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

ITA 6699/DEL/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 7385 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Appeal Filed On: 06-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSHMA SINGH
• Keywords: Capital asset; Gift; Avoidance of tax; Revenue expenditure; Set aside
• Section: 22; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.6699/DEL./2017 (ASSESSMENT YEAR : 2013-14) ACIT, CIRCLE 61 (1), VS. REMFRY & SAGAR, NEW DELHI. REMFRY HOUSE AT MILLENIUM PLAZA, SECTOR 27, GURGAON 122 002 (HARYANA). (PAN : AAEFR6753P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.V.S.R. KRISHNA, ADVOCATE REVENUE BY : SMT. SUSHMA SINGH, CIT DR DATE OF HEARING : 14.12.2020 DATE OF ORDER : 22.01.2021 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, ACIT, CIRCLE 61 (1), NEW DELHI (HEREINAF TER REFERRED TO AS THE REVENUE), BY FILING THE PRESEN T APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 25.08.2017 PASSE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-30, NEW DELHI 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 ITA NO.6699/DEL./2017 2 ACCOUNT OF DISALLOWANCE OF LICENSE FEE OF RS.27,56, 00,686/- PAID TO REMFRY & SAGAR CONSULTANTS PVT. LTD. (RSCPL) BY IGNORING THE FACT THAT THE ASSESSEE BEING LAW FIRM WAS USING GOODWILL OF RSCPL BEING A COMPANY PROHIBITED FROM PRACTICING LA W IN INDIA AS PER ADVOCATES ACT, 1961 AND BAR COUNCIL RU LE. 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.27,56, 00,686/- PAID TO REMFRY & SAGAR CONSULTANTS PVT. LTD. (RSCPL) BY IGNORING THE FACT THAT THE VALUE OF LICENSE FEE PAID BY THE ASSESSEE HAS BEEN INCREASING YEAR AFTER YEAR AND NO EXPENDITURE BEING INCURRED BY RSCPL TOWARDS IMPROVEMENT, DEVELOPMENT OR PROTECTION 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.12,89,393/- OUT OF TR AVELLING AND ENTERTAINMENT EXPENSE BY IGNORING THE FACT THAT PER SONAL ELEMENT IN RESPECT OF THESE EXPENSES CANNOT BE RULE D 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 BY PROFESSION AND DERIVED INCOME FROM BUSINESS OR PROFESSION AND INCO ME FROM OTHER SOURCE. ASSESSEES CLAIM OF AN EXPENDITURE OF RS.2 7,56,00,686/- BEING THE LICENCE FEE PAID TO M/S. REMFRY & SAGAR C ONSULTANTS PVT. LTD. (RSCPL) FOR THE USE OF GOODWILL OF REMFRY & S AGAR AND TO PRACTICE IN ITS NAME HAS BEEN DISALLOWED BY THE ASS ESSING OFFICER (AO) ON THE GROUND THAT LICENCE FEE FOR USE OF GOOD WILL IS INCREASING YEAR AFTER YEAR AND RSCPL WHO IS OWNER O F THE GOODWILL IS DOING NOTHING FOR PROMOTION OR ENHANCIN G THE VALUE OF GOODWILL. AO ALSO MADE ADDITION OF RS.12,89,393/- BY WAY OF DISALLOWANCE OF 5% OF THE TRAVELLING EXPENSES (RS.2 ,51,28,394/-) ITA NO.6699/DEL./2017 3 AND ENTERTAINMENT EXPENSES (RS.6,59,463/-) ON THE G ROUND THAT THE SAME IS HAVING SOME ELEMENT OF PERSONAL EXPENSES. 3. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING THE APPEAL WHO HAS DELETED THE ADDITIONS BY ALLOWING THE APPEAL. FEELING AGGRIEVED BY THE ORDER PASSED BY T HE LD. CIT (A), THE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. 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. GROUND NO.1 5. LD. DR FOR THE REVENUE CHALLENGING THE IMPUGNED ORDER DREW OUR ATTENTION TOWARDS PARA 3.22 OF THE ASSESSM ENT ORDER WHEREIN AO HAS CATEGORICALLY DIFFERENTIATED THE EXP ENSES PAID BY THE ASSESSEE TO R & S CONSULTANT BEING NOT IN THE N ATURE OF LICENCE FEE AND RELIED UPON THE ORDER PASSED BY THE AO. 6. TO REPEL THE ARGUMENTS ADDRESSED BY THE LD. DR F OR THE REVENUE, LD. AR FOR THE ASSESSEE CONTENDED THAT THI S ISSUE IS COVERED BY THE EARLIER YEARS ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.2979/DEL/ 2016 FOR AY 2015-16 ORDER DATED 26.07.2019 AND THE BENCH REACHED THE ITA NO.6699/DEL./2017 4 CONCLUSION THAT LICENCE FEE PAID TO M/S. RSCPL IS A LLOWABLE AS REVENUE EXPENSES. 7. WHEN WE EXAMINE THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) WHO HAS FOLLOWED THE EARLIER YEARS ORDER OF THE TRIBUNAL BY DELETING THE ADDITION HAD THRASHED THE FACTS IN DETAIL IN THE LIGHT OF THE AGREEMENT DATED JUNE 5, 2001 VIDE WHICH RSCP L HAS GRANTED A LICENCE FOR THE USE OF GOODWILL TO THE AS SESSEE SUBJECT TO PAYMENT OF LICENCE FEE @ 25% OF THE AMOUNT OF BILLS RAISED AND AGREEMENT WAS VALID FOR 5 YEARS. SO, KEEPING IN VI EW THE FACT THAT THE AGREEMENT IS STILL IN OPERATION, WE HAVE NO RES ERVATION TO INTERFERE INTO THE FINDINGS RETURNED BY THE LD. CIT (A). 8. COORDINATE BENCH OF THE TRIBUNAL IN THE ORDER (S UPRA) RELIED ON EARLIER YEARS ORDER AND RETURNED THE FOLLOWING FINDINGS :- 6. WE FIND THAT THIS ISSUE IS PERMEATING FROM THE EARLIER YEARS AND THE TRIBUNAL AFTER NOTING THE ENTIRE FACTS AND RIVAL CONTENTIONS MADE BY THE PARTIES AS WELL AS RELEVANT PROVISION O F LAW HAS HELD THAT THE LICENSE FEE PAID TO M/S. RSCPL IS ALLOWABL E AS REVENUE EXPENDITURE. THE RELEVANT OBSERVATION AND THE FINDI NG 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 C AREFUL CONSIDERATION OF THE SAME WE HOLD AS FOLLOWS: 8.1. BEFORE WE ADJUDICATE THE ISSUE AS TO WHETHER THE DISALLOWANCE 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 UPHELD OR NOT, FOR THE PURPOSE OF THE READY REFERENCE WE RECAPITUL ATE THE FACTS OF THE CASE AS BELOW: FACTS YEAR 1827: A SOLE PROPRIETORSHIP FIRM WAS ESTABLISHED AS 'GRANT AND R EMFRY', BY A BRITISH IMMIGRANT, MR. HENRY OLIVER REMFRY, WH ICH WAS SUBSEQUENTLY CONVERTED INTO PARTNERSHIP FIRM AN D ITA NO.6699/DEL./2017 5 OPERATED BY FIVE GENERATIONS OF REMFRY FAMILY, UNTI L THE YEAR 1957. YEAR 1957: MR. HOLLAWAY, MRS. SILVERSTONE, MR. BERN IER AND MR. BURRINGTON JOINED 'REMFRY & SON' (THE NAME OF T HE PARTNERSHIP FIRM AT THAT TIME) AS PARTNERS. YEAR 19 70: MR. BERNIER AND MR. BURRINGTON RETIRED. MR. HOLLOWAY, M R. SILVERSTONE AND MRS. REMFRY ENTERED INTO A FRESH DE ED OF PARTNERSHIP. AS PER THE PARTNERSHIP DEED, MR. HOLLO WAY AND MRS. SILVERSTONE WERE ENTITLED AND EMPOWERED TO SEL L 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 VAL UABLE CONSIDERATION, TO DR. V. SAGAR, WITH EFFECT FROM AP RIL 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 'REMFR Y & SAGAR' TO A PRIVATE LIMITED COMPANY, VIZ., REMFRY & SAGAR CONSULTANTS PRIVATE LIMITED ('RSCPL'), WHEREIN SUBS TANTIAL 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 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 PAR TNERSHIP WITH MR. R. SAMPATH, MRS. ASHWIN