9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (6) TMI 1540 - AT - Income TaxDepreciation on Goodwill / Non-Compete Fee - right acquired by the assessee as held to be non compete right - Held that - Issue as decided in favour of the assessee by a co-ordinate bench of this Tribunal in the assessee s own case for AYs 2010-11 and 2011-12 2017 (2) TMI 1117 - ITAT BANGALORE wherein the co-ordinate bench of this Tribunal has followed the decision in the case of Ingersol Rand International Ind Ltd. 2014 (6) TMI 934 - KARNATAKA HIGH COURT after duly considering the decision in the case of Sharp Business Systems 2012 (11) TMI 324 - DELHI HIGH COURT . Thus held this right acquired by the assessee can be transferred to any other person in the sense that the assessee acquirer gets the right to enforce the performance of the terms of agreement under which the seller is restrained from competing. Therefore we hold that even if the right acquired by the assessee is held to be non compete right then also it is eligible for depreciation u/s 32 (1) (iii). - Decided in favour of assessee. Disallowance u/s.40(a)(i) - purchase of software - disallowance of depreciation - Held that - Following the decision of Kawasaki Microelectronics Inc India Branch V. DDIT (IT) Circle 1(1) Bangalore 2015 (9) TMI 9 - ITAT BANGALORE which is on similar facts as those in the case on hand we are of the opinion and hold that once the assessee has capitalized the payment in question though the assessee has not deducted tax at source on such payment the provisions of Sec. 40(a)(i) cannot be invoked for disallowance of depreciation. - Revenue appeal dismissed.
Issues Involved:
1. Depreciation on Goodwill/Non-Compete Fee 2. Disallowance under Section 40(a)(i) of the Income Tax Act Issue-wise Detailed Analysis: 1. Depreciation on Goodwill/Non-Compete Fee: The Revenue challenged the CIT (Appeals)’s order allowing depreciation on the additional amount paid by the assessee by treating it as either goodwill or non-compete fee. The Revenue contended that this additional amount was capital expenditure for easing out competition and should follow the decision of the Hon'ble High Court of Delhi in the case of Sharp Business Systems Vs. CIT. However, the CIT (Appeals) applied the ratio of the Hon'ble Karnataka High Court in CIT Vs. M/s. Ingersoll Rand International Ind. Ltd., which allowed depreciation on such payments. The Tribunal observed that the issue had been previously considered and decided in favor of the assessee in the assessee’s own case for Assessment Years 2010-11 and 2011-12. The Tribunal followed the decision of the Hon'ble Karnataka High Court in the case of Ingersoll Rand International Ind. Ltd., which held that the right acquired by the assessee on payment of non-compete fees is a commercial or business right similar to know-how, patents, copyrights, licenses, franchises, etc., and falls under the category of "Intangible Assets," thus eligible for depreciation under Section 32(1)(iii). The Tribunal noted that even if the payment was considered non-compete fees rather than goodwill, it would still qualify for depreciation as an intangible asset. The Tribunal emphasized that it was bound to follow the jurisdictional High Court's decision (Karnataka High Court) over the decision of any other High Court (Delhi High Court). Consequently, the Tribunal upheld the CIT (Appeals)’s order allowing the assessee’s claim for depreciation on the additional amount paid, dismissing Revenue’s grounds on this issue. 2. Disallowance under Section 40(a)(i) of the Income Tax Act: The Revenue contended that the CIT (Appeals) erred in deleting the disallowance under Section 40(a)(i) of the Act, arguing that the purchase of software was in the nature of royalty as defined in Section 9(1)(vi) of the Act. The Departmental Representative supported the Assessing Officer’s view that the expenditure on the purchase of computers and software, which was capitalized, should attract disallowance under Section 40(a)(i) due to non-deduction of tax at source. The Tribunal, however, noted that the expenditure in question was capitalized, and depreciation at 60% was claimed. It cited the decision of the co-ordinate bench in Kawasaki Microelectronics Inc. – India Branch V. DDIT, which held that the provisions of Section 40(a)(i) do not apply to capitalized expenditures where depreciation is claimed. The Tribunal emphasized that depreciation is a statutory deduction under Section 32 and not an outgoing expenditure subject to disallowance under Section 40(a)(i). The Tribunal further clarified that the remedy for violation of Section 195 (non-deduction of tax at source) lies under Sections 201 and 201A of the Act, not under Section 40(a)(i). Therefore, the Tribunal upheld the CIT (Appeals)’s decision, dismissing Revenue’s ground on this issue. Conclusion: The Tribunal dismissed the Revenue’s appeal for Assessment Year 2012-13, upholding the CIT (Appeals)’s order on both issues: allowing depreciation on goodwill/non-compete fee and deleting the disallowance under Section 40(a)(i).
|
