9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (8) TMI 1999 - AT - Income TaxDepreciation on intangible assets on non-compete fees - assessee claimed the depreciation @ 25% - AO disallowed the depreciation merely on notion that the assessee has 78% of the interest in the partnership in M/s. Landmark and therefore there was no need to pay the non compete fee to the existing partners in the partnership firm - HELD THAT - After going through the non compete agreements dated 30.08.2005 and considering the facts that assessee acquired 78% of the interest in the partnership firm we are of the firm view that any payment which is made for not competing with the firm for the period of five years is evidently falls within the ambit of non compete fee as the payment was made to protect the business interest of the assessee as the assessee s cost of investment in the said firm was Rs. 91.51 crores which was made by way of capital contribution to the tune of Rs. 3.9 crores and Rs. 87.61 for acquiring the rights in the said partnership. Thus finding of the Ld. CIT(A) is fallacious and wrong and can not be sustained. In this case the assessee has made payment of non compete fee and rightly treated and classified under intangible assets and claimed depreciation thereon @25%. The case of the assessee is supported by a series of decisions as referred to above. In the said decisions it has been held that the depreciation has to be allowed on the non compete fee. Accordingly we set aside the order of Ld. CIT(A) and direct the AO to allow the depreciation - Decided in favour of assessee. Addition of amortization in respect of Company s Employee Stock Options Scheme (ECOS) under section 37(1) - AO disallowed the claim of the assessee by holding that the expenditure in respect of ECOS is of capital in nature - as per assessee any expenditure incurred by the assessee on granting of Employee Stock Options Scheme has been amortized as per the SEBI guidelines and the same is a revenue expenditure - HELD THAT - In this case the assessee has amortized the expenses in connection with Employee Stock Options Scheme as per SEBI guidelines and claimed the same as revenue expenditure which according to the AO was not correct and he disallowed the same by holding that same is of capital in nature which was also affirmed by the CIT(A). We are not in agreement with the conclusion drawn by the Ld. CIT(A) on this issue that the amortization of expenditure claimed by the assessee is not admissible as revenue in nature and the issue is settled by the various judicial forums. The case of the assessee is supported by a series of decisions referred to above by the Ld. A.R - we set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance. Income from house property - estimation of ALV - AO treated the lease rent as income from house property - annual letting value of the premises known as Taj Building as per section 23(1)(a) - Revenue rejecting the assessee s contention that fair market rent of the building should be compared with the total sum received from letting of premises along with furniture hire charges - A.R. submitted that in the present case the rent received should be assessed as the ALV and not the rent which is fixed by the AO - HELD THAT - In the present case the municipal rate of valuation is below the actual rent received and therefore the actual rent has to be taken as ALV. In the case of CIT vs. Tip Top Typography 2014 (8) TMI 1002 - BOMBAY HIGH COURT has held that the market rate in the locality is an approved method of determining the fair rental value but it is only when the AO is convinced and satisfied that the case before him is suspicious and determination by the parties is doubtful that he can resort to enquire about the prevailing rate in the locality. So the Hon ble High Court has held that only in the event of suspicion and some manipulation the AO can resort to make enquiries or comprehensive cases and not otherwise. We are therefore not in agreement with the conclusion drawn by the Ld. CIT(A) holding that the ALV determined on the basis of so called comparable cases which are not at all comparable due to the fact that there is no comparability between the two buildings at all and the locations and also in view of the fact that annual let out value is much lower than the actual rate received. The order of Ld. CIT(A) is set aside and AO is directed to accept the rent as shown by the assessee from the said property. Ground is allowed.
Issues Involved:
1. Disallowance of depreciation on non-compete fees. 2. Disallowance under Section 14A read with Rule 8D. 3. Disallowance of amortized expenses related to Employee Stock Option Scheme (ESOP) under Section 37(1). 4. Determination of Annual Letting Value (ALV) of premises at Taj Building. Issue-wise Detailed Analysis: 1. Disallowance of Depreciation on Non-Compete Fees: The assessee appealed against the CIT(A)'s confirmation of the AO's disallowance of Rs. 5 lakhs claimed as depreciation on non-compete fees of Rs. 20 lakhs paid during the financial year 2005-06. The AO observed that the assessee, having acquired a 78% interest in the partnership firm Landmark, paid Rs. 10 lakhs each to two partners under non-compete agreements. The AO disallowed the depreciation, arguing there was no need for the non-compete fee since the assessee already had a significant interest in the firm. The CIT(A) upheld this view. However, the Tribunal found that the payment was made to protect the assessee's business interest and classified it as a commercial right, thus falling under intangible assets eligible for depreciation. The Tribunal set aside the CIT(A)'s order and directed the AO to allow the depreciation. 2. Disallowance under Section 14A read with Rule 8D: The issue raised in ground No.2 was not pressed by the assessee's counsel during the hearing and was therefore dismissed as not pressed. 3. Disallowance of Amortized Expenses Related to ESOP under Section 37(1): The assessee contested the CIT(A)'s confirmation of the AO's disallowance of Rs. 64.75 lakhs amortized for the Employee Stock Options Scheme (ESOP). The AO deemed the expenditure as capital in nature, a view upheld by the CIT(A). However, the Tribunal, referencing various judicial decisions, determined that the amortization of ESOP expenses as per SEBI guidelines is a revenue expenditure. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the disallowance. 4. Determination of Annual Letting Value (ALV) of Premises at Taj Building: The assessee challenged the CIT(A)'s decision on the ALV of the premises at Taj Building. The AO had estimated the ALV at Rs. 35.50 lakhs, comparing it with a government-owned building in a different location, which the assessee argued was fallacious. The Tribunal agreed with the assessee, noting that the municipal valuation was significantly lower than the actual rent received. The Tribunal held that the rent received should be considered the ALV as per Section 23(1)(a). The Tribunal set aside the CIT(A)'s order and directed the AO to accept the rent shown by the assessee. Separate Judgments: The Tribunal delivered a single judgment addressing all issues raised by the assessee and the Revenue, with the assessee's appeal being allowed and the Revenue's appeal dismissed due to the tax effect not exceeding Rs. 20 lakhs, as per the Board's Circular. Conclusion: The Tribunal allowed the assessee's appeal on all grounds, directing the AO to allow depreciation on non-compete fees, delete the disallowance of ESOP amortization, and accept the rent received as the ALV. The Revenue's appeal was dismissed as not maintainable.
|
