9911796707
TMI Blog2018 (6) TMI 1540X X X X Extracts X X X X X X X X Extracts X X X X ..... ions / disallowances. (i) Depreciation on goodwill : Rs.1,72,33,598. (ii) Disallowance u/s.40(a)(ia) r.w.s. 194J : Rs. 2,26,381. 2.2 Aggrieved by the order of assessment dt.27.3.2015 for Assessment Year 2012-13, the assessee preferred an appeal before the CIT (Appeals) - 6, Bangalore. The learned CIT (Appeals) allowed the assessee's appeal on both the aforesaid issues vide the impugned order dt.9.12.2016. 3. Revenue, being aggrieved by the order of the CIT (Appeals) - 6, Bangalore dt.9.12.2016 for Assessment Year 2012-13 has filed this appeal, wherein it has raised the following grounds :- 4. Grounds 1, 5 & 6 (supra) being general in nature, no adjudication is called for thereon. 5. Ground Nos.2 & 3 - Depreciation on Goodwill / Non-Compete Fee. 5.1 In these grounds, revenue challenges the learned CIT (Appeals)'s order for applying the ratio of the Hon'ble Karnataka High Court in the case of CIT Vs. M/s. Ingersoll Rand International Ind. Ltd. dt.30.6.2014 (227 taxmann.com 176) and allowing depreciation on the additional amount paid by the assessee by treating it as either goodwill on noncompete fee. Revenue contends that the additional amount paid by the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be seen on page 103 of the paper book. Thereafter, he drawn our attention to page 102 of the paper book and submitted that this was also agreed that WAVE and Mr. V. F. John Yesudhas will not do anything for 12 months, which may be deemed to be in competition with the business of the assessee. Thereafter he drawn our attention to Para 4 of the agreement on pages 87 & 88 of the paper book and pointed out that the purchase price agreed is Rs. 13 Crores in a combined manner. Then he pointed out that at pages 125 & 126 of the paper book is the invoice raised by WAVE and as per the same, the value of tangible assets is Rs. 179,69,104/- including interiors Rs. 118,76,051 plus VAT. Thereafter, he drawn our attention to page 3 of the assessment order where the A.O. has noted that the assessee has accounted for Rs. 63.14 lacs as Rent deposits and claimed depreciation on Fixed assets Rs. 179,69,105/- and also claimed depreciation on Goodwill Rs. 1050,42,884/-. Then he submitted that as per the A. O., the amount of Rs. 1050,42,884/- is not Goodwill but payment for eliminating Competition from wave Communication and it is normally termed as fee paid for non - competition. For this, he drew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the facts noted by Hon'ble Karnataka High Court in Para 8 as reproduced below, the right acquired by way of non compete can be transferred to any other person but in the case of Sharp Business System vs. CIT (Supra), Hon'ble Delhi high Court judgment is on the basis of this fact of that case that the right acquired by way of non compete cannot be transferred to any other person:- "8. Therefore what is to be seen is, what are the nature of intangible assets which would constitute business or commercial rights to be eligible for depreciation. In this regard, it is necessary to notice that the intangible assets enumerated in Sec.32 of the Act effectively confer a right upon an assessee for carrying on a business more efficiently by utilizing an available knowledge or by carrying on a business to the exclusion of another assessee. A noncompete right encompasses a right under which one person IS prohibited from competing in business with another for a stipulated period. It would be the right of the person to carry on a business in competition but for such agreement of non-compete. Therefore the right acquired under a non-compete agreement is a right for which a valuable considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d can sustain later on. This clearly shows that he commercial right comes into existence whenever the assessee makes payment for non-compete fee. Therefore, that right which the assessee acquires on payment of noncompete fee confers in him a commercial or a business right which is held o be similar in nature to know-how, patents, copyrights, trademarks, licences, franchises. Therefore, the commercial right thus acquired by the assessee unambiguously falls in the category of an 'intangible asset". Their right to carry on business without competition has an economic interest and money value. The term or any other business or commercial rights of similar nature has to be interpreted in such a way that it would have some similarities as other assets mentioned in Cl(b) of Expln.3. Here the doctrine of ejusdem generis would come into operation and therefore, the non-compete fee vests a right in the assessee to carry on business without competition which in turn confers a commercial right to carry on business smoothly. When one the expenditure incurred for acquiring the said right is held to be capital in nature. Consequently, the depreciation provided under sec.32(1)(ii) is attracted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment, we hold that even if the right acquired by the assessee is held to be non compete right then also, it is eligible for depreciation u/s 32 (1) (iii). Regarding the judgment of Hon'ble Delhi High Court on which reliance has been placed by the learned DR of the revenue i.e. the judgment rendered in the case of Sharp Business System vs. CIT (Supra), we hold that since, we are following the judgment of Hon'ble Jurisdictional High Court, the judgment of any other High Court is not relevant even if the same is contrary to the judgment of Hon'ble Jurisdictional High Court because we are bound to follow the judgment of Hon'ble Jurisdictional High Court. Hence, we do not examine the applicability of this judgment. Now, this aspect has become academic as to whether the right acquired is Goodwill or non compete right. Accordingly, Ground No. 2 in both years is allowed." 5.3.2 Respectfully following the decisions of the Hon'ble Karnataka High Court in the case of Ingersoll Rand International Ind Ltd. (supra) and of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Years 2010-11 & 2011-12, we uphold the impugned order of the learned CIT (Appeals) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication is regarding disallowance of depreciation by invoking the provisions of section 40(a)(i) of the Act in respect of the payments made for purchase of software and capitalized by the assessee. The Assessing Officer found that the assessee made the payment of Rs. 49,42,300 for purchase of software from Cadence Systems Ireland Limited (in short 'Cadence'). The software so purchased has been capitalized by the assessee under the block of computer and depreciation was claimed by the assessee. The Assessing Officer further noted that the assessee has not deducted the tax at source while making payment to Cadence and accordingly asked the assessee as to why the payment should not be disallowed under Section 40(a)(i) of the Act. The assessee objected to the proposed disallowance under Section 40(a)(i) of the Act. The Assessing Officer did not accept the contention of the assessee that the depreciation cannot be allowed under Section 40(a)(i) of the Act. The Assessing Officer has held that the payment was made by the assessee to a non-resident on which the TDS is to be deducted at source but the assessee has not deducted the tax nor has been paid. The payment which was in the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as relevant the material on record. The issue before us is limited only with respect to the disallowance of depreciation by invoking the provisions of section 40(a)(i) of the Act. There is no dispute that the assessee has made the payment in question to a non-resident for purchase of software and the said payment has been capitalized by the assessee in the block of computer asset. Once the assessee capitalized the payment and has not claimed the same as an expenditure against the profits of the business of the assessee, then, the question arises whether the depreciation which is a statutory deduction as per the section 32 of the Act can be disallowed by invoking the provisions of section 40(a)(i) of the Act. At the outset, it is to be noted that on the similar set of facts an identical issue has been dealt by the ITAT, Mumbai Bench in the case of SKOL Breweries Ltd. (supra), wherein it was held in paras 16.1 to 16.4 as under :- " 16.1 As regards the alternative plea of the ld Sr counsel for the assessee that since the assessee has not claimed the entire amount as revenue expenditure; but has capitalized the same and claimed only depreciation u/s 32(1)(ii); therefore, pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; 16.2 It is manifest from the plain reading of provisions of sec. 40(a)(i) that an amount payable towards interest, royalty, fee for technical services or other sums chargeable under this Act shall not be deducted while computing the income under the head profit and gain of business or profession on which tax is deductible at source; but such tax has not been deducted. The expression 'amount payable' which is otherwise an allowable deduction refers to the expenditure incurred for the purpose of business of the assessee and therefore, the said expenditure is a deductible claim. Thus, section 40 refers to the outgoing amount chargeable under this Act and subject to TDS under Chapter XVII-B. There is a difference between the expenditure and other kind of deduction. The other kind of deduction which includes any loss incidental to carrying on the business, bad debts etc., which are deductible items itself not because an expenditure was laid out and consequentially any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to page 4 of the assessment order, where it was mentioned that the tax deducted in respect of the payment was made over to the Government in the subsequent year and, therefore, depreciation could not be deducted on the capital expenditure incurred by the assessee. In reply, the learned counsel pointed out that the expenditure by way of technical know-how was capitalized and it was not claimed as revenue expenditure. Therefore, there was also no reason to disallow depreciation on such capitalized amount as the aforesaid provision does not deal with deduction of depreciation. Having considered arguments from both the sides, we are of the view that there is no error in the order of the learned CIT(A) which requires correction from us. Thus, this ground is also dismissed." 6. Learned counsel for the revenue was unable to substantiate that in the absence of any requirement of law for making deduction of tax out of the expenditure on technical know how which was capitalized and no amount was claimed as revenue expenditure, the deduction could be disallowed under Section 40(a)(i) of the Act. Accordingly, no infirmity could be found in the order passed by the Tribunal which may wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
