2015 (2) TMI 1361 - AT - Income Tax

Depreciation on non compete fee at 25% - Depreciation on intangible assets - According to the ld. DR right to personal services under a contract of service is un-assignable; it cannot be bought or sold and as no actual marketable value and so it cannot be an asset - HELD THAT - As decided in Pentasoft Technologies Ltd. 2013 (11) TMI 1057 - MADRAS HIGH COURT where assessee carrying on business in software development etc. entered into an agreement with one P for hiving off and transfer of software development and training divisions from P and paid certain amount to P towards acquisition of intellectual property rights and non compete fee, since agreement between parties was a composite agreement, assessee was entitled to depreciation on intellectual property rights as well as on non compete fee. Therefore, the assessee is entitled for depreciation in non-compete fee paid - Decided against revenue.

Summary

Issues:
1. Disallowance of depreciation on non-compete fees.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) concerning the disallowance of depreciation on non-compete fees. The assessee, a private limited company, had claimed depreciation on non-compete fees in its income tax return. The Assessing Officer reopened the assessment and disallowed the depreciation, resulting in an increased total income for the assessee. However, the Commissioner of Income Tax (Appeals) allowed the claim of depreciation on non-compete fees, citing a decision of the Tribunal in a similar case. The Tribunal held that the non-compete fee paid should be considered an intangible asset eligible for depreciation, following the precedent set by previous decisions. The Revenue argued against this decision, relying on case law that stated a right to trade freely and compete is not an asset and that certain rights cannot be considered assets as they lack market value. On the other hand, the assessee relied on a case where it was held that a non-compete fee was eligible for depreciation as part of a composite agreement. The Tribunal, after considering all arguments and precedents, confirmed the order of the Commissioner of Income Tax (Appeals) and dismissed the appeal of the Revenue.

In conclusion, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to allow depreciation on non-compete fees, following established precedents and considering the nature of the agreement between the parties. The Tribunal's decision was based on the classification of the non-compete fee as an intangible asset eligible for depreciation, in line with previous rulings and the specific facts of the case. The arguments presented by both parties were carefully considered, but ultimately, the Tribunal found in favor of the assessee, leading to the dismissal of the Revenue's appeal.