ACIT, New Delhi V. M/s. Remfry & Sagar, Gurgaon

ITA 367/DEL/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7307 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 23-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 24-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G C SRIVASTAVA SPL
• Assessee Lawyers: ADITYA VOHRA ADVS
• Keywords: Capital asset; Gift; Business expenditure; Retrospective amendment; Valuation report; Commercial expediency
• Section: 143(3); 234B; 37(1); 37

Judgement Text

IN THE INCOME TAX APPE LLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.- 1561/DEL/2011 (A.Y 2007-08) REMFRY & SAGAR REMFRY HOUSE, MILLENIUM PLAZA, SECTOR-27 GURGAON AAEFR6753P (APPELLANT) VS JCIT RANGE-37 NEW DELHI (RESPONDENT) I.T.A .NO.-1084/DEL /2014 (A.Y 2010-11) REMFRY & SAGAR REMFRY HOUSE, MILLENIUM PLAZA, SECTOR-27 GURGAON AAEFR6753P (APPELLANT) VS DCIT RANGE-37(1) NEW DELHI (RESPONDENT) I.T.A .NO.-3667/D EL/2013 (A.Y 2003-04) I.T.A .NO.-3666/D EL/2013 (A.Y 2004-05) I.T.A .NO.-3668/D EL/2013 (A.Y 2005-06) I.T.A .NO.-3669/D EL/2013 (A.Y 2006-07) D CIT RANGE-37 NEW DELHI (APPELLANT) VS REMFRY & SAGAR 8, NANGAL RAYA BUSINESS CENTRE NAGAL RAYA NEW DELHI AAEFR6753P (RESPONDENT) I.T.A .NO.-367/D EL/2012 (A.Y 2008-09) ACIT CIRCLE-37(1) ROOM NI. 401, N-BLOCK, VIKAS BHAWAN, I. P. ESTATE NEW DELHI (APPELLANT) VS REMFRY & SAGAR REMFRY HOUSE, MILLENIUM PLAZA, SECTOR-27 GURGAON AAEFR6753P (RESPONDENT) I.T.A .NO.-4680/ DEL/2012 (A.Y 2009-10) ACIT CIRCLE-37(1) ROOM NI. 401, N-BLOCK, VIKAS BHAWAN, I. P. ESTATE NEW DELHI (APPELLANT) VS REMFRY & SAGAR 8, NANGAL RAYA BUSINESS CENTRE NAGAL RAYA NEW DELHI AAEFR6753P (RESPONDENT) ASSESSEE BY SH. AJAY VOHRA, SR. ADV, SH. GAURAV JAIN & SH. ADITYA VOHRA, ADVS. REVENUE BY SH. G. C. SRIVASTAVA, SPL. COUNSEL ORDER PER BENCH ITA NOS. 1561/DEL/2011 & 1084/DEL/2014 ARE FILED BY THE ASSESSEE. I.T.A NOS.-3667/DEL/2013, 3666/DEL/2013, 3668/DEL/2 013, 3669/DEL/2013, 367/DEL/2012 & 4680/DEL/2012 ARE FILED BY THE REVENUE. THE ISSUE IN ALL THESE APPEALS IS COMMON. HENCE FOR THE SAKE OF CONVENIENCE THESE APPEALS ARE HEARD TOGETHE R AND DISPOSED OF BY THIS COMMON ORDER. BOTH PARTIES SUBMITTED THAT, ITA 1561/ DEL/2011 FIL ED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08 AGAINST TH E CIT(A)S XXVIII, NEW DELHI DATED 14/2/2011 IS THE LEAD CASE AND HENCE WE SHALL FIRST DEAL WITH IT. DATE OF HEARING 10.06.2016 DATE OF PRONOUNCEMENT 06.09.2016 2. THE GROUNDS OF APPEAL IN THE MAIN/LEAD APPEAL IT A NO. 1561/DEL/2011 ARE AS FOLLOWS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN:- 1. SUSTAINING THE DISALLOWANCE OF LICENSE FEES OF RS.22,51,33,484/- PAYABLE BY THE APPELLANT FIRM TO REMFRY & SAGAR CONSULTANTS (P) LTD. (RSCPL) FOR USE OF GOODW ILL IN REMFRY & SAGAR FOR THE PURPOSE OF THE PROFESSION OF THE FIRM. 2. HOLDING THAT THE LICENSE FEE PAID BY THE APPELLA NT FIRM TO RSCPL IS NOT BUSINESS EXPENDITURE ALLOWABLE UNDER S ECTION 37 OF THE INCOME TAX ACT, 1961 AND IGNORING THAT THE L ICENSE FEE WAS PAID PURSUANT TO A VALID AGREEMENT AND HAD DIRE CT NEXUS TO THE INCOME OF THE APPELLANT FIRM. 3. HOLDING THAT THE AGREEMENT TO PAY LICENSE FEE IS A SHAM AND THE TRANSACTION IS A COLORABLE ONE FOR EVADING TAXE S EVEN THOUGH IT WAS PROVED TO HIM THAT IF THE TRANSACTION IS CON SIDERED AS A WHOLE THERE WAS NO LOSS OF REVENUE. 4. HOLDING THAT PAYMENT OF LICENSE FEE TO RSCPL IS A COLOURABLE TRANSACTION UNDERTAKEN WITH A VIEW TO REDUCE TAXES, WHEREAS THE FACT IS THAT THE ENTIRE LICENSE FEE PAID TO RSC PL HAS BEEN OFFERED TO TAX BY RSCPL AND HENCE THERE IS NO LOSS OF REVENUE WHATSOEVER. 5. PERVERSELY IGNORING THE FACT THAT THE APPELLANT FIRM AND RSCPL TOGETHER HAVE PAID RS.20,86,47,812/- AS TAXES WHERE AS THEY WOULD HAVE PAID RS.20,63,59,286/- AS TAXES IF THE L ICENSE FEE HAD NOT BEEN PAID; THE REVENUE HAS THEREBY GAINED RS.22,28,526. HENCE, THE ALLEGATION BY THE LD. CIT (A) THAT THE PURPOSE OF PAYING THE LICENSE FEE WAS TO REDUCE THE INCOME OF THE FIRM IS CLEARLY UNWARRANTED AND MISLEADING AND NOT BORNE OUT FROM THE FACTS ON RECORD. 5. PERVERSELY IGNORING THE FACT THAT THE APPELLANT FIRM AND RSCPL TOGETHER HAVE PAID RS.20, 86,47,812/- AS TAXES WHER EAS THEY WOULD HAVE PAID RS.20,63,59,286/- AS TAXES IF THE L ICENSE FEE HAD NOT BEEN PAID; THE REVENUE HAS THEREBY GAINED RS.22,28,526/-. HENCE, THE ALLEGATION BY THE LD. C IT(A) THAT THE PURPOSE OF PAYING THE LICENSE FEE WAS TO REDUCE THE INCOME OF THE FIRM IS CLEARLY UNWARRANTED AND MISLEADING AND NOT BORNE OUT FROM THE FACTS ON RECORD. 6. SUSTAINING THE DISALLOWANCE OF LICENSE FEE IN TH E HANDS OF APPELLANT FIRM THEREBY TAXING THE SAME AMOUNT TWICE OVER; ONCE BY TAXING IT AS INCOME IN THE HANDS OF RSCPL AND, A GAIN BY DISALLOWING THE EXPENDITURE FOR ALLEGED TAX AVOID ANCE IN THE HANDS OF THE APPELLANT FIRM RESULTING IN DOUBLE JEO PARDY/TAXING THE SAME AMOUNT TWICE OVER. THIS IS STRICTLY NOT P ERMISSIBLE IN LAW. 7. ALLEGING THAT THE TRANSACTION IN QUESTION IS A C OLOURABLE DEVICE FOR EVASION OF TAX WITHOUT ANY BASIS. 8. HOLDING THAT GOODWILL IN REMFRY AND SAGAR IS S YNONYMOUS WITH THE PERSONA OF DR. V. SAGAR, WHEREAS IN FACT I T EMBODIES A PRACTICE ESTABLISHED IN 1827 WITH WHICH HUNDREDS OF ATTORNEYS, SCIENTISTS, PATENT AGENTS AND OTHER EXPERTS IN PATE NTS, TRADEMARKS AND COPY RIGHT HAVE BEEN ASSOCIATED TO S ERVICE MORE THAN 7000 CLIENTS SPREAD ALL OVER THE WORLD. 9. HOLDING THAT THE GIFT OF GOODWILL MADE BY ITS OW NER DR. V. SAGAR TO RSCPL IN JUNE, 2001 BY WAY OF GIFT DEED, ACCEPTE D AS SUCH BY THE DEPARTMENT BOTH IN THE CASE OF THE APPELLANT FIRM AND RSCPL, WAS NOT A VALID GIFT. 10. PERVERSELY AND PARTIALLY QUOTING SELECTIVE AND OUT OF CONTEXT OBSERVATIONS OF BOMBAY HIGH COURT IN VODAFONE INTER NATIONAL AND OF SPECIAL BENCH OF THE TRIBUNAL IN WALLFORT SH ARE & STOCK BROKERS AND THEN MISAPPLYING THOSE JUDGMENTS TO THE FACTS OF THE CASE. 11. PERVERSELY IGNORING THE JUDGMENTS OF THE APEX C OURT IN AZADI BACHAO ANDOLAN (263 ITR 706), CIT VS. WALFORT SHARE S & STOCK BROKER (326 ITR 1) AND CIT VS. M/S GLAXO SMITH KLIN E ASIA (P) LTD. [APPEAL (CIVIL) NO. 18121/2007] WHICH WERE SPE CIALLY BROUGHT TO HIS NOTICE. 12. ACTING PERVERSELY BY REFUSING TO ADMIT EVIDENCE IN THE FORM OF VALUATION REPORTS OF THE GOODWILL IN REMFRY AND SA GAR OBTAINED PERIODICALLY BY THE ASSESSEE FROM INDEPENDENT EXPER TS DESPITE THE FACT THAT THESE VALUATION REPORTS WERE REFERRED O IN THE SUBMISSIONS BEFORE THE ASSESSING OFFICER AND SPECIF ICALLY CALLED FOR PRODUCTION BY THE LD. CIT (A) U/S 250(4) OF THE ACT. 13. THAT THE A.O/ACIT ERRED IN CONFIRMING THE LEVY OF INTEREST U/S 234B & 234D OF THE INCOME-TAX ACT, 1961. 14. THAT THE A.O/ACIT ERRED IN INITIATING PENALTY P ROCEEDING U/S 271(1) (C) OF THE ACT. 15. THE APPELLANT RESERVES ITS RIGHT TO ADD OR AMEN D THE GROUNDS OF APPEAL AS AND WHEN NECESSITATED. 3. THE FACTS OF THE CASE ARE AS UNDER:- 3.1 THE ASSESSEE M/S REMFY & SAGAR IS A PARTNERS HIP FIRM PROVIDING LEGAL SERVICE. IT DESCRIBES ITSELF AS A LEADING LAW FIRM SPECIALIZING IN INTELLECTUAL PROPERTY AND CORPORATE LAWS. IT IS A FULL- SERVICE INTELLECTUAL PROPERTY FIRM ENGAGED INTER AL IA IN, ADVISING CLIENTS WORLDWIDE ON THEIR TRADEMARKS, PATENTS, DES IGNS, COPYRIGHT, GEOGRAPHICAL INDICATIONS, DOMAIN NAMES AND UNFAIR C OMPETITION ISSUES. 3.2 A BRITISH IMMIGRANT, MR. HENRY OLIVER REMFRY ES TABLISHED THE SOLE PROPRIETORSHIP FIRM UNDER THE NAME AND STYLE O F GRANT AND REMFRY IN THE YEAR 1827 IN THE FIELD OF INTELLECTU AL PROPERTY. HE OPERATED BOTH AS A SOLE PROPRIETOR AS WELL AS IN PA RTNERSHIP UNDER VARIOUS NAMES. THESE SOLE PROPRIETORSHIP AND PARTN ERSHIPS CONTINUED TO BE RUN BY 5 GENERATIONS OF REMFRYS UN TIL THE YEAR 1957. THEREAFTER FOUR ENGLISHMEN, JOINED AS PARTNE RS. ON 31/3/1972 TWO PARTNERS RETIRED AND MR. HOLLOWAY, MR S. SILVERSTONE AND MRS. REMFRY ENTERED INTO A FRESH DEED OF PARTNE RSHIP. ON 4/4/1973, MR. HOLLOWAY AND MRS. SILVERSTONE TRANSFE RRED ABSOLUTELY, BY WAY OF SALE, TO DR. V. SAGAR THE BUS INESS ALONG WITH THE GOODWILL IN REMFRY AND SON. MR. V. SAGAR BEC AME THE SOLE AND ABSOLUTE PROPRIETOR OF THIS BUSINESS OF REMFRY & S ON ALONG WITH THE GOODWILL ATTACHED TO IT. HE CONTINUED THE BUSI NESS OF REMFRY & SON TILL 31 ST OF DECEMBER 1989. 3.3 PRIOR TO THE ACQUISITION OF REMFRY & SON, DR. V. SAGAR WAS A PRACTICING ATTORNEY UNDER THE NAME AND STYLE OF SA GAR & CO. ON 1/1/1990 DR. V. SAGAR MERGED HIS OWN PRACTICE INTO REMFRY & SON, AND CHANGED THE NAME OF THE PROPRIETORSHIP CO NCERN TO REMFRY & SAGAR. THIS SOLE PROPRIETARY CONCERN CO NTINUED TO RENDER SERVICES IN THE FIELD OF INTELLECTUAL PROPER TY LAWS TILL THE YEAR 2001. 3.4 THE ASSESSEE STATES THAT, IN THE YEAR 2001, DR. V. SAGAR STARTED GETTING ON IN YEARS HE WAS 75 YEARS OLD AT THAT TIME AND IT BECAME HIS PRIME CONCERN TO SAFEGUARD AND MAINTAIN THE GOODWILL, WHICH HAD BEEN SO AS STUDIOUSLY BUILT UP FOR OVER 1 84 YEARS, BY SUCCESSIVE GENERATIONS. IT IS STATED THAT UNDER EX PERT LEGAL ADVICE, IT WAS THOUGHT FIT TO SAFEGUARD AND INSTITUTIONALIZ E THE GOODWILL IN REMFRY & SAGAR FOR PERPETUITY. VARIOUS LEGAL OPTI ONS WERE EXAMINED AND WITH AN INTENTION OF SEGREGATING THE G OODWILL IN REMFRY & SAGAR FROM THE ATTORNEYS (INCLUDING DR. V. SAGAR), AND FOR INSTITUTIONALIZING THE GOODWILL IN PERPETUITY B Y WAY OF CORPORATIZATION, A DEED OF GIFT WAS EXECUTED ON 1/6 /2001 BY DR. SAGAR IN FAVOUR OF REMFRY & SAGAR (CONSULTANTS PRI VATE LTD HEREINAFTER REFERRED TO AS (RSCPL) WHEREBY THE GO ODWILL IN REMFRY & SAGAR WAS GIFTED TO A NEWLY INCORPORATED JURIDIC AL/LEGAL ENTITY RSCPL. 3.5 THEREAFTER DR. V. SAGAR ON 5 TH JUNE, 2001 ENTERED INTO A PARTNERSHIP WITH MR. P. SAMPATH KUMAR, MR. ASHWIN J ULKA, MR. PAMIT NAGPAL AND MR. PREM SEWAK. THIS PARTNERSHIP FIRM ENTERED INTO AN AGREEMENT DATED 5/6/2011 WITH RSCPL FOR GRA NT OF LICENSE FOR THE USE OF GOODWILL OF REMFRY & SAGAR SUBJECT TO PAYMENT OF LICENSE FEE @ 25% OF THE AMOUNT OF BILLS RAISED. T HE AGREEMENT WAS VALID FOR THE TERM OF 5 YEARS. THIS AGREEMENT WAS REVISED AND RENEWED W.E.F 1/4/2008 AND UNDER THE RENEWED ARRANG EMENT, LICENSE FEE WAS PAYABLE @ 28% OF THE AMOUNT OF BILL S RAISED. THE ASSESSEE FIRM IN ALL THESE YEARS UNDER APPEAL FILED PAID THE LICENSE FEE AS A PERCENTAGE OF GROSS RECEIPTS AND CLAIMED T HE SAME AS AN EXPENSE. 3.6 THE PRIMARY ISSUE BEFORE US IS WHETHER THE ASSE SSING OFFICER WAS RIGHT IN DISALLOWING THE DEDUCTION OF LICENSE F EE PAID BY THE ASSESSEE TO RSCPL AS PER THE AGREEMENT OF LICENSE F OR THE USE OF GOODWILL IN THE REMFRY & SAGAR. THERE ARE CERTAIN OTHER SMALL ISSUES THAT ARISE IN OTHER YEARS WHICH WE WOULD BE DEALING WITH AS AND WHEN NECESSARY. 3.7 THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER D ATED 30/12/2009 PASSED UNDER SECTION 143(3) OF THE ACT F OR THE ASSESSMENT YEAR 2007-08, DISALLOWED FOR THE FIRST T IME, LICENSE FEE PAID BY THE ASSESSEE TO RSCPL FOR THE USE OF GOODWI LL ON THE GROUND THAT, THE ENTIRE TRANSACTION WAS A COLOURABLE DEVIC E ADOPTED TO TRANSFER PROFITS OF THE ASSESSEE FIRM TO THE FAMILY MEMBERS OF DR. V. SAGAR, WHO HELD MAJORITY SHARES IN RSCPL AND TO EVA DE TAX. THE OBSERVATIONS OF THE A.O ARE AS FOLLOWS: A) GOODWILL OF THE LAW PRACTICE DID NOT BELONG TO R SCPL AS IT HAS NO CAPABILITY; B) NO ACTIVITY WAS CARRIED OUT BY RSCPL TO ENHANCE THE GOODWILL OF THE LAW PRACTICE IN THE NAME OF THE REMFRY & SAGAR C) THE GOODWILL, IF ANY, WAS OF DR. V. SAGAR WHICH COULD NOT HAVE BEEN SEPARATED FROM HIM, MUCH LESS BY WAY OF GIFT T O M/S RSCPL AND D) DR. V. SAGAR WAS ENJOYING THE BENEFITS OF THIS G OODWILL BY BEING A MAJORITY PARTNER, HAVING HIGHER PROFIT-SHARING RATI O, IN THE ASSESSEE PARTNERSHIP FIRM AND ENJOYING OTHER ADDITIONAL BENE FITS, LIKE CONTROLLING RIGHTS ETC. 3.8 THE ASSESSING OFFICER, FOR THE VERY SAME REASON S, DISALLOWED THE LICENSE FEE PAID FOR ALL THE SUBSEQUENT ASSESSM ENT YEARS I.E. A.Y. 2008-09 AND 2010-11. THE ASSESSMENTS FOR THE ASSESS MENT YEAR 2000-01 TO 2006-07 WERE REOPENED AND THE LICENCE FE E PAID WAS DISALLOWED. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY FOR THE ASSESSMENT YEAR 2007-08 AND 2010- 11 UPHELD THE ORDERS PASSED BY THE ASSESSING OFFICER, FOR THE VAR IOUS REASONS GIVEN IN THOSE ORDERS. HOWEVER, FOR THE ASSESSMENT YEARS 2003-04 AND 2006-07 AND FOR THE ASSESSMENT YEAR 2008-09 AND 2009-10, THE FIRST APPELLATE AUTHORITY DELETED THE AFORESAID DISALLOWANCE MADE BY THE ASSESSING OFFICER. AGGRIEVED BOTH THE ASSES SEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US FOR ALL THERE ASSES SMENT YEARS. 5. THE LD. COUNSEL FOR THE ASSESSEE, MR. AJAY VOHRA , SR. ADVOCATE SUBMITTED THAT THE COMMON ISSUE IN DISPUTE IN ALL T HESE APPEALS IS WITH REGARD TO THE DISALLOWANCE OF LICENSE FEES PAI D BY THE ASSESSEE FIRM TO REMFRY & SAGAR CONSULTANTS PVT. LTD. (RSCPL ) FOR LICENSE TO PRACTICE IN THE NAME OF REMFRY & SAGAR AND FOR US E OF THE SAID NAME/TRADE MARK AND GOODWILL. 5.1. THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE IS A FULL SERVICE INTELLECTUAL PROPERTY BOUTIQUE FIRM ENGAGED INTER A LIA IN ADVISING THE CLIENTS WORLDWIDE ON THEIR TRADEMARKS, PATENTS, DESIGNS, COPYRIGHT, GEOGRAPHICAL INDICATIONS, DOMAIN NAMES A ND UNFAIR COMPETITION ISSUES. AFTER DISCUSSING THE DATES AND EVENTS, THE LD. COUNSEL POINTED OUT THAT THE ORIGIN OF THE FIRM WAS IN THE YEAR 1827. 5.2. HE SUBMITTED THAT THERE ARE FOUR POINTS TO BE LOOKED INTO IN RESPECT OF GOODWILL ASPECT. THESE ARE: (I) GOODWILL IS AN INTANGIBLE ASSET DEVELOPED OVER A PERIOD OF TIME, DUE TO DISTINCT REPUTATION GAINED ON ACCOUNT OF SEVERAL FACTOR, LIKE, QUALITY OF SERVICE, CONNECTIO N WITH CLIENTS/CUSTOMER ETC, TOGETHER WITH THE CIRCUMSTANC ES WHICH MAKE THE CONNECTION DURABLE; (II). GOODWILL CAN BE ALIENATED; (III). GOODWILL IN CASE OF A PARTNERSHIP FIRM ORDIN ARILY, ATTACHES TO THE FIRM AND CONSTITUTES PROPERTY OF TH E FIRM IN WHICH EACH PARTNERS HAS A SHARE. HE SUBMITTED THAT PARTNERS CAN AGREE THAT THE GOODWILL MAY VEST IN ONE OR MORE PARTNERS OF THE FIRM TO THE EXCLUSION OF THE OTHERS. (IV) GOODWILL SURVIVES THE DEATH OF THE ORIGINAL PARTNERS/FOUNDER AND THE DEATH OF DR. V. SAGAR HAS NOT AFFECTED THE BUSINESS OF THE FIRM WHICH HAS BEEN GR OWING EVEN AFTER HIS DEMISE. 5.3. THAT THE PROFESSIONAL FIRMS IN THE PRESENT DAY , ACROSS THE GLOBE, ENJOY GOODWILL, AND ARE BEING CONTINUED TO B E RUN IN THE NAME OF THE ORIGINAL FOUNDERS, DESPITE THE FACT THA T THE FOUNDING FATHERS ARE NO LONGER PART OF THE PRACTICE. FOR EX AMPLE, MULLA & MULLA, LITTLE & CO. ERNST & YOUNG, ETC. 5.4. THAT DR. V. SAGAR IS ENTITLED TO GIFT A GOODWI LL TO RSCPL. HE FURTHER SUBMITTED THAT THE GOODWILL OF THE FIRM RE MFRY & SONS WAS WITH MR. HOLLOWAY AND MRS. SILVERSTONE & NOT WITH M RS. REMFRY, WHO WAS AN INACTIVE PARTNERS, BY VIRTUE OF A PARTNE RSHIP DEED ENTERED IN THE YEAR 1970. THESE TWO PERSONS WERE E NTITLED AND EMPOWERED TO SELL, ALL OR ANY OF THE ASSETS OF THE PARTNERSHIP FIRM, INCLUDING THE NAME AND GOODWILL OF THE BUSINESS. T HE BUSINESS IN THE NAME OF REMFRY & SONS, WAS ACQUIRE BY DR. V. SAGAR IN THE YEAR 1973 FOR VALUABLE CONSIDERATION AND THIS DEMON STRATES THAT THE GOODWILL OF THE FIRM WAS AN INTANGIBLE ASSET, CAPAB LE OF ALIENATION. THEREAFTER DR. V. SAGAR CARRIED ON THE SAID BUSINES S UNDER THE NAME AND STYLE OF REMFRY & SONS BETWEEN 1973 TO 1 990 AS A SOLE PROPRIETOR. THEREAFTER ON MERGER OF HIS OWN PRACTIC E AS SOLE PROPRIETOR IN THE NAME OF SAGAR & CO. IN THE YEAR 1990 AND CARRIED ON PRACTICE IN THE NAME OF REMFRY & SAGAR. 5.5. MR. VOHRA, ARGUED THAT THE GOODWILL ATTACHED T O THE NAME REMFRY & SAGAR VESTED EXCLUSIVELY IN DR. V. SAGAR WHO HAD LEGITIMATELY TRANSFERRED/GIFTED THIS GOODWILL, ATTA CHING TO THE NAME OF REMFRY & SAGAR AND ALL THE RIGHTS ASSOCIATED T HEREWITH (INCLUDING INTELLECTUAL PROPERTY RIGHTS) TO RSCPL I N THE YEAR 2001. 5.6. THERE IS NO BAR UNDER THE ADVOCATES ACT, 1961 OR ANY OTHER LEGISLATION FOR GOODWILL ATTACHING TO A PROFESSIONA L PRACTICE TO BE OWNED BY AN INDEPENDENT ENTITY OTHER THAN THE PROPR IETOR/PARTNERS CARRYING ON THE PROFESSIONAL PRACTICE. 5.7. THE GOODWILL AND THE RIGHTS ASSOCIATED THEREWI TH REMFRY AND SAGAR HAVE BEEN LEGALLY VESTED IN RSCPL. THE COMP ANY WAS, IN LAW ENTITLED TO LICENSE THE SAID GOODWILL, IN ORDER TO PRACTICE IN THE NAME OF REMFRY & SAGAR AND TO ENJOY THE GOODWILL ASSOCIATED THEREWITH, THE ASSESSEE HAD NECESSARILY TO OBTAIN T HE RIGHT TO USE THEREOF AGAINST PAYMENT OF CONSIDERATION. 5.8. HE LISTED OUT THE ESSENTIAL CONDITIONS OF THE NEWLY CONSTITUTED PARTNERSHIP AND SUBMITTED THAT EVEN IF IT IS ASSUME D FOR THE SAKE OF ASSUMPTION THAT DR. V. SAGAR HAD NOT ALIENATED GOOD WILL TO RSCPL IN 2001, IT WAS NOT OBLIGATORY ON DR. V. SAGAR TO L ET THE FIRM PRACTICE IN THE NAME OF REMFRY & SAGAR AND EXPLOIT THE GOO DWILL ATTACHING THERETO, WITHOUT PAYMENT OF CONSIDERATION OR TO PRO VIDE THAT THE GOODWILL WOULD BELONG TO THE PARTNERSHIP AND/OR THE SURVIVING PARTNERS ON HIS DEMISE. THAT EVEN IF DR. V. SAGAR HAD INTRODUCED THE GOODWILL IN THE FIRM, AS HIS PERSONS GOODWILL T O BE EXPLOITED BY THE FIRM ON PAYMENT OF LICENSE FEE, EVEN IN THAT HY POTHETICAL SITUATION, THE FIRM WOULD NECESSARILY HAVE TO PAY D R. V. SAGAR, (IN HIS INDIVIDUAL CAPACITY), FEE FOR LICENSE TO USE FI RMS NAME AND GOODWILL. 5.9. THAT PERSONAL GOODWILL OF DR. V. SAGAR WOULD N OT BECOME PROPERTY OF THE FIRM AND NO OTHER PARTNERS COULD HA VE CLAIMED ANY RIGHT IN SUCH GOODWILL. UPON THE DEMISE OF DR. V. SAGAR (ASSUMING THE GOODWILL WAS NOT ALIENATED), GOODWILL VESTING E XCLUSIVELY IN DR. V. SAGAR WOULD HAVE DEVOLVED ON HIS LEGAL HEIRS AND THE PARTNERSHIP AND/OR THE SURVIVING PARTNERS COULD NOT CLAIM AND R IGHT THERETO. 5.10. THAT AS THE ASSESSEE FIRM COULD NOT HAVE PR ACTICED IN THE NAME OF REMFRY & SAGAR AND ENJOYED THE GOODWILL A SSOCIATED THEREWITH, THE PAYMENT OF LICENSE FEE WAS INCURRED DUE TO COMMERCIAL EXPEDIENCY AND THUS, EXPENDITURE IS INCU RRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF PROFESSION AND H ENCE WAS AN ALLOWABLE DEDUCTION IN TERMS OF SECTION 37(1) OF TH E ACT. THAT IT IS WELL SETTLED THAT PAYMENT MADE FOR EXCLUSIVE LICENS E TO MANUFACTURE AND SELL PRODUCTS IN INDIA USING TECHNOLOGY AND KNO W-HOW LICENSED BY THE LICENSOR ARE ALLOWABLE AS BUSINESS EXPENDITU RE. ON THE SAME ANOLOGY THIS EXPENDITURE IS ALLOWABLE. 5.11. ON THE FINDING OF THE ASSESSING OFFICER THA T GOODWILL IS ATTACHED TO THE PERSONA OF DR. V. SAGAR, IT WAS SUB MITTED THAT SINCE INCEPTION OF THE PRACTICE IN 1827, THERE HAVE BEEN LOT OF CHANGES IN THE PARTNERS OF THE FIRM, WHICH FORM TIME TO TIME, VARIED FROM 20 PARTNERS TO EVEN 100 PARTNERS. HE SUBMITTED THAT T HE GOODWILL BELONGED TO THE PATENT/IPR PRACTICE CARRIED ON OVER A PERIOD OF 175 YEARS WHICH WAS REPRESENTED IN THE NAME OF REMFRY & SAGAR, WHICH LEGALLY VESTED IN RSCPL, SUBSEQUENT TO TRANSF ER IN 2001. THUS, IT IS ARGUED THAT THE GOODWILL OF THE PRACTIC E WAS NOT IDENTIFIABLE WITH ANY PARTICULAR PARTNER. 5.12. IT WAS FURTHER SUBMITTED THAT AFTER THE DEMI SE OF DR. V. SAGAR IN FEBRUARY, 2011, THE INCOME AND TURNOVER OF THE FIRM INCREASED, YEAR AFTER YEAR AND THIS DEMONSTRATES TH AT THE GOODWILL IS NOT ASSOCIATED WITH THE PERSONA DR. V. SAGAR. 5.13. THAT THE ASSESSING OFFICER WAS WRONG IN COMI NG TO A CONCLUSION THAT THE GIFT OF GOODWILL BY DR. V. SAGA R IN FAVOUR OF RSCPL AND THE ASSESSEE OBTAINING RIGHT TO USE SUCH GOODWILL FROM RSCPL IN CONSIDERATION OF PAYMENT OF LICENSE FEE AR E LEGALLY VALID AND BINDING TRANSACTIONS AND THAT THE QUESTION OF T HE SAME BEING COLOURABLE TRANSACTIONS ENTERED INTO TO EVADE TAXES , DOES NOT ARISE. HENCE, THE ALLEGATIONS ARE WITHOUT ANY BASIS. MR. AJAY VOHRA, ALSO RELIED UPON VARIOUS CASE LAW. WE WILL BE REFERRING TO THE SAME AS AND WHEN NECESSARY. HE PRAYED THAT THE DISALLOWANCE BE DELETED AND THE APPEAL OF THE ASSESSEE BE ALLOWED. 6. THE LD. SPECIAL COUNSEL FOR THE REVENUE SHRI G. C. SHRIVASTAVA ON THE OTHER HAND OPPOSED THE SUBMISSIO NS OF MR. VOHRA. HE ARGUED THAT: 6.1. DR. V. SAGAR STARTED CARRYING ON THE PRACTICE AND PROFESSION OF ATTORNEY-AT-LAW WITH SPECIALIZATION IN THE AREAS OF INTELLECTUAL PROPERTY LAW AND CORPORATE LAW UNDER THE NAME AND S TYLE OF REMFRY & SAGAR, AT NEW DELHI I.E IN THE NATIONAL CAPITAL REGION AND AT MUMBAI SINCE 1973 AS A SOLE PROPRIETOR. MR. REMFRY, IN THE YEAR, 1827 STARTED HIS BUSINESS OF PATENT AND TRADE MARK AGENTS UNDER THE NAME AND STYLE OF REMFRY & /SON. MR. R EMFRY WAS NOT IN THE PRACTICE OF LAW BUT WAS IN THE BUSINESS OF T RADEMARK AND PATENT AGENTS. DR. V. SAGAR AFTER PURCHASING THIS BUSINESS IN THE YEAR 1973, DID NOT CARRY ON THE OLD BUSINESS OF PAT ENT & TRADE MARK AGENCY, BUT CARRIED ON THE SAME AS PART OF HIS LEGAL PRACTICE OF ATTORNEYS AT LAW IN THE NAME OF REMFRY & SAGAR . 6.2. THE FACTUAL ASPECT IS THAT THE LEGAL PROFESSIO N IN THE PROPRIETARY NAME OF REMFRY & SAGAR CARRIED ON BY DR. V. SAGAR WAS A PRACTICE IN LAW WITH ALL ITS ATTENDANT FUNCTI ONS AND RESPONSIBILITIES. IT WAS NOT A CONTINUATION OF THE AGENCY BUSINESS CARRIED OUT EARLIER BY REMFRY & SONS. 6.3. THAT THE DEED OF GIFT EXECUTED BY DR. V. SAGAR ON 1 ST JUNE, 2011 IN FAVOUR OF RSCPL RECORDS THAT THE GIFT WAS M ADE TO ENSURE CONTINUITY OF THE SAID PRACTICE. THE PARTNERSHIP F IRM WAS CONSTITUTED ON 5 TH JUNE 2001 BY DR. V. SAGAR AND HIS ERSTWHILE ASSOCIATES IN THE PRACTICE OF ATTORNEY-AT-LAW UNDER THE NAME AND STYLE OF REMFRY & SAGAR. 6.4. DR. V. SAGAR ALSO SOLD TO RSCPL, THE ENTIRE IN FRASTRUCTURE OF THE SAID PRACTICE IN THE FORM OF OFFICE EQUIPMENT A ND FACILITIES INCLUDING THE LIBRARY. 6.5. RSCPL IN TURN MADE AVAILABLE THIS INFRASTRUCTU RE TO THE ASSESSEE BY WAY OF A SEPARATE AGREEMENT FOR SPECIFI ED FEE. THE PARTNERSHIP WAS DEPENDENT UPON THE LICENSE FOR THE USE OF GOODWILL GIVEN BY RSCPL AND THE AGREEMENT FOR USE OF INFRAST RUCTURE AND OFFICE ETC. 6.6. THAT THE AGREEMENT CLEARLY STIPULATED THAT T HE LICENSE AGREEMENT, THE DEED OF PARTNERSHIP, THE AGREEMENT F OR USE OF INFRASTRUCTURE AND THE AGREEMENT FOR SUPPORT SERVIC ES WERE ALL AN INTEGRAL PART. 6.7. THE ASSESSEE HAS CLAIMED DEDUCTION OF HIS LICE NSE FEE PAID TO RSCPL, U/S 37 OF THE ACT AND HENCE, THE ALLOWABILIT Y OR OTHERWISE OF EXPENDITURE WOULD DEPEND ON THE FULFILLMENT OF THE CONDITIONS LAID DOWN IN SECTION 37 OF THE ACT. THE PROVISIONS CONT AINED IN SECTION 37(1) STIPULATE THAT ANY EXPENDITURE, NOT BEING A C APITAL EXPENDITURE OF THE ASSESSEE, LAID OUT WHOLLY AND EX CLUSIVELY FOR THE PURPOSES OF BUSINESS OR PROFESSION SHALL BE ALLOWED AS A DEDUCTION. 6.8. THAT THE PURPOSE TEST CONTEMPLATED IN SECTION 37 OF THE ACT SHOULD BE APPLIED AND FOR THE SAME, THE EVENTS THAT UNFOLDED IN THE YEAR 2001 HAVE TO BE EXAMINED. THUS HE ARGUED THAT THE CORRECTNESS OF THE SO CALLED TRANSFER/GIFT OF GOODW ILL AND ITS LICENSE BACK TO DR. V. SAGAR IN THE YEAR 2001 HAS TO BE EXA MINED. 6.9. THE SON AND DAUGHTER OF DR. V. SAGAR DO NOT HA VE THE REQUISITE QUALIFICATION TO CARRY ON THE PROFESSION OF LAW AND THE NEW FIRM IS FOUND ONLY TO CONTINUE THE PRACTICE OF LAW WHICH WA S CARRIED ON EARLIER BY DR. V. SAGAR AS A PROPRIETOR. HENCE RSC PL WHICH HAS NO RIGHTS WHATSOEVER TO CARRY ON THE PROFESSION OF LAW , CANNOT LICENSE THE SAME TO THE ASSESSEE FIRM. 6.10. RSPCL HAS DONE NOTHING TO DEVELOP OR MAINTAI N THE GOODWILL OF THE LEGAL PRACTICE. THE PAYMENT OF LIC ENSE FEES HAS INCREASED FROM YEAR TO YEAR. 6.11. GOODWILL OF A BUSINESS AND THE GOODWILL OF A LAW PRACTICE OR A PROFESSIONAL ARE ENTIRELY DIFFERENT. IN CASE OF LEGAL PRACTICE, THE VALUE DEPENDS SOLELY ON ACCOUNT OF CAPABILITIES AND SKILLS OF A PERSONS CARRYING OUT THE LEGAL PRACTICE. THUS, AT TEMPT TO SEPARATE THE GOODWILL OF A LAW FIRM, FROM THE LEGAL PRACTICE IS A COLOURABLE DEVICE. THUS, NOTHING ACTUALLY CHANGED AND DR. V. SAGAR CONTINUED TO PRACTICE AS BEFORE EXCEPT THE FACT THAT HIS ASSO CIATES BECAME HIS PARTNERS. 6.12. THE PAYMENT OF LICENSES FEE WAS NOT FOR ANY PURPOSES OF PROFESSION BUT SOLELY ON ACCOUNT OF RELATIONSHIP OF DR. V. SAGAR WITH THE OWNERS OF RSCPL. 6.13. LOSS OF REVENUE CANNOT BE A GROUND FOR ALLOW ABILITY OR OTHERWISE OF A CLAIM OF AN EXPENSE. 6.14. IT DOES NOT STAND TO REASON, WHY THE ASSESSE E SHOULD PAY SOMEONE ELSE FOR THE GOODWILL WHICH WAS CREATED BY THEM, BELONGED TO THEM AND NEVER DERIVED FROM THE LEGAL PRACTICE T HEY CARRIED ON RSCPL HAD NO OTHER ALTERNATIVE BUT TO LEASE BACK TH E GOODWILL TO DR. V. SAGARS FIRM AS ALL THESE ARRANGEMENTS ADMITTEDL Y CONSTITUTED AN INTEGRAL PART. 6.15. GOODWILL IS A CURRENT RIGHT BUT IT CAN HAVE VALUE WHEN THE BUSINESS IS TRANSFERRED AND IT IS AN INTANGIBLE ASS ET TO A BUSINESS. 6.16. IN THE CASE OF A PROFESSIONAL OR PERSONAL SE RVICE PARTNERSHIPS, GOODWILL IS LIKELY TO BE PERSONAL TO THE PARTNERS INDIVIDUALLY AND THEREFORE INCAPABLE OF TRANSFER. HE RELIED ON CERTAIN JUDGMENTS OF FOREIGN COURTS FOR THE PREPOSI TION THAT GOODWILL OF A LAW FIRM MAY NOT BE SOLD OR TRANSFERRED FOR A VALUABLE CONSIDERATION BECAUSE OF ETHICAL REASONS. HE RELIE D ON THE LEGAL ETHICS BY DRINKER FOR THE PREPOSITION THAT A LAW YERS CLIENTS ARE NOT MERCHANDISE, NOR IS A LAW PRACTICE THE SUBJECT OF BARTER. LEGALLY AND ANALYTICALLY, THE SALE OF A LAW PRACTIC E IS MORE THAN A SUM OF MONEY AND BOOKS FOR A LIBRARY. 6.17. GOODWILL OF A LAW PRACTICE ONCE DIVESTED OF THE LEGAL PROFESSION IS OF NO VALUE AND IF ARTIFICIALLY SEPAR ATED AND TRANSFERRED, THE ENTIRE VALUE WOULD BE LOST, BECAUS E OF THE LOSS OF REPUTATION AND THE CLIENT BASE. 6.18. THE SON AND DAUGHTER OF DR. V. SAGAR WHO FOR MED THE COMPANY WERE NOT ENTITLED TO CARRY ON THE LEGAL PRO FESSION U/S 29 OF THE ADVOCATES ACT, 1961. NEITHER DID THE LEGAL P ROFESSION WAS OWNED OR RETAINED OR DEVELOPED OR PUT TO ANY USE BY THE COMPANY I.E RSCPL. ONLY ARTIFICIAL RIGHTS HAVE BEEN CREATE D IN THIS CASE. OWNERSHIP IS RECOGNIZED ONLY WHEN RIGHT TO EXERCISE THE IP RIGHTS EXISTS. RSCPL CANNOT EXERCISE THE RIGHTS ASSOCIATED WITH THE NAME OR GOODWILL OF A LEGAL PRACTICE. 6.19. THE LD. SPECIAL COUNSEL FOR THE REVENUE FURT HER SUBMITTED THAT THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT THERE IS NO LEGAL BAR ON THE TRANSFER OF GOODW ILL ATTACHED TO A PROFESSIONAL PRACTICE TO AN INDEPENDENT ENTITY REAL LY DOES NOT TAKE INTO ACCOUNT THE SITUATION, LIKE THE PRESENT ONE, W HERE THE GOODWILL HAS BEEN GIFTED TO A PERSON OR ENTITY NOT ENTITLED TO CARRY ON LEGAL PROFESSION. THE GOODWILL REPRESENTING THE LOYALTY OF THE CUSTOMER OR THE REPUTATION OF LEGAL PRACTICE WILL REALLY HAVE N O MEANING TO A PERSON OR ENTITY NOT ENTITLED TO PRACTICE LAW. 6.20. LICENSE FEE PAID BY THE ASSESSEE IS A MODE O F REVENUE SHARING AND NOT AN EXPENSE OF THE ASSESSEE. THIS I S A PROFIT SHARING ARRANGEMENTS AND SUCH AN ARRANGEMENT IS NOT PERMISS IBLE UNDER RULE 2 OF CHAPTER III OF PART VI OF THE BAR COUNCIL RULES AS IT IS SHARING PROFIT BY AN ADVOCATE. SUCH SHARING OF PRO FIT IS VIOLATIVE OF STATUTORY PROVISION AND HENCE HIT BY EXPLANATION 1 OF SECTION 37(1) OF THE ACT. 6.21. HE DISTINGUISHED THE CASE OF DEVIDAS VITTHAL DAS & CO. AND J. SRINIVASAN VS. ITO BY SUBMITTING THAT IN THO SE CASES WHEN A WIDOW OR OTHER LEGAL HEIR OF A DECEASED PARTNERS GO T A SHARE IN THE PARTNERSHIP, THEY GET THE SHARE NOT IN THEIR INDIVI DUAL RIGHTS BUT AS THE LEGAL HEIRS OF THE DECEASED. THE PARTNERSHIP C ONTINUES TO RECOGNIZE THE DECEASED PERSONS RIGHT IN THE PROFIT S OF THE FIRM BECAUSE OF HIS CONTRIBUTION IN THE DEVELOPMENT OF T HE GOODWILL AND THE LEGAL HEIRS ONLY RECEIVE THE MONEY AS HEIRS OF THE DECEASED AND NOT AS PARTNERS ON IN THEIR INDIVIDUAL RIGHTS. HE ARGUED THAT AFTER THE DEATH OF DR. V. SAGAR, HI LEGAL HEIRS MAY BE EN TITLED TO RECEIVE THE CONSIDERATION FOR GOODWILL ON BEHALF OF THEIR D ECEASED FATHER, BUT THEY CANNOT BE REGARDED AS BEING LAWFUL OWNERS OF T HE GOODWILL OR HAVING THE RIGHT TO OWN THE GOODWILL OR LICENSE IT. 6.22. THE LD. SPECIAL COUNSEL FOR REVENUE SUBMITTE D THAT THE GOODWILL OF A LEGAL PROFESSION IS DISTINCT FROM THA T OF A BUSINESS AND IT CANNOT BE ALIENATED FROM THE PRACTICE ITSELF. A PART RSCPL COULD NOT DO LEGAL PRACTICE AS IT DOES NOT HAVE LICENSE O R RIGHTS TO DO THE SAME. 6.23. MR. G. C. SRIVASTAVA SUBMITTED THAT THE ENTI RE ARRANGEMENT DOES NOT SERVE BUSINESS PURPOSE AND HEN CE, THE PAYMENT IN QUESTION IS NOT DEDUCTABLE U/S 37 OF THE ACT AND THAT IT WAS MERELY A DEVICE TO TRANSFER PROFITS OF THE FIR M FROM THE ASSESSEE TO THE COMPANY BELONGING TO DR. V. SAGARS CHILDRE N. 6.24. HE REITERATED HIS ARGUMENTS THAT THE LEGAL H EIRS OF DR. V. SAGAR HAD EVERY RIGHT TO SHARE THE GOODWILL AFTER H IS DEATH OR AFTER HIS RETIREMENT, BUT EVEN AT THIS STAGE, IT COULD NO T BE REGARDED AS AN EXPENSE OF THE FIRM WITHIN THE MEANING OF SECTION 3 7 OF THE ACT. HE SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY DI SALLOWED THE CLAIM OF THE ASSESSEE AS EXPENSES BY WAY OF LICENSE FEES PAID TOWARDS RSCPL AND SUBMITTED THAT THIS ACTION OF THE R A.O SHOULD BE UPHELD. 7. IN HIS REJOINDER, MR. VOHRA SUBMITTED THAT THE S UBMISSION OF THE REVENUE THAT REMFRY & SONS, PRIOR TO TAKE OVE R BY DR. V. SAGAR IN 1973 WERE NOT ENGAGED IN THE PRACTICE OF LAW BUT WAS IN THE BUSINESS OF TRADE MARK AND PATENTS AND THAT POST AC QUISITION BY DR. V. SAGAR STARTED LEGAL PRACTICE IN THE NAME OF REM FRY & SAGAR WAS NOT CORRECT. IT WAS SUBMITTED THAT DR. V. SAGAR WA S CARRYING ON INDEPENDENT LEGAL PRACTICE AND IT WAS ONLY IN THE Y EAR 1990 THAT THIS LEGAL PRACTICE IN THE NAME OF SAGAR & CO GOT MERGED INTO REMFRY & SONS. 7.1. HE SUBMITTED THAT THE GOODWILL IN THE NAME OF REMFRY & SONS PERTAINS TO THE BUSINESS CARRIED ON BY THE CO NCERN AND THE SAID GOODWILL IS RELATED TO THE FIELD OF TRADE MARK AND PATENTS AND HAD CONSIDERABLE VALUE, EVEN FOR THE LEGAL PRACTICE CARRIED ON BY DR. V. SAGAR IN THE SAME FIELD. HE EMPHASIZED THAT, I F THE AFORESAID GOODWILL OF BUSINESS OF REMFRY & SONS HAD NO VALU E, THERE WAS NO OCCASION FOR DR. V. SAGAR TO PURCHASE THE SAME FOR CONSIDERATION AND MERGE HIS SOLE PROPRIETARY LEGAL PRACTICE IN R EMFRY & SONS. THUS, THE DISTINCTION SOUGHT TO BE DRAWN BY REVENUE THAT GOODWILL IN THE NAME REMFRY & SONS WAS OF BUSINESS AND NOT OF LEGAL PRACTICE IS IRRELEVANT AND NEEDS TO BE IGNORED. 7.2. ON THE SUBMISSION THAT THE SON AND DAUGHTER OF DR. V. SAGAR WERE NOT ENTITLED TO CARRY ON THE LEGAL PRACTICE, H E ARGUED THAT THE COMPANY RSPCL WAS THE LAWFUL AND LEGAL OWNER OF GOO DWILL VESTING IN THE NAME REMFRY & SAGAR, BEING DISTINCT TANGIB LE ASSET, WHICH WAS ACQUIRED BY THEM POST GIFT DEED EXECUTED BY DR. V. SAGAR. HE REITERATED THAT THERE IS NO BAR UNDER ANY LAW, INCL UDING THE ADVOCATES ACT, 1961, THAT HAS BEEN SPECIFICALLY PO INTED OUT BY THE REVENUE, WHICH PROHIBITS OWNERSHIP IN GOODWILL ATTA CHING TO A LEGAL PRACTICE VESTING IN AN INDEPENDENT ENTITY, OTHER TH AN THE PROPRIETORS/PARTNERS CARRYING ON THE LEGAL PROFESSI ON. HE SUBMITTED THAT AS RSCPL WAS THE LEGAL OWNER OF THE SAID GOODW ILL AND THAT ANY ACCRETION IN THE VALUE OF THAT GOODWILL ON CARR YING ON OF THE LEGAL PROFESSION BY THE USERS THEREOF, I.E. THE ASS ESSEE FIRM, WAS TO FORMERS ACCOUNT, NOT WITHSTANDING THAT RSCPL WAS N OT ENGAGED IN LEGAL PROFESSION. ON THE SUBMISSION OF REMUNERATIO N/PROFIT SHARING ARRANGEMENT, HE ARGUED THAT THE IMPUGNED PAYMENT WA S NOT SHARING OF REMUNERATION OR PROFITS OF THE LEGAL PRO FESSION CARRIED ON BY THE ASSESSEE FIRM, BUT PAYMENT MADE IN CONSIDER ATION FOR OBTAINING LICENSE/RIGHT TO USE THE NAME REMFRY & S AGAR, AND THE GOODWILL ASSOCIATED THEREWITH, BEING OWNED BY RSCPL . 8. WE HAVE HEARD BOTH THE PARTIES AT LENGTH. WE HA VE CONSIDERED THE WRITTEN SUBMISSION, THE PAPERS ON RECORD AS WEL L AS THE CASE LAWS CITED BY BOTH PARTIES. ON A CAREFUL CONSIDERA TION OF THE SAME WE HOLD AS FOLLOWS: 8.1. BEFORE WE ADJUDICATE THE ISSUE AS TO WHETHER T HE DISALLOWANCE OF LICENSE FEE PAID BY THE ASSESSEE TO RSCPL FOR LI CENSE TO PRACTICE AS REMFRY & SAGAR AND FOR USE OF THE SAID NAME, T RADE MARK AND GOODWILL BY THE A.O IS TO BE UPHELD OR NOT, FOR T HE PURPOSE OF THE READY REFERENCE WE RECAPITULATE THE FACTS OF THE CA SE 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 WAS SUBSEQUENTLY CONVERTED INTO PARTNERSHIP FIRM AND OPERATED BY FIVE GENERATIONS 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 PARTNERSHIP. AS PER THE PARTNERSHIP DEED, MR. HOLLOWAY AND MRS. SILVERSTONE WERE ENTITLED AND EMPOWERED TO SELL ALL OR ANY OF THE ASSETS OF THE PARTNERSHIP FIRM, INCLUDING 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 EFFECT 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 THE 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 REMFR Y & SAGAR TO A PRIVATE LIMITED COMPANY, VIZ., REMFRY & SAGAR CONSULTANTS PRIVATE LIMITED (RSCPL), WHEREIN SUBSTANTIAL SHAREHOLDING WAS HELD BY DR. SAGARS CHILDREN, VIZ., MS. ROSEMARY SAGAR AND MR. HEMANT SAGAR, WHO WERE NOT LAWYERS. AT THE TIME OF THE SAID TRANSFER, 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 PARTNERSHIP WITH MR. R. SAMPATH, MRS. ASHWIN JULKA, MR. RAMIT NAGPAL AND MR. PREM SEWAK TO CONTINUE THE SAID PRACTICE OF LAW. (III) BY AN AGREEMENT DATED JUNE 5, 2001 RSCPL GRANTED A LICENSE FOR THE USE OF GOODWILL IN REMFR Y & SAGAR TO THE APPELLANT FIRM FOR A PERIOD OF 5 YE ARS SUBJECT TO PAYMENT OF LICENSE FEES @ 25% OF THE AMOUNT OF BILLS RAISED. LATTER THIS WAS RAISED TO 2 8% OF THE BILLS RAISED ON RENEUAL OF AGREEMENT AFTER 5 YEARS. (IV) IN ADDITION TO THE ABOVE, RSCPL AND THE APPELLANT FIRM ENTERED INTO AN AGREEMENT DATED JUNE 5, 2001, FOR USE OF INFRASTRUCTURE AND PROVISION OF SECRETARIAL, ACCOUNTING AND OTHER SUPPORTING SERVICES. FEB 2011: DEMISE OF DR. V. SAGAR _IN PURSUANCE OF THE AFORESAID LICENSE AGREEMENT DA TED 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 BUSINE SS OF PATENT AGENTS. VIDE TERMS OF THE DEED OF PARTNERSHIP DATE D 6 TH APRIL 1970, 50% OF THE GOODWILL OF THE BUSINESS BELONGED TO TH E PARTNER MRS. HOLLOWAY AND OTHER 50% TO MRS. SILVER STONE. BOTH OF THEM HELD 50% OF ALL THE OTHER CAPITAL ASSETS AND PROPERTIES OF THE FIRM. THOUGH MRS. REMFRY WAS HAVING A SHARE IN THE NET PR OFITS OF THE PARTNERSHIP, SHE HAD NO OWNERSHIP RIGHTS IN THE GOO DWILL OF THIS FIRM. THIS DEMONSTRATES THAT THE NAME AND GOODWILL OF THE BUSINESS REMFRY & SONS IS DISTINCT AND SEPERATE F ROM 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 CLE AR 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 S TONE, THE BUSINESS CARRIED ON UNDER THE NAME AND STYLE OF RE MFRY & SONS ALONG WITH ALL ITS ASSETS INCLUDING CAPITAL ASSET A S ON 31 ST MARCH 1973 AND THE NAME AND GOODWILL THEREOF WHICH WAS RE FERRED TO AS THE SAID BUSINESS IN THAT AGREEMENT FOR A TOTAL C ONSIDERATION OF RS. 3 LACS. THUS WHEN DR.V.SAGAR PURCHASED THE GOO DWILL ALONG WITH OTHER ASSETS, THIS GOODWILL WAS OF BUSINESS AN D 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 SON S WHICH IS IN THE BUSINESS OF TRADE MARK AND PATENT AGENT. 8.5. ON 1 ST JUNE, 1990, DR. V. SAGAR MERGED HIS LEGAL PRACTICE IN THE NAME OF SAGAR & CO. WITH THE BUSINESS OF TRAD E MARK AND PATENT AGENTS CARRIED ON IN THE NAME AND STYLE OF REMFRY & SONS AND CHANGED THE NAME OF THE PROPRIETORSHIP INTO RE MFRY AND SAGAR. DR. V. SAGAR WAS CARRYING PRACTICE AND PRO FESSION OF ATTORNEYS-AT-LAW WITH SPECIALIZATION IN THE AREAS OF INTELLECTUAL PROPERTY LAW AND CORPORATE LAW UNDER THE NAME AND S TYLE OF REMFRY & SAGAR, IN NEW DELHI AND MUMBAI. THE GOO DWILL IN THE NAME OF REMFRY & SAGAR AND ALL THE RIGHTS ASSOCIA TED THEREOF (INCLUDING INTELLECTUAL PROPERTY RIGHTS) BELONG EXC LUSIVELY TO DR. V. SAGAR. DR. V. SAGAR BY WAY OF A GIFT DEED EXECUTED ON THE DAY OF 1 ST JUNE 2001, GRANTED CONVEYED AND TRANSFERRED BY WAY OF GIFT TO RSCPL THE SAID GOODWILL IN THE NAME OF REMFRY & SA GAR AND ALL THE RIGHTS ASSOCIATED THEREWITH(HEREINAFTER REFERRED CO LLECTIVELY REFERRED TO AS GOODWILL). DR. V. SAGAR ALSO SOLD AND TRAN SFERRED TO RSCPL, THE INFRASTRUCTURE ASSOCIATED WITH HIS PRACTICE. 8.6. FROM THE ABOVE, IT IS CLEAR THAT FROM 1 ST JUNE 1990 TO 31 ST MAY 2001, DR. V. SAGAR WAS ONLY CARRYING ON THE PRACTIC E AND PROFESSION OF ATTORNEY-AT-LAW, WHICH INCLUDED THE B USINESS OF REMFRY AND SONS ACQUIRED BY HIM. IN OTHER WORDS, PRIOR TO 1 ST JUNE, 1990, THE GOODWILL OF REMFRY AND SONS WAS G OODWILL OF BUSINESS AND NOT OF ADVOCACY PROFESSION, BUT THEREA FTER THERE IS A MERGER OF THE PROFESSION OF LAW AND THE BUSINESS OF TRADE MARK AND PATENT. AGENTS AND THIS WAS CARRIED ON AS A PROFES SION OF LAW. 8.7. VIDE PARTNERSHIP DATED 5 TH JUNE 2001 BETWEEN DR. V. SAGAR AND FOUR OTHER PARTNERS IT WAS AGREED TO CARRY ON T HE PRACTICE AND PROFESSION OF ATTORNEY-AT-LAW WITH THE SPECIALIZATI ON IN THE AREA OF INTELLECTUAL PROPERTY LAW AND CORPORATE LAW WITH TH E OBJECT OF CARRYING ON, WITHOUT BREAK AND IN CONTINUITY, THE P RACTICE, HITHER TO CARRIED ON BY DR. V. SAGAR. THE FOUR OTHER PARTNER S WERE EARLIER ASSOCIATED WITH THE PRACTICE OF DR. V. SAGAR, IN TH EIR INDIVIDUAL CAPACITIES FOR NUMBER OF YEARS AND HAVE ACQUIRED EX PERTISE IN THIS FIELD OF THE PROFESSION. WE NOTICE THAT THE PARTNE RSHIP DEED DATED 5 TH JUNE 2001 IS UNDER THE NAME AND STYLE OF REMFRY & SAGAR AND THIS PARTNERSHIP DEED HAS COME INTO FORCE ON 1 ST JUNE 2001. THUS WHAT IS LICENSED BY RSCPL TO THE ASSESSE FIRM IS GO ODWILL AND ITS ASSOCIATED RIGHTS TO PRACTICE AS ATTORNEYS-AT-LAW AND NOT TO DO BUSINESS OF TRADEMARK AND PATENT AGENTS. 8.8. VIDE AGREEMENT DATED 5 TH JUNE 2001, RSCPL PERMITTED TO USE OF GOODWILL TO THE PARTNERSHIP AND PERMITTED THEM TO USE THE NAME OF REMFRY & SAGAR WITH RETROSPECTIVE EFFECT I.E. 1 ST JUNE 2001. WHILE CLAUSE NO. 16.1 OF THIS AGREEMENT, THE LICENS E 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 DOCUMENT ATION SHOWS THAT THIS IS A VERY WELL THOUGHT OUT STRATEGY BY DR.V.SA GAR TO RETAIN HIS HARD EARNED AS WELL AS PURCHASED GOODWILL AND TO U SE IT FOR HIS FUTURE GENERATIONS, IRRESPECTIVE OF THE FACT WHETHE R THEY WERE IN THE PRACTICE OF LAW. SUCH WELL CONSIDERED AND THOUGHT OUT ARRANGEMENTS CANNOT BE SAID TO BE COLOURFUL DEVICES . THESE ARE TRANSPARENT AND LEGALLY DOCUMENTED ARRANGEMENTS. 8.10. THE ISSUE FOR CONSIDERATION IS WHETHER SUCH AN ARRANGEMENT IS PERMISSIBLE IN LAW. THE PITH AND SU BSTANCE OF THE ARGUMENT OF THE REVENUE IS THAT SUCH SEGREGATION OF GOODWILL FROM THE LEGAL PRACTICE CANNOT BE PERMITTED. IT IS FURT HER ARGUED THAT UNDER THE ADVOCATES ACT, 1961, THE GOODWILL EARNED BY AN ADVOCATE CANNOT BE ALIENATED TO ANY PERSON OR COMPANY WHIC H IS NOT ENTITLED TO PRACTICE UNDER THE ADVOCATES ACT, 1961. 8.11. AT THE SAME TIME, THE REVENUE CONCEDES THAT THE LEGAL HEIRS OF THE ADVOCATES WOULD BE ENTITLED TO THE BEN EFIT OF THE GOODWILL EARNED AND CREATED BY THE LEGAL PRACTITION ER. IT WAS SUBMITTED THAT THE LEGAL HEIRS MAY BE ENTITLED TO C ONSIDERATION FOR THE GOODWILL ON BEHALF OF THE DECEASED FATHER BUT T HEY CANNOT BE REGARDED AS THE LAWFUL OWNERS OF THE GOODWILL OR HA VING THE RIGHTS OF OWNING THE GOODWILL OR TO LICENSE THE SAME. IN OUR VIEW, WE FIND A CONTRADICTION IN THESE SUBMISSIONS. WHEN IT CONTEND ED THAT THE LEGAL HEIRS OF A PRACTITIONER ARE ENTITLED TO RECEI VE CONSIDERATION FOR GOODWILL ON BEHALF OF THE DECEASED PARENT, IT WOULD BE DIFFICULT TO HOLD THAT, THE GOODWILL CANNOT BE SEPARATED FROM T HE LEGAL PRACTICE AND THE FRUITS OF SUCH GOODWILL CANNOT BE ENJOYED B Y THE LEGAL HEIRS OF THE LEGAL PRACTITIONER OR THAT IT CAN BE ENJOYED BY THE LEGAL HEIRS ONLY IN A PARTICULAR MANNER. 8.12. BE IT AS IT MAY, THE SUBMISSION OF THE ASSES SEE THAT GOODWILL IS A SEPARATE INTANGIBLE ASSET WHICH CAN B E ALIENATED AND THAT WHICH CANNOT BE ATTACHED TO A FIRM AND THAT I T CAN BE VESTED IN ONE OR MORE PARTNER OF THE FIRM, IN EXCLUSION OF OTHERS, IS WELL SETTLED. THE ASSESSEE PARTNERSHIP FIRM FORMED FOR C ARRYING A PROFESSION AND PRACTICE OF DR. V. SAGAR UNDER THE N AME AND STYLE OF REMFRY & SAGAR COULD NOT HAVE CARRIED OUT THE PRO FESSION AS IT IS DOING RUN BY USING THE GOODWILL AND NAME OF REMFRY & SAGAR UNLESS SPECIFICALLY AUTHORIZED TO DO SO BY THE OWNE R OF THE GOODWILL. AS RIGHTLY POINTED OUT BY THE LD. COUNSEL FOR THE A SSESSEE THAT IN THE PRESENT DAY PROFESSIONAL PRACTICE AND PROFESSIO NAL FIRMS ACROSS THE GLOBE ARE IN THE NAMES OF THE ORIGINAL FOUNDERS , THOUGH THEY ARE NO LONGER PART OF THE PRACTICE. THIS NAME AND GOOD WILL HELPS IN THE PRACTICE. THE PARTNERSHIP 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 FO R THE REVENUE THAT GOODWILL OF A PROFESSION CANNOT BE SEGREGATED FROM THE PERSONA OF THE PERSON IS AGAINST THE PROPOSITIONS OF LAW LA ID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF DEVI DAS MITTA L DAAS VITHALDAS & CO. VS. CIT BOMBAY CITY (SUPRA). THE CO NSTITUTIONAL BENCH OF THE HON'BLE SUPREME COURT CONSISTING OF FO UR FINDINGS WAS CONSIDERING A CASE OF CHARTERED ACCOUNTANT WHO WAS CARRYING ON HIS PROFESSION IN THE NAME OF DEVI DASS & CO. VIDE PART NERSHIP DATED 31 JANUARY 1948, WHEREIN HE RETAINED/RESERVED THE R IGHT OF GOODWILL OF THE PROFESSION CARRIED ON BY HIM EARLIE R IN SOLE PROPRIETORSHIP. ON 2 ND JUNE 1951, HE RETIRED FROM THE SAID PARTNERSHIP. THE GOODWILL IN THE PARTNERSHIP WAS S OLD TO THE OTHER PARTNER AND THE CONSIDERATION WAS TO BE PAID TO THE CHARTERED ACCOUNTANT AT THE CERTAIN RATE AND AFTER HIS DEATH TO HIS WIFE AND THEREAFTER HIS SON WERE TO PAID ANNUAL CONSIDERATIO N. THE QUESTION BEFORE THE HONBLE COURT WAS WHETHER SUCH THE AMOUN TS 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 O F HONBLE SUPREME COURT IN THE CASE OF DEVIDAS VITHALDAS & CO . VS. CIT, BOMBAY, REPORTED IN 84 ITR 277 (S.C.), HELD AS FOLL OWS. 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 GOO DWILL AND THE PAYMENTS WERE IN THE NATURE OF ROYALTY AND HAD TO BE TREATED AS ADMISSIBLE DEDUCTIONS; BECAUSE (I) THOUGH CLAUSE 2 OF THE DEED OF DISSOLUTION USED EXPRESSIONS SUCH AS AGREED TO SELL AND THE PURCH ASE PRICE OF THE GOODWILL, THESE EXPRESSIONS WERE NOT DETERMINATIVE OF THE EXACT NATURE OF THE TRANSACTION; (II) NEITHER CLAUSE 2 NOR ANY OTHE R PROVISION IN THE DEED FIXED ANY LUMP SUM AS PRICE IN RESPECT OF WHICH ANN UAL PAYMENTS WERE PROVIDED; (III) THE DURATION OF PAYMENT WAS INDEFIN ITE AND THE AMOUNT WAS INDEFINITE AND DEPENDED UPON THE RISE AND FALL IN T HE 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 WH AT WAS TO HAPPEN TO THE GOODWILL IF A OR HIS PARTNERS WERE TO CEASE TO CARRY ON BUSINESS IN THAT NAME OR AT ALL. JUSTICE S.M. SIKRI C.J, HAS WRITTEN A DISSENTING JU DGMENT, THE PITH AND SUBSTANCE OF WHICH IS THAT THE ENTIRE ARRA NGEMENT WAS MADE FOR EVASION 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 MAY BE TREATED AS PAYMENT OF A ROYAL TY. IN THE VIEW I TAKE OF THE DEED, IT IS NOT NECESSARY TO DISCUSS THE NUMEROUS CASES REFERRED TO BY SHLAT J. IN MY OPINI ON, THE HIGH COURT CAME TO THE CORRECT CONCLUSION AND THE A PPEALS 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 AGREE WITH THE MINORITY VIEW AND HAVE DECIDED THE I SSUE IN FAVOUR OF THE ASSESSEE. 8.16. APPLYING THE PROPOSITIONS LAID DOWN IN THIS CASE LAW TO THE FACTS OF THE CASE, WE HAVE TO NECESSARILY HOLD, THAT THE ARGUMENT OF REVENUE THAT THE ARRANGEMENT WAS FOR AVOIDANCE O F TAX AND DIVERSION OF PROFITS AND HENCE THE DEDUCTION WAS RI GHTLY DENIED BY THE ASSESSING OFFICER, HAS TO BE REJECTED. EVEN OT HERWISE, 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 TAXES, AT THE MAXIMUM RATE AND THAT THERE IS NO LOSS OF RE VENUE ON ACCOUNT OF THIS ARRANGEMENT. 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 REVEN UE ARGUED THAT GOOD WILL OF A PROFESSION CANNOT BE SOLD TO A COMPANY WHICH DOES NOT HAVE A RIGHT TO CARRY ON PRACTICE, NO SPEC IFIC LAW OR SECTION WAS BROUGHT TO THE NOTICE OF THE BENCH IN SUPPORT O F THE ARGUMENT. ONLY SEVERAL SUBMISSIONS HAVE BEEN MADE. CERTAIN JU DGEMENTS OF FOREIGN COURTS WERE CITED, WHICH WERE BASED ON ETH ICAL CONSIDERATIONS AND NOT LEGAL PROHIBITION. IN ANY EVENT, THE ITAT HAS NO POWER OR AUTHORITY TO ADJUDICATE THE ISSUE A S TO WHETHER, THE GIFT OF GOODWILL BY DR.V.SAGAR OF HIS PROFESSION OF LAW, TO A COMPANY IS VIOLATING THE ADVOCATES ACT, 1961 OR THE BAR COU NCIL RULES. NO AUTHORITY HAS HELD THAT THIS ARRANGEMENT VIOLATES A NY ACT OR LAW OF THE LAND, THOUGH THE ASSESSEE FIRM HAS BEEN CARRYIN G ON ITS PROFESSION OF ATTORNEYS AT LAW UNDER THIS ARRANGEME NT FOR THE LAST MANY YEARS. 8.18. ANOTHER IMPORTANT FACT THAT HAS TO BE CONSID ERED IS THAT, DR. V. SAGAR HAD THE SOLE AND EXCLUSIVE RIGHTS TO T HE SAID GOODWILL. THE GOODWILL WAS HELD BY HIM. WITHOUT LEGAL AUTHOR IZATION FROM HIM, THE ASSESSEE FIRM COULD NOT USE THE NAME AND STYLE OF REMFRY & SAGAR ALONG WITH ITS GOODWILL AND 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 R UN DOING. HENCE OBTAINING A LICENSE IS A MUST FOR ASSESSEE FIRM TO CONTINUE AND CARRY ON ITS PROFESSION AS THE GOODWILL IS NOT OWNED BY I T THE PAYMENT MADE IN PURSUANCE OF AN AGREEMENT WHICH ENABLES THE ASSESSEE FIRM TO CARRY ON ITS PROFESIONS, IN THE MANNER IN W HICH IT IS NOW DOING, IS DEFINITELY AN EXPENDITURE LAID DOWN WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE ARG UMENT OF THE LD. SPECIAL COUNCIL THAT THE PURPOSE TEST CONTEMPLATED U/S 37 OF THE ACT IS NOT SATISFIED IS DEVOID OF MERIT. IRRESPEC TIVE OF WHETHER THE GIFT OF DR. V.SAGAR TO RSCPL BEING ETHICAL OR NOT A ND 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 A ND CARRIED ON THE PROFESSION OF ATTORNEYS-AT-LAW IN THE NAME OF REMF RY & SAGAR AND USE ITS GOODWILL AND ALL ITS ASSOCIATED RIGHTS WITHOUT THE IMPUGNED AGREEMENT WITH RSCPL. HENCE THE PAYMENT H AS 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 TH E REVENUE THAT THE ARRANGEMENT IS JUST A REVENUE SHOWN ARRAN GEMENT IS JUST AN INFERENCE AND IS NOT SUPPORTED BY ANY MATERIAL. THUS THE ARGUMENT OF VIOLATION OF BAR COUNCIL RULES IS DEVOI D OF MERIT. 8.20. FOR ALL THESE REASONS WE ARE OF THE CONSIDER ED OPINION THAT THE DEDUCTION CLAIMED BY THE ASSESSEE OF LICEN SE FEE PAID TO M/S RSCPL HAS TO BE ALLOWED AS A DEDUCTION U/S 37 O F THE ACT. 8.21. FOR THE ASSESSMENT YEAR 2008-09, GROUND NO. 2 OF THE REVENUES APPEAL IS THAT, THE LD. CIT(A) ERRED IN D ELETING THE ADDITION OF RS.6,17,832/- ADDED BY THE A.O ON ACCOU NT OF PERSONAL NATURE, ENTERTAINMENT EXPENSES. 8.22. THE CIT(A) DEALT WITH THIS ISSUE WHICH WAS RAISED AS GROUND NO. 11 BY THE ASSESSEE. AT PAGE 58 THE CIT( A) HAS RECORDED THE FACTS AND AT PAGE 60 ALLOWED THE GROUND OF THE ASSESSEE BY OBSERVING THAT, THE EXPENDITURE WAS INCURRED ON THE OCCASION OF 180 TH YEARS CELEBRATION AND ONLY 1/10TH OF THE SAME WAS CLAIMED IN THIS YEAR AND NO DISALLOWANCE WAS MADE IN ANY OF TH E YEAR ON THIS COUNT. WE FIND NO INFIRMITY IN THE SAME. THUS, WE DISMISS THESE GROUNDS OF THE ASSESSEE. 8.23. FOR THE ASSESSMENT YEAR 2010-11 THE ASSESSEE HAS RAISED GROUND NO. 4 & 5 WHICH IS AGAINST SUSTENANCE OF DISALLOWANCE OF RS.10,20,346/- BEING 5% OF TRAVELLI NG AND ENTERTAINMENT EXPENSES AND A FURTHER ADDITION OF RS .3,41,102/- REPRESENTING THE STALE CHEQUES ISSUED BY THE ASSESS EE BUT NOT CLEARED. BOTH THESE GROUNDS WERE DISMISSED AND NOT PRESSED. 8.24. IN ITA NO. 3668/DEL/2013 & ITA NO. 3669/DEL/ 13 FOR THE ASSESSMENT YEAR 2005-06 & 2006-07 RESPECTIVELY , THE REVENUE RAISED GROUND NO. 4 WHICH READS AS FOLLOWS:- 4. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS CORRECT IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF SSECRETARIAL, ACCOUNTING & OTHER SUPPORT SERVICES PAID TO M/S. IP SS (INDIA) PVT. LTD. NOT APPRECIATING THE FACT THAT M/S. IPSS (INDIA) PVT. L TD. WAS A RELATED COMPANY AND THE PAYMENT WAS MADE IN EXCESS OF AGREE D RATIO AS PER THE AGREEMENT ENTERED INTO BY THE ASSESSEE. 8.25. AFTER PERUSING THE FINDINGS OF THE CIT(A) ON THIS ISSUE, WE UPHOLD THE SAME AS LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT THE FACTUAL FINDING. THE CIT(A) AT PAGE 56 HAS RECORDED THAT THE ADDITION WAS MADE BY THE A.O ON THE GROUND THAT, THIS IS NOT AUTHORIZED BY THE PARTNERSHIP DEED. SUCH GROUN D OF THE DISALLOWANCE CANNOT BE SUSTAINED. 8.26 IN RESULT, THESE GROUNDS ARE DISMISSED. 8.27. IN THE RESULT ALL THE APPEALS OF THE ASSESSE E FOR ALL THESE ASSESSMENT YEARS ARE ALLOWED AND ALL THE APPEALS BY THE REVENUE ARE DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 6 TH OF SEPTEMBER, 2016. SD/- SD/- (J. SUDHAKAR REDDY) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 06/09/2016 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON /07/2016 PS 2. DRAFT PLACED BEFORE AUTHOR /07/2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 08.2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS .08.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 12.09.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.