JULKA, MR. RAMIT N AGPAL 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 & SAGAR' TO THE APPELLANT FIRM FOR A PERIOD OF 5 YEARS SUBJECT TO P AYMENT OF LICENSE FEES @ 25% OF THE AMOUNT OF BILLS RAISED. L ATTER 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 U SE OF INFRASTRUCTURE AND PROVISION OF SECRETARIAL, ACCOUN TING 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 ITA NO.6699/DEL./2017 6 LICENSE FEE FOR USE OF GOODWILL TO RSCPL W.E.F. _AS SESSMENT 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 CAPIT AL ASSETS AND PROPERTIES OF THE FIRM. THOUGH MRS. REMFRY WAS HAVING A SHARE IN THE NET PROFITS OF THE PARTNERSHIP, SHE HAD NO OWNERSHIP RIGHTS IN THE GOODWILL OF THIS FIRM. THIS DEMONSTRATES THAT THE NAME AND GOODWILL OF THE BUSI NESS 'REMFRY & SONS' IS DISTINCT AND SEPARATE FROM THE O THER ASSETS OF THE PARTNERSHIP FIRM AND THAT IT VESTED O NLY IN TWO PARTNERS OF THE FIRM AND NOT THE FIRM. THIS IS CLEA R FROM READING OF CLAUSE 2 & 3 OF THE SAID PARTNERSHIP DEE D. 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 THE NAME AN D GOODWILL THEREOF WHICH WAS REFERRED TO AS 'THE SAID BUSINESS' IN THAT AGREEMENT FOR A TOTAL CONSIDERATI ON OF RS. 3 LACS. THUS WHEN DR.V.SAGAR PURCHASED THE GOODWILL 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 '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 NAME AND STYLE OF 'REMFRY & SONS' AND CHANGED THE NAME OF TH E PROPRIETORSHIP INTO 'REMFRY AND SAGAR'. DR. V. SAGA R WAS CARRYING PRACTICE AND PROFESSION OF 'ATTORNEYS-AT-L AW' WITH SPECIALIZATION IN THE AREAS OF INTELLECTUAL PROPERT Y LAW AND CORPORATE LAW UNDER THE NAME AND STYLE OF 'REMFRY & SAGAR', IN NEW DELHI AND MUMBAI. THE GOODWILL IN TH E NAME OF 'REMFRY & SAGAR' AND ALL THE RIGHTS ASSOCIA TED THEREOF (INCLUDING INTELLECTUAL PROPERTY RIGHTS) BE LONG 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 GO ODWILL IN THE NAME OF 'REMFRY & SAGAR' AND ALL THE RIGHTS ASS OCIATED THEREWITH(HEREINAFTER REFERRED COLLECTIVELY REFERRE D TO AS 'GOODWILL'). DR. V. SAGAR ALSO SOLD AND TRANSFERRED TO ITA NO.6699/DEL./2017 7 RSCPL, THE INFRASTRUCTURE ASSOCIATED WITH HIS PRACT ICE. 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 PRA CTICE AND PROFESSION OF ATTORNEY-AT-LAW, WHICH INCLUDED T HE 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 ADVOCACY PROFESSION, BUT THEREAFTER THERE IS A MERGER OF THE PROFESSION OF LAW AND THE BUSINESS OF TRADE MARK AND PATENT. A GENTS AND 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 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 CARRIED ON BY DR. V. SAGAR. THE FOUR OTHER PARTNERS WERE EARLIER ASSOCIA TED 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 PROFESSION. WE NOTICE THAT THE PARTNERSHIP D EED DATED 5TH JUNE 2001 IS UNDER THE NAME AND STYLE OF 'REMFR Y & SAGAR' AND THIS PARTNERSHIP DEED HAS COME INTO FORC E ON 1ST JUNE 2001. THUS WHAT IS LICENSED BY RSCPL TO THE AS SESSEE FIRM IS GOODWILL AND ITS ASSOCIATED RIGHTS TO PRACT ICE AS 'ATTORNEYS-AT-LAW AND NOT TO DO BUSINESS OF TRADEMA RK AND PATENT AGENTS. 