ACIT, CHENNAI V. Citadel Aurobindo Biotech Ltd., CHENNAI

ITA 2761/CHNY/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9872 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2015
• Appeal Filed By: Department
• Bench Allotted: D
• Assessment Year: 2003-2004
• Appeal Filed On: 07-11-2014
• Court: TRIBUNAL
• Department Lawyers: JOE SEBASTIAN
• Assessee Lawyers: G SEETHARAMAN
• Keywords: Capital asset; Depreciation

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.2761/MDS/2014 / ASSESSMENT YEAR : 2003-04 THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I(3) CHENNAI VS. M/S CITADEL AUROBINDO BIOTECH LTD NO.43, MAIN ROAD VELACHERY CHENNAI 600 042 [PAN AABCC 7824 N] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI JOE SEBASTIAN, CIT /RESPONDENT BY : SHRI G. SEETHARAMAN, ADVOCATE / DATE OF HEARING : 20 - 0 5 - 2015 ! / DATE OF PRONOUNCEMENT : 26 - 0 6 - 2015 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, CHENNA I, DATED 30.7.2014 AND PERTAINS TO ASSESSMENT YEAR 2003-04. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DEPRECIA TION ON NON-COMPETE FEE. ITA NO. 2761/14 :- 2 -: 3. SHRI JOE SEBASTIAN, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE CLAIMED DEPRECIATION O N NON-COMPETE FEE. ACCORDING TO THE LD. DR, THE ASSESSEE ENTERE D INTO AGREEMENTS WITH M/S AUROBINDO PHARMACEUTICALS LTD. AND M/S CIT ADEL FINE PHARMACEUTICALS LTD. THE ASSESSEE TOOK OVER ALL THE ASSETS AND LIABILITIES OF THESE TWO COMPANIES AND ALSO ENTERED INTO NON-COMPETE AGREEMENT WITH SOME KEY MANAGERIAL PERSONNEL OF M/S AUROBINDO PHARMACEUTICALS LTD. AND M/S CITADEL FINE PHARMACEU TICALS LTD. ACCORDING TO THE LD. DR, THE NON-COMPETE FEE PAID B Y THE ASSESSEE IS A RESTRICTED ONE AND IT DOES NOT NECESSARILY CONFER ANY EXCLUSIVE RIGHT TO CARRY ON THE PRIMARY ACTIVITY OF THE ASSESSEE. THEREFORE, IN VIEW OF THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SHARP BUSINESS SYSTEM VS CIT, 254 CTR 233, THE ASSESSEE IS NOT ENTITLED FOR ANY DEPRECIATION ON NON-COMPETE FEE. 4. ON THE CONTRARY, SHRI G. SEETHARAMAN, LD. COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE ASSESSEE ENTERED INTO NON-COMPETE AGREEMENT AND ACQUIRED A COMMERCIAL RIGHT. ACCORDI NG TO THE LD. COUNSEL, THE COMMERCIAL RIGHT ACQUIRED BY THE ASSE SSEE BY PAYING NON-COMPETE FEE IS A CAPITAL ASSET, THEREFORE, THE ASSESSEE IS ENTITLED FOR DEPRECIATION. THE LD. COUNSEL PLACED HIS RELIA NCE ON THE UNREPORTED JUDGMENT OF THE HON'BLE MADRAS HIGH COURT IN THE CA SE OF M/S ITA NO. 2761/14 :- 3 -: PENTASOFT TECHNOLOGIES LTD VS DCIT IN TAX CASE (APP EAL) NO.1195 OF 2008 DATED 29.10.2013. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE JUDGMENT OF THE HON'BLE MADRAS HIGH COU RT IN THE CASE OF M/S PENTASOFT TECHNOLOGIES LTD (SUPRA). THE HON'BL E HIGH COURT FOUND THAT THERE WAS A COMPOSITE AGREEMENT BETWEEN THE PA RTIES TO TRANSFER ALL RIGHTS INCLUDING THE COPYRIGHTS, TRADE MARK ETC . IN RESPECT OF THE WORD PENTASOFT AS WELL AS THE TRAINING AND DEVELO PMENT DIVISION EXCLUSIVELY TO BE EXPLOITED BY THE ASSESSEE. IN O RDER TO STRENGTHEN THOSE RIGHTS, THERE WAS A NON-COMPETE CLAUSE BY VIR TUE OF WHICH THE TRANSFEROR WAS RESTRAINED FROM USING THE SAME TRAD E MARK, COPYRIGHTS ETC. IN FAVOUR OF THE ASSESSEE. SINCE IT WAS A C OMPOSITE AGREEMENT, THE HIGH COURT FOUND THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION ON THE NON-COMPETE FEE. IN THE CASE BEFORE US, THE AS SESSING OFFICER CAME TO THE CONCLUSION THAT THE AGREEMENT RESTRAINS THE OTHER PARTY IN ENGAGING IN A COMPETING BUSINESS AND DOES NOT IN AN Y WAY RESULT IN ANY RIGHT WHICH COULD BE TREATED AS AN ASSET. HOWE VER, THE CIT(A), BY FOLLOWING THE ORDER OF THIS TRIBUNAL IN THE CASE OF M/S A.B. MARUTI INDIA PVT. LTD IN I.T.A.NO.1520/MDS/2007 ALLOWED THE CLAI M OF THE ASSESSEE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHE N THE ASSESSEE ENTERED INTO AN AGREEMENT TO RESTRICT THE OTHER PAR TY FOR USING THE ITA NO. 2761/14 :- 4 -: TRADE MARK, COPYRIGHTS ETC., IT WAS A COMPOSITE COM MERCIAL RIGHT ACQUIRED BY THE ASSESSEE AS FOUND BY THE HON'BLE M ADRAS HIGH COURT IN PENTASOFT TECHNOLOGIES LTD. (SUPRA). THEREFORE, THE ASSESSEE IS ENTITLED FOR DEPRECIATION IN NON-COMPETE FEE PAID. A SIMILAR VIEW WAS TAKEN BY THIS TRIBUNAL IN ASSESSEES OWN CASE IN I .T.A.NOS.467 TO 479/MDS/2015, FOR ASSESSMENT YEARS 2002-03 TO 2005- 06, DATED 8.4.2015, AND IN THE CASE OF ACIT VS M/S A.B MARUTI INDIA PVT. LTD IN I.T.A.NO.769/MDS/2012 DATED 11.2.2015, TO WHICH ONE OF US THE ACCOUNTANT MEMBER, IS A PARTY TO THE ORDER. IN VIE W OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS CONFIRMED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH OF JUNE, 2015, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 26 TH JUNE, 2015 RD &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF