2015 (12) TMI 1375 - AT - Income Tax

Rectification of error u/s 254 - Depreciation in respect of non-compete fee paid - Held that - The depreciation cannot be allowed on an amount of non-compete fee, which was in fact paid to the Managing Director of the Company for not taking any employment. This cannot be considered under section 32(1) as an intangible asset. Thus we reject the contentions of the assessee on this issue, and direct the Assessing Officer to disallow the claim of the assessee for depreciation on brought forward written down value in respect of non-compete fee paid in assessment year 2007-08 to Sudhir Vaid in relation to Concord Biotech Limited. - Decided against assessee

Summary

Issues involved:
Rectification of common consolidated order related to depreciation on non-compete fees for assessment years 2002-03 and 2007-08.

Detailed analysis:
1. The applicant sought rectification of the Tribunal's order regarding depreciation on non-compete fees paid to two entities in different assessment years. The Tribunal had initially disallowed depreciation on one fee and allowed it on the other. However, a mistake was noted in the order as the Tribunal had reversed the decision in a previous case for the applicant. The applicant contended that the order needed rectification due to this mistake.
2. The Tribunal examined the application and agreed that rectification was necessary. It modified the relevant paragraphs of the order to align with the decision in the applicant's previous case. The Tribunal directed the Assessing Officer to allow depreciation on the non-compete fee paid to one entity in the previous year relevant to assessment year 2002-03. Conversely, the Tribunal upheld the disallowance of depreciation on the non-compete fee paid to another entity in the previous year relevant to assessment year 2007-08. The decision was based on the Tribunal's previous rulings and the nature of the non-compete fees involved.
3. The Tribunal cited specific grounds and legal principles to support its decision on each issue. It emphasized the importance of consistency in interpreting non-compete fees as capital expenditure rather than intangible assets eligible for depreciation. The Tribunal's decision was guided by precedents and relevant legal interpretations regarding the treatment of non-compete fees in taxation matters.
4. Ultimately, the Tribunal allowed the applicant's Miscellaneous Application and pronounced the order in favor of the applicant on 18th December 2015. The rectification of the order was based on the need to align with the Tribunal's previous decisions and legal principles governing the treatment of non-compete fees for depreciation purposes.