T.N. Chopra, A.M. - (1.) THIS appeal is filed by the assessee against the order of the CIT(A), dt. 21st Oct., 1996, whereby payment of Rs. 70,00,000 made to M/s Blue Star Ltd. for elimination of competition has been held to be capital expenditure and hence disallowed for asst. yr. 1990-91.
(2.) Briefly stated, the facts are the assessee-company was incorporated on 8th Nov., 1988, and has been engaged in the business of selling, marketing and distribution of various products of Hewlett Packard (in short, HP) in India. The assessee-company is a representative agent of HP products in India in respect of the following products : (a) Test and measurement instruments; (b) Computer systems including work stations; (c) Computer peripherals; and (d) Parts. Prior to the assessee acting as representative agent of the HP, M/s Blue Star Ltd. (in short, M/s BSL) was engaged in the selling/distribution and marketing of various products of HP in India. In order to ensure its monopoly status and eliminate any competition in its business, the assessee-company entered into an agreement with M/s BSL on 7th Aug., 1989. The assessee has filed a copy of the said agreement during the course of hearing before us. The relevant extract from the said agreement are reproduced hereunder : "Whereas : 1. Blue Star is engaged in the selling, distribution and marketing of various products which inter alia include test and measurement product range. 2. HP India is also engaged/proposing to engage in the manufacture, selling and distribution of some products similar to those dealt with by Blue Star. The parties desire to avoid competition with each other by limiting Blue Star from entering into any new business activities in respect of products directly competitive with the test and measurement (T&M) product range manufactured or distributed by HP India, (such competitive products hereinafter called "said products") as of 1st Nov., 1989, (hereinafter referred to as the "effective date"), on mutually agreed terms and conditions.
(3.) AT the request of HP India, Blue Star has released its employees solely engaged in handling business of "the said products" to HP India.;