2015 (6) TMI 1226 - AT - Income Tax

Depreciation on non compete fee at 25% - Depreciation on intangible assets - According to the ld. DR the non-compete fee paid by the assessee is a restricted one and it does not necessarily confer any exclusive right to carry on the primary activity of the assessee - assessee submitted that the assessee entered into non-compete agreement and acquired a commercial right - HELD THAT - This Tribunal is of the considered opinion that when the assessee entered into an agreement to restrict the other party for using the trade mark copyrights etc. it was a composite commercial right acquired by the assessee as found in Pentasoft Technologies Ltd. 2013 (11) TMI 1057 - MADRAS HIGH COURT . Therefore the assessee is entitled for depreciation in non-compete fee paid - Decided against revenue.

Summary

Issues involved:
Depreciation on non-compete fee.

Analysis:
The judgment pertains to an appeal by the Revenue against the order of the Commissioner of Income-tax (Appeals)-I, Chennai, concerning the assessment year 2003-04. The primary issue for consideration was the claim of depreciation on a non-compete fee. The Departmental Representative argued that the fee paid did not confer an exclusive right to carry on the primary activity of the assessee, citing a judgment of the Hon'ble Delhi High Court. On the other hand, the Counsel for the assessee contended that the non-compete fee resulted in the acquisition of a commercial right, making it a capital asset eligible for depreciation. The Counsel relied on an unreported judgment of the Hon'ble Madras High Court in a similar case.

Upon examining the submissions and the relevant material, the Tribunal referred to the judgment of the Hon'ble Madras High Court in a comparable case involving a composite agreement for the transfer of rights and a non-compete clause. The High Court had allowed depreciation on the non-compete fee in that instance. The Tribunal noted that the Assessing Officer had initially concluded that the agreement did not result in any asset, but the CIT(A) allowed the claim based on a Tribunal order and the Madras High Court judgment. The Tribunal agreed that the non-compete fee led to the acquisition of a composite commercial right, as established by the Madras High Court, thus entitling the assessee to depreciation. Previous Tribunal decisions in related cases also supported this view.

Therefore, the Tribunal upheld the order of the CIT(A) and dismissed the appeal of the Revenue, confirming the entitlement of the assessee to depreciation on the non-compete fee paid. The judgment was pronounced in an open court on June 26, 2015, in Chennai.