Rentokil India Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2660/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5807 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 12-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M PALANICHAMY
• Keywords: Depreciation; Transfer pricing; International transaction

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI , # , ' ( BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./ ITA NO.2660/MDS/2016 '# # /ASSESSMENT YEAR: 2011-12 M/S.RENTOKIL INDIA PVT. LTD., SREELA TOWERS, 4 TH FLOOR, NO.105, FIRST MAIN ROAD, GANDHI NAGAR, ADYAR, CHENNAI-600 020. VS. THE DY. COMMISSIONER OF- INCOME TAX, COMPANY CIRCLE-5(3), AAYAKAR BHAVAN, 121 NUNGAMBAKKAM HIGH ROAD, CHENNAI-600 034. [PAN: AADCR 7629 E ] ( * /APPELLANT) ( +,* /RESPONDENT) * - / APPELLANT BY : MR.S.P.CHIDAMBARAM, ADV. +,* - /RESPONDENT BY : MR.M.PALANICHAMY, JCIT - /DATE OF HEARING : 13.11.2017 - /DATE OF PRONOUNCEMENT : 15.11.2017 / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER : ITA NO.2660/MDS/2016 IS AN APPEAL FILED BY THE ASS ESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)-3, CHENNAI, IN ITA NO.88/2013-14/CIT (A)-3 DATED 30.05.2016 FOR TH E AY 2011-12. 2. SHRI M.PALANICHAMY, JCIT REPRESENTED ON BEHALF O F THE REVENUE AND SHRI S.P.CHIDAMBARAM, ADV. REPRESENTED ON BEHALF OF THE ASSESSEE. ITA NO.2660/MDS/2016 :- 2 -: 3. IT WAS SUBMITTED BY THE LD.AR THAT THE ASSESSEE HAS RAISED 5 GROUNDS IN ITS APPEAL. IT WAS A SUBMISSION THAT TH E ASSESSEE WAS ONLY PRESSING GROUND NOS.2 TO 2.5 WHICH WAS AGAINST THE ACTION OF THE LD.CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY TH E AO IN RELATION TO CLAIM OF DEPRECIATION ON INTANGIBLE ASSET REPRESENT ING THE GOODWILL/CUSTOMER LIST. IT WAS A SUBMISSION THAT T HE ASSESSEE IS IN THE BUSINESS OF PROVIDING PEST CONTROL SERVICES. IT WA S A SUBMISSION THAT DURING THE AY 2009-10, THE ASSESSEE HAD WITH THE OB JECTIVE OF EXPANDING ITS BUSINESS, HAD ACQUIRED THE BUSINESSES OF 7 OTHE R COMPANIES UNDER BUSINESS TRANSFER AGREEMENTS (BTA). THE ASSESSEE C OMPANY HAD CAPITALIZED THE PAYMENTS IN RESPECT OF THE PAYMENT FOR THE GOODWILL/CUSTOMER LIST AND THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE SAME. IT WAS A SUBMISSION THAT FOR THE AY 2009-10, THE ASSESSEE HAD CLAIMED THE DEPRECIATION AND THE RETURN FILED BY TH E ASSESSEE HAD BEEN ACCEPTED AND THERE WAS NO SCRUTINY ASSESSMENT ON TH E SAME. IT WAS A SUBMISSION THAT FOR THE AY 2011-12 BEING THE AY UND ER DISPUTE, THE AO HAD DENIED THE ASSESSEES CLAIM OF DEPRECIATION. FO R THE AY 2010-11 THE ASSESSMENT HAVE BEEN RE-OPENED AND WAS PENDING. IT WAS A SUBMISSION THAT THE AO HAD DISALLOWED THE ASSESSEES CLAIM FOR DEPRECIATION HOLDING THAT THE BUSINESS TRANSFER AGREEMENT CONTAINED NON- COMPETE CLAUSES AND HENCE DEPRECIATION WAS NOT ALLOWABLE ON THE NON-COM PETE FEE. THE AO HELD THAT THE ASSESSEE WAS ATTEMPTING TO CLAIM THE DEPRECIATION ON THE PAYMENT IN RESPECT OF NON-COMPETE FEE BY CHANGING N OMENCLATURE. IT WAS A SUBMISSION THAT THE ASSESSEE HAD ACQUIRED THE BUS INESSES BY THE ITA NO.2660/MDS/2016 :- 3 -: BUSINESS TRANSFER AGREEMENT ON A SLUMP SALE BASIS. IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, THE ASSESSEE HAD VALUED TH E ASSETS AND THE GOODWILL/CUSTOMER LIST HAD BEEN TREATED AS AN INTAN GIBLE ASSET AND DEPRECIATION CLAIMED THEREON. IT WAS A SUBMISSION THAT THOUGH THERE IS NON-COMPETE CLAUSE IN THE BUSINESS TRANSFER AGREEME NT, NO AMOUNT WAS QUANTIFIED FOR THE SAME. IT WAS A FURTHER SUBMISSI ON THAT EVEN ASSUMING THE AMOUNT WAS NON-COMPETE FEE STILL IN VIEW OF THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF M/S.PENTAS OFT TECHNOLOGIES LTD., REPORTED IN 264 CTR 187, NON-COMPETE FEE HAS BEEN HELD TO BE A RIGHT AS AN INTANGIBLE ASSET ENTITLED TO DEPRECIATION U/S.32 . IT WAS A FURTHER SUBMISSION THAT NEITHER THE TERM CUSTOMER LIST NOR NON-COMPETE FEE WAS DEFINED IN SEC.32. IT WAS A SUBMISSION THAT SEC.92 B(2)(II)(F) HOWEVER DEFINED INTANGIBLE ASSET TO INCLUDE THE CUSTOMER LI ST AND SUB-CLAUSE (G) TO INCLUDE NON-COMPETE FEE. IT WAS A SUBMISSION THAT AS THE CUSTOMER LIST AS CLAIMED BY THE ASSESSEE AND NON-COMPETE FEE AS HELD BY THE AO WERE BOTH INTANGIBLE ASSETS, IN VIEW OF THE PROVISIONS O F SEC.32, THE ASSESSEE WAS ENTITLED TO THE CLAIM OF DEPRECIATION. 