2018 (7) TMI 744 - AT - Income Tax

Depreciation on account of non compete fee - Fee paid on account of trade and commerce and is a commercial right to enforce performance of the terms of the agreement Held that - Non-compete fee paid is an intangible asset acquired by the assessee on which depreciation has to be allowed u/s. 32(1)(ii) of the act. See case of Ingersoll Rand International Ltd. 2014 (6) TMI 934 - KARNATAKA HIGH COURT

Summary

Issues:
- Delay in filing the appeal by the revenue
- Eligibility for depreciation on non-compete fee
- Interpretation of non-compete fee as an intangible asset for depreciation purposes

Delay in filing the appeal:
The revenue filed an appeal against the order of the CIT(Appeals) relating to the assessment year 2013-14, with a delay of about 49 days. The reason cited for the delay was administrative and procedural hurdles. The Appellate Tribunal accepted the reasons provided and condoned the delay in filing the appeal.

Eligibility for depreciation on non-compete fee:
The assessee, engaged in manufacturing and distribution, paid a non-compete fee of ?28 crores to prevent another entity from engaging in extrusion business within specified territories. The assessee claimed that this fee conferred a commercial right, allowing them to operate without competition and retain old customers. The assessee argued that the fee resulted in acquiring an intangible asset, eligible for depreciation under section 32(1)(ii) of the Income-Tax Act, 1961. The CIT(Appeals) allowed the claim, relying on a decision by the High Court of Karnataka.

Interpretation of non-compete fee as an intangible asset:
The Assessing Officer (AO) initially disallowed the depreciation claim, citing the department's non-acceptance of the High Court of Karnataka's decision referenced by the assessee. The AO referenced a Delhi High Court decision stating that non-compete rights cannot be considered intangible assets for depreciation purposes. However, the CIT(Appeals) upheld the assessee's claim, emphasizing the binding nature of the High Court of Karnataka's decision. The Appellate Tribunal, considering the precedents and legal interpretations, dismissed the revenue's appeal, affirming that the non-compete fee constituted an intangible asset eligible for depreciation.

This detailed analysis of the judgment showcases the issues involved, the arguments presented by both parties, and the legal interpretations leading to the final decision by the Appellate Tribunal.