or revenue expenditure. The first Commissioner (Appeals) has already held the portion of the expenses relating to the restrictive clause, to be disallowable.

In terms of the direction of the first Commissioner (Appeals), therefore, the only issue which remained in the subsequent proceedings was the quantification of the amount pertaining to the disallowable element out of the total payment. The assessing officer merely stated at the stage of the first assessment that TMMC had furnished the apportionment of the expenses before him to the effect that Rs. 48,07,733 was towards the restramment of the trade and the meagre amount of Rs. 1,09,267 related to the services actually rendered. This so-called statement of TMMC is no where on our record. During the subsequent proceedings also, the department was not in a position to substantiate this version by catching hold of TMMC and allowing the assessee a chance of cross-examining that concern with regard to the apportionment of the expenses under consideration. Hence, we attach little value to the so-called apportionment of the expenses as considered in all the orders of the assessing officer. Even looking from the angle of reality also, it would seem quite inconceivable that the assessee would spend over Rs. 48 lakhs simply for keeping information relating to services rendered by TMMC to it, away for others; whereas the value of the services itself is of a meagre amount of Rs. 1 lakh and odd. In fact, the consideration for the services actually rendered should out-weigh the payment made by the assessee towards the restrictive clause. In the present case, in the absence of any positive information in this regard, therefore, we are tempted to make an estimated apportionment of the total expenses in this regard on the basis of the reality in life. We, therefore, hold that out of the total payment of Rs. 49,17,000, Rs. 30 lakhs should be considered towards the services actually rendered by TMMC to the assessee (which portion out of the total expenses is allowable as revenue expense) and the balance amount of Rs. 19,17,000 should alone be treated as part of expenses related to the restrainment clause in the agreement. Hence, we modify the order of the authorities below and direct that out of the total amount of Rs. 49,17,000, Rs. 30 lakhs be allowed as revenue expenditure whereas the balance of Rs. 19,17,000 be disallowed towards capital expenses.

12. In the next ground the department contends that the Commissioner (Appeals) has erred in directing to adopt the figure of book profit shown by the assessee as the profit on sale of green tea leaves purchased and manufactured by the assessee-company. It was represented by the assessee before the Commissioner (Appeals) (first) with regard to the question of determination of profit on processing of purchased green tea leaves that whereas the assessing officer had considered the gross amount relating to the business as a whole in calculating the said profit, the calculation should have been made in garden-wise manner, as has been done in the past and accepted by the department. The first Commissioner (Appeals) vide order dated 4-1-1990 directed the assessing officer to verify the records and to follow the same methods which had been followed in the past years unless there were specific reasons for diverting from the methods consistently followed by him.

13. At the stage of the second order also, the assessing officer stuck to the same process as resorted to earlier. The second Commissioner (Appeals) noted that the issue had been decided in favour of the assessee by the Commissioner (Appeals) in his order dated 22-2-1991 for the assessment year 1987-88. The second Commissioner (Appeals) quoted from the said appellate order for the assessment year 1987-88 in which the Commissioner (Appeals) had agreed with the contention that in the given facts the book profit method appeared to be more rational than the bulk method adopted by the assessing officer for and such reason the assessing officer should be directed to adopt book profit method for working out the profit derived from sale of tea manufactured out of bought leaves. The second Commissioner (Appeals) thus restored the issue back to the file of the assessing officer for recalculation on the lines already indicated in the above-mentioned appellate order dated 22-2-1991 for the assessment year 1987-88.

14. At the third stage also, the assessing officer reiterated his earlier method. The third Commissioner (Appeals) by following the specific directions given by the second Commissioner (Appeals) directed the assessing officer to accept the profit disclosed from tea manufactured from green leaves purchased at Rs. 2,21,743, as computed by the assessee. Since this particular calculation is as per the direction given by the second Commissioner (Appeals) against which no appeal was preferred by the department, we are of the opinion that the matter has become final and the ultimate order of the third Commissioner (Appeals) in directing to accept the working of the assessee is required to be sustained. We, therefore, uphold the order of the Commissioner (Appeals) on this issue.

15. In the third ground, the department challenges the direction given by the third Commissioner (Appeals) to delete the interest charged under sections 139 (8) and 215 of the Act. In this connection the learned Departmental Representative brings our attention to the order of the second Commissioner (Appeals) in which he had already dismissed the grounds raised by the assessee before him against levying interest under subsection 139 (8)/215. The learned Departmental Representative thus contends that the issue stands closed by the said order of the second Commissioner (Appeals) and there was no occasion for the third Commissioner (Appeals) to re-decide the issue.

The learned counsel for the assessee admitted the position but at the same time he drew our attention to the calculation of tax as made by the assessing officer at the time of giving effect to the order of the third Commissioner (Appeals) in which the assessing officer has found out that the discrepancy between the assessed tax and the advance-tax paid being within the permissible limit, there would be no question of levying interest under section 215.

16. So far as the question of levy of interest under section 139 (8) is concerned, we also hold that the issue, having been finalised by the second Commissioner (Appeals), should not have been re-decided by the third Commissioner (Appeals). We, therefore, allow this ground and restore the levy of interest in this regard.

Regarding the levy of interest under section 215, however, we find that the order of the second Commissioner (Appeals) upholds the levy of interest under that section in principle. However, the working of the tax will undergo change as a result of this order being passed by us. The assessing officer should consider the question of levying/non-levying interest under section 215 in accordance with his finding regarding discrepancy between the assessed tax and the advance-tax paid as per the provisions of section 215.

17. Ground No. 4 agitates against the order of the Commissioner (Appeals) (third) deleting the interest charged under section 220 (2). We order that the matter relating to charging interest under section 220 (2) should be considered on the basis that the issue is consequential to the calculation of tax to be done as a result of our present order. The assessing officer is directed to take action accordingly.

18. In the result, the departmental appeal is partially allowed to the above-mentioned extent.