Remfry & Sagar, Gurgaon V. ACIT, New Delhi

ITA 2979/DEL/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7364 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2015-2016
• Appeal Filed On: 25-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Gift; Depreciation; Retrospective amendment; Avoidance of tax; Revenue expenditure; Capital expenditure; TDS
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO.2979/DEL/2016 ASSESSMENT YEAR: 2015-16 REMFRY & SAGAR, REMFRY HOUSE AT MILLENIUM PLAZA, SECTOR-27, GURGAON. V. ACIT, CIRCLE-37(1), NEW DELHI. TAN/PAN: AAEFR6753P (APPELLANT) (RESPONDENT) I.T.A. NO.5440/DEL/2016 ASSESSMENT YEAR: 2015-16 ACIT, CIRCLE-61(1), NEW DELHI. V. REMFRY & SAGAR, REMFRY HOUSE AT MILLENIUM PLAZA, SECTOR-27, GURGAON. TAN/PAN: AAEFR6753P (APPELLANT) (RESPONDENT) APPELLANT (ASSESSEE) BY: SHRI KVS KRISHNA, CA RESPONDENT (REVENUE) BY: SMT. SULEKHA VERMA, CIT-DR DATE OF HEARING: 17 07 2019 DATE OF PRONOUNCEMENT: 26 07 2019 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID CROSS APPEALS HAVE BEEN FILED BY THE REVENUE AS WELL AS BY THE ASSESSEE AGAINST IMPUGNED ORDER DATED 30.03.2016, PASSED BY LD. CIT(A)-XX, NEW DELH I FOR THE QUANTUM OF ASSESSMENT PASSED U/S.143(3) FOR THE ASS ESSMENT I.T.A. NO.2979 & 5440/DEL/2016 2 YEAR 2011-12. THE REVENUE IN ITS GROUNDS OF APPEAL HAS RAISED THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) HAS ERRED IN REMAINING SILENT ON THE DISALLOWANCE OF REVENUE EXPENSE AMOUNTING TO RS. 23,51,55,896/-. 2. THE LD. CIT(A) HAS ERRED IN CONCLUDING ON THE MI STAKEN PREMISE THAT HE ACQUISITION OF RIGHT TO USE REMFRY & SAGAR BRAND BY THE APPELLANT IS IN THE NATURE OF CAPITAL TRANSACTION A ND THEREBY DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATI ON AT THE APPLICABLE RATE, PARTICULARLY WHEN THE ASSESSEE HAS ITSELF CLAIMED THE SAME TO BE OF THE NATURE OF REVENUE EXPENDITURE . 2. ON THE OTHER HAND, THE ASSESSE IN ITS APPEAL HAS RAISED THE FOLLOWING GROUNDS. THE CIT(A) AS WELL AS AO HAS ERRED IN LAW AND ON F ACTS IN NOT ALLOWING REVENUE DEDUCTION IN RESPECT OF LICENCE FE E AMOUNTING TO RS.23,51,55,896/- PAID BY THE APPELLANT TO REMFRY & SAGAR CONSULTANTS PVT. LTD. (RSCPL): INSTEAD IN TREATING THE SAME AS CAPITAL EXPENDITURE ELIGIBLE FOR DEPRECIATION. THE CIT (A) AND AO HAS ERRED ON FACTS AND IN LAW IN NOT DELETING DISALLOWANCE OF RS.32,15,972/- BEING TDS PAYABLE FO R THE MONTH OF MARCH DULY DEPOSITED BY APRIL 07, 2011; INSTEAD IN DIRECTING THE ASSESSING OFFICER TO GIVE CREDIT OF TDS AS PER RULE 37B OF THE INCOME TAX RULES, 1962 READ WITH SECTION 199 OF THE ACT. 3. AT THE OUTSET, IT WAS SUBMITTED BY THE LD. COUNS EL FOR THE ASSESSEE THAT THE ISSUES INVOLVED IN BOTH THE A PPEALS HAD COME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN T HE APPEALS FOR THE ASSESSMENT YEAR 2003-04 TO ASSESSMENT YEAR 2010-11, WHEREIN THE GROUNDS RAISED BY THE REVENUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSE. I.T.A. NO.2979 & 5440/DEL/2016 3 4. LD. DR THOUGH ADMITTED