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TMI Blog2018 (10) TMI 1955X X X X Extracts X X X X X X X X Extracts X X X X ..... ade on account of disallowance u/s. 40(a)(ia) of the Act for non deduction of tax on commission payable to foreign agents of Rs. 1,20,72,972/-? B. Whether the Appellate Tribunal had erred in law and on facts in upholding the order of the CIT(A) deleting the addition made on account of disallowance of Rs. 1,28,37,000/- on account of disallowance of depreciation on no-compete fees?" 2. Question A pertains to disallowance made by the Assessing Officer under section 40(a)(ia) of the Income Tax Act, 1961 ['the Act' for short] for the failure of the assessee to deduct tax at source on exemption paid to foreign agents. This issue has been considered in Tax Appeal No. 1232 of 2018 in following manner: "1. The issue arises in relation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by them outside India. He was of the opinion that the activity of the sale had taken place in India and that therefore the case would fall within section 9(1)(i) of the Act. 3. The assessee carried the matter in appeal before the Tribunal. The Tribunal allowed the appeal on the ground that no part of the income had arisen or accrued in India. The payee was not liable to pay tax at such income. Requirement of TDS therefore would not arise. 4. As is well known, section 195 of the Act imposes requirement of deduction of tax at source on any person responsible for paying to a non-resident any sum chargeable under the provisions of the Act. The prime requirement therefore for applicability of the section is that the payment to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educt tax at source. Merely because a portion of the sale to the overseas purchasers took place in India, would not change situation vis a vis the commission agents. 7. In the result, Tax Appeal is dismissed." 3. This question is therefore not entertained. 4. Question B pertains to disallowance of Rs. 1.28 crores (rounded off) against the assessee's claim of depreciation on non-compete fees. The facts on record would show that the assessee had made payment of a sum of Rs. 10.26 crores to one Shri M.N.Patel to protect its business interest and to ward off potential competition from him. The assessee capitalized such expenditure arguing that such payment was for acquiring commercial rights and claimed depreciation on such investment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rving that the non-compete fee paid by the assessee to said Shri Patel was a capital expenditure and assessee had acquired an intangible right which was depreciable and the claim of depreciation was therefore justified. 8. We may recall the Assessing Officer does not dispute that the expenditure was capital in nature since by making such expenditure, the assessee had acquired certain enduring benefits. He was, however, of the opinion that to claim depreciation, the assessee must satisfy the requirement of section 32(1)(ii) of the Act, in which, Explanation 3 provides that for the purpose of the said sub-section the expression "assets" would mean [as per clause (b)] intangible assets, being know-how, patents, copyrights, trade marks, licens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 depreciation. 10. In the present case, Mr Patel was erstwhile partner of the assessee. The assessee had made payments to him to ward off 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 relationsh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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