DCIT, New Delhi V. M/s Excelex Bio Polymers (P) Ltd., New Delhi

ITA 1110/DEL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3218 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 26-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.1110/DEL/2013 ASSESSMENT YEAR : 2007-08 DCIT, CIRCLE-11(1), NEW DELHI. VS. EXCELEX BIO POLYMERS (P) LTD., D-43, SOUTH EXTENSION-II, NEW DELHI. PAN: AACFE1911E (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : MS RACHNA SINGH, CIT, DR DATE OF HEARING : 28.02.2018 DATE OF PRONOUNCEMENT : 01.03.2018 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE CIT(A) ON 03.12.2012 IN RELATION TO THE ASSE SSMENT YEAR 2007-08. ITA NO.1110/DEL/2013 2 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE TREATMENT OF NON- COMPETE FEE AS AN INTANGIBLE ASSET, ELIGIBLE FOR DE PRECIATION @ 25%. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING SPECIALITY CHEMICALS USED IN OIL DRILLING INDUSTRY. IT COMMENCED ITS OPERATION DURING THE YE AR UNDER CONSIDERATION AFTER PURCHASE OF BUSINESS OF M/S EP INDUSTRIAL AND AGROCHEMICALS PVT. LTD. IN FEBRUARY, 2007 AS A GOING CONCERN. HAVING PURCHASED THIS BUSINESS AS A SLUMP SALE, THE ASSESSEE GOT THE ASSETS VALUED BY A FIRM OF VALUERS. TOTAL SLUMP SALE CONSIDERATION WAS BIFURCATED INTO TANGIBLE AND INTANGIBLE ASSETS. IN THE PRESENT APPEAL, WE ARE CONCERNED ON LY WITH THE AMOUNT ATTRIBUTED AS NON-COMPETE FEE OF RS.10,72,10,000/- WHICH IS A PART OF THE SLUMP SALE CONSIDERATION. THE AO HAS NOT DISPUTED T HE BIFURCATION OF SLUMP SALE CONSIDERATION INTO DIFFERENT TANGIBLE AND INTA NGIBLE ASSETS, INCLUDING THE AMOUNT SHOWN AS NON-COMPETE FEE. IN THE AUDITED BAL ANCE SHEET, THE ASSESSEE DECLARED NON-COMPETE FEE AS INTANGIBLE ASS ET WHICH WAS WRITTEN OFF ON PRO-RATA BASIS BY WAY OF AMORTIZATION OVER A PER IOD OF FIVE YEARS. HOWEVER, IN THE COMPUTATION OF TOTAL INCOME, THE AS SESSEE ADDED BACK THE AMORTISED AMOUNT OF NON-COMPETE FEE AND CLAIMED THE FULL AMOUNT OF ITA NO.1110/DEL/2013 3 RS.10.72 CRORE AS A REVENUE EXPENDITURE. THE ASSES SING OFFICER HELD THAT THE NON-COMPETE FEE CANNOT BE ALLOWED AS A REVENUE EXPENDITURE U/S 37(1). HE TOOK INTO CONSIDERATION THE AMENDMENT BY THE FIN ANCE ACT, 1998 PROVIDING FOR ALLOWANCE OF DEPRECIATION ON `INTANGI BLE ASSETS IN THE NATURE OF KNOW-HOW, PATENTS, COPYRIGHT, TRADEMARKS, LICENS ES, FRANCHISES OR ANY OTHER BUSINESS OF COMMERCIAL RIGHT OF SIMILAR NATUR E ACQUIRED ON OR AFTER 01.04.1998. IT WAS OPINED THAT THE PAYMENT OF NON -COMPETE FEE DID NOT FALL IN ANY OF THE ITEMS OF INTANGIBLE ASSETS SPECI FIED IN SECTION 32(1)(II). HE, THEREFORE, DISALLOWED EVEN THE CLAIM OF DEPRECI ATION ON RS.10.72 CRORE AS WELL. THE LD. CIT(A) AGREED WITH THE ASSESSING OFFICER IN SO FAR AS THE TREATMENT OF NON-COMPETE FEE AS A NON-REVENUE EXPEN DITURE IS CONCERNED. HE, HOWEVER, HELD SUCH AMOUNT TO BE COVERED U/S 32( 1)(II) ELIGIBLE FOR DEPRECIATION @ 25%. THE REVENUE IS AGGRIEVED AGAIN ST THIS DECISION. 4. WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVAN T MATERIAL ON RECORD. THERE IS NO APPEARANCE FROM THE SIDE OF TH E ASSESSEE DESPITE SEVERAL NOTICES. THE LAST NOTICE SENT TO THE ASSESSEE HAS BEEN RETURNED BY THE POSTAL AUTHORITIES WITH THE REMARKS `LEFT. AS SUCH, WE AR E PROCEEDING TO DISPOSE OF THE APPEAL EX PARTE QUA THE ASSESSEE. ITA NO.1110/DEL/2013 4 5. IT IS OBSERVED THAT THE ASSESSEE PURCHASED TH E BUSINESS OF M/S EP INDUSTRIAL & AGROCHEMICALS PVT. LTD., IN FEBRUARY, 2007 AS A GOING CONCERN AND ALLOCATED RS.10.72 CRORE TOWARDS NON-COMPETE FE E BY