M/s. S.C. Johnson Products Pvt. Ltd., New Delhi V. ACIT, New Delhi

CO 376/DEL/2011

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3347 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-12-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 27-06-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 11-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KAUSHLENDRA TIWARI
• Keywords: Capital asset; Depreciation; Revenue expenditure
• Section: 143(3); 37(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER I.T.A. NO. 4308/DEL/2011 A.Y. : 200 4 - 0 5 ACIT, CIRCLE 7(1), ROOM NO. 312, 3 RD FLOOR, C.R. BUILDING, I.P. ESTATE, NEW DELHI VS. M/S S.C. JOHANSON PRODUCTS PVT. LTD. M-69, M-BLOCK MARKET, GREATER KAILASH-I, NEW DELHI 110 048 (PAN: AAACL3128M) AND C.O. NO.376/DEL/2011 (IN ITA NO. 4308/DEL/2011) A.Y. : 2004-05 M/S S.C. JOHANSON PRODUCTS PVT. LTD. M-69, M-BLOCK MARKET, GREATER KAILASH-I, NEW DELHI 110 048 (PAN: AAACL3128M) VS. ACIT, CIRCLE 7(1), ROOM NO. 312, 3 RD FLOOR, C.R. BUILDING, I.P. ESTATE, NEW DELHI (APPELLANT) (RESPONDENT) REVENUE BY : SH. KAUSHLENDRA TIWARI, SR. DR ASSESSEE BY : SH. RAVI SHARMA, ADV. & MS. POONAM AHUJA, ADV. ORDER PER H.S. SIDHU : JM THIS APPEAL BY THE REVENUE AND CROSS OBJECTION B Y THE ASSESSEE ARE DIRECTED AGAINST THE ASSESSMENT ORDER DATED 29. 7.2011 OF THE LD. CIT(A)-XX, NEW DELHI PERTAINING TO ASSESSMENT YEAR 2004-05. 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL:- 1. LD. CIT(A) ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DIRECTING THE AO TO ALLOW DEPRECIATION ON EXPENDITURE OF RS. 1,21,28,599/- BEING NON-COMPETE CONVENANT FEE PAID BY THE ASSESSEE TO M/S BAYER INDIA LTD. WITHOUT APPRECIATING THE PROVISIONS OF SECTION 32(1)(II) OF THE INCOME TAX ACT, 1961. 2. THE APPELLANT CRAVES TO AMEND MODIFY, ADD OR FORGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2.1 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS I N ITS CROSS OBJECTION:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DISMISSING THE ASSESSEES CLAIM THAT THE EXPENDITURE INCURRED ON NON-COMPETE FEE FOR RS. 1,21,28,599/- IS A REVENUE EXPENDITURE ALLOWABLE UNDER SECTION 37(1) OF THE ACT. 2. THAT WITHOUT PREJUDICE TO THE GROUND NO. 1, THE CIT(A) OUGHT TO HAVE ALLOWED 10/30 TH OF RS. 1,21,28,599/- PAID ON ACCOUNT OF NON-COMPETE FEE 3 AS THE BENEFIT OF SUCH NON COMPETITION CONVENANT IS FOR A LIMITED PERIOD OF 30 MONTHS. 3. THAT THE RESPONDENT RESERVES ITS RIGHT TO ADD, ALTER, AMEND OR WITHDRAW ANY GROUND OF OBJECTION EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE COMPANY FILED ITS RETURN OF INCOME ON 31.10.2004, DECLARING TOTAL LOS S OF RS. 10,95,94,750/-. THE ASSESSMENT IN THIS CASE WAS COMPLETED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED AS THE ACT) ON 29.12.2006 AND AO ASSESSED THE LOSS OF RS. 7,26,8 3,466/-. THE AO HAS DISALLOWED NON-COMPETE FEE PAID BY THE ASSESSEE AND ALSO DISALLOWED EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE. AGGRI EVED BY THE AFORESAID ASSESSMENT ORDER, THE ASSESSEE FILED THE APPEAL BEF ORE THE LD. CIT(A), WHO VIDE HIS IMPUGNED ORDER DATED 29.7.2011 HAS PA RTLY ALLOWED THE APPEAL OF THE ASSESSEE BY HOLDING THAT ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE NON-COMPETE FEE PAID TO THE SE LLER. AGAINST THE IMPUGNED ORDER, THE REVENUE IS IN APPEAL BEFORE US AND ASSESSEE HAS FILED THE CROSS OBJECTION. 4. LD. DR RELIED UPON THE ORDER OF THE AO AND REITE RATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL 5. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE HAS REITERATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL OF THE CROSS OBJECTION. 4 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ELEVANT RECORDS AVAILABLE WITH US, ESPECIALLY THE ORDER OF THE REVE NUE AUTHORITIES. WE FIND THAT THE DECISION OF THE ITAT, CHENNAI BENCH IN THE CASE OF ITO VS. MEDICORP TECHNOLOGY INDIA LTD. (122 TTJ 394) AND AC IT VS. REA IMAGE TECH. PVT. LTD. (120 TTJ 983) ARE SQUARELY APPLICAB LE TO THE CASE OF THE ASSESSEE. IN THIS CASE NON COMPETE FEE SOUNDS A NEG ATIVE. HOWEVER, SO FAR AS THE SELLER IS CONCERNED, HE IS SELLING HIS B USINESS RIGHT. BUSINESS RIGHT IMPLIES RIGHT TO CARRY ON ANY BUSINESS IN THE MARKET PLACE. THIS IS A RECOGNIZED RIGHT. WE NOTE THAT THE AMENDMENT TO SEC TION 55(2)(A) BY THE FINANCE ACT, 2002 WITH EFFECT FROM AY 2003-04 ALSO RECOGNIZED THE RIGHT TO CARRY ON BUSINESS AS CAPITAL ASSET UNDER THE HEA D CAPITAL GAINS. THE SELLER IN THIS AGREEMENT IS VOLUNTARILY SELLING THI S RIGHT TO THE BUYER. AS A CONSEQUENCE OF THIS AGREEMENT THE SELLER HAS FORFEI TED HIS RIGHT TO CONDUCT BUSINESS IN THE TERRITORY FOR A PERIOD OF 30 MONTHS . THEREFORE, THE ASSESSEE IN EFFECT HAS ACQUIRED A RIGHT OF THE SELL ER. THEREFORE, THIS PARTICULAR PAYMENT AS PER THE AGREEMENT FALLS WITHI N SECTION 32(1)(II) OF THE I.T. ACT, 1961, AS A RESULT, THE ASSESSEE IS E NTITLED FOR DEPRECIATION ON THE NON-COMPETE FEE PAID TO THE SELLER. HENCE, LD. CIT(A) WAS RIGHT IN DIRECTING THE AO TO CALCULATE THE DEPRECIATION AC CORDINGLY, WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART, HENCE, WE UP HOLD THE ACTION OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND REJECT THE GROUNDS RAISED BY THE REVENUE AS WELL AS BY THE ASSESSEE IN THEIR RESPECT IVE APPEAL AND CROSS OBJECTION. 5 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AS WELL AS CROSS OBJECTION FILED BY THE ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07/12/2017. SD/- SD/- [L.P. SAHU] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 07/12/2017 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES