Mylan Laboratories Ltd., Hyderabad, Hyderabad V. Addl. CIT, Range-16, Hyderabad, Hyderabad

MA 121/HYD/2015

• Counselvise Citation: [2015] 124 COUNSELVISE.COM (IT) 3755 (ITAT-HYDERABAD)
• Duration Of Justice: 1 month(s) 16 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 02-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Assessee Lawyers: S RAGHUNATHAN
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI RIFAUR RAHMAN, ACCOUNTANT MEMBER MISC. APPLN. NO.121/HYD/2015 (IN ITA NO.611/HYD/14) : ASSESSMENT YEAR 2009-1 0 M/S. MYLAN LABORATORIES LTD. (FORMERLY MATRIX LABORATORIES LIMITED), HYDERABAD (PAN AADCM 3491 M) V/S. ADDL. COMMISSIONER OF INCOME- TAX, RANGE 16, HYDERABAD (APPLICANT) (RESPONDENT) APPLICANT BY : SHRI S.RAGHUNATHAN RESPONDENT BY : SHRI M.SITARAM, DR DATE OF HEARING 4.12.201 5 DATE OF PRONOUNCEMENT 18.12.2015 O R D E R PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : BY THIS APPLICATION UNDER S.254(2) OF THE ACT, ASS ESSEE- APPLICANT SEEKS RECTIFICATION OF THE COMMON CONSOLI DATED ORDER OF THIS TRIBUNAL DATED 10.12.2014 IN CROSS-APPEALS FOR ASSESSMENT YEAR 2009-10, INSOFAR AS IT RELATED TO APPEAL FILED BY THE ASSESSEE, BEING ITA NO.611/HYD/2014, ON THE GROUND THAT CERTA IN MISTAKES APPARENT FROM RECORD HAVE BEEN NOTED BY THE ASSESSE E AND ACCORDINGLY NOTIFIED IN THE PRESENT MISCELLANEOUS A PPLICATION. 2. IT IS STATED IN THE PRESENT MISCELLANEOUS APPL ICATION THAT IN GROUND NO.7 RELATING TO DEPRECIATION ON NON-COMP ETE FEE, TWO ISSUES HAVE BEEN RAISED UNDER SUB-GROUND (A) AND (B ). THEY ARE- (A) DEPRECIATION AMOUNTING TO RS.6,67,420 IN RESPECT OF NON-COMPETE FEE PAID TO MEDISPAN LTD. BY MEDICORP L TD. MA NO. 121/HYD/2015 (IN ITA NO.611/HYD/2014 M/S. MYLAN LABORATORIES LIMITED (FORMERLY MATRIX LABORATORIES LIMITED), HYDERABAD 2 (AMALGAMATING COMPANY) IN THE PREVIOUS YEAR RELEVAN T TO ASSESSMENT YEAR 2002-03; (B) DEPRECIATION AMOUNTING TO RS.6,56,200 IN RESPECT OF NON-COMPETE FEE PAID TO SUDHIR VAID IN RELATION TO CONCORD BIOTECH LIMITED IN THE PREVIOUS YEAR RELEVA NT TO ASSESSMENT YEAR 2007-08. THE TRIBUNAL IN PARAS 19 AND 20 OF THE IMPUGNED ORD ER DATED 10.12.2014, HAS DECIDED THE ABOVE TWO SUB-GROUNDS, FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEAR 2008-09 DATED 16.1.2014,CONFIRMING DISALLOWANCE OF (A) ABOVE AND ALLOWING (B) ABOVE. HOWEVER, BY THE ABOVE ORDER OF THE TRIBUNAL DATED 16.1.2014, DEPRECIATION IN RESPECT OF ITEM (A ) HAS BEEN ALLOWED AND DISALLOWANCE OF DEPRECIATION IN RESPECT OF ITEM (B) HAS BEEN CONFIRMED. AS SUCH THERE IS A MISTAKE APPA RENT FROM RECORDS IN THE ORDER OF THE TRIBUNAL DATED 10.12.20 14, AND ACCORDINGLY PARAS 19 AND 20 THEREOF NEED RECTIFICAT ION. 3. WE HAVE HEARD THE PARTIES ON THIS APPLICATION AND PERUSED THE MATERIAL ON RECORD. WE FIND MERIT IN T HE MISCELLANEOUS APPLICATION OF THE ASSESSEE, AND AGREE THAT PARAS 1 9 AND 20 OF THE ORDER OF THIS TRIBUNAL DATED 10.12.2014 NEED TO BE RECTIFIED. WE ACCORDINGLY MODIFY THOSE PARAS AND DIRECT THAT ON D UE RECTIFICATION PARAS 19 AND 20 OF THIS TRIBUNAL DATED 10.12.2014 S HOULD BE READ AS FOLLOWS- 19. AS FOR THE FIRST ISSUE, AGAINST (A) ABOVE, RELATING TO DEPRECIATION @ 25% AMOUNTING TO RS.6,67,420 ON BROUGHT FORWARD WRITTEN DOWN VALUE O F RS.26,69,678 IN RESPECT OF NON-COMPETE FEE OF RS.20 0 MA NO. 121/HYD/2015 (IN ITA NO.611/HYD/2014 M/S. MYLAN LABORATORIES LIMITED (FORMERLY MATRIX LABORATORIES LIMITED), HYDERABAD 3 LAKHS PAID TO MEDISPAN LTD. BY MEDICORP TECHNOLOGIE S LTD. (AMALGAMATING COMPANY) IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2002-03, LEARNED REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBU NAL DATED 16.1.2014 IN ASSESSEES OWN CASE FOR ASSESSME NT YEAR 2008-09 CITED SUPRA, WHEREIN A SIMILAR ISSUE CONTAINED CORRESPONDING GROUND NO.15(B) IN THE APPE AL FOR THAT YEAR, WAS CONSIDERED AND DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, VIDE PARA 47 WHICH READS AS FOLLOWS- 47. THIS GROUND IS AGAINST THE CLAIM OF DEPRECIATION ON DIFFERENT AMOUNTS PAID BY THE ASSESSEE. THE SUB GROUND(B) IS WITH REFERENCE TO THE CLAIM OF DEPRECIATION OF RS.8,89,893/- ON BROUGHT FORWARD WRITTEN DOWN VALUE OF RS.35,59,570/- IN RESPECT OF NON-COMPETE FEE PAID TO M/S. MEDISPAN LTD BY MEDICORP TECHNOLGOIES LTD. IN PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2002-2003. CONSEQUENT TO MERGER OF THE MEDICORP TECHNOLOGIES LTD. WITH THE ASSESSEE-COMPANY, THE DEPRECIATION WAS CLAIMED ON THE WRITTEN DOWN VALUE. EVEN THOUGH THE ASSESSEE'S CLAIM WAS CRYSTALLIZED BY THE ORDERS OF THE ITAT IN ITA.NO.201/2004- 2005 DATED 25.06.2007, WHEREIN THE PAYMENT OF FEE WAS CONSIDERED ELIGIBLE FOR DEPRECIATION, THE ASSESSING OFFICER DID NOT GRANT THE DEPRECIATION ON THE REASON THAT REFERENCE APPLICATION IS PENDING BEFORE THE HON'BLE HIGH COURT AND THE ISSUE HAS NOT BEEN FINALIZED. THIS CANNOT BE A REASON FOR DENYING THE DEPRECIATION CLAIMED. SINCE, ITAT HAS ALREADY ORDERED THE DEPRECIATION TO BE ALLOWED IN ASSESSMENT YEAR 2002-2003, CONSEQUENTLY, DEPRECIATION HAS TO BE ALLOWED BY THE ASSESSING OFFICER IN THIS YEAR. HE IS EMPOWERED TO TAKE RECTIFICATION PROCEEDINGS IN CASE THAT ORDER WAS NOT UPHELD BY THE HON'BLE HIGH COURT. IN VIEW OF THIS, TO THAT EXTENT OF CLAIM OF DEPRECIATION AMOUNTING TO RS.8,89,893/- ON BROUGHT FORWARD WRITTEN DOWN VALUE, ASSESSING OFFICER IS DIRECTED TO ALLOW THE MA NO. 121/HYD/2015 (IN ITA NO.611/HYD/2014 M/S. MYLAN LABORATORIES LIMITED (FORMERLY MATRIX LABORATORIES LIMITED), HYDERABAD 4 DEPRECIATION AFTER VERIFYING THE WDV FIGURES. PART OF THE GROUND (B) IS ACCORDINGLY ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, WE ACCEPT THE CONTENTION OF THE ASSESSEE ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLO W THE CLAIM FOR