8.8. VIDE AGREEMENT DATED 5TH JUNE 2001, RSCPL PERM ITTED TO USE OF 'GOODWILL' TO THE PARTNERSHIP AND PERMITT ED THEM TO USE THE NAME OF 'REMFRY & SAGAR' WITH RETROSPECT IVE EFFECT I.E. 1ST JUNE 2001. WHILE CLAUSE NO. 16.1 OF THIS AGREEMENT, THE LICENSE FEE IN QUESTION IS TO BE PAI D IN PURSUANCE TO THIS AGREEMENT. 8.9. IT IS CLEAR THAT DR. V. SAGAR HAS ARRANGED HIS AFFAIRS IN SUCH A WAY THAT T HE GOODWILL EARNED BY HIM OVER THE YEARS IS ENJOYED BY HIS CHILDREN WHO ARE HIS LEGAL HEIRS. ALL THE DOCUMENTA TION SHOWS THAT THIS IS A VERY 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 FACT WHETHER THEY WERE IN THE PRACTICE OF LA W. 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 FO R CONSIDERATION IS WHETHER SUCH AN ARRANGEMENT IS PER MISSIBLE IN LAW. THE PITH AND SUBSTANCE OF THE ARGUMENT OF T HE REVENUE IS THAT SUCH SEGREGATION OF GOODWILL FROM T HE LEGAL PRACTICE CANNOT BE PERMITTED. 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 ENTITLED TO PRACTICE UNDER THE ADVOCATES ACT , 1961. ITA NO.6699/DEL./2017 8 8.11. AT THE SAME TIME, THE REVENUE CONCEDES THAT T HE 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 CONSIDERATION FOR THE GOODWILL ON BEHALF OF THE DEC EASED FATHER BUT THEY CANNOT BE REGARDED AS THE LAWFUL OW NERS OF THE GOODWILL OR HAVING THE RIGHTS OF OWNING THE GOO DWILL OR TO LICENSE THE SAME. IN OUR VIEW, WE FIND A CONTRAD ICTION IN THESE SUBMISSIONS. WHEN IT CONTENDED THAT THE LEGAL HEIRS OF A PRACTITIONER ARE ENTITLED TO RECEIVE CONSIDERATIO N FOR GOODWILL ON BEHALF OF THE DECEASED PARENT, IT WOULD BE DIFFICULT TO HOLD THAT, THE GOODWILL CANNOT BE SEPA RATED FROM THE LEGAL PRACTICE AND THE FRUITS OF SUCH GOODWILL CANNOT BE ENJOYED BY THE LEGAL HEIRS OF THE LEGAL PRACTITIONE R OR THAT IT CAN BE ENJOYED BY THE LEGAL HEIRS ONLY IN A PARTICU LAR MANNER. 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 AND PRACTICE OF DR. V. SAGAR UNDER THE NAME AND STYLE OF 'REMFRY & SAGAR' COULD NOT HAVE CARRIED OUT THE PROFESSION AS IT IS DOING RUN BY USING THE GOODWILL AND NAME OF 'REMFRY & SAGAR' UNL ESS SPECIFICALLY AUTHORIZED TO DO SO BY THE OWNER OF TH E GOODWILL. AS RIGHTLY POINTED OUT BY THE LD. COUNSEL FOR THE A SSESSEE THAT IN THE PRESENT DAY PROFESSIONAL PRACTICE AND PROFESSIONAL FIRMS ACROSS THE GLOBE ARE IN THE NAME S OF THE ORIGINAL FOUNDERS, THOUGH THEY ARE NO LONGER PART O F THE PRACTICE. THIS NAME AND GOODWILL HELPS IN THE PRACT ICE. THE PARTNERSHIP WAS FORMED TO CONTINUE THE LAW PRACTICE OF DR. V. SAGAR AND THIS COULD BE DONE ONLY IF THE ASSESSE E 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 SEG REGATED FROM THE PERSONA OF THE PERSON IS AGAINST THE PROPO SITIONS OF LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN THE C ASE OF DEVI DAS MITTAL DAAS VITHALDAS & CO. VS. CIT BOMBAY CITY (SUPRA). THE CONSTITUTIONAL BENCH OF THE HON'BLE SU PREME COURT CONSISTING OF FOUR FINDINGS WAS CONSIDERING A CASE OF CHARTERED ACCOUNTANT WHO WAS CARRYING ON HIS PROFES SION IN THE NAME OF DEVI DASS & CO. VIDE PARTNERSHIP DATED 31 JANUARY 1948, WHEREIN HE RETAINED/RESERVED THE RIGH T OF GOODWILL OF THE PROFESSION CARRIED ON BY HIM EARLIE R IN SOLE PROPRIETORSHIP. ON 2ND JUNE 1951, HE RETIRED FROM T HE SAID PARTNERSHIP. THE GOODWILL IN THE PARTNERSHIP WAS SO LD 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 ANN UAL ITA NO.6699/DEL./2017 9 CONSIDERATION. THE QUESTION BEFORE THE HON'BLE COUR T WAS WHETHER SUCH THE AMOUNTS PAID TO THE WIFE AND THERE OF TO THE SON IS ALLOWABLE DEDUCTION OR NOT UNDER THE INCOME TAX ACT. 8.14. THE LARGER BENCH CONSISTING OF FOUR JUDGES OF HON'BLE SUPREME COURT IN THE CASE OF DEVIDAS VITHAL DAS & CO. VS. CIT, BOMBAY, REPORTED IN 84 ITR 277 (S.C.), HELD AS FOLLOWS. 'HELD, BY SHELAT, KHANNA AND MITTER JJ (SDHRI CJ DISSENTING), REVERSING THE DECISION OF THE HIGH COU RT, THAT THE TRANSACTION UNDER THE DEED OF DISSOLUTION WAS A LICENCE AND NOT A SALE OF THE GOODWILL AND TH E PAYMENTS WERE IN THE NATURE OF ROYALTY AND HAD TO B E TREATED AS ADMISSIBLE DEDUCTIONS; BECAUSE (I) THOUG H CLAUSE 2 OF THE DEED OF DISSOLUTION USED EXPRESSION S 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) NEITHE R 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 T HE PROFITS OF THE BUSINESS, (IV) CLAUSE 6 INDICATED TH AT 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 HI S 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 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 OPINIO N, 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 CASE OF THE REVENUE. THE MAJORI TY OF THE THREE JUDGES OF HON'BLE SUPREME COURT DID NOT AGREE WITH THE MINORITY VIEW AND HAVE DECIDED THE ISSUE IN FAV OUR 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 HOLD, THAT THE ARGUMENT OF REVENUE THAT THE ARRANGEMENT WAS FOR AVOIDANCE OF TAX AND DIVERSION OF PROFITS AND HENCE THE ITA NO.6699/DEL./2017 10 DEDUCTION WAS RIGHTLY DENIED BY THE ASSESSING OFFIC ER, HAS TO BE REJECTED. EVEN OTHERWISE, IT HAS BEEN DEMONSTRAT ED BY THE ASSESSEE THAT THE REVENUE HAS ACCEPTED THAT BOTH TH E ENTITIES I.E. THE ASSESSEE AS WELL AS RSCPL, PAY TAXES, AT T HE MAXIMUM RATE AND THAT THERE IS NO LOSS OF REVENUE O N 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 GROU ND OF DIVERSION OF PROFITS IS DEVOID OF MERIT. 8.17. THOU GH THE LD. SPECIAL COUNSEL FOR THE REVENUE ARGUED THAT GOOD WI LL OF A PROFESSION CANNOT BE SOLD TO A COMPANY WHICH DOES N OT HAVE A RIGHT TO CARRY ON PRACTICE, NO SPECIFIC LAW OR SE CTION WAS BROUGHT TO THE NOTICE OF THE BENCH IN SUPPORT OF TH E ARGUMENT. ONLY SEVERAL SUBMISSIONS HAVE BEEN MADE. CERTAIN JUDGEMENTS OF FOREIGN COURTS WERE CITED, WH ICH WERE BASED ON 'ETHICAL CONSIDERATIONS' AND NOT LEGA L PROHIBITION. IN ANY EVENT, 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 THE 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 ASS ESSEE FIRM HAS BEEN CARRYING ON ITS PROFESSION OF ATTORNEYS AT LAW UNDER THIS ARRANGEMENT FOR THE LAST MANY YEARS. 8.1 8. ANOTHER IMPORTANT FACT THAT HAS TO BE CONSIDERED IS THAT, DR. V. SAGAR HAD THE SOLE AND EXCLUSIVE RIGHTS TO THE S AID GOODWILL. THE GOODWILL WAS HELD BY HIM. WITHOUT LEG AL AUTHORIZATION FROM HIM, THE ASSESSEE FIRM COULD NOT USE THE NAME AND STYLE OF 'REMFRY & SAGAR' ALONG WITH ITS G OODWILL AND OTHER ASSETS AND RIGHTS. THE ASSESSEE FIRM HAD TO SEEK PERMISSIONS AND LICENCES TO CONTINUE AND CARRY ON T HIS 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 PROFESSION AS THE GOODWILL IS NOT OWNED BY IT THE PAYMENT