ACIT, Circle-61(1), New Delhi V. Remfry & Sagar, Gurgaon

ITA 4955/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5496 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 12-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DILIP KOTHARI
• Keywords: Capital asset; Gift; Business expenditure; Retrospective amendment; Avoidance of tax; Revenue expenditure; Set aside
• Section: 13; 22; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.4955/DEL./2018 (ASSESSMENT YEAR : 2014-15) ACIT, CIRCLE 61 (1), VS. M/S. REMFRY & SAGAR, NEW DELHI. REMFRY HOUSE AT MILLENIUM PLAZA, SECTOR 27, GURGAON 122 002. (PAN : AAEFR6753P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KVSR KRISHNA, ADVOCATE REVENUE BY : SHRI DILIP KOTHARI, CIT DR DATE OF HEARING : 08.09.2021 DATE OF ORDER : 22.09.2021 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, ACIT, CIRCLE 61 (1), NEW DELHI (HEREINA FTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 01.02.2018 PASSE D BY THE COMMISSIONER OF INCOME - TAX (APPEALS)-38, NEW DELH I QUA THE ASSESSMENT YEAR 2013-14 ON THE GROUNDS INTER ALIA T HAT:- 1. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION MADE ON ACCOUNT OF DISALLOWANCE OF LICENSE FEE OF RS.30,49, 29,397/- PAID TO ITA NO.4955/DEL./2018 2 REMFRY & SAGAR CONSULTANTS PVT. LTD. (RSCPL) BY IGN ORING THE FACT THAT THE ASSESSEE BEING LAW FIRM WAS USING GOO DWILL OF RSCPL BEING A COMPANY PROHIBITED FROM PRACTICING LAW IN I NDIA AS PER ADVOCATES ACT, 1961 AND BAR COUNCIL RULE. 2. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION MADE ON ACCOUNT OF DISALLOWANCE OF LICENSE FEE OF RS.30,49, 29,397/- PAID TO REMFRY & SAGAR CONSULTANTS PVT. LTD. (RSCPL) BY IGN ORING THE FACT THAT THE VALUE OF LICENSE FEE PAID BY THE ASSE SSEE HAS BEEN INCREASING YEAR AFTER YEAR AND NO EXPENDITURE BEING INCURRED BY RSCPL TOWARDS IMPROVEMENT, DEVELOPMENT OR PROTECTIO N OF THE SAID GOODWILL. 3. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION MADE ON ACCOUNT OF DISALLOWANCE OF RS.10,24,570/- OUT OF TR AVELLING EXPENSE BY IGNORING THE FACT THAT PERSONAL ELEMENT IN RESPE CT OF THESE EXPENSES CANNOT BE RULED OUT CONSIDERING THE NATURE OF EXPENSES. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE IS A LAW FIRM DE RIVING INCOME FROM BUSINESS AND PROFESSION. ASSESSEE CLAIMED EXP ENDITURE OF RS.30,49,29,397/- BEING THE LICENCE FEE PAID TO M/S . REMFRY & SAGAR CONSULTANTS PVT. LTD. (RSCPL) FOR THE USE OF GOODWILL OF RSCPL AND TO PRACTICE IN ITS NAME. DECLINING THE C ONTENTIONS RAISED BY THE ASSESSEE, ASSESSING OFFICER (AO) DISA LLOWED THE EXPENSES TO THE TUNE OF RS.30,49,29,397/- CLAIMED B Y THE ASSESSEE AND MADE ADDITION THEREOF TO THE TOTAL INCOME ON TH E GROUND THAT ASSESSEE HAS FAILED TO JUSTIFY THE PAYMENT OF LICEN CE FEE TO RSCPL THAT IT IS WHOLLY AND EXCLUSIVELY FOR BUSINESS AND ON THE GROUND THAT SINCE PAYMENT OF LICENCE FEE FOR USE OF GOODWILL IS INCREASING YEAR ITA NO.4955/DEL./2018 3 AFTER YEAR RSCPL, OWNER OF GOODWILL, IS DOING NOTHI NG FOR PROMOTION AND ENHANCING THE GOODWILL. 