9911796707
TMI Blog2018 (7) TMI 2148X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the commercial right, which was transferred in favour of the buyers. The High Court holding that the assessee would be entitled for claim of depreciation under Sec.32(1)(ii) as regards the payment made towards non-compete fees pursuant to a composite agreement - Also see Ingersoll Rand International Ind Ltd.[ 2014 (6) TMI 934 - KARNATAKA HIGH COURT ] - Decided against revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... d above the net realizable value of the trade debtors, trade creditors and the trading stock as on 31st March, 2011, was towards non-compete fees, which was thereafter capitalized in its books of account as goodwill. 5. The A.O holding a conviction that as the non-compete fees paid by the assessee did not lead to acquisition of any intangible asset, therefore, the depreciation of ₹ 1,36,31,137/- claimed by the assessee on the amount of ₹ 10,90,49,099/- paid towards non-compete fees could not be accepted. The A.O while concluding as hereinabove, was of the view that as noncompete rights did not qualify as "any other business or commercial right of similar nature" like knowhow, patents, copyright, trademarks, licenses, franchises etc. since it did not belong to the same genus, therefore, it could not be characterised as an "intellectual property‟ and would not be eligible for depreciation under Sec.32 of the Act. The A.O taking support of the judgment of the High court of Delhi in the case of Sharp Business Systems Vs. CIT-3 (2012) 254 CTR 233 (Del) and certain other judicial pronouncements, disallowed the claim of depreciation of ₹ 1,36,31,137/- raised by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee supported the order passed by the DRP. It was submitted by the ld. A.R that a composite amount of ₹ 10,90,49,099/- was paid by the assessee to the seller towards goodwill of the business as well as non compete fees. It was further submitted by the ld. A.R that no bifurcated details as regards the payment of the aforesaid composite amount was available. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that the claim of depreciation of ₹ 1,36,31,137/- on the composite amount of ₹ 10,90,49,099/- paid by the assessee towards goodwill and non-compete fees, as observed by the DRP, was in order. The ld. A.R in support of his aforesaid contention relied on the judgment of the Hon‟ble High Court of Madras in the case of M/s Pentasoft Technology Ltd. Vs. DCIT (2014) 264 CTR 187 (Mad) and that of the Hon‟ble of Karnataka in the case of CIT Vs. Ingersoll Rand International Indi. Ltd. (2014) (48 taxmann.com 349) (Kar). The ld. A.R further took us through the Sale and purchase agreement, dated 20.10.2011 executed between the assessee and Mata Polymers Pvt. Ltd/Silco Auxichem (I) Pvt. Ltd. The ld. A.R drew our attention to Para 7.3- 7.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment towards goodwill and non-compete fees. We further find that no bifurcation as regards the aforesaid payment is discernible from the aforesaid agreement. We find that as observed by us hereinabove, the issue that a payment made towards noncompete fees pursuant to a composite agreement, by virtue of which the transferor was restrained from the using same trade mark, copyright etc., has to be read as a supporting clause to transfer of copyright and patents transferred as intangible assets in terms of Sec. 32(1)(ii) of the Act. Our aforesaid view stands fortified by the judgment of the Hon‟ble High Court of Madras in the case of Pentasoft Technologies Ltd. Vs. DCIT (2014) 264 CTR 187) (Mad). The High Court in the aforementioned case, not being persuaded to subscribe to the claim of the revenue, had concluded that the payment made towards non- compete fees under an agreement should be read as a supporting clause to the transfer of the copyright and patents to strengthen the commercial right, which was transferred in favour of the buyers. The High Court holding that the assessee would be entitled for claim of depreciation under Sec.32(1)(ii) as regards the payment made tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties is a composite agreement. Under the agreement, the transferor had transferred all its rights, copy rights, trade marks in respect of the word "pentasoft‟ as well as the training and development division exclusively to be exploited by the assessee. In order to strengthen those rights transfer under the said composite agreement, there was a non compete clause by virtue of which, the transferor was restrained from using the same trade mark, copyrights etc., in favour of the assessee. Therefore, the non compete clause under the agreement should be read as a supporting clause to the transferor of the copy rights and patents rather to strengthen the commercial right, which was transferred in favour of the assessee. 22. Learned counsel for the assessee contended that the non- compete is in effect an indirect licence. However, we are not inclined to agree with the said submission since non compete, at best could be a commercial right because that right is relatable to the transfer of trade mark, copy rights and patents. Therefore, the view taken by the Commissioner of Income Tax(Appeals) in this regard is acceptable. 23. In the case of Techno Shares and Stocks Ltd vs. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and that judgment should not be understood to mean that every business or commercial right would constitute a 'licence' or a 'franchise'. Therefore, the said decision was rendered after taking into consideration the Rules of the Bombay Stock Exchange. 28. In the case of hand, we have analysed the agreement and also in the previous portion of this order elaborated upon the various terms and conditions, which bind the parties had observed that the earlier transfer of the trade mark, patents and other rights in favour of the assessee was undoubtedly the transfer of intangible assets, which in terms of section 32(1)(ii) of the Act would be a capital asset entitled to depreciation. 29. In the light of the above, we have no hesitation in setting aside the order passed by the Income Tax Appellate Tribunal and answer the issue in favour of the assessee. In such circumstances, there is no necessity for us to consider the alternative submission made by the learned counsel for the assessee." We further find that a similar view had also been taken by the High Court of Karnataka in the case of CIT Vs. Ingersoll Rand International Ind Ltd. (2014 (48 taxaman.com 349). The ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
