M/s. Fortis Hospitals Ltd., New Delhi V. ACIT, New Delhi

MA 72/DEL/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1577 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 15-12-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 26-02-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Assessee Lawyers: R M MEHTA
• Keywords: Depreciation; Question of law; Revenue expenditure; Capital expenditure; TDS
• Section: 40(a)(ia); 37(1); 207; 254(2); 48; 194L

Judgement Text

1 M. A NO. 72/DEL/2020 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: FRIDAY NEW DELHI BEFORE MS SUCHITRA KAMBLE, JUDICIAL ME MBER AND SH. PRASHANT MAHARISHI, AC COUNTANT MEMBER MA NO. 7 2/DEL/2020 IN ( I.T.A. NO. 2910//DE L/2017 (A.Y 2010-11) FORTIS HOSPITALS LTD. OKHLA ROAD NEW DELHI-110025 PAN: AABCF3718N (APPLICANT) VS ACIT CIRCLE-9(2), ROOM NO. 413, C. R. BUILDING, I. P. ESTATE, NEW DELHI (RESPONDENT) APPLICANT BY SH. R. M. MEHTA, ADV RESPONDENT BY SH. F. R. MEENA, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS MISC. APPLICATION IS FILED BY THE ASSESSEE IN RESPECT OF ORDER DATED 30.08.2019 PASSED BY THIS TRIBUNAL. 2. THE LD. AR SUBMITTED THAT THE ASSESSEE DURING TH E YEAR UNDER CONSIDERATION ACQUIRED THE WOCKHARDT GROUP OF HOSPI TALS PURSUANT TO AN AGREEMENT ENTERED INTO ON 24.08.2009. THE SAID AGRE EMENT INCLUDED PAYMENT OF NON-COMPETE FEE OF RS. 15.50 CR WHICH WAS CAPITA LIZED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT, ON WHICH DEPRECIATION WAS CLAIMED . IN THE ASSESSMENT, THE AO REJECTED THE CLAIM FOR DEPRECIATION ON THE GROUN D THAT SINCE TDS U/S 194L HAD BEEN DEDUCTED ON THE PAYMENT OF RS. 15.50 CR., PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WERE APPLICABLE. HE, HOWEVER, PROCEEDED TO MAKE DATE OF HEARING 16.10.2020 DATE OF PRONOUNCEMENT 15 .12.2020 2 M. A NO. 72/DEL/2020 DISALLOWANCE OF THE ENTIRE AMOUNT I.E. RS. 15.50 CR INSTEAD OF THE AMOUNT CLAIMED AS DEPRECIATION I.E. 1,93,75,000/- (INADVER TENTLY MENTIONED AS RS. 1,48,63,000/- IN THE ORDERS). ON FURTHER APPEAL, TH E CIT(A) VIDE PARA 5:1 OF HIS ORDER ACCEPTED THE ARGUMENT OF THE ASSESSEE THAT SE CTION 194L HAVING CEASED TO OPERATE W.E.F. 01.06.2000, THE ASSESSEE WAS NOT OBLIGED TO DEDUCT TAX AT SOURCE AND THEREFORE SECTION 40(A)(IA) WOULD NOT AP PLY. THE CIT(A) RESTORED THE CLAIM ON ACCOUNT OF DEPRECIATION BY TREATING THE NO N-COMPETE FEE AS AN INTANGIBLE ASSET. THE LD. AR SUBMITTED THAT INADVER TENTLY, CERTAIN MISTAKES APPARENT FROM THE RECORD WITHIN THE MEANING OF SECT ION 254(2) OF THE ACT HAVE CREPT INTO THE ORDