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TMI Blog2020 (2) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... o be intangible assets so as to eligible for depreciation. As far as the issue of allowing Non compete fee is considered, we find that the Hon ble Bombay High Court in the case of Pr.CIT Vs. Piramal Glass Limited [ 2019 (6) TMI 891 - BOMBAY HIGH COURT] on an identical issue it was held that, .....It can thus be seen that the rights acquired by the assessee under the said agreement not only give enduring benefit, protected the assessee's business against competence, that too from a person who had closely worked with the assessee in the same business. The expression or any other business or commercial rights of similar nature used in Explanation 3 to sub-section 32(1)(ii) is wide enough to include the present situation Hon ble Delhi High Court in the case of Areva T D India Ltd. Vs. DCIT [ 2012 (4) TMI 79 - DELHI HIGH COURT] has held that specified intangible assets, viz. business claims, business information, business records, contracts, employees and know-how acquired by assessee under slump sale agreement are in nature of business or commercial rights of similar nature specified in section 32(1)(ii) of the Act and are accordingly eligible for depreciation under that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to ₹ 85,000/- being Gratuity contribution to the unapproved fund, despite the fact that, the application for approval of the said gratuity trust was duly made and pending for adjudication since 3/5/2010. 2. Alternative and without prejudice to the Ground no 1 above, the learned CIT(A)-1, Pune the learned AO erred in law and on facts in not allowing deduction for the amount of ₹ 85,000 paid towards gratuity contribution u/s 37 of Income Tax Act 1961. 3. The learned CIT(A)-1, Pune the learned AO erred in law and on facts in not treating following assets as eligible intangible assets as defined u/s 32 of Income tax act 1961 and thereby making disallowance of depreciation @ 25% amounting to ₹ 1,38,62,500/- Sr No Description of asset Amt. (Rs.) 1 Non compete fees 1,42,00,000 2 Distribution Network rights 4,17,00,000 3 Customer list 4,17,00,000 4. The learned CIT(A)-1, Pune the learned AO failed to ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat since the approval has been granted from 27.03.2012 the Assessing Officer be directed to grant deduction. In the alternate, he submitted that the assessee be allowed the claim of deduction u/s 37 of the Act, for which he placed reliance on the decisions cited by him before the CIT(A). He therefore, submitted that the claim be allowed. 7. The ld. DR on the other hand supported the orders of Assessing Officer and CIT(A). 8. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to denial of claim of deduction u/s 36(1)(v) of the Act. The claim was basically denied on account of non approval of the scheme by CIT. We find that subsequently the CIT vide order dated 21.09.2016 has granted the approval to the gratuity scheme and it is effective from 27.03.2012, being the date falling in the assessment year. In such a situation we are of the view that the assessee is eligible for deduction. We therefore, direct the Assessing Officer to consider the claim of assessee on merits and allow the same in accordance with law. Thus, the ground Nos.1 and 2 are allowed. 9. The third ground is with respect to denial of claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving as under:- 10. I have carefully considered the facts of the case as well as reply of the appellant. In this case, it is seen that the appellant has acquired electroplating business of Chemetall India Pvt. Ltd. vide agreement dated 15/12/2011 for total consideration of ₹ 11.80 Crores out of which ₹ 29 Lacs pertains to tangible assets in respect of which there is no dispute. The dispute is regarding depreciation on intangible assets claimed to have been acquired by the appellant vide above agreement. The details of the intangibles are as under: Sr. No. Description of assets Value as per Independent Valuation 1. Non compete fee ₹ 1,42,00,000/- 2. Goodwill ₹ 42,00,000/- 3. Distribution net work right ₹ 4,17,00,000/- 4. Customer list ₹ 4,17,00,000/- Out of the above the AO has allowed depreciation on goodwill. In respect of ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itate smooth functioning of business and can in no way be termed as asset in the nature of assets defined in section 32(1)(ii) of the I.T. Act, 1961 for entitlement of depreciation. It is also seen that ratio of intangible to tangible asset is quite high which. only shows that the appellant has tried to allocate the balance amount other than tangible assets in the category of intangibles in order to claim depreciation. This can be seen from the fact that there is no bifurcation of amount of ₹ 11,51,00,000/- in the agreement dated 15/12/2011 under various heads claimed by the appellant. Therefore, considering the totality of facts, I do not find any merit in the submissions of the appellant and action of the AO in disallowing depreciation of ₹ 1,38,62,500/- is upheld. Accordingly, the ground is dismissed. 12. Aggrieved by the order of CIT(A), the assessee is now in appeal before us. 13. Before us, ld. AR reiterated the submissions made before the Assessing Officer and CIT(A) and further submitted that merely because the agreement entered into by the assessee was not registered, the CIT(A) had concluded that it was not a valid agreement. He submitted that mere non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent dated 15.12.2011 for total consideration of ₹ 11.80 crores which included ₹ 11.51 crores on account of various intangibles, which were valued as per independent valuation. It is Revenue s case that intangibles cannot be considered to be intangible assets so as to eligible for depreciation. As far as the issue of allowing Non compete fee is considered, we find that the Hon ble Bombay High Court in the case of Pr.CIT Vs. Piramal Glass Limited (supra), on an identical issue of Non compete fee before the Hon ble High Court and the question of law and its decision are as under: (a) Whether on the facts and in the circumstances of the case and in law, the ITAT is right in deleting the disallowance of depreciation claim on the non-compete fees paid when it is clear that it does not represent any intangible asset qualified for the depreciation as per Section 32 of the I.T. Act, 1961? .. 3. Question No. (a) noted above pertains to the decision of the Tribunal to grant depreciation on the Assessee's payment of non-compete fees. According to the Revenue, this being an intangible asset, no depreciation under Section 32 of the Income Tax Act, 1961 ('t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usal of the meaning of the categories of specific intangible assets referred to in section 32(1)(ii) of the Act preceding the term business or commercial rights of similar nature it is seen that intangible assets are not of the same kind and are clearly distinct from one another. The legislature thus did not intend to provide for depreciation only in respect of the specified intangible assets but also to other categories of intangible assets which may not be possible to exhaustively enumerate. It was concluded that the assessee who had acquired commercial rights to sell products under the trade name and through the network created by the seller for sale in India were entitled to deprecation. In the present case, Mr.Patel was erstwhile partner of the assessee. The assessee had made payments to him to ward of competence and to protect its existing business. Mr.Patel, in turn, had agreed not to solicit contract or seek business from or to a person whose business relationship is with the assessee. Mr. Patel would not solicit directly or indirectly any employee of the assessee. He would not disclose any confidential information which would include the past and current plan, operation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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