2019 (9) TMI 805 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - CIT-A deleted the disallowance - HELD THAT - There is clear finding of the AO as well as the CIT(A) that there is no exempt income. Thus, there is no need to interfere with the findings of the CIT(A). - decided in favour of assessee. TDS u/s 194L - disallowance on non-deduction of TDS on the payment of non-compete fee - HELD THAT - From the perusal of the decision of Sharp Business System 2012 (11) TMI 324 - DELHI HIGH COURT it can be seen that non compete fee did not confer any exclusive right to carry-on the primary business activity. The right is restricted only to the particular party or individual and does not have the exclusivity over the rest of the world. Thus, non-compete fee cannot be termed as intangible asset. The Hon ble High Court has also set out the differences between the rights conferred by goodwill and rights acquired by the non compete agreement. Therefore, depreciation claimed on the said non compete fee cannot be allowed. The case laws cited by the Ld. AR will not support the case of the assessee has the jurisdictional High Court decision has given a clear finding relating to noncompete fee. Hence, Ground No. 2 of the revenue s appeal is allowed.

Summary

Issues:
1. Disallowance under Section 14A of the IT Act r.w. rule 8D.
2. Treatment of non-compete fee as an intangible asset for depreciation.

Analysis:

Issue 1: Disallowance under Section 14A of the IT Act r.w. rule 8D:
The appeal was filed against the order passed by CIT(A)-3, Delhi for the assessment year 2010-11. The Assessing Officer disallowed amounts for non-deduction of TDS on non-compete fee, excess depreciation claim, and under Section 14A of the Act. The CIT(A) dismissed the appeal of the assessee. The Ld. DR contended that the CIT(A) erred in deleting the disallowance under Section 14A. However, the Ld. AR argued that there was no exempt income earned by the assessee, hence no disallowance was warranted. The Tribunal upheld the CIT(A)'s decision, stating there was no need to interfere as there was no exempt income, thus dismissing Ground No. 1 of the appeal.

Issue 2: Treatment of non-compete fee as an intangible asset for depreciation:
Regarding Ground No. 2, the dispute centered on whether non-compete fee should be treated as an intangible asset for depreciation. The CIT(A) directed the Assessing Officer to allow depreciation on the non-compete fee, which was part of the sale consideration for acquiring a hospital group. The Ld. DR argued against this direction, citing a Delhi High Court decision. The Ld. AR, however, relied on various case laws to support the depreciation claim. The Tribunal analyzed the Hon'ble Delhi High Court's decision in Sharp Business System, which clarified that a non-compete fee does not confer exclusive rights over primary business activities and cannot be considered an intangible asset. The Tribunal, thus, allowed Ground No. 2 of the revenue's appeal, holding that the non-compete fee did not qualify for depreciation as an intangible asset.

In conclusion, the Tribunal partly allowed the appeal of the Revenue, dismissing the disallowance under Section 14A while allowing the decision against treating the non-compete fee as an intangible asset for depreciation.