4. IN REPLY, THE LD.DR VEHEMENTLY SUPPORTED THE ORD ER OF THE LD.CIT(A) & THE AO. IT WAS A SUBMISSION THAT SEC.92B WAS IN RELATION TO INTERNATIONAL TRANSACTIONS AND SEC.32 DID NOT INCLU DE CUSTOMER LIST OR NON- COMPETE FEE. ITA NO.2660/MDS/2016 :- 4 -: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE PROVISIONS OF SEC.32(1) EXPLANATION-3 SHOWS THAT TH E EXPRESSION ASSET MEANT TO INCLUDE INTANGIBLE ASSETS BEING KNOWHOW, P ATENTS, COPYRIGHTS, TRADEMARKS .. ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. A PERUSAL OF THE DECISION OF THE HONBLE M ADRAS HIGH COURT IN THE CASE OF M/S.PENTASOFT TECHNOLOGIES LTD., SHOWS THAT IT HAS RECOGNIZED THAT THE AGREEMENT THEREIN WAS A COMPOSITE AGREEMENT AND UNDER THE AGREEMENT, THE TRANSFEROR HAD TRANSFERRED ALL ITS R IGHTS, COPY RIGHTS TO THE TRANSFEREE AND IN ORDER TO STRENGTHEN THOSE RIGHTS TRANSFERRED, THE NON- COMPETE CLAUSE WAS SUPPORTING THE CLAUSE TO STRENGT HEN THE COMMERCIAL RIGHT WHICH IS TRANSFERRED IN FAVOUR OF THE TRANSFE REE. IN THE PRESENT CASE ALSO, THE BUSINESS TRANSFER AGREEMENT IS A COMPOSIT E AGREEMENT AND THE NON-COMPETE CLAUSE THEREIN WAS SUPPORTING CLAUSE TO STRENGTHEN THE COMMERCIAL RIGHTS WHICH HAD BEEN TRANSFERRED TO THE ASSESSEE HEREIN. FURTHER, A PERUSAL OF THE DECISION OF THE CO-ORDINA TE BENCH OF THIS TRIBUNAL, PUNE A BENCH, IN THE CASE OF M/S.COSMO S CO-OP BANK LTD., SHOWS THAT EVEN THE CUSTOMER LIST HAS BEEN TREATED AS FALLING WITHIN THE EXPRESSION BUSINESS OR COMMERCIAL RIGHTS OF SIMILA R NATURE CONTAINED IN SEC.32(1)(II) OF THE ACT. FOR THIS PURPOSE, THE CO -ORDINATE BENCH OF THIS TRIBUNAL HAS RELIED UPON THE DECISION OF THE HONBL E DELHI HIGH COURT IN THE CASE OF M/S.AREVA T & D INDIA LTD., REPORTED IN [20 12] 20 TAXMANN.COM 29 (DELHI). IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO THE DEPRECIATION ON THE INTANGIBLE A SSET VIZ., GOODWILL/CUSTOMER LIST AS CLAIMED BY HIM. OUR VIEW IS ALSO ON ACCOUNT OF ITA NO.2660/MDS/2016 :- 5 -: THE FACT THAT SEC.92B IN RESPECT OF INTERNATIONAL T RANSACTIONS UNDER THE EXPLANATION THERETO HAS PROVIDED THAT THE EXPRESSIO N INTANGIBLE PROPERTY WOULD INCLUDE UNDER CLAUSE-(F) CUSTOMER RELATED IN TANGIBLE ASSETS SUCH AS CUSTOMER LIST, CUSTOMER CONTACTS, ., THUS , THE LEGISLATURE IN ITS WISDOM IN RESPECT OF THE INTERNATIONAL TRANSACT IONS PROVIDED FOR THE EXPRESSION INTANGIBLE PROPERTY TO INCLUDE INTANGIBL E ASSETS SUCH AS CUSTOMER LIST IN SEC.92B THEN AN INTERPRETATION DIF FERENCE FROM THE SAME CANNOT BE TAKEN THAT UNDER THE SAME APPLICABLE ACT AND THAT TOO TO THE DETRIMENT OF LOCAL BUSINESS AND CITIZENS. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO THE CL AIM OF DEPRECIATION ON THE INTANGIBLE ASSETS, BEING THE GOODWILL/CUSTOMER LIST , AS CLAIMED BY THE ASSESSEE. IN THE RESULT, GROUND NOS.2 TO 2.5 OF TH E ASSESSEES APPEAL STAND ALLOWED. THE OTHER GROUNDS HAVE NOT BEEN PRE SSED BY THE ASSESSEE AND CONSEQUENTLY STAND DISMISSED AS NOT PRESSED. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 15, 2017, AT CHENNAI. SD/- SD/- ( ) ( SANJAY ARORA ) /ACCOUNTANT MEMBER ( # ) (GEORGE MATHAN) ' /JUDICIAL MEMBER ITA NO.2660/MDS/2016 :- 6 -: /CHENNAI, 3 /DATED: NOVEMBER 15, 2017. TLN - +'45 65 /COPY TO: 1. * /APPELLANT 4. 7 /CIT 2. +,* /RESPONDENT 5. 5 +'' /DR 3. 7 ( ) /CIT(A) 6. # /GF