Deputy Commissioner of Income Tax Circle-6(1)(1), Bangalore V. M/s Sapa Extrusion India Pvt Ltd , Bangalore

ITA 2294/BANG/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8749 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 31-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 143(3); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER I.T. A. NO.2294/BANG/2018 (ASSESSMENT YEAR : 2012-13) THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE6[1][1], ROOM NO.237, 2 ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU 590 095. VS. M/S. SAPA EXTRUSION INDIA PVT. LTD., NO.17, 2 ND FLOOR, BANNERGATTA ROAD, J. P. NAGAR, 3 RD PHASE, BENGALURU 560 076. PAN : AAOCS 4633 C APPELLANT RESPONDENT REVENUE BY : SHRI. PRADEEP KUMAR, CIT ASSESSEE BY : NONE DATE OF HEARING : 21 . 0 3 .201 9 DATE OF PRONOUNCEMENT : 03 . 04 .201 9 O R D E R PER SHRI JASON P BOAZ, A.M. : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(APPEALS)-6, BENGALURU, DATED 09.03.2018 FOR ASSESSMENT YEAR 2012-13. 2. BRIEFLY STATED, THE FACTS RELEVANT FOR DISPOSAL OF THIS APPEAL ARE AS UNDER:- 2.1 THE ASSESSEE, A COMPANY ENGAGED IN THE MANUFACTURE AND DISTRIBUTION OF ALUMINIUM EXTRUSION PROFILES, FILED ITS RETURN FOR ASSESSMENT YEAR 2012-13 ON 29.11.2012 DECLARING LOSS OF (-)RS.40,28,03,386/-. THE RETURN WAS PROCESSED UNDER ITA NO. 2294/BANG/2018 PAGE 2 OF 5 SECTION 143(1) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AND THE CASE WAS SUBSEQUENTLY TAKEN UP FOR SCRUTINY FOR THIS ASSESSMENT YEAR. THE ASSESSMENT WAS CONCLUDED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT VIDE ORDER DATED 11.05.2016 WHEREIN THE ASSESSEES LOSS WAS DETERMINED AT (-)RS.31,49,38,785/- IN VIEW OF THE FOLLOWING ADDITIONS / DISALLOWANCES:- (I) TP ADJUSTMENT - RS.3,76,94,738/- (II) DISALLOWANCE OF DEPRECIATION CLAIMED ON NON-COMPETE FEE - RS.5,01,69,863/- 2.2 ON APPEAL, THE CIT(A)-6, BENGALURU VIDE THE IMPUGNED ORDER DATED 09.03.2018 FOR ASSESSMENT YEAR 2012-13, ALLOWED THE ASSESSEES APPEAL. 3.1 AGGRIEVED BY THE ORDER OF CIT(A)-6, BENGALURU, DATED 09.03.2018 FOR ASSESSMENT YEAR 2012-13, REVENUE HAS PREFERRED THIS APPEAL, WHEREIN IT HAS RAISED THE FOLLOWING GROUNDS: ITA NO. 2294/BANG/2018 PAGE 3 OF 5 THE LEARNED DR FOR REVENUE WAS HEARD IN SUPPORT OF THE GROUNDS RAISED (SUPRA) AND CONTENDS THAT THE CIT(A) ERRED IN FOLLOWING THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. INGERSOLL RAND INTERNATIONAL LTD., REPORTED IN (2014) 48 TAXMANN.COM 349 (KARNATAKA) INSTEAD OF FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SHARP BUSINESS SYSTEMS. IT IS SUBMITTED THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF THE HONBLE KARNATAKA HIGH COURT (SUPRA). 3.2 PER CONTRA, THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THERE WAS NO ERROR IN THE IMPUGNED ORDER OF THE CIT(A) IN ALLOWING THE ASSESSEES CLAIM OF DEPRECIATION ON NON-COMPETE FEE, BY FOLLOWING THE BINDING DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. INGERSOLL RAND INTERNATIONAL LTD., (SUPRA). 