THAT THE ISSUES HAVE ALRE ADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBU NAL. HOWEVER, HE RELIED UPON THE ORDER OF THE AO. 5. THE FACT IN BRIEF QUA THE EXPENDITURE OF RS.23,51,55,896/- ARE THAT, ASSESSEE HAS CLAIMED TH IS EXPENDITURE AS LICENSE FEE PAYMENT TO M/S. REMFRY A ND SAGAR CONSULTANTS PVT. LTD. (RSCPL) FOR USE OF GOODWILL O F REMFRY & SAGAR AND TO PRACTICE IN THIS NAME. IN RESPONSE TO THE SHOW CAUSE NOTICE TO JUSTIFY THE PAYMENT OF LICENSE FEE TO RSCPL, THE ASSESSE HAD SUBMITTED COPY OF AGREEMENT OF LICE NSE FOR THE USE OF GOODWILL AND ALSO PROVIDED MONTH WISE SU MMARY OF LICENSE FEE PAID. IT WAS SUBMITTED THAT THE SAID PA YMENT OF LICENSE FEE FOR THE USE OF THE NAME HAS A DIRECT NE XUS BETWEEN PROFESSIONAL INCOME GENERATED BY THE ASSESSE AND TH E LICENSE FEE PAID. THE ASSESSEES DETAILED EXPLANATION IN TH IS REGARD HAS BEEN DEALT AND INCORPORATED IN THE ASSESSMENT O RDER AS WELL AS IN THE APPELLATE ORDER. LD. AO AFTER DISCUS SING THE ISSUE IN DETAIL HAD DISALLOWED THE DEDUCTION OF LIC ENSE FEE PAYMENT. LD. CIT (A) AFTER CONSIDERING THE ENTIRE F ACTS AND MATERIAL ON RECORD AND SUBMISSIONS MADE BY THE ASSE SSE HAS HELD THAT THE SAID EXPENDITURE HAS CAPITAL EXPENDIT URE HOWEVER DIRECTED THE AO TO ALLOW DEPRECIATION AT TH E APPLICABLE RATES. 6. WE FIND THAT THIS ISSUE IS PERMEATING FROM T HE EARLIER YEARS AND THE TRIBUNAL AFTER NOTING THE ENTIRE FACT S AND RIVAL CONTENTIONS MADE BY THE PARTIES AS WELL AS RELEVANT PROVISION I.T.A. NO.2979 & 5440/DEL/2016 4 OF LAW HAS HELD THAT THE LICENSE FEE PAID TO M/S. R SCPL IS ALLOWABLE AS REVENUE EXPENDITURE. THE RELEVANT OBSE RVATION AND THE FINDING OF THE TRIBUNAL READ AS UNDER: 8. WE HAVE HEARD BOTH THE PARTIES AT LENGTH. WE HAV E CONSIDERED THE WRITTEN SUBMISSION, THE PAPERS ON RECORD AS WELL AS THE CAS E LAWS CITED BY BOTH PARTIES. ON A CAREFUL CONSIDERATION OF THE SAME WE HOLD AS FOLL OWS: 8.1. BEFORE WE ADJUDICATE THE ISSUE AS TO WHETHER T HE DISALLOWANCE OF LICENSE FEE PAID BY THE ASSESSEE TO RSCPL FOR LICENSE TO PRACTI CE AS REMFRY & SAGAR AND FOR USE OF THE SAID NAME, TRADE MARK AND GOODWILL BY TH E A.O IS TO BE UPHELD OR NOT, FOR THE PURPOSE OF THE READY REFERENCE WE RECAPITULATE THE FACTS OF THE CASE AS BELOW: FACTS YEAR 1827: A SOLE PROPRIETORSHIP FIRM WAS ESTABLISH ED AS GRANT AND REMFRY, BY A BRITISH IMMIGRANT, MR. HENRY OLIVER REMFRY, WHICH W AS SUBSEQUENTLY CONVERTED INTO PARTNERSHIP FIRM AND OPERATED BY FIVE GENERATI ONS OF REMFRY FAMILY, UNTIL THE YEAR 1957. YEAR 1957: MR. HOLLAWAY, MRS. SILVERSTONE, MR. BERN IER AND MR. BURRINGTON JOINED REMFRY & SON (THE NAME OF THE PARTNERSHIP FIRM AT THAT TIME) AS PARTNERS. YEAR 1970: MR. BERNIER AND MR. BURRINGTON RETIRED. MR. HOLLOWAY, MR. SILVERSTONE AND MRS. REMFRY ENTERED INTO A FRESH DEED OF PARTNE RSHIP. AS PER THE PARTNERSHIP DEED, MR. HOLLOWAY AND MRS. SILVERSTONE WERE ENTITL ED AND EMPOWERED TO SELL ALL OR ANY OF THE ASSETS OF THE PARTNERSHIP FIRM, INCLUDIN G THE NAME AND GOODWILL OF THE BUSINESS. YEAR 1973: MR. HOLLOWAY AND MRS. SILVERSTONE TRANSF ERRED ABSOLUTELY, THE BUSINESS WITH ALL ASSETS INCLUDING NAME AND GOODWILL THEREOF , VESTING IN REMFRY & SON FOR VALUABLE CONSIDERATION, TO DR. V. SAGAR, WITH EFFEC T FROM APRIL 1, 1973. YEAR 1990: DR. V. SAGAR MERGED HIS OWN SOLE-PROPRIE TORSHIP PRACTICE IN THE NAME OF SAGAR & CO. INTO REMFRY & SON, AND CHANGED T HE NAME OF THE PROPRIETORSHIP TO REMFRY & SAGAR. YEAR 2001: (I) BY A DEED OF GIFT EXECUTED ON JUNE 1 , 2001, DR. V. SAGAR GIFTED THE GOOD WILL VESTING IN REMFRY & SAGAR TO A PRIVATE LIMITED COMPANY, VIZ., REMFRY & SAGAR CONSULTANTS PRIVATE LIMITED (RSCPL), WHEREI N SUBSTANTIAL SHAREHOLDING I.T.A. NO.2979 & 5440/DEL/2016 5 WAS HELD BY DR. SAGARS CHILDREN, VIZ., MS. ROSEMAR Y SAGAR AND MR. HEMANT SAGAR, WHO WERE NOT LAWYERS. AT THE TIME OF THE SAID TRANS FER, GOODWILL WAS VALUED AT RS.45 CRORES ON WHICH STAMP DUTY OF RS. 90 LAKHS WAS PAID BY DR. V. SAGAR. (II) ON JUNE 5, 2001, DR. V. SAGAR ENTERED INTO PAR TNERSHIP WITH MR. R. SAMPATH, MRS. ASHWIN JULKA, MR. RAMIT NAGPAL AND MR. PREM SE WAK TO CONTINUE THE SAID PRACTICE OF LAW. (III) BY AN AGREEMENT DATED JUNE 5, 2001 RSCPL GRAN TED A LICENSE FOR THE USE OF GOODWILL IN REMFRY & SAGAR TO THE APPELLANT FIRM FOR A PERIOD OF 5 YEARS SUBJECT TO PAYMENT OF LICENSE FEES @ 25% OF THE AMOUNT OF B ILLS RAISED. LATTER THIS WAS RAISED TO 28% OF THE BILLS RAISED ON RENEUAL OF AGR EEMENT AFTER 5 YEARS. (IV) IN ADDITION TO THE ABOVE, RSCPL AND THE APPELL ANT FIRM ENTERED INTO AN AGREEMENT DATED JUNE 5, 2001, FOR USE OF INFRASTRUC TURE AND PROVISION OF SECRETARIAL, ACCOUNTING AND OTHER SUPPORTING SERVICES. FEB 2011: DEMISE OF DR. V. SAGAR IN PURSUANCE OF THE AFORESAID LICENSE AGREEMENT DAT ED JUNE _5, 2001 ENTERED INTO BETWEEN THE APPELLANT AND RSC PL, THE _APPELLANT PAID LICENSE FEE FOR USE OF GOODWILL TO RSCPL W.E.F. _ASSESSMENT YEAR 2002-03, WHICH CONTINUES TILL DATE , EVEN -AFTER THE DEMISE OF DR. V. SAGAR. 8.2. M/S REMFRY & SONS, WAS CARRYING ON A BUSINES S OF PATENT AGENTS. VIDE TERMS OF THE DEED OF PARTNERSHIP DATED 6TH APRIL 1970, 50 % OF THE GOODWILL OF THE BUSINESS BELONGED TO THE PARTNER MRS. HOLLOWAY AND OTHER 50% TO MRS. SILVER STONE. BOTH OF THEM HELD 50% OF ALL THE OTHER CAPITAL ASSETS AND P ROPERTIES OF THE FIRM. THOUGH MRS. REMFRY WAS HAVING A SHARE IN THE NET PROFITS O F THE PARTNERSHIP, SHE HAD NO OWNERSHIP RIGHTS IN THE GOODWILL OF THIS FIRM. THIS DEMONSTRATES THAT THE NAME AND GOODWILL OF THE BUSINESS REMFRY & SONS IS DISTINC T AND SEPERATE FROM THE OTHER ASSETS OF THE PARTNERSHIP FIRM AND THAT IT VESTED O NLY IN TWO PARTNERS OF THE FIRM AND NOT THE FIRM. THIS IS CLEAR FROM READING OF CLAUSE 2 & 3 OF THE SAID PARTNERSHIP DEED. 8.3. ON THE FOURTH DAY OF APRIL 1973, MR. VIDYA SAG AR PURCHASED BY WAY OF SALE, FROM MR. HOLLOWAY AND MRS. SILVER STONE, THE BUSINE SS CARRIED ON UNDER THE NAME AND STYLE OF REMFRY & SONS ALONG WITH ALL ITS ASS ETS INCLUDING CAPITAL ASSET AS ON 31ST MARCH 1973 AND THE NAME AND GOODWILL THEREOF W HICH WAS REFERRED TO AS THE I.T.A. NO.2979 & 5440/DEL/2016 6 SAID BUSINESS IN THAT AGREEMENT FOR A TOTAL CONSID ERATION OF RS. 3 LACS. THUS WHEN DR.V.SAGAR PURCHASED THE GOODWILL ALONG WITH OTHER ASSETS, THIS GOODWILL WAS OF BUSINESS AND NOT OF ANY PROFESSION OF LAW. 8.4. THUS, DR. SAGAR BECOME AN ABSOLUTE OWNER OF TH E BUSINESS CARRIED ON IN THE NAME AND STYLE OF REMFRY AND SONS WHICH IS IN THE BUSINESS OF TRADE MARK AND PATENT AGENT. 8.5. ON 1ST JUNE, 1990, DR. V. SAGAR MERGED HIS LEG AL PRACTICE IN THE NAME OF SAGAR & CO. WITH THE BUSINESS OF TRADE MARK AND P ATENT AGENTS CARRIED ON IN THE NAME AND STYLE OF REMFRY & SONS AND CHANGED THE N AME OF THE PROPRIETORSHIP INTO REMFRY AND SAGAR. DR. V. SAGAR WAS CARRYING PRACT ICE AND PROFESSION OF ATTORNEYS-AT-LAW WITH SPECIALIZATION IN THE AREAS OF INTELLECTUAL PROPERTY LAW AND CORPORATE LAW UNDER THE NAME AND STYLE OF REMF RY & SAGAR, IN NEW DELHI AND MUMBAI. THE GOODWILL IN THE NAME OF REMFRY & S AGAR AND ALL THE RIGHTS ASSOCIATED THEREOF (INCLUDING INTELLECTUAL PROPERTY RIGHTS) BELONG EXCLUSIVELY TO DR. V. SAGAR. DR. V. SAGAR BY WAY OF A GIFT DEED EXECUT ED ON THE DAY OF 1ST JUNE 2001, GRANTED CONVEYED AND TRANSFERRED BY WAY OF GIFT TO RSCPL THE SAID GOODWILL IN THE NAME OF REMFRY & SAGAR AND ALL THE RIGHTS ASSOCIA TED THEREWITH(HEREINAFTER REFERRED COLLECTIVELY REFERRED TO AS GOODWILL). D R. V. SAGAR ALSO SOLD AND TRANSFERRED TO RSCPL, THE INFRASTRUCTURE ASSOCIATED WITH HIS PRACTICE. 8.6. FROM THE ABOVE, IT IS CLEAR THAT FROM 1ST JUNE 1990 TO 31ST MAY 2001, DR. V. SAGAR WAS ONLY CARRYING ON THE PRACTICE AND PROFESS ION OF ATTORNEY-AT-LAW, WHICH INCLUDED THE BUSINESS OF REMFRY AND SONS ACQUIRED BY HIM. IN OTHER WORDS, PRIOR TO 1ST JUNE, 1990, THE GOODWILL OF REMFRY AND SONS WAS GOODWILL OF BUSINESS AND NOT OF ADVOCACY PROFESSION, BUT THEREAFTER THERE IS A MERGER OF THE PROFESSION OF LAW AND THE BUSINESS OF TRADE MARK AND PATENT. AGENTS A ND THIS WAS CARRIED ON AS A PROFESSION OF LAW. 8.7. VIDE PARTNERSHIP DATED 5TH JUNE 2001 BETWEEN D R. V. SAGAR AND FOUR OTHER PARTNERS IT WAS AGREED TO CARRY ON THE PRACTICE AND PROFESSION OF ATTORNEY-AT-LAW WITH THE SPECIALIZATION IN THE AREA OF INTELLECTUAL PROPERTY LAW AND CORPORATE LAW WITH THE OBJECT OF CARRYING ON, WITHOUT BREAK AND I N CONTINUITY, THE PRACTICE, HITHER TO CARRIED ON BY DR. V. SAGAR. THE FOUR OTHER PARTN ERS WERE EARLIER ASSOCIATED WITH THE PRACTICE OF DR. V. SAGAR, IN THEIR INDIVIDUAL C APACITIES FOR NUMBER OF YEARS AND HAVE ACQUIRED EXPERTISE IN THIS FIELD OF THE PROFES SION. WE NOTICE THAT THE I.T.A. NO.2979 & 5440/DEL/2016 7 PARTNERSHIP DEED DATED 5TH JUNE 2001 IS UNDER THE N AME AND STYLE OF REMFRY & SAGAR AND THIS PARTNERSHIP DEED HAS COME INTO FORC E ON 1ST JUNE 2001. THUS WHAT IS LICENSED BY RSCPL TO THE ASSESSE FIRM IS GOODWIL L AND ITS ASSOCIATED RIGHTS TO PRACTICE AS ATTORNEYS-AT-LAW AND NOT TO DO BUSINES S OF TRADEMARK AND PATENT AGENTS. 8.8. VIDE AGREEMENT DATED 5TH JUNE 2001, RSCPL PERM ITTED TO USE OF GOODWILL TO THE PARTNERSHIP AND PERMITTED THEM TO USE THE NAME OF REMFRY & SAGAR WITH RETROSPECTIVE EFFECT I.E. 1ST JUNE 2001. WHILE CLAU SE NO. 16.1 OF THIS AGREEMENT, THE LICENSE FEE IN QUESTION IS TO BE PAID IN PURSUANCE TO THIS AGREEMENT. 8.9. IT IS CLEAR THAT DR. V. SAGAR HAS ARRANGED HIS AFFAIRS IN SUCH A WAY THAT THE GOODWILL EARNED BY HIM OVER THE YEARS IS ENJOYED BY HIS CHILDREN WHO ARE HIS LEGAL HEIRS. ALL THE DOCUMENTATION SHOWS THAT THIS IS A V ERY WELL THOUGHT OUT STRATEGY BY DR.V.SAGAR TO RETAIN HIS HARD EARNED AS WELL AS PUR CHASED GOODWILL AND TO USE IT FOR HIS FUTURE GENERATIONS, IRRESPECTIVE OF THE FAC T WHETHER THEY WERE IN THE PRACTICE OF LAW. SUCH WELL CONSIDERED AND THOUGHT OUT ARRANG EMENTS CANNOT BE SAID TO BE COLOURFUL DEVICES. THESE ARE TRANSPARENT AND LEGALL Y DOCUMENTED ARRANGEMENTS. 8.10. THE ISSUE FOR CONSIDERATION IS WHETHER SUCH A N ARRANGEMENT IS PERMISSIBLE IN LAW. THE PITH AND SUBSTANCE OF THE ARGUMENT OF THE REVENUE IS THAT SUCH SEGREGATION OF GOODWILL FROM THE LEGAL PRACTICE CANNOT BE PERMI TTED. IT IS FURTHER ARGUED THAT UNDER THE ADVOCATES ACT, 1961, THE GOODWILL EARNED BY AN ADVOCATE CANNOT BE ALIENATED TO ANY PERSON OR COMPANY WHICH IS NOT ENT ITLED TO PRACTICE UNDER THE ADVOCATES ACT, 1961. 8.11. AT THE SAME TIME, THE REVENUE CONCEDES THAT T HE LEGAL HEIRS OF THE ADVOCATES WOULD BE ENTITLED TO THE BENEFIT OF THE GOODWILL EA RNED AND CREATED BY THE LEGAL PRACTITIONER. IT WAS SUBMITTED THAT THE LEGAL HEIRS MAY BE ENTITLED TO CONSIDERATION FOR THE GOODWILL ON BEHALF OF THE DECEASED FATHER B UT THEY CANNOT BE REGARDED AS THE LAWFUL OWNERS OF THE GOODWILL OR HAVING THE RIGHTS OF OWNING THE GOODWILL OR TO LICENSE THE SAME. IN OUR VIEW, WE FIND A CONTRADICT ION IN THESE SUBMISSIONS. WHEN IT CONTENDED THAT THE LEGAL HEIRS OF A PRACTITIONER AR E ENTITLED TO RECEIVE CONSIDERATION FOR GOODWILL ON BEHALF OF THE DECEASED PARENT, IT W OULD BE DIFFICULT TO HOLD THAT, THE GOODWILL CANNOT BE SEPARATED FROM THE LEGAL PRACTIC E AND THE FRUITS OF SUCH GOODWILL CANNOT BE ENJOYED BY THE LEGAL HEIRS OF THE LEGAL P RACTITIONER OR THAT IT CAN BE ENJOYED BY THE LEGAL HEIRS ONLY IN A PARTICULAR MAN NER. I.T.A. NO.2979 & 5440/DEL/2016 8 8.12. BE IT AS IT MAY, THE SUBMISSION OF THE ASSESS EE THAT GOODWILL IS A SEPARATE INTANGIBLE ASSET WHICH CAN BE ALIENATED AND THAT WH ICH CANNOT BE ATTACHED TO A FIRM AND THAT IT CAN BE VESTED IN ONE OR MORE PARTNER OF THE FIRM, IN EXCLUSION OF OTHERS, IS WELL SETTLED. THE ASSESSEE PARTNERSHIP FIRM FORM ED FOR CARRYING A PROFESSION AND PRACTICE OF DR. V. SAGAR UNDER THE NAME AND STYLE O F REMFRY & SAGAR COULD NOT HAVE CARRIED OUT THE PROFESSION AS IT IS DOING RUN BY USING THE GOODWILL AND NAME OF REMFRY & SAGAR UNLESS SPECIFICALLY AUTHORIZED TO DO SO BY THE OWNER OF THE GOODWILL. AS RIGHTLY POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE THAT IN THE PRESENT DAY PROFESSIONAL PRACTICE AND PROFESSIONAL FIRMS ACROSS THE GLOBE ARE IN THE NAMES OF THE ORIGINAL FOUNDERS, THOUGH THEY ARE NO LONGER PART OF THE PRACTICE. THIS NAME AND GOODWILL HELPS IN THE PRACTICE. THE PARTNE RSHIP WAS FORMED TO CONTINUE THE LAW PRACTICE OF DR. V. SAGAR AND THIS COULD BE DONE ONLY IF THE ASSESSEE FIRM IS PERMITTED TO DO SO BY THE OWNER OF THE GOODWILL. 