3. ASSESSEE ALSO CLAIMED FOREIGN TRAVEL EXPENSES TO THE TUNE OF RS.1,56,11,923/-. AO MADE AD HOC ADDITION OF 10% O F THE TOTAL AMOUNT OF RS.1,02,45,696/- I.E. RS.10,24,570/- ON T HE GROUND OF PERSONAL ELEMENT IN THESE EXPENSES AND MADE ADDITIO N THEREOF TO THE TOTAL INCOME OF THE ASSESSEE. 4. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING APPEAL WHO HAS DELETED THE ADDITIONS BY PART LY ALLOWING THE APPEAL. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUNDS NO.1 & 2 6. BY RELYING UPON PARAS 3.21 TO 3.24 OF THE ASSESS MENT ORDER, LD. DR FOR THE REVENUE WHILE CHALLENGING THE IMPUGN ED ORDER CONTENTED THAT AO HAS FACTUALLY DETERMINED THAT EXP ENSES PAID BY THE ASSESSEE TO RSCPL UNDER THE GARB OF LICENCE FEE ARE NOT IN THE NATURE OF LICENCE FEE. ITA NO.4955/DEL./2018 4 7. HOWEVER, LD. AR FOR THE ASSESSEE TO REPEL THE AR GUMENTS ADDRESSED BY THE LD. DR FOR THE REVENUE CONTENTED T HAT THIS ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE IN ITA NOS.3667, 3666, 3668, 3669/D EL/2013, 367/DEL/2012 & 4680/DEL/2012, ITA NO.6669/DEL/2017 & ITA NO.2979/DEL/2016 FOR AYS 2003-04 TO 2009-10, 2013-1 4 & 2015- 16 VIDE ORDERS DATED 06.09.2016, 22.01.2021 & 26.07 .2019 RESPECTIVELY. 8. BARE PERUSAL OF THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) GOES TO PROVE THAT THE SAME HAS BEEN PASSED BY FOLL OWING EARLIER YEARS ORDER PASSED BY THE TRIBUNAL DELETING THE IDE NTICAL ADDITION BY THRASHING COMPLETE FACTS IN DETAIL IN THE LIGHT OF THE AGREEMENT DATED JUNE 5, 2001 VIDE WHICH RSCPL HAS GRANTED THE LICENCE FOR THE USE OF GOODWILL TO THE ASSESSEE ON PAYMENT OF L ICENCE FEE @25% OF THE AMOUNT OF BILLS RAISED. WHEN THE AGREE MENT IS STILL IN OPERATION, WE DO NOT FIND ANY REASON TO INTERFERE I NTO THE FINDINGS RETURNED BY THE LD. CIT (A). 9. COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ASSESSEE VIDE ORDER DATED 26.07.2019 IN ITA NO.2979/DEL/2016 FOR AY 2015-16 DEALT WITH THE IDENTICAL ISSUE AND DECIDED IN FAVO UR OF THE ASSESSEE BY RETURNING FOLLOWING FINDINGS :- ITA NO.4955/DEL./2018 5 6. WE FIND THAT THIS ISSUE IS PERMEATING FROM THE EARLIER YEARS AND THE TRIBUNAL AFTER NOTING THE ENTIRE FACT S AND RIVAL CONTENTIONS MADE BY THE PARTIES AS WELL AS RELEVANT PROVISION OF LAW HAS HELD