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2017 (11) TMI 1862 - AT - Income TaxDepreciation on the intangible assets being the goodwill/customer list - HELD THAT - A perusal of the decision of the Hon ble Madras High Court in the case of M/s.Pentasoft Technologies Ltd. 2013 (11) TMI 1057 - MADRAS HIGH COURT shows that it has recognized that the agreement therein was a composite agreement and under the agreement, the transferor had transferred all its rights, copy rights to the transferee and in order to strengthen those rights transferred, the non-compete clause was supporting the clause to strengthen the commercial right which is transferred in favour of the transferee. In the present case also, the Business Transfer Agreement is a composite agreement and the non-compete clause therein was supporting clause to strengthen the commercial rights which had been transferred to the assessee herein. A perusal of the decision of M/s.Cosmos Co-op Bank Ltd. 2014 (1) TMI 1696 - ITAT PUNE shows that even the customer list has been treated as falling within the expression business or commercial rights of similar nature contained in Sec.32(1)(ii) as relied upon the decision of M/s.Areva T D India Ltd. 2012 (4) TMI 79 - DELHI HIGH COURT Assessee is entitled to the depreciation on the intangible asset viz., goodwill/customer list as claimed by him. Our view is also on account of the fact that Sec.92B in respect of international transactions under the Explanation thereto has provided that the expression intangible property would include under clause-(f) customer related intangible assets such as customer list, customer contacts , thus, the legislature in its wisdom in respect of the international transactions provided for the expression intangible property to include intangible assets such as customer list in Sec.92B then an interpretation difference from the same cannot be taken that under the same applicable act and that too to the detriment of local business and citizens. Assessee is entitled to the claim of depreciation on the intangible assets, being the goodwill/customer list, as claimed by the assessee - Decided in favour of assessee.
Issues:
Appeal against disallowance of depreciation on intangible asset representing goodwill/customer list for AY 2011-12. Analysis: The appellant raised 5 grounds in the appeal, focusing on the disallowance of depreciation on the goodwill/customer list by the AO. The appellant, a Pest Control Services provider, had acquired businesses of 7 companies under Business Transfer Agreements in AY 2009-10. The AO denied depreciation for AY 2011-12, citing non-compete clauses in the agreements. However, the appellant argued that the goodwill/customer list was treated as an intangible asset for depreciation, supported by the decision in M/s.Pentasoft Technologies Ltd. case. The appellant contended that Sec.32 allowed depreciation on intangible assets, including customer list and non-compete fee defined in Sec.92B(2)(ii)(f) and (g). The Departmental Representative (DR) supported the AO's decision, arguing that Sec.32 did not cover customer list or non-compete fee. However, the Tribunal analyzed Sec.32(1) Explanation-3, recognizing intangible assets like knowhow, patents, copyrights, trademarks, and other business rights. Referring to the M/s.Pentasoft Technologies Ltd. case, the Tribunal noted that non-compete clauses strengthen commercial rights transferred, supporting depreciation claims. Additionally, the Tribunal cited a Co-ordinate Bench decision regarding customer list falling under "business or commercial rights of similar nature" in Sec.32(1)(ii), following the Delhi High Court's decision in M/s.Areva T & D India Ltd. case. The Tribunal concluded that the appellant was entitled to depreciation on the goodwill/customer list as an intangible asset. The legislative intent under Sec.92B included customer-related intangible assets, supporting the appellant's claim. Therefore, the Tribunal allowed Ground Nos.2 to 2.5 of the appeal, dismissing the other grounds not pressed by the appellant. As a result, the appeal was partly allowed, with the decision pronounced in open court on November 15, 2017, in Chennai.
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