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

ITA 402/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7724 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 09-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M RAJASEKHAR BENGALURU
• Assessee Lawyers: H V GOWTHAMA
• Keywords: Depreciation; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO. 402/BANG/2018 ASSESSMENT YEAR : 2013 - 14 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(1), BANGALORE. VS. M/S. SAPA EXTRUSION INDIA PVT. LTD., NO.54, VIRGO NAGAR, OLD MADRAS ROAD, BANGALORE 560 049. PAN: AAOCS 4633C APP ELL ANT RESPONDENT A PP EL LANT BY : SHRI M. RAJASEKHAR, ADDL.CIT(DR),ITAT, BENGALURU. RE SPONDENT BY : SHRI H.V . GOWTHAMA, CA DATE OF HEARING : 04.06.2018 DATE OF PRONOUNCEMENT : 06.07. 201 8 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDE R DATED 17.07.2017 OF THE CIT(APPEALS)-IV, BENGALURU RELATING TO ASSES SMENT YEAR 2013-14. 2. THE GROUNDS RAISED BY THE REVENUE READS AS FOLLO WS:- 1. THE ORDER OF THE CIT (APPEALS) IS OPPOSED TO LA W AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE W HETHER THE CIT(A) IN RIGHT IN HOLDING THAT THE ASSESSEE IS ELI GIBLE FOR DEPRECIATION ON ACCOUNT OF NON COMPETE FEE WHICH IS PAID ON ITA NO. 402/BANG/2018 PAGE 2 OF 5 ACCOUNT OF TRADE AND COMMERCE AND IS A COMMERCIAL R IGHT TO ENFORCE PERFORMANCE OF THE TERMS OF THE AGREEMENT. 3. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTO RED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEA RING OF THE APPEAL. 3. THERE IS A DELAY OF ABOUT 49 DAYS IN FILING TH IS APPEAL BY THE REVENUE. THE DELAY HAS BEEN EXPLAINED AS OWING TO ADMINISTRATIVE AND PROCEDURAL HURDLES. ACCEPTING THE REASONS GIVEN IN THE APPLICATION FOR CONDONATION OF DELAY, WE CONDONE THE DELAY IN FILIN G THE APPEAL OF THE REVENUE. 4. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURING AND DISTRIBUTION OF ALUMINUM EXTRUSIO N PROFILES. THE ASSESSEE HAD PAID A SUM OF RS.28 CRORES TO M/S. ALU FIT INDIA (P) LTD. FOR NOT CARRYING OUT ANY EXTRUSION BUSINESS WITHIN THE SPEC IFIED TERRITORIES DIRECTLY OR INDIRECTLY. THE ABOVE PAYMENT OF RS.28 CORES IS NON-COMPETE FEES WAS MADE UNDER AN AGREEMENT DATED 9.5.2011. ACCORDING TO THE ASSESSEE, PAYMENT OF NON-COMPETE FEE GAVE THE ASSESSEE, COMME RCIAL RIGHT TO CARRY ON MANUFACTURING ACTIVITY WITHOUT COMPETITION FROM ONE MAJOR MANUFACTURER. THE ASSESSEE WAS ALSO ABLE TO RETAIN OLD CUSTOMERS CONSEQUENT TO THE NON-COMPETE AGREEMENT. THE ASSESSEE CLAIMED THAT PA YMENT OF NON- COMPETE FEE RESULTED IN ACQUISITION OF AN INTANGIBL E ASSET AND THE ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATION ON SUCH INTANGIB LE ASSET. ASSESSEE SUBMITTED THAT IT HAD ACQUIRED THE INTANGIBLE ASSET WHICH FALLS WITHIN THE MEANING OF THE EXPRESSION OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF ITA NO. 402/BANG/2018 PAGE 3 OF 5 SIMILAR NATURE OCCURRING IN SECTION 32(1)(II) OF T HE INCOME-TAX ACT, 1961 [THE ACT]. THE ASSESSEE IN SUPPORT OF THE AFORES AID CONTENTION PLACED RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF INGERSOLL RAND INTERNATIONAL LTD. 48 TAXMAN.COM 349 (KAR) WHEREIN IT WAS HELD THAT NON-COMPETE FEE CONFERS COMMERCIAL RI GHTS WHICH IS AKIN TO KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS LICENSES, FRANCHISES AND COMMERCIAL RIGHTS, AND THEREFORE WAS INTANGIBLE ASS ET ON WHICH DEPRECIATION HAS TO BE ALLOWED AS PER THE PROVISION S OF SECTION 32(1)(II) OF THE ACT. 5. THE AO, HOWEVER, DID NOT ALLOW CLAIM OF ASSESSEE ON THE GROUND THAT THE DEPARTMENT HAS NOT ACCEPTED THE CORRECTNES S OF THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA REFERRED TO BY THE ASSESSEE. ACCORDING TO THE AO, BECAUSE OF LOW TAX EFFECT, NO APPEAL WAS FI LED AGAINST THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA. THE AO REF ERRED TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SHARP BUSINESS SYSTEM V. CIT 2012(211 TAXMAN 576(DEL) , WHEREIN THE HONBLE DELHI HIGH COURT TOOK A VIEW THAT NON-COMPETE RIGHT CANNOT BE TREATED AS AN INTANGIBLE ASSET FOR THE PURPOSE OF ALLOWING DEPRECIATION U/S. 32(1)(II) OF THE ACT. THE AO THEREFORE DISALLOWED THE CLAIM OF ASSESSEE FOR DEPRECIATION O F RS.5.06 CRORES. 6. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) ALLO WED THE CLAIM OF ASSESSEE BY FOLLOWING THE DECISION OF THE HONBLE H IGH COURT OF KARNATAKA IN THE CASE OF INGERSOLL RAND INTERNATIONAL LTD. (SUPRA) . FOLLOWING WERE THE OBSERVATIONS OF THE CIT(APPEALS):- 8. IT IS NOTED THAT IN THE ASSESSMENT ORDER THE A O DISALLOWED DEPRECIATION ON NON COMPETE FEE AMOUNTING TO RS.5,0 6,00,000/-. IN THIS CONTEXT, IT IS NOTED THAT THE JURISDICTIONA L HIGH COURT OF KARNATAKA IN THE CASE OF M/S. INGERSOLL RAND (2014) 48 TAXMANN.COM 349 (KARNATAKA) / (2014) 227 TAXMAN 176 (KARNATAKA) HELD THAT EXPENDITURE INCURRED FOR ACQU IRING NON ITA NO. 402/BANG/2018 PAGE 4 OF 5 COMPETE RIGHT IS CAPITAL IN NATURE ENTITLED TO DEPR ECIATION U/S. 32(1)(II). 9. IN THE LIGHT OF THE ABOVE JUDICIAL DECISION OF H ONBLE JURISDICTIONAL HIGH COURT OF KARNATAKA WHICH IS SQU ARELY APPLICABLE IN THE INSTANT APPEAL, AND IN VIEW OF TH E FACT THAT THE DECISION IS BINDING, AND SINCE JUDICIAL DISCIPLINE REQUIRES THAT WISDOM OF HIGHER AUTHORITIES PREVAIL, THE AO IS DIR ECTED TO ALLOW DEPRECIATION TO APPELLANT BY FOLLOWING ABOVE JUDICI AL DECISION. 7. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE REV ENUE IS IN APPEAL BEFORE THE TRIBUNAL. 8. THE LD. DR RELIED ON THE ORDER OF AO. THE LD. CO UNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF CIT(APPEALS). 9. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE UNDI SPUTED FACTUAL POSITION THAT PAYMENT BY THE ASSESSEE IN THE PRESENT CASE IS SIMILAR TO PAYMENT THAT WAS CONSIDERED BY THE HONBLE HIGH COURT OF KARNATA KA IN THE CASE OF INGERSOLL RAND INTERNATIONAL LTD. (SUPRA) , WE ARE OF THE VIEW THAT THE ORDER OF CIT(APPEALS) DOES NOT CALL FOR ANY INTERFERENCE. IN FACT, IN PARA 6 OF THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA, TH E DECISION OF THE HONBLE DELHI HIGH COURT HAS BEEN CONSIDERED, BUT T HE HONBLE HIGH COURT OF KARNATAKA HAS STILL DECIDED THE ISSUE IN FAVOUR OF ASSESSEE, WHILE CONCLUDING THAT NON-COMPETE FEE PAID IS AN INTANGIB LE ASSET ACQUIRED BY THE ASSESSEE ON WHICH DEPRECIATION HAS TO BE ALLOWED U/ S. 32(1)(II) OF THE ACT. IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AN D THE LAW LAID DOWN BY THE JURISDICTIONAL HIGH COURT, WE ARE OF THE VIEW T HAT THE ORDER OF CIT(APPEALS) DOES NOT CALL FOR ANY INTERFERENCE. C ONSEQUENTLY, THE APPEAL BY THE REVENUE IS DISMISSED. ITA NO. 402/BANG/2018 PAGE 5 OF 5 10. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 06 TH DAY OF JULY, 2018. SD/- SD/- ( A.K. GARODIA ) ( N.V. VASUDEVAN ) ACCOUN TANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 06 TH JULY, 2018. / D ESAI S MURTHY / COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.