8.13. THE SUBMISSION OF THE LD. SPECIAL COUNSEL FOR THE REVENUE THAT GOODWILL OF A PROFESSION CANNOT BE SEGREGATED FROM THE PERSONA OF THE PERSON IS AGAINST THE PROPOSITIONS OF LAW LAID DOWN BY THE HON'BLE SUPREM E COURT IN THE CASE OF DEVI DAS MITTAL DAAS VITHALDAS & CO. VS. CIT BOMBAY CITY (SUPRA). THE CONSTITUTIONAL BENCH OF THE HON'BLE SUPREME COURT CONSISTING OF FO UR FINDINGS WAS CONSIDERING A CASE OF CHARTERED ACCOUNTANT WHO WAS CARRYING ON HI S PROFESSION IN THE NAME OF DEVI DASS & CO. VIDE PARTNERSHIP DATED 31 JANUARY 1 948, WHEREIN HE RETAINED/RESERVED THE RIGHT OF GOODWILL OF THE PROF ESSION CARRIED ON BY HIM EARLIER IN SOLE PROPRIETORSHIP. ON 2ND JUNE 1951, HE RETIRED F ROM THE SAID PARTNERSHIP. THE GOODWILL IN THE PARTNERSHIP WAS SOLD TO THE OTHER P ARTNER AND THE CONSIDERATION WAS TO BE PAID TO THE CHARTERED ACCOUNTANT AT THE CERTA IN RATE AND AFTER HIS DEATH TO HIS WIFE AND THEREAFTER HIS SON WERE TO PAID ANNUAL CON SIDERATION. THE QUESTION BEFORE THE HONBLE COURT WAS WHETHER SUCH THE AMOUNTS PAID TO THE WIFE AND THEREOF TO THE SON IS ALLOWABLE DEDUCTION OR NOT UNDER THE INCOME TAX ACT. 8.14. THE LARGER BENCH CONSISTING OF FOUR JUDGES OF HONBLE SUPREME COURT IN THE CASE OF DEVIDAS VITHALDAS & CO. VS. CIT, BOMBAY, RE PORTED IN 84 ITR 277 (S.C.), HELD AS FOLLOWS. HELD, BY SHELAT, KHANNA ANDMITTER JJ (SDHRI CJ DIS SENTING), REVERSING THE DECISION OF THE HIGH COURT, THAT THE TRANSACTION UN DER THE DEED OF DISSOLUTION WAS A LICENCE AND NOT A SALE OF THE GOODWILL AND THE PAYM ENTS WERE IN THE NATURE OF I.T.A. NO.2979 & 5440/DEL/2016 9 ROYALTY AND HAD TO BE TREATED AS ADMISSIBLE DEDUCTI ONS; BECAUSE (I) THOUGH CLAUSE 2 OF THE DEED OF DISSOLUTION USED EXPRESSIONS SUCH AS AGREED TO SELL AND THE PURCHASE PRICE OF THE GOODWILL, THESE EXPRESSIONS WERE NOT DETERMINATIVE OF THE EXACT NATURE OF THE TRANSACTION; (II) NEITHER CLAUS E 2 NOR ANY OTHER PROVISION IN THE DEED FIXED ANY LUMP SUM AS PRICE IN RESPECT OF WHIC H ANNUAL PAYMENTS WERE PROVIDED; (III) THE DURATION OF PAYMENT WAS INDEFIN ITE AND THE AMOUNT WAS INDEFINITE AND DEPENDED UPON THE RISE AND FALL IN THE PROFITS OF THE BUSINESS, (IV) CLAUSE 6 INDICATED THAT THE PAYMENTS WERE TO BE MADE SO LONG AS THE BUSINESS WAS CARRIED ON IN THE NAME OF D.V.&CO. AND NOT OTHERWISE; AND (V) THE DOCUMENT WAS SILENT AS TO WHAT WAS TO HAPPEN TO THE GOODWILL IF A OR HIS PART NERS WERE TO CEASE TO CARRY ON BUSINESS IN THAT NAME OR AT ALL. JUSTICE S.M. SIKRI C.J, HAS WRITTEN A DISSENTING J UDGMENT, THE PITH AND SUBSTANCE OF WHICH IS THAT THE ENTIRE ARRANGEMENT WAS MADE FOR E VASION OF TAXES. HE HELD AS FOLLOWS: IN MY VIEW, IT IS A VERY INGENIOUS ATTEMPT TO AVO ID PAYMENT OF TAX BY MAKING IT APPEAR SOMEHOW THAT THE PAYMENT OF PURCHASE MONEY M AY BE TREATED AS PAYMENT OF A ROYALTY. IN THE VIEW I TAKE OF THE DEED, IT IS NO T NECESSARY TO DISCUSS THE NUMEROUS CASES REFERRED TO BY SHLAT J. IN MY OPINION, THE HI GH COURT CAME TO THE CORRECT CONCLUSION AND THE APPEALS SHOULD BE DISMISSED WITH COSTS. 8.15. IN THE CASE OF HAND, THIS IS EXACTLY THE CAS E OF THE REVENUE. THE MAJORITY OF THE THREE JUDGES OF HONBLE SUPREME COURT DID NOT A GREE WITH THE MINORITY VIEW AND HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSE E. 8.16. APPLYING THE PROPOSITIONS LAID DOWN IN THIS C ASE LAW TO THE FACTS OF THE CASE, WE HAVE TO NECESSARILY HOLD, THAT THE ARGUMENT OF R EVENUE THAT THE ARRANGEMENT WAS FOR AVOIDANCE OF TAX AND DIVERSION OF PROFITS A ND HENCE THE DEDUCTION WAS RIGHTLY DENIED BY THE ASSESSING OFFICER, HAS TO BE REJECTED. EVEN OTHERWISE, IT HAS BEEN DEMONSTRATED BY THE ASSESSEE THAT THE REVENUE HAS ACCEPTED THAT BOTH THE ENTITIES I.E. THE ASSESSEE AS WELL AS RSCPL, PAY TA XES, AT THE MAXIMUM RATE AND THAT THERE IS NO LOSS OF REVENUE ON ACCOUNT OF THIS ARRA NGEMENT. THE TAXES DUE TO THE GOVERNMENT HAVE NOT BEEN AVOIDED OR EVADED BY THIS ARRANGEMENT. THUS THE DISALLOWANCE MADE ON THE GROUND OF DIVERSION OF PRO FITS IS DEVOID OF MERIT. 8.17. THOUGH THE LD. SPECIAL COUNSEL FOR THE REVENU E ARGUED THAT GOOD WILL OF A PROFESSION CANNOT BE SOLD TO A COMPANY WHICH DOES N OT HAVE A RIGHT TO CARRY ON I.T.A. NO.2979 & 5440/DEL/2016 10 PRACTICE, NO SPECIFIC LAW OR SECTION WAS BROUGHT TO THE NOTICE OF THE BENCH IN SUPPORT OF THE ARGUMENT. ONLY SEVERAL SUBMISSIONS H AVE BEEN MADE. CERTAIN JUDGEMENTS OF FOREIGN COURTS WERE CITED, WHICH WERE BASED ON ETHICAL CONSIDERATIONS AND NOT LEGAL PROHIBITION. IN ANY E VENT, THE ITAT HAS NO POWER OR AUTHORITY TO ADJUDICATE THE ISSUE AS TO WHETHER, TH E GIFT OF GOODWILL BY DR.V.SAGAR OF HIS PROFESSION OF LAW, TO A COMPANY IS VIOLATING TH E ADVOCATES ACT, 1961 OR THE BAR COUNCIL RULES. NO AUTHORITY HAS HELD THAT THIS ARRA NGEMENT VIOLATES ANY ACT OR LAW OF THE LAND, THOUGH THE ASSESSEE FIRM HAS BEEN CARR YING ON ITS PROFESSION OF ATTORNEYS AT LAW UNDER THIS ARRANGEMENT FOR THE LAS T MANY YEARS. 8.18. ANOTHER IMPORTANT FACT THAT HAS TO BE CONSIDE RED IS THAT, DR. V. SAGAR HAD THE SOLE AND EXCLUSIVE RIGHTS TO THE SAID GOODWILL. THE GOODWILL WAS HELD BY HIM. WITHOUT LEGAL AUTHORIZATION FROM HIM, THE ASSESSEE FIRM COULD NOT USE THE NAME AND STYLE OF REMFRY & SAGAR ALONG WITH ITS GOODWILL A ND OTHER ASSETS AND RIGHTS. THE ASSESSEE FIRM HAD TO SEEK PERMISSIONS AND LICENCES TO CONEINUE AND CARRY ON THIS PROFESSION UNDER THIS NAME AS IT IS RUN DOING. HENC E OBTAINING A LICENSE IS A MUST FOR ASSESSEE FIRM TO CONTINUE AND CARRY ON ITS PROF ESSION AS THE GOODWILL IS NOT OWNED BY IT THE PAYMENT MADE IN PURSUANCE OF AN AGR EEMENT WHICH ENABLES THE ASSESSEE FIRM TO CARRY ON ITS PROFUSIONS, IN THE MA NNER IN WHICH IT IS NOW DOING, IS DEFINITELY AN EXPENDITURE LAID DOWN WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE ARGUMENT OF THE LD. SPE CIAL COUNCIL THAT THE PURPOSE TEST CONTEMPLATED U/S 37 OF THE ACT IS NOT SATISFIE D IS DEVOID OF MERIT. IRRESPECTIVE OF WHETHER THE GIFT OF DR. V. SAGAR TO RSCPL BEING ETH ICAL OR NOT AND IRRESPECTIVE OF THE FACT WHETHER THE GIFT IS LEGALLY VALID OR NOT, FROM THE VIEW POINT OF THE ASSESSEE FIRM, AS IT COULD NOT HAVE CONTINUED AND CARRIED ON THE PROFESSION OF ATTORNEYS-AT- LAW IN THE NAME OF REMFRY & SAGAR AND USE ITS GOO DWILL AND ALL ITS ASSOCIATED RIGHTS WITHOUT THE IMPUGNED AGREEMENT WITH RSCPL. H ENCE THE PAYMENT HAS TO BE HELD AS THAT WHICH IS INCURRED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF BUSINESS OR PROFESSION. 8.19. THE CONTENTION OF THE SPECIAL COUNCIL FOR THE REVENUE THAT THE ARRANGEMENT IS JUST A REVENUE SHOWN ARRANGEMENT IS JUST AN INFEREN CE AND IS NOT SUPPORTED BY ANY MATERIAL. THUS THE ARGUMENT OF VIOLATION OF BAR COU NCIL RULES IS DEVOID OF MERIT. 8.20. FOR ALL THESE REASONS WE ARE OF THE CONSIDERE D OPINION THAT THE DEDUCTION I.T.A. NO.2979 & 5440/DEL/2016 11 CLAIMED BY THE ASSESSEE OF LICENSE FEE PAID TO M/S RSCPL HAS TO BE ALLOWED AS A DEDUCTION U/S 37 OF THE ACT. 7. THUS, RESPECTFULLY FOLLOWING THE AFORESAID PRECE DENCE, WE HOLD THAT THE SAID DEDUCTION CLAIMED BY THE ASSE SSE ON ACCOUNT OF LICENSE FEE PAID TO M/S. RSCPL IS ALLOWA BLE AS REVENUE EXPENDITURE U/S.37. CONSEQUENTLY, GROUND NO .1 OF THE REVENUE IS DISMISSED AND GROUND NO.2 OF THE ASS ESSE IS ALLOWED. 8. IN SO FAR AS GROUND NO.2 RAISED BY THE ASSESSE O N ACCOUNT OF DISALLOWANCE OF 32,15,972/- ON ACCOUNT O F TDS PAYABLE. THE CASE OF THE ASSESSING OFFICER WAS THAT THIS WAS A PART OF EXPENDITURE AND HAS BEEN CLAIMED AS EXPENDI TURE IN P&L ACCOUNT AND SINCE ASSESSEE IS FOLLOWING CASH SY STEM OF ACCOUNTING, THEREFORE, SAME CANNOT BE ALLOWED AS IT REMAIN PAYABLE ON 31 ST MARCH, 2011. THE CASE OF THE ASSESSE BEFORE THE AUTHORITIES BELOW WAS THAT THE SAID AMOUNT OF T DS IS NOT AN EXPENSE DEBITED IN THE P&L ACCOUNT AND THE SAME WAS DEPOSITED TO THE GOVERNMENT ACCOUNT WITHIN THE DUE DATE PRESCRIBED UNDER THE RULE, I.E., ON 7 TH APRIL, 2011. THE DATE OF DEPOSIT OF TDS IS GOVERNED BY THE INCOME TAX PROVIS ION AND NOT BY THE ACCOUNTING POLICY. MOREOVER, AMOUNT OF T DS OF RS.18,72,782/- IS ON ACCOUNT OF LICENSE FEE WHICH H AS ALREADY BEEN DISALLOWED BY THE AO, AND THEREFORE, THERE WOU LD BE DOUBLE DISALLOWANCE. 9. LD. CIT (A) DIRECTED THE AO TO GIVE CREDIT TO TD S AS PER RULE 37BA R.W.S. 199. I.T.A. NO.2979 & 5440/DEL/2016 12 10. BEFORE US, LEARNED COUNSEL HAS SUBMITTED THE DE TAILS OF CHALLAN OF TDS DEPOSITED ON 24.07.2011 AND IF TH E TDS DEDUCTED HAS BEEN DEPOSITED WITHIN DUE DATE PRESCRI BED UNDER THE RULES THEN CREDIT OF THE SAME HAS TO BE A LLOWED. THUS, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESS E. 11. IN THE RESULT, THE APPEAL OF THE ASSESSE IS ALL OWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JULY, 2019. SD/- SD/- [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 26 TH JULY, 2019 PKK