9911796707
TMI Blog2013 (9) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... rate advisory services and merchant banking services. The assessee during the year entered into a transfer of business agreement dated December 7, 2000, with Ind Global Financial Trust Ltd. for transfer of their merchant banking business to the assessee. Shri R. Shankaran, managing director of Ind Global Financial Trust Ltd. and also a shareholder of the said company was also a party to the said agreement along with Arthur Anderson and Associates (AA) who was to be made a shareholder of the assessee-company as desired by the transferor. In terms of transfer of business agreement, the assessee had paid a sum of Rs. 70 lakhs to Shri R. Shankaran and Rs. one crore to Ind Global Financial Trust Ltd. as non-compete fee. The non-compete fee had been paid for restricting the above two parties from undertaking the following activities for a period of 36 months. (i) Carrying out business similar to that of the assessee. (ii) Soliciting present and past clients. (iii) Enticing of employees. (iv) Injuring the reputation of the business of the assessee. (v) The prejudicing the goodwill of the business of the assessee The assessee in the books of account had shown non-compete expenditure a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. It was pointed out that, in this case, no new asset was created nor was there any expansion of profit making apparatus. It was also pointed out that removal of competition only facilitated the assessee's business operations leaving the fixed capital untouched and therefore the expenditure should be treated as revenue expenditure. Reliance was placed on the decision of the Mumbai Bench of the Tribunal in Joint CIT v. Synergy Credit Corpn. Ltd.[2006] 9 SOT 75 (Mum) in which the Tribunal held that the assessee had no advantage in the capital field even though the restrictive covenant in that case was for a period of 5 years. Similarly, it was pointed out that the Tribunal in the case of Smartchem Technologies Ltd. v. ITO [2005] 97 TTJ (Ahd) 818 have held that non-compete fee was for business expediency and, therefore, the expenditure incurred was of a revenue nature. The assessee also submitted that judgment of the hon'ble High Court of Calcutta in the case of CIT v. Hindustan Pilkington Glass Works [1983] 139 ITR 581 (Cal) relied upon by the Assessing Officer was of no help to the Revenue as in that case the hon'ble court had deviated from the judgment in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not conclusive tests to decide the true nature of expenditure as held by the hon'ble Supreme Court in the case of Empire Jute Co. Ltd. [1980] 124 ITR 1 (SC). It is required to be seen whether the advantage to the assessee was in the field of revenue or capital field. In the present case, there was no advantage to the assessee in the capital field and, therefore, the expenditure has to be considered as revenue in nature. Alternatively, it was also submitted that in case the payment was treated as capital in nature, depreciation should be allowed to the assessee. Reliance for the said proposition was placed on the decision of the Chennai Bench of the Tribunal in the case of Asst. CIT v. Real Image Tech P. Ltd. [2009] 120 TTJ (Chennai) 983 and the decision of the Mumbai Bench of the Tribunal in case of Schott Glass India P. Ltd. in I.T. A. No. 1698/M/2003 dated September 7, 2011 in which the decision in the case of Real Image Tech P. Ltd. had been followed holding that depreciation was allowable on non-compete fee treated as capital expenditure. We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of expenditure in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as capital expenditure. The Special Bench further held that the expenditure was capital in nature on the additional ground that the same was incurred to ward off competition in the business. The Special Bench referred to the judgment of the hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC) in which the hon'ble Supreme Court observed that by incurring expenditure on account of non-compete fee, the assessee had acquired the capital asset which was the right to carryout business unfettered from any competition from outsiders. The protection acquired by the assessee was for the business as a whole. The hon'ble Supreme Court further observed that it was not part of the working of the business but went on to appreciate the whole of capital asset and make it more profit yielding. Accordingly, the expenditure was held as capital in nature. The Special Bench also referred to the judgment of the hon'ble Supreme Court in the case of Coal Shipments P. Ltd. [1971] 82 ITR 902 (SC), in which the hon'ble Supreme Court held that the payment made to ward off competition in business to rival dealers would be considered as capital exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (Appeals) and confirm the addition made by the Assessing Officer. The assessee has raised an additional ground that in case expenditure is treated as capital in nature, the assessee will be entitled for depreciation treating the same as intangible asset. We find that this issue has already been considered by the Chennai Bench of the Tribunal in case of Asst. CIT v. Real Image Tech P. Ltd. [2009] 120 TTJ (Chennai) 983, in which the Tribunal observed that by obtaining non-compete right on payment of noncompete fee, the assessee can run his business without bothering about competition and, therefore, non-compete right was an