THE ASSESSEE FOR DEPRECIATION AMOUNTING TO RS.6,67,420 IN RESPECT OF NON-COMPETE FEE PAID TO MEDISPAN LTD. BY MEDICORP LTD. (AMALGAMATING COMPANY) IN THE PREVIOUS YEAR RELEVANT TO ASSESSMEN T YEAR 2002-03 AS PER THE DIRECTION OF THE DRP AND AL LOW THIS PART OF GROUND NO.7 OF THE ASSESSEE IN THIS AP PEAL. 20. AS FOR THE SECOND ISSUE, AGAINST (B) ABOVE, RELATING TO DEPRECIATION @ 25% AMOUNTING TO RS.6,56,250 ON BROUGHT FORWARD WRITTEN DOWN VALUE O F RS.26,25,000 IN RESPECT OF NON-COMPETE FEE OF RS.40,00,000 PAID IN ASSESSMENT YEAR 2007-08 TO SUDHIR VAID IN RELATION TO CONCORD BIOTECH LIMITED, LEARNED REPRESENTATIVES OF BOTH THE SIDES HAVE AGRE ED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E REVENUE AND AGAINST THE ASSESSEE BY THE ORDER OF TH E TRIBUNAL DATED 16.1.2014 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 CITED SUPRA, WHEREIN A SIMI LAR ISSUE, RAISED BY WAY OF GROUND NO.15(A), WAS CONSIDERED AND DECIDED, VIDE PARAS 48 TO 52 THEREOF , WHICH READ AS FOLLOWS- 48. THE NEXT CLAIM I.E., GROUND NO.15(A) IS WITH REFERENCE TO CLAIM OF DEPRECIATION AT 25% AMOUNTING TO RS.8,75,000/- ON BROUGHT FORWARD WRITTEN DOWN VALUE OF RS. 35 LAKHS IN RESPECT OF NON-COMPETE FEE OF RS. 40 LAKHS PAID IN RELATION TO CONCORD BIOTECH LIMITED DURING THE PREVIOUS MA NO. 121/HYD/2015 (IN ITA NO.611/HYD/2014 M/S. MYLAN LABORATORIES LIMITED (FORMERLY MATRIX LABORATORIES LIMITED), HYDERABAD 5 YEAR RELEVANT TO FINANCIAL YEAR 2006-2007. EVEN THOUGH THE ASSESSEE CLAIMS THE DEPRECIATION WAS ON BROUGHT FORWARD AMOUNT, IN THE SUBMISSIONS TO THE ASSESSING OFFICER AND AS EXTRACTED IN THE OBJECTIONS TO THE DRP AT PAGE 102, IT WAS STATED THAT THE SAID AMOUNT OF RS. 40 LAKHS IS CAPITALIZED AS INTANGIBLE ASSET IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE DURING THE YEAR AND DEPRECIATION AT 25% IS CLAIMED UNDER SECTION 32 IN THE IMPUGNED ASSESSMENT YEAR. THERE IS CONTRADICTION IN THIS ASSESSEE'S CLAIM. IF THE AMOUNT OF RS. 40 LAKHS IS CAPITALIZED DURING THE YEAR, THE 25% CLAIM OF DEPRECIATION SHOULD COME TO RS. 10 LAKHS BUT NOT RS.8,75,000/-. WITHOUT EXAMINING THE YEAR OF PAYMENT OR THE YEAR OF CAPITALIZATION, THE ASSESSING OFFICER ALSO RECORDS THE SAME IN HIS ORDER VIDE PARA 8.1 IN PAGE 9 OF THE ORDER WHEREIN IT WAS STATED THAT ASSESSEE ENTERED INTO AN INVESTMENT AGREEMENT WITH CONCORD BIOTECH LIMITED ON 10.02.2006 AND ACCORDINGLY, AS PER THE TERMS OF AGREEMENT, IT PAID AN AMOUNT OF RS. 40 LAKHS TOWARDS NON- COMPETE FEE TO ONE OF THE PROMOTERS I.E., MR. SUDHIR VAID IN THE PRESENT ASSESSMENT YEAR I.E., 2008-2009. SINCE THE ASSESSING OFFICER HAS GIVEN THE FINDING THAT AMOUNT IS CAPITALIZED IN THIS YEAR, THE ASSESSEE'S GROUND I.E., CLAIM OF DEPRECIATION ON THE BROUGHT FORWARD WRITTEN DOWN VALUE SEEMS TO BE NOT CORRECT. BE THAT AS IT MAY, WE HAVE PROCEEDED TO EXAMINE THE ISSUE AS IF THE CLAIM WAS MADE IN