TREATING IT AS AN ITEM OF INTANGIBLE ASSET. WE HAVE NOTED SUPRA THA T THE AO HAS NOT DISPUTED THE ALLOCATION OF RS.10.72 CRORE AS NON-CO MPETE FEE OUT OF TOTAL SLUMP SALE CONSIDERATION. THERE IS NO CROSS APPEAL BY THE ASSESSEE. THUS THE ACTION OF THE LD. CIT(A) IN TREATING SUCH AMOUNT AS NOT DEDUCTIBLE AS REVENUE EXPENDITURE IN THE YEAR OF PAYMENT, HAS ATT AINED FINALITY. AS SUCH, WE ARE REQUIRED TO CONSIDER THE ELIGIBILITY OF DEPR ECIATION ON AMOUNT OF NON- COMPETE FEE. 6. THE LD. CIT(A) HAS TREATED THIS AMOUNT AS COV ERED UNDER CLAUSE (II) OF SECTION 32(1) AS AMENDED BY THE FINANCE (NO.2) ACT , 1998 W.E.F. 1.4.1999 PROVIDING FOR DEPRECIATION ON `INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, IN THE NATURE OF : `KNOW-HO W, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSIN ESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. IN SUPPORT OF HIS DECISION, HE HAS RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN TECHNO SHARES & STOCKS LTD. VS. CIT (2010)327 ITR 323(SC) AND CERTAIN TRIBUNAL ORDERS. HOWEVER, WE FIND THAT ITA NO.1110/DEL/2013 5 THIS ISSUE IS NO MORE RES INTEGRA IN VIEW OF THE DIRECT DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN SHARP BUSINESS SYSTEM VS. CIT (2012) 254 CTR 233 (DEL) IN WHICH THE DISPUTE WAS ABOUT THE GRANTING OF DEPRECIATION ON NON-COMPETE FEE. REJECTING THE ASSE SSEES POINT OF VIEW, THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THA T : `THE NATURE OF RIGHTS OF KNOW-HOW, PATENT, COPYRIGHT, TRADEMARK, LICENSE OR FRANCHISE OR ANY OTHER RIGHT OF SIMILAR NATURE AS MENTIONED CLEARLY IN THE SECTION SPELL-OUT AN ELEMENT OF EXCLUSIVITY WHICH ENSURES TO THE ASSESSE E AS A SEQUEL TO THE OWNERSHIP. FOR THE OWNERSHIP OF THE INTELLECTUAL PR OPERTY OR KNOW-HOW OR LICENSE OR FRANCHISE, IT WOULD BE UNABLE TO EITHER ACCESS THE ADVANTAGE OR ASSERT THE RIGHT AND THE NATURE OF THE RIGHT MENTIO NED OR SPELT-OUT IN THE PROVISION AS AGAINST THE WORLD AT LARGE OR IN LEGAL PARLANCE 'IN REM'. HOWEVER, IN THE CASE OF A NON-COMPETITION AGREEMENT OR COVENANT, IT WAS HELD THAT THE ADVANTAGE WAS A RESTRICTED ONE, IN PO INT OF TIME. IT DID NOT CONFER ANY EXCLUSIVE RIGHT TO CARRY-ON THE PRIMARY BUSINESS ACTIVITY. THE RIGHT CAN BE ASSERTED IN THE PRESENT INSTANCE ONLY AGAINST L&T AND IN A SENSE, THE RIGHT 'IN PERSONAM'. EVERY SPECIES OF RI GHT SPELT-OUT EXPRESSLY BY THE STATUTE I.E. OF THE INTELLECTUAL PROPERTY RIG HT AND OTHER ADVANTAGES SUCH ITA NO.1110/DEL/2013 6 AS KNOW-HOW, FRANCHISE, LICENSE ETC. AND EVEN THOSE CONSIDERED BY THE COURTS, SUCH AS GOODWILL CAN BE SAID TO BE ALIENABL E. SUCH WAS NOT THE CASE WITH AN AGREEMENT NOT TO COMPETE WHICH IS PURELY PE RSONAL. AS A CONSEQUENCE, IT IS HELD THAT THE CONTENTIONS OF THE ASSESSEE ARE WITHOUT MERIT. IT IS FURTHER PERTINENT TO NOTE THAT THE HO NBLE DELHI HIGH COURT, WHILE DECIDING THIS ISSUE AGAINST THE ASSESSEE, HAS ALSO CONSIDERED THE JUDGMENT OF THE HONBLE SUPREME COURT IN TECHNO SHARES & STOCKS LTD. VS. CIT (SUPRA), WHICH WAS THE FOUNDATION OF THE LD. CIT(A)S DECISI ON. 7. IN VIEW OF THE FOREGOING, WE ARE OF THE CONSIDER ED VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN GRANTING DEPRECIATION O N THE AMOUNT OF NON- COMPETE FEE. THE IMPUGNED ORDER IS, THEREFORE, OVER TURNED AND THE ACTION OF THE AO IS RESTORED. 8. IN THE RESULT, THE APPEAL IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 01.03.201 8. SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 01 ST MARCH, 2018. ITA NO.1110/DEL/2013 7 DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.