THAT THE LICENSE FEE PAID TO M/S. RSCP L IS ALLOWABLE AS REVENUE EXPENDITURE. THE RELEVANT OBSERVATION AN D THE FINDING OF THE TRIBUNAL READ AS UNDER: '8. WE HAVE HEARD BOTH THE PARTIES AT LENGTH. WE HA VE CONSIDERED THE WRITTEN SUBMISSION, THE PAPERS ON RE CORD AS WELL AS THE CASE LAWS CITED BY BOTH PARTIES. ON A CAREFUL CONSIDERATION OF THE SAME WE HOLD AS FOLLOWS: 8.1. BEFORE WE ADJUDICATE THE ISSUE AS TO WHETHER THE DISALLOWA NCE OF LICENSE FEE PAID BY THE ASSESSEE TO RSCPL FOR LICEN SE TO PRACTICE AS 'REMFRY & SAGAR' AND FOR USE OF THE SAI D NAME, TRADE MARK AND GOODWILL BY THE A.O IS TO BE U PHELD 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 ESTABLISHED AS 'GRANT AND REMFRY', BY A BRITISH IMMIGRANT, MR. HEN RY OLIVER REMFRY, WHICH WAS SUBSEQUENTLY CONVERTED INT O PARTNERSHIP FIRM AND OPERATED BY FIVE GENERATIONS O F 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. YEA R 1970: MR. BERNIER AND MR. BURRINGTON RETIRED. MR. HOLLOWA Y, MR. SILVERSTONE AND MRS. REMFRY ENTERED INTO A FRES H DEED OF PARTNERSHIP. AS PER THE PARTNERSHIP DEED, M R. 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 O F THE BUSINESS. YEAR 1973: MR. HOLLOWAY AND MRS. SILVERSTONE TRANSFERRED ABSOLUTELY, THE BUSINESS WITH ALL ASSET S INCLUDING NAME AND GOODWILL THEREOF, VESTING IN 'RE MFRY & SON' FOR VALUABLE CONSIDERATION, TO DR. V. SAGAR, WITH EFFECT FROM APRIL 1, 1973. YEAR 1990: DR. V. SAGAR MERGED HIS OWN SOLE-PROPRIETORSHIP 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 'REMFRY & SAGAR' TO A PRIVATE LIMITED COMPANY, VIZ., REMFRY & SAGAR CONSULTANTS PRIVATE LIMITED ('RSCPL'), WHEREI N SUBSTANTIAL SHAREHOLDING WAS HELD BY DR. SAGAR'S CHILDREN, VIZ., MS. ROSEMARY SAGAR AND MR. HEMANT SAGAR, WHO WERE NOT LAWYERS. AT THE TIME OF THE SAI D ITA NO.4955/DEL./2018 6 TRANSFER, GOODWILL WAS VALUED AT RS.45 CRORES ON WH ICH 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 GRAN TED A LICENSE FOR THE USE OF GOODWILL IN 'REMFRY & SAGA R' TO THE APPELLANT FIRM FOR A PERIOD OF 5 YEARS SUBJECT TO PAYMENT OF LICENSE FEES @ 25% OF THE AMOUNT OF BILL S RAISED. LATTER THIS WAS RAISED TO 28% OF THE BILLS RAISED ON RENEWAL OF AGREEMENT 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 INFRASTRUCTURE AND PROVISION OF SECRETARIAL, ACCOUNTING AND OTHER SUPPORTING SERVICES. FEB 2011: DEMISE OF DR. V. SAGAR IN PURSUANCE OF TH E AFORESAID LICENSE AGREEMENT DATED JUNE _5, 2001 ENT ERED INTO BETWEEN THE APPELLANT AND RSCPL, THE _APPELLAN T 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 PARTNERSHI P 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 PROPERTIES OF THE FIRM. THOUGH M RS. REMFRY WAS HAVING A SHARE IN THE NET PROFITS 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 DISTINC T AND SEPARATE FROM THE OTHER ASSETS OF THE PARTNERSHIP F IRM AND THAT IT VESTED ONLY 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 BUSINESS CARRIED ON UNDER THE NAM E AND STYLE OF 'REMFRY & SONS' ALONG WITH ALL ITS ASSETS INCLUDING CAPITAL ASSET AS ON 31ST MARCH 1973 AND T HE NAME AND GOODWILL THEREOF WHICH WAS REFERRED TO AS 'THE SAID BUSINESS' IN THAT AGREEMENT FOR A TOTAL CONSID ERATION ITA NO.4955/DEL./2018 7 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 'REMFR Y AND SONS' WHICH IS IN THE BUSINESS OF TRADE MARK AND PA TENT AGENT. 8.5. ON 1ST JUNE, 1990, DR. V. SAGAR MERGED HIS LEG AL PRACTICE IN THE NAME OF 'SAGAR & CO.' WITH THE BUSI NESS OF TRADE MARK AND PATENT AGENTS CARRIED ON IN THE N AME AND STYLE OF 'REMFRY & SONS' AND CHANGED THE NAME O F THE PROPRIETORSHIP INTO 'REMFRY AND SAGAR'. DR. V. SAGAR WAS CARRYING PRACTICE AND PROFESSION OF 'ATTORNEYS- AT- LAW' WITH SPECIALIZATION IN THE AREAS OF INTELLECTU AL PROPERTY LAW AND CORPORATE LAW UNDER THE NAME AND STYLE OF 'REMFRY & SAGAR', IN NEW DELHI AND MUMBAI. THE GOODWILL IN THE NAME OF 'REMFRY & SAGAR' AND AL L THE RIGHTS ASSOCIATED THEREOF (INCLUDING INTELLECTUAL P ROPERTY RIGHTS) BELONG EXCLUSIVELY TO DR. V. SAGAR. DR. V. SAGAR BY WAY OF A GIFT DEED EXECUTED 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 ASSOCIATED THEREWITH(HERE INAFTER REFERRED COLLECTIVELY REFERRED TO AS 'GOODWILL'). D R. V. SAGAR ALSO SOLD AND TRANSFERRED TO RSCPL, THE INFRASTRUCTURE ASSOCIATED WITH HIS PRACTICE. 8.6. F ROM THE ABOVE, IT IS CLEAR THAT FROM 1ST JUNE 1990 TO 31ST MAY 2001, DR. V. SAGAR WAS ONLY CARRYING ON THE PRACTIC E AND PROFESSION OF ATTORNEY-AT-LAW, WHICH INCLUDED THE BUSINESS OF 'REMFRY AND SONS' ACQUIRED BY HIM. IN O THER WORDS, PRIOR TO 1ST JUNE, 1990, THE GOODWILL OF 'RE MFRY AND SONS' WAS GOODWILL OF BUSINESS AND NOT OF ADVOC ACY PROFESSION, BUT THEREAFTER THERE IS A MERGER OF THE PROFESSION OF LAW AND THE BUSINESS OF TRADE MARK AN D PATENT. AGENTS AND THIS WAS CARRIED ON AS A PROFESS ION OF LAW. 8.7. VIDE PARTNERSHIP DATED 5TH JUNE 2001 BETWEEN D R. V. SAGAR AND FOUR OTHER PARTNERS IT WAS AGREED TO CARR Y 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, WITHO UT BREAK AND IN CONTINUITY, THE PRACTICE, HITHER TO CA RRIED ON BY DR. V. SAGAR. THE FOUR OTHER PARTNERS WERE EARLI ER ASSOCIATED WITH THE PRACTICE OF DR. V. SAGAR, IN TH EIR INDIVIDUAL CAPACITIES FOR NUMBER OF YEARS AND HAVE ACQUIRED EXPERTISE IN THIS FIELD OF THE PROFESSION. WE NOTICE THAT THE PARTNERSHIP DEED DATED 5TH JUNE 200 1 IS ITA NO.4955/DEL./2018 8 UNDER THE NAME AND STYLE OF 'REMFRY & SAGAR' AND TH IS PARTNERSHIP DEED HAS COME INTO FORCE ON 1ST JUNE 20 01. THUS WHAT IS LICENSED BY RSCPL TO THE ASSESSEE FIRM IS GOODWILL AND ITS ASSOCIATED RIGHTS TO PRACTICE AS 'ATTORNEYS-AT-LAW AND NOT TO DO BUSINESS OF TRADEMA RK AND PATENT AGENTS. 8.8. VIDE AGREEMENT DATED 5TH JUNE 2001, RSCPL PERMITTED TO USE OF 'GOODWILL' TO THE PARTNERSHIP A ND 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 CLE AR THAT DR. V. SAGAR HAS ARRANGED HIS AFFAIRS IN SUCH A WAY THAT THE GOODWILL EARNED BY HIM OVER THE YEARS IS ENJOYE D BY HIS CHILDREN WHO ARE HIS LEGAL HEIRS. ALL THE DOCUMENTATION SHOWS THAT THIS IS A VERY WELL THOUGH T OUT STRATEGY BY DR.V.SAGAR TO RETAIN HIS HARD EARNED AS WELL AS PURCHASED GOODWILL AND TO USE IT FOR HIS FUTURE GENERATIONS, IRRESPECTIVE OF THE FACT WHETHER THEY WERE IN THE PRACTICE OF LAW. SUCH WELL CONSIDERED AND THOUG HT 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 SUBSTANCE OF THE ARGUMENT OF THE REVENUE I S THAT SUCH SEGREGATION OF GOODWILL FROM THE LEGAL PRACTIC E CANNOT BE PERMITTED. IT IS FURTHER ARGUED THAT UNDE R THE ADVOCATES ACT , 1961, THE GOODWILL EARNED BY AN ADVOCATE CANNOT BE ALIENATED TO ANY PERSON OR COMPANY WHICH IS NOT ENTITLED 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 T HE BENEFIT OF THE GOODWILL EARNED AND CREATED BY THE L EGAL PRACTITIONER. IT WAS SUBMITTED THAT THE LEGAL HEIRS MAY BE ENTITLED TO CONSIDERATION FOR THE GOODWILL ON BEHAL F OF THE DECEASED FATHER BUT THEY CANNOT BE REGARDED AS THE LAWFUL OWNERS OF THE GOODWILL OR HAVING THE RIGHTS OF OWNI NG THE GOODWILL OR TO LICENSE THE SAME. IN OUR VIEW, WE FI ND A CONTRADICTION IN THESE SUBMISSIONS. WHEN IT CONTEND ED THAT THE LEGAL HEIRS OF A PRACTITIONER ARE ENTITLED TO RECEIVE CONSIDERATION FOR GOODWILL ON BEHALF OF THE DECEASE D PARENT, IT WOULD BE DIFFICULT TO HOLD THAT, THE GOO DWILL CANNOT BE SEPARATED FROM THE LEGAL PRACTICE AND THE FRUITS OF SUCH GOODWILL CANNOT BE ENJOYED BY THE LEGAL HEI RS OF THE LEGAL PRACTITIONER OR THAT IT CAN BE ENJOYED BY THE LEGAL HEIRS ONLY IN A PARTICULAR MANNER. ITA NO.4955/DEL./2018 9 8.12. BE IT AS IT MAY, THE SUBMISSION OF THE ASSESS EE THAT GOODWILL IS A SEPARATE INTANGIBLE ASSET WHICH CAN B E ALIENATED AND THAT WHICH CANNOT BE ATTACHED TO A FI RM 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 FORMED FOR CARRYING A PROFESSION A ND 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 AUTHOR IZED TO DO SO BY THE OWNER OF THE GOODWILL. AS RIGHTLY P OINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE THAT IN THE PRESENT DAY PROFESSIONAL PRACTICE AND PROFESSIONAL FIRMS AC ROSS THE GLOBE ARE IN THE NAMES OF THE ORIGINAL FOUNDERS , THOUGH THEY ARE NO LONGER PART OF THE PRACTICE. THI S NAME AND GOODWILL 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 PER MITTED 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 AGAINS T 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 ACCOUN TANT WHO WAS CARRYING ON HIS PROFESSION IN THE NAME OF D EVI DASS & CO. VIDE PARTNERSHIP DATED 31 JANUARY 1948, WHEREIN HE RETAINED/RESERVED THE RIGHT OF GOODWILL OF THE PROFESSION CARRIED ON BY HIM EARLIER IN SOLE PROPRIETORSHIP. ON 2ND JUNE 1951, HE RETIRED FROM T HE SAID PARTNERSHIP. THE GOODWILL IN THE PARTNERSHIP W AS SOLD TO THE OTHER PARTNER AND THE CONSIDERATION WAS TO B E PAID TO THE CHARTERED ACCOUNTANT AT THE CERTAIN RATE AND AFTER HIS DEATH TO HIS WIFE AND THEREAFTER HIS SON WERE T O PAID ANNUAL CONSIDERATION. THE QUESTION BEFORE THE HON'B LE COURT WAS WHETHER SUCH THE AMOUNTS PAID TO THE WIFE AND THEREOF TO THE SON IS ALLOWABLE DEDUCTION OR NOT UN DER THE INCOME TAX ACT. 8.14. THE LARGER BENCH CONSISTING O F FOUR JUDGES OF HON'BLE SUPREME COURT IN THE CASE OF DEVIDAS VITHALDAS & CO. VS. CIT, BOMBAY, REPORTED I N 84 ITR 277 (S.C.), HELD AS FOLLOWS. 'HELD, BY SHELAT, KHANNA AND MITTER JJ (SDHRI CJ DISSENTING), REVERSING THE DECISION OF THE HIGH COURT, THAT THE TRANSACTION UNDER THE DEED OF DISSOLUTION WAS A LICENCE AND NOT A SALE OF THE GOODWILL AND THE PAYMENTS WERE IN THE NATURE OF ITA NO.4955/DEL./2018 10 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 PURCHASE PRICE OF THE GOODWILL', THESE EXPRESSIONS WERE NOT DETERMINATIVE OF THE EXACT NATURE OF THE TRANSACTION; (II) NEITHER CLAUSE 2 NOR ANY OTHER PROVISION IN THE DEED FIXED ANY LUMP SUM AS PRICE IN RESPECT OF WHICH ANNUAL PAYMENTS WERE PROVIDED; (III) THE DURATION OF PAYMENT WAS INDEFINITE 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 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 ARRANGEMENT 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 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 HIGH 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 CASE OF THE REVENUE. THE MAJORITY OF THE THREE JUDGES OF HO N'BLE SUPREME COURT DID NOT AGREE WITH THE MINORITY VIEW AND HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 8.16. APPLYING THE PROPOSITIONS LAID DOWN IN THIS C ASE LAW TO THE FACTS OF THE CASE, WE HAVE TO NECESSARILY HO LD, THAT THE ARGUMENT OF REVENUE THAT THE ARRANGEMENT WAS FO R AVOIDANCE OF TAX AND DIVERSION OF PROFITS AND HENCE THE DEDUCTION WAS RIGHTLY DENIED BY THE ASSESSING OFFIC ER, HAS TO BE REJECTED. EVEN OTHERWISE, IT HAS BEEN DEMONST RATED BY THE ASSESSEE THAT THE REVENUE HAS ACCEPTED THAT BOTH THE ENTITIES I.E. THE ASSESSEE AS WELL AS RSCPL, PA Y TAXES, AT THE MAXIMUM RATE AND THAT THERE IS NO LOSS OF RE VENUE ON ACCOUNT OF THIS ARRANGEMENT. THE TAXES DUE TO TH E GOVERNMENT HAVE NOT BEEN AVOIDED OR EVADED BY THIS ARRANGEMENT. THUS THE DISALLOWANCE MADE ON THE GROU ND OF DIVERSION OF PROFITS IS DEVOID OF MERIT. 8.17. T HOUGH THE ITA NO.4955/DEL./2018 11 LD. SPECIAL COUNSEL FOR THE REVENUE ARGUED THAT GOO D WILL OF A PROFESSION CANNOT BE SOLD TO A COMPANY WH ICH DOES NOT HAVE A RIGHT TO CARRY ON PRACTICE, NO SPEC IFIC LAW OR SECTION WAS BROUGHT TO THE NOTICE OF THE BENCH I N SUPPORT OF THE ARGUMENT. ONLY SEVERAL SUBMISSIONS H AVE BEEN MADE. CERTAIN JUDGEMENTS OF FOREIGN COURTS WER E CITED, WHICH WERE BASED ON 'ETHICAL CONSIDERATIONS' AND NOT LEGAL PROHIBITION. IN ANY EVENT, THE ITAT HAS N O POWER OR AUTHORITY TO ADJUDICATE THE ISSUE AS TO WH ETHER, THE GIFT OF GOODWILL BY DR.V.SAGAR OF HIS PROFESSIO N OF LAW, TO A COMPANY IS VIOLATING THE ADVOCATES ACT , 1961 OR THE BAR COUNCIL RULES. NO AUTHORITY HAS HELD THAT T HIS ARRANGEMENT VIOLATES ANY ACT OR LAW OF THE LAND, TH OUGH THE ASSESSEE FIRM HAS BEEN CARRYING ON ITS PROFESSI ON OF ATTORNEYS AT LAW UNDER THIS ARRANGEMENT FOR THE LAS T MANY YEARS. 8.18. ANOTHER IMPORTANT FACT THAT HAS TO BE CONSIDERED IS THAT, DR. V. SAGAR HAD THE SOLE AND E XCLUSIVE 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 AND OTHER ASSETS AND RIGHTS . THE ASSESSEE FIRM HAD TO SEEK PERMISSIONS AND LICENCES TO CONTINUE AND CARRY ON THIS PROFESSION UNDER THIS NA ME AS IT IS RUN DOING. HENCE OBTAINING A LICENSE IS A MUS T FOR ASSESSEE FIRM TO CONTINUE AND CARRY ON ITS PROFESSI ON AS THE GOODWILL IS NOT OWNED BY IT THE PAYMENT MADE IN PURSUANCE OF AN AGREEMENT WHICH ENABLES THE ASSESSE E FIRM TO CARRY ON ITS PROFUSIONS, IN THE MANNER IN W HICH IT IS NOW DOING, IS DEFINITELY AN EXPENDITURE LAID DOW N WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE ARGUMENT OF THE LD. SPECIAL COUNCIL THAT THE PURPOSE TEST CONTEMPLATED U/S 37 OF THE ACT IS NOT SATISFIED IS DEVOID OF MERIT. IRRESPECTIVE OF WHETH ER THE GIFT OF DR. V. SAGAR TO RSCPL BEING ETHICAL OR NOT AND IRRESPECTIVE OF THE FACT WHETHER THE GIFT IS LEGALL Y VALID OR NOT, FROM THE VIEW POINT OF THE ASSESSEE FIRM, AS I T COULD NOT HAVE CONTINUED AND CARRIED ON THE PROFESSION OF ATTORNEYS-AT- LAW IN THE NAME OF 'REMFRY & SAGAR' A ND USE ITS GOODWILL AND ALL ITS ASSOCIATED RIGHTS WITH OUT THE IMPUGNED AGREEMENT WITH RSCPL. HENCE THE PAYMENT HAS TO BE HELD AS THAT WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSI ON. 8.19. THE CONTENTION OF THE SPECIAL COUNCIL FOR THE REVENUE THAT THE ARRANGEMENT IS JUST A REVENUE SHOW N ARRANGEMENT IS JUST AN INFERENCE AND IS NOT SUPPORT ED BY ANY MATERIAL. THUS THE ARGUMENT OF VIOLATION OF BAR COUNCIL RULES IS DEVOID OF MERIT. 8.20. FOR ALL THE SE REASONS WE ARE OF THE CONSIDERED OPINION THAT THE DEDUCTION CLAIMED BY THE ASSESSEE OF LICENSE FEE PA ID TO ITA NO.4955/DEL./2018 12 M/S RSCPL HAS TO BE ALLOWED AS A DEDUCTION U/S 37 O F THE ACT.' 7. THUS, RESPECTFULLY FOLLOWING THE AFORESAID PREC EDENCE, WE HOLD THAT THE SAID DEDUCTION CLAIMED BY THE ASSESSE E ON ACCOUNT OF LICENSE FEE PAID TO M/S. RSCPL IS ALLOWABLE AS R EVENUE EXPENDITURE U/S.37. CONSEQUENTLY, GROUND NO.1 OF TH E REVENUE IS DISMISSED AND GROUND NO.2 OF THE ASSESSEE IS ALLOWE D. 10. SINCE LD. DR FOR THE REVENUE HAS FAILED TO BRIN G ON RECORD ANY DISTINGUISHING FACTS QUA THE YEAR UNDER ASSESSM ENT VIS--VIS PRECEDING AND SUCCEEDING YEARS TO CONTROVERT THE FI NDINGS RETURNED BY THE COORDINATE BENCH OF THE TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT AMOUNT OF DEDUCTION CLAIMED BY THE ASSESS EE ON ACCOUNT OF LICENCEE FEE PAID TO RSCPL IS ALLOWABLE EXPENDIT URE U/S 37 OF THE ACT. CONSEQUENTLY, GROUNDS NO.1 & 2 ARE DETERM INED AGAINST THE REVENUE. GROUND NO.3 11. AO MADE AN AD HOC DISALLOWANCE @ 10% OF THE FOR EIGN TRAVEL EXPENSES CLAIMED BY THE ASSESSEE ON GROUND O F PERSONAL ELEMENT IN THESE EXPENSES WHICH LD. CIT (A) HAS DEL ETED. LD. DR FOR THE REVENUE CHALLENGING THE IMPUGNED DELETION R ELIED UPON THE ORDER PASSED BY THE AO. 12. WE ARE OF THE CONSIDERED VIEW THAT NONE OF THE EXPENDITURE CLAIMED BY THE ASSESSEE AS BUSINESS EXPENDITURE CAN BE DISALLOWED MERELY ON THE BASIS OF SURMISES. LD. CIT (A) DELET ED THE IMPUGNED ITA NO.4955/DEL./2018 13 ADDITION BY FOLLOWING THE EARLIER YEARS ORDER ALLOW ING IDENTICAL EXPENDITURE. 13. WHEN AO HAS NOT DISPUTED THE BOOKS OF ACCOUNT Q UA THE EXPENDITURE CLAIMED BY THE ASSESSEE IN ANY MANNER, AD HOC DISALLOWANCE TO THE EXTENT OF 10% OF THE FOREIGN TR AVEL EXPENSES IS NOT SUSTAINABLE IN THE EYES OF LAW. SO, WE FIND NO GROUND TO INTERFERE IN THE FINDINGS RETURNED BY THE LD. CIT ( A), HENCE GROUND NO.3 IS DETERMINED AGAINST THE REVENUE. 14. RESULTANTLY, FINDING NO ILLEGALITY OR INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A), PRESENT APPEAL FILED BY T HE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 22 ND DAY OF SEPTEMBER, 2021. SD/- SD/- (PRASHANT MAHARISHI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 22 ND DAY OF SEPTEMBER, 2021 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-38, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.