THIS YEAR ONLY. 49. BEFORE THE ASSESSING OFFICER AND DRP, THE ASSESSEE RELIED ON THE DECISION OF THE CIT VS. MEDICORP TECHNOLOGIES INDIA LTD. WHICH WAS UPHELD BY THE ITAT, CHENNAI BENCH (SUPRA). THE LEARNED ASSESSING OFFICER RELYING ON THE DECISIONS OF THE ITAT, CHENNAI BENCH IN THE CASE OF AB MOURYA PVT. LTD. IN ITA.NO.1293/2006 DATED 23.11.2007 AND GURUJI ENTERTAINMENT NET WORK LTD. REPORTED IN 14 SOT 556 (DEL.); M.M. NISSIM & CO. VS. ACIT (2007) 18 SOT 274 (MUM.) AND MOTOR SURVEYORS PVT. LTD. VS. ITO 32 SOT 268 (CHENNAI) REJECTED THE CLAIM OF THE ASSESSEE AND DRP UPHELD THE ORDER OF THE AO. 50. LEARNED COUNSEL SUBMITTED THAT THE ISSUE IS DECIDED BY THE COORDINATE BENCH IN ASSESSEE'S OWN CASE, ACCORDINGLY, ITA.NO.66/HYD/2013 MYLAN LABORATORIES LTD. (FORMERLY MATRIX MA NO. 121/HYD/2015 (IN ITA NO.611/HYD/2014 M/S. MYLAN LABORATORIES LIMITED (FORMERLY MATRIX LABORATORIES LIMITED), HYDERABAD 6 LABORATORIES LTD.) THE SAME HAS TO BE UPHELD FOR THE OTHER AMOUNT ALSO. AS FAR AS THE CLAIM OF DEPRECIATION ON CARRY FORWARD NON-COMPETE FEE IS CONCERNED, WE HAVE ALREADY DIRECTED THE ASSESSING OFFICER TO FOLLOW ITAT ORDERS GIVEN IN THAT CASE WHICH IS BINDING, BEING THE CLAIM OF DEPRECIATION ON THE WRITTEN DOWN VALUE. HOWEVER, FOR THE FRESH CLAIM TO BE ENTERTAINED ON THE PAYMENT MADE FOR CONCORD BIOTECH LIMITED TO MR. SUDHIR VAID, THE ISSUE HAS TO BE EXAMINED AFRESH. 51. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT THE CASES AGAINST THE ASSESSEE ARE MORE IN NUMBER AND THERE IS A CONSISTENT VIEW OF THE ITAT IN NOT ALLOWING THE DEPRECIATION ON NON-COMPETE FEE. THIS ISSUE WHICH WAS ORIGINALLY CONSIDERED IN THE CASE OF TECUMSE INDIA PVT. LTD. ADDL. CIT 5 ITR TRIB 50 (DEL.) WHEREIN THE PROPOSITION CANVASSED BY THE ASSESSEE THAT NON-COMPETE FEE IS REVENUE EXPENDITURE WAS REJECTED AND HELD THAT NON- COMPETE FEE FOR ACQUISITION OF BUSINESS HAS BEEN HELD AS CAPITAL EXPENDITURE AS THE SAME WAS INCURRED FOR THE INITIAL OUTLAY OF THE BUSINESS. FOLLOWING THE ABOVE PRINCIPLES AND THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF HINDUSTAN COCO BEVERAGES PVT. LTD. 331 ITR 192 (DEL), THE ITAT, CHENNAI BENCH 'A' IN ARKEMA PEROXIDES INDIA (P) LTD. VS. ACIT VIDE ITA.NO.2212/MAD/2006 DATED 13.01.2012 HAS HELD, AS UNDER : 'FROM THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. HINDUSTAN COCO COLA BEVERAGES (P.) LTD. [2011] 331 ITR 192 (DELHI) IT IS CLEAR THAT 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' ARE NOT MANUFACTURED OR PRODUCED OVER-NIGHT, BUT ARE BROUGHT INTO EXISTENCE BY EXPERIENCE AND REPUTATION. THE NON-COMPETE FEE IS OUTCOME OF AN AGREEMENT ENTERED INTO BETWEEN TWO PARTIES. IT DOES NOT REPRESENT ANY INTANGIBLE ASSET, SUCH AS, KNOW- HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES, ETC. THEREFORE, IN VIEW OF DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF HINDUSTANCOCA COLA BEVERAGES P. LTD. NON- COMPETE AGREEMENT WOULD NOT CREATE AN ASSET OF INTANGIBLE NATURE ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT. THE DECISION OF THE MA NO. 121/HYD/2015 (IN ITA NO.611/HYD/2014 M/S. MYLAN LABORATORIES LIMITED (FORMERLY MATRIX LABORATORIES LIMITED), HYDERABAD 7 TRIBUNAL, CHENNAI BENCH IN THE CASE OF ITO (OSD) V. MEDICORP TECHNOLOGIES INDIA LTD.[2010] 2 ITR (TRIB) 367 (CHENNAI) WAS RENDERED PRIOR TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGES P. LTD. HENCE IT RENDERS NO HELP TO THE ASSESSEE. THEREFORE, WE ARE NOT IN AGREEMENT WITH THE ARGUMENTS OF THE ASSESSEE THAT NON-COMPETE FEE IS AN INTANGIBLE ASSET TO WHICH PROVISIONS OF SECTION 32(1)(II) OF THE ACT ARE APPLICABLE. THEREFORE, IN OUR CONSIDERED OPINION, THE DEPRECIATION CANNOT BE ALLOWED ON AMOUNT OF NON-COMPETE FEE'. 52. AS CAN BE SEEN FROM THE ABOVE, THE TRIBUNAL HAS DISTINGUISHED THE DECISION IN THE CASE OF MEDICORP RELIED BY THE ASSESSEE ITSELF, WHICH IS REPORTED AT (2010) 2 ITR (TRIB.) 367 (CHENNAI). IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE DEPRECIATION CANNOT BE ALLOWED ON AN AMOUNT OF NON-COMPETE FEE, WHICH WAS IN FACT PAID TO THE MANAGING DIRECTOR OF THE COMPANY FOR NOT TAKING ANY EMPLOYMENT. THIS CANNOT BE CONSIDERED UNDER SECTION 32(1) AS AN INTANGIBLE ASSET. ACCORDINGLY, THE CLAIM OF DEPRECIATION ON THE ITEM (A) IS NOT ALLOWED AND TO THAT EXTENT GROUND IS REJECTED. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, WE REJECT THE CONTENTIONS OF THE ASSESSEE ON THIS ISSUE, AND DIRECT THE ASSESSING OFFICER TO DIS ALLOW THE CLAIM OF THE ASSESSEE FOR DEPRECIATION @ 25% AMOUNTING TO RS.6,56,250 ON BROUGHT FORWARD WRITTEN DOWN VALUE OF RS.26,25,000 IN RESPECT OF NON-COMPET E FEE OF RS.40,00,000 PAID IN ASSESSMENT YEAR 2007-08 TO SUDHIR VAID IN RELATION TO CONCORD BIOTECH LIMITED. THIS PART OF GROUND NO.7 OF THE ASSESSEE IN THIS APPEAL IS NOT ALLOWED. MA NO. 121/HYD/2015 (IN ITA NO.611/HYD/2014 M/S. MYLAN LABORATORIES LIMITED (FORMERLY MATRIX LABORATORIES LIMITED), HYDERABAD 8 THUS, PARAS 19 AND 20 OF THE ORDER OF THE TRIBUNAL DATED 10.12.2014 ARE RECTIFIED AS INDICATED ABOVE, AND TH E PRESENT APPLICATION OF THE ASSESSEE IS ALLOWED TO THAT EXTE NT. 4. IN THE RESULT, MISCELLANEOUS APPLICATION OF TH E ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 18 TH DECEMBER, 2015 SD/- SD/- (D.MANMOHAN) (S.RIFAUR RAHMAN) VICE PRESIDENT ACCOUNTANT MEMBER DT/- 18 TH DECEMBER, 2015 COPY FORWARDED TO: 1. M/S. MYLAN LABORATORIES (FORMERLY MATRIX LABORATORI ES LIMITED), PLOT NO.564/A/22, ROAD NO.92, JUBILEE HILLS, HYDERA BAD 2. 3. ADDL. COMMISSIONER OF INCOME-TAX, RANGE 16, HYDERAB AD DY. COMMISSIONER OF INCOME-TAX CIRCLE 16(2), HYDERA BAD 4. DISPUTE RESOLUTION PANEL HYDERABAD 5. COMMISSIONER OF INCOME-TAX IV, HYDERABAD 6. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S