2020 (12) TMI 564 - AT - Income Tax

Rectification u/s 254 - Nature of expenditure on non-compete fee/payment - depreciation claimed on the said non-compete fee - HELD THAT - Being the jurisdictional High Court decision, we have followed Sharp Business system 2012 (11) TMI 324 - DELHI HIGH COURT and accordingly taken a view that the depreciation claimed on the said non-compete fee cannot be allowed. Thus, we do not entertain the arguments in this part of the Misc. Application and the issue related to this in present misc. application is dismissed.

Summary

Issues involved:
1. Disallowance of depreciation on non-compete fee due to TDS deduction under Section 40(a)(ia).
2. Application for rectification under Section 254(2) of the Income Tax Act, 1961.
3. Consideration of judicial precedents and arguments for allowing depreciation on non-compete fee.

Issue 1: Disallowance of depreciation on non-compete fee due to TDS deduction under Section 40(a)(ia):
The assessee acquired the Wockhardt Group of hospitals and capitalized a non-compete fee of ?15.50 cr, claiming depreciation. The AO disallowed the depreciation due to TDS deduction under Section 40(a)(ia). The CIT(A) restored the claim by treating the fee as an intangible asset. However, certain errors in the order were highlighted by the assessee, including the non-consideration of relevant judgments. The assessee sought rectification under Section 254(2) to correct these errors. The Tribunal noted typographical errors and clarified that the appeal was partly allowed, contrary to the initial order stating dismissal. The Tribunal considered various judicial precedents cited by the assessee, emphasizing the distinction between goodwill and non-compete fee. Ultimately, the Tribunal dismissed the application, upholding the disallowance of depreciation on the non-compete fee.

Issue 2: Application for rectification under Section 254(2) of the Income Tax Act, 1961:
The assessee filed a Misc. Application seeking rectification of the Tribunal's order dated 30.08.2019 under Section 254(2) of the Income Tax Act, 1961. The application aimed to correct errors apparent from the record that prejudiced the assessee's case. The errors included non-consideration of relevant judgments and misrepresentation of facts in the order. The assessee relied on various decisions to support the rectification request, emphasizing the need for accurate representation of the case facts and legal arguments. However, the Tribunal, after hearing both parties and reviewing the material, partly allowed the application, acknowledging typographical errors but maintaining the disallowance of depreciation on the non-compete fee.

Issue 3: Consideration of judicial precedents and arguments for allowing depreciation on non-compete fee:
During the hearing, the Ld. AR presented several judicial precedents supporting the allowance of depreciation on non-compete fees treated as intangible assets. The Tribunal reviewed these precedents, including decisions by different High Courts and Tribunals, to assess the applicability of depreciation in such cases. The Tribunal differentiated between cases involving goodwill and non-compete fees, emphasizing the specific nature of the assets in question. Ultimately, the Tribunal aligned its decision with the jurisdictional High Court's ruling, concluding that the depreciation claimed on the non-compete fee could not be allowed. The Tribunal dismissed the arguments related to the allowance of depreciation on the non-compete fee, maintaining its stance based on the jurisdictional High Court decision.

In conclusion, the Tribunal partly allowed the Misc. Application filed by the assessee, acknowledging typographical errors but upholding the disallowance of depreciation on the non-compete fee. The decision was based on a thorough review of relevant judicial precedents and legal arguments presented during the proceedings.