intangible asset falling in the category of any other business or commercial right under section 32(1)(ii). The same decision has been followed by the Mumbai Bench of the Tribunal in the case of Scott Glass India Tech. P. Ltd. v. Deputy CIT. Respectfully following the decisions of the co-ordinate Benches of the Tribunal which are directly on the point, we have to allow the claim of depreciation. We accordingly hold that depreciation will be allowed to the assessee on the non-compete expenditure incurred by it. The second dispute which is relevant only to the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll irrespective of the period for which the benefit had accrued to the assessee. On careful consideration, we see no infirmity in the order of the Commissioner of Income-tax (Appeals). There is no provision in the Income-tax Act for amortisation of such expenditure. Therefore, once the expenditure has been found allowable as revenue expenditure, the same has to be allowed in full. We accordingly confirm the order of the Commissioner of Income-tax (Appeals) allowing the claim. The third dispute which is relevant only to the appeal of the assessee is regarding addition of Rs. 2,25,000 on account of service tax charged by the assessee from the customer. The assessee had not credited the service tax charged from the customers in the profit and loss account and had also not claimed any expenditure on this account. The Assessing Officer held that service tax had to be treated as an integral part of the assessee's income and accordingly the same was added by him to the total income. The assessee disputed the decision of the Assessing Officer and submitted before the Commissioner of Income-tax (Appeals) that service tax had been received by the assessee on behalf of the Revenue and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, if for any reason the payment for service rendered is not realised, there is no liability as to payment of service tax. The Tribunal, therefore, concluded that service tax laws stand on a different footing from other laws such as sales tax, central excise, etc. As the assessee had not realised any payment for services during the relevant year, it had no liability to pay service tax and once there was no liability for payment of service tax, the provision of section 43B were not applicable as the said provisions can be applied only if any liability has been incurred on account of service tax during the year. The addition made was, therefore, deleted. No distinguishing features have been brought to our notice by the authorised representative. We, therefore, set aside the order of the Commissioner of Income-tax (Appeals) and allow the claim of the assessee. The fourth dispute which is relevant only to the appeal by the assessee is regarding disallowance of depreciation on the payment of Rs. 25 lakhs made by the assessee under transfer of business agreement with Ind Global Financial Trust Ltd. The assessee as per transfer of business agreement dated December 7, 2000 had pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Kotak Forex Brokerage Ltd. v. Asst. CIT [2009] 33 SOT 237 (Mum) ; (v) The decision of the Tribunal in the case of KEC International Ltd. v. Addl. CIT [2010] 41 SOT 43 (Mum) ; and (vi) Decision in the case of Hindustan Coca Cola Beverages P. Ltd. v. Deputy CIT [2009] 34 SOT 171 (Delhi). The authorised representative also referred to the following decisions in support of the plea that in case the know-how is not held as intangible expenditure, the should be allowed as revenue expenditure. (i) The judgment of the hon'ble High Court of Delhi in the case of CIT v. Denso India P. Ltd. [2012] 344 ITR 566 (Delhi) (I. T. A. No. 16 of 2008 dated October 8, 2010), and (ii) The judgment of the hon'ble High Court of Bombay in the case of Gannon Norton Metal Diamond Dies Ltd. v. CIT [1987] 163 ITR 606 (Bom). The learned Departmental representative on the other hand strongly supported the orders of the authorities below and placed reliance on the findings given in the respective orders. We have perused the records and considered the rival contentions carefully. The dispute raised is regarding allowability of depreciation on the payment of Rs. 25 lakhs made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue useful in manufacture or processing of goods. The Commissioner of Income-tax (Appeals) has mentioned that the assessee during the proceedings before him had filed business know-how manual relating to merchant banking which was claimed to be know-how on which depreciation should be allowable. The Commissioner of Income-tax (Appeals) has given a finding that manual contained only facts of regulations and procedures which are otherwise available in the market in the form of books and manual contained nothing other than what is available to anyone dealing in the line of merchant banking. He has, therefore, not considered the manual as knowhow. We do not see any infirmity in the conclusion drawn by the Commissioner of Income-tax (Appeals). It has not been explained before us as to why the assessee would pay for rules and regulations and procedures which are available in the market and, therefore, we have to conclude that the payment of Rs. 25 lakhs had been made for the transfer of business and contracts including clients and client relationship which cannot be considered as know-how. The authorised representative has also argued that even if the payment was considered as made for a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