MADE IN PURSUANCE OF AN AGREEMENT WHICH ENABLES THE ASSESSEE FIRM TO CARRY ON ITS PROFUSION S, IN THE MANNER IN WHICH IT IS NOW DOING, IS DEFINITELY AN E XPENDITURE LAID DOWN WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE ARGUMENT OF THE LD. SPECIAL COUN CIL 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 IRRE SPECTIVE OF THE FACT WHETHER THE GIFT IS LEGALLY VALID OR NO T, FROM THE VIEW POINT OF THE ASSESSEE FIRM, AS IT COULD NOT HA VE CONTINUED AND CARRIED ON THE PROFESSION OF ATTORNEY S-AT- LAW IN THE NAME OF 'REMFRY & SAGAR' AND USE ITS GOO DWILL AND ALL ITS ASSOCIATED RIGHTS WITHOUT THE IMPUGNED AGREEMENT WITH RSCPL. HENCE THE PAYMENT HAS TO BE HELD AS THA T WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS OR PROFESSION. ITA NO.6699/DEL./2017 11 8.19. THE CONTENTION OF THE SPECIAL COUNCIL FOR THE REVENUE THAT THE ARRANGEMENT IS JUST A REVENUE SHOWN ARRANG EMENT IS JUST AN INFERENCE AND IS NOT SUPPORTED BY ANY MA TERIAL. THUS THE ARGUMENT OF VIOLATION OF BAR COUNCIL RULES IS DEVOID OF MERIT. 8.20. FOR ALL THESE REASONS WE ARE OF THE CONSIDERED OPINION THAT THE DEDUCTION CLAIMED BY TH E 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 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 REVE NUE EXPENDITURE U/S.37. CONSEQUENTLY, GROUND NO.1 OF THE REVENUE IS DISMISSED AND GROUND NO.2 OF THE ASSESSEE IS ALLOWED. 9. SO, FOLLOWING THE EARLIER YEARS ORDER (SUPRA) P ASSED BY THE COORDINATE BENCH OF THE TRIBUNAL, NOT CONTROVERTED BY THE LD. DR FOR THE REVENUE ON THE BASIS OF FACTS AND LAW, WE A RE OF THE CONSIDERED VIEW THAT AMOUNT OF DEDUCTION CLAIMED BY THE ASSESSEE ON THE AMOUNT OF LICENCE FEE PAID TO RSCPL IS ALLOW ABLE AS EXPENDITURE U/S 37 OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT). SO, GROUND NO.1 IS DETERMINED AGAINST THE R EVENUE. GROUND NO.2 10. AO WITHOUT DISPUTING THE EXPENSES CLAIMED BY TH E ASSESSEE ON ACCOUNT OF TRAVELLING EXPENSES AND ENTERTAINMENT EXPENSES MADE AD HOC DISALLOWANCE OF 5% MERELY ON THE BASIS OF ASSUMPTIONS AND SURMISES BY INTRODUCING SOME PERSON AL ELEMENT IN THE CLAIMED EXPENDITURE. WE ARE OF THE CONSIDERED VIEW THAT NONE OF THE EXPENDITURE CAN BE DISALLOWED MERELY ON THE BASIS OF SURMISES. PERUSAL OF THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) ITA NO.6699/DEL./2017 12 SHOWS THAT HE HAS FOLLOWED THE EARLIER YEARS ORDER PASSED BY THE LD. CIT (A) ALLOWING THE IDENTICAL EXPENDITURE. 11. WHEN UNDISPUTEDLY ENTRIES IN THE BOOKS OF ACCOU NT QUA THE CLAIMED EXPENDITURE HAVE NOT BEEN QUESTIONED IN ANY MANNER WHATSOEVER AD HOC DISALLOWANCE MADE BY THE AO TO TH E EXTENT OF 5% OF THE EXPENDITURE OF TRAVELLING EXPENSES AND EN TERTAINMENT EXPENSES IS NOT SUSTAINABLE IN THE EYES OF LAW. SO , WE FIND NO SCOPE TO INTERFERE INTO THE FINDINGS RETURNED BY TH E LD. CIT (A), HENCE GROUND NO.2 IS DETERMINED AGAINST THE REVENUE . 12. RESULTANTLY, THE APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 22 ND DAY OF JANUARY , 2021. SD/- SD/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 22 ND DAY OF JANUARY, 2021 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-30, NEW DELHI 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.