3.3.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED. THE ONLY ISSUE FOR CONSIDERATION IN THIS APPEAL IS THE ALLOWABILITY OR OTHERWISE OF THE CLAIM FOR BEING ALLOWED DEPRECIATION ON NON-COMPETE FEE. THE FACTS OF THE MATTER ON THIS ISSUE AS EMERGE FROM THE RECORD IS THAT THE ASSESSEE COMPANY HAD PURCHASED THE ALUMINIUM EXTRUSION BUSINESS OF ALUFIT (INDIA) PVT. LTD., (ALUFIT) INCLUDING FACTORY AND BUILDING IN THE YEAR 2011 AND ENTERED INTO A NON-COMPETE FEE AGREEMENT WITH ALUFIT (INDIA) PVT. LTD., FOR A PERIOD OF 5 YEARS AND PAID AN AMOUNT OF RS.28 CRORES AS NON-COMPETE FEES; THEREBY PROHIBITING IT FROM COMPETING IN THIS BUSINESS WITHIN A SPECIFIED TERRITORY IN THE STIPULATED PERIOD. ACCORDING TO THE LEARNED AR, THIS GIVES THE ASSESSEE A COMMERCIAL RIGHT TO CARRY ON MANUFACTURING ACTIVITY TO THE EXCLUSION OF ALUFIT SO THAT THE ASSESSEES BUSINESS CAN BE CARRIED ON IN A MORE EFFICIENT MANNER BY AVOIDING COMPETITION FROM ALUFIT DURING THE STIPULATED PERIOD. ON PAYMENT OF NON-COMPETE FEE, THE ASSESSEE ACQUIRED A BUNDLE OF RIGHTS SUCH AS; RESTRICTING THE RECEIVER FROM DIRECTLY OR INDIRECTLY PARTICIPATING IN A BUSINESS WHICH IS SIMILAR TO THE BUSINESS BEING ACQUIRED. THE ASSESSEE SUBMITS THAT THE COMMERCIAL RIGHT SO ACQUIRED FALLS UNDER THE ITA NO. 2294/BANG/2018 PAGE 4 OF 5 CATEGORY OF INTANGIBLE ASSETS AND CONSEQUENTLY THE ASSESSEE HAS TO BE ALLOWED DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT. 3.3.2 WE FIND THAT THE ISSUE OF THE ASSESSEES CLAIM OF DEPRECIATION ON NON- COMPLETE FEE IS NO LONGER RES INTEGRA. THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. INGERSOLL RAND INTERNATIONAL INDIA LTD., (2014) 48 TAXMANN.COM 349 (KARN.), IN OUR VIEW, SQUARELY COVERS THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE. IN THIS ABOVE CITED DECISION (SUPRA), THE HONBLE KARNATAKA HIGH COURT HELD THAT THE PAYMENT OF NON-COMPETE FEE CONFERS ON THE ASSESSEE A BUSINESS RIGHT WHICH IS SIMILAR IN NATURE TO KNOW HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES AND THE COMMERCIAL RIGHT SO ACQUIRED BY THE ASSESSEE CLEARLY FALLS IN THE CATEGORY OF AN INTANGIBLE ASSET AND CONSEQUENTLY DEPRECIATION THEREON IS TO BE ALLOWED. RESPECTFULLY FOLLOWING THE BINDING DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF INGERSOLL RAND INTERNATIONAL INDIA LTD., (SUPRA), WE UPHOLD THE IMPUGNED ORDER OF THE CIT(A) IN ALLOWING THE ASSESSEES CLAIM FOR DEPRECIATION ON PAYMENT OF NON-COMPETE FEES TO ALUFIT (INDIA) PVT. LTD. CONSEQUENTLY, FINDING NO MERIT IN THE GROUNDS RAISED BY REVENUE, THE SAME ARE DISMISSED. 4. IN THE RESULT, THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2012-13 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF APRIL, 2019. SD/- SD/- (N. V. VASUDEVAN) VICE PRESIDENT (JASON P BOAZ) ACCOUNTANT MEMBER BANGALORE. DATED: 03 RD APRIL, 2019. /NS/* ITA NO. 2294/BANG/2018 PAGE 5 OF 5 COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.