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2021 (4) TMI 32 - HC - Income TaxDepreciation allowable in respect of the property acquired in exchange of relinquishment of tenancy right in another property - HELD THAT - As in the assessee's own case 2012 (9) TMI 555 - MADRAS HIGH COURT as the agreement with the landlord, which showed the payment of consideration for the surrender of tenancy rights. Revenue does not dispute the existence of such an agreement. It is also not disputed by the Revenue that the purchase of the premises by the assessee was from M/s. Harsaran Singh Constructions Pvt. Ltd., which had nothing to do with the landlord. Given the fact that tenancy right is a capital asset, as held by the Apex Court in the decision reported in CIT v. D.P. Sandu Bros. Chembur (P.) Ltd. 2005 (1) TMI 13 - SUPREME COURT that the surrender of tenancy rights amounted to transfer and hence, being a capital receipt, on the facts thus placed before this Court that the amount paid on account of surrender of tenancy rights being given by the assessee to the builder, there is no exchange of one property for the other. Hence, we have no hesitation in accepting the plea of the assessee, thereby rejecting the Revenue's contention raised in all these Tax Cases. Depreciation u/s 32 on non compete fee - whether it is an asset in the nature of patents, copyrights, trademark, licence, franchises or any other business or commercial right of similar nature? - HELD THAT - Before us, a chart has been filed showing the issue relating to depreciation on non compete fee. From the chart, we find that for the assessment year 2001-02, the Assessing Officer himself allowed it, which was confirmed by the CIT(A) and the decision of the CIT(A) was accepted by the Department. For the assessment year 2002-03, no scrutiny assessment had been carried out. For the assessment year 2003-04, the CIT(A) allowed it and the Assessing Officer gave effect to the order passed by the CIT(A). For the assessment year 2004-05, no scrutiny assessment was carried out and for the assessment year 2005-06, the claim was allowed by the CIT(A) and it was given effect to by the Assessing Officer. Thus, the Assessing Officer was bound to be consistent with the earlier decisions.Therefore, we find that the Tribunal rightly granted relief to the assessee. Income from business - Whether the net book value of the entity taken over by the assessee over and above the consideration paid for acquiring three companies would not fall within the ambit of the provisions of Section 28(iv)? - HELD THAT - Assessing Officer treated the transferred amount as income in the hands of the assessee, which was reversed by the CIT(A) concerned, which order was upheld by the Tribunal. The order passed by the Tribunal was reversed by this Court holding that the amounts, which were transferred to the assessee company represented various credits and deposits during the trading with the erstwhile company and the amount remained for a long time for recovery and remained unclaimed. The amounts were then transferred by the assessee-company to the general reserve treating it to be as profits and therefore, on facts, the decision in the case of CIT Vs. T.V.Sundaram Iyengar Sons Ltd. 1996 (9) TMI 1 - SUPREME COURT would apply on all fours. Therefore, it was contended that the amount of credit balances written off and transferred to the general reserve account had to be treated as income of the assessee chargeable to income-tax. We find this decision to be wholly inapplicable to the facts and circumstances of the case on hand. For all the above reasons, we find that the Tribunal was right in granting relief to the assessee under the said head.
Issues Involved:
1. Depreciation on property acquired in exchange for relinquishment of tenancy rights. 2. Depreciation on non-compete fee. 3. Taxability of excess net book value over consideration paid for acquiring companies under Section 28(iv) of the Income Tax Act. 4. Applicability of the decision in Aries Advertising Co. Ltd. to the case. Detailed Analysis: Issue 1: Depreciation on Property Acquired in Exchange for Relinquishment of Tenancy Rights The Tribunal held that depreciation is allowable on property acquired in exchange for relinquishing tenancy rights, even if no cost was involved in acquiring the new property. The Revenue argued that the written-down value should be NIL since no consideration was paid. However, the High Court referenced its own earlier decision in the assessee's case, where it was established that the surrender of tenancy rights, a capital asset, amounted to a transfer. Consequently, the assessee was entitled to depreciation on the property obtained. Issue 2: Depreciation on Non-Compete Fee The Tribunal allowed depreciation on the non-compete fee, considering it an asset akin to patents, copyrights, trademarks, licenses, franchises, or other business or commercial rights. The Revenue cited the Delhi High Court's decision in Sharp Business System Vs. CIT-III, which held that non-compete fees did not qualify for depreciation under Section 32(1)(ii) of the Act. However, the Madras High Court distinguished the facts of the present case from Sharp Business System and upheld the Tribunal's decision, noting that the non-compete fee was for the assessee's business and did not result in an enduring benefit. The Court also emphasized the need for consistency with earlier decisions where similar claims were allowed. Issue 3: Taxability of Excess Net Book Value Over Consideration Paid for Acquiring Companies Under Section 28(iv) The Tribunal found that the amalgamation of companies was not part of the assessee's business, and thus, the excess net book value over the consideration paid did not fall within the ambit of Section 28(iv) of the Act. The High Court supported this view, referencing the Supreme Court's decision in Commissioner Vs. Mahindra & Mahindra Ltd., which held that Section 28(iv) applies only when the benefit arises from business or profession and is not in the form of money. Additionally, the High Court cited its own decision in CIT Vs. Stads Ltd., which clarified that amalgamation reserves could not be treated as business profits under Section 28(iv). Issue 4: Applicability of the Decision in Aries Advertising Co. Ltd. The Revenue argued that the decision in Aries Advertising Co. Ltd. should apply, where amounts transferred to the general reserve were treated as profits. However, the High Court found this decision inapplicable, as the facts were different. In Aries Advertising, the amounts transferred represented unclaimed credits and deposits from trading, which were treated as profits. In contrast, the present case involved amalgamation reserves, which are capital in nature and not taxable under Section 28(iv). Conclusion: The High Court dismissed the appeal, answering all substantial questions of law against the Revenue and upholding the Tribunal's decisions on all issues. The assessee was entitled to depreciation on the property acquired in exchange for tenancy rights and on the non-compete fee. Additionally, the excess net book value over the consideration paid during amalgamation was not taxable under Section 28(iv). The decision in Aries Advertising Co. Ltd. was deemed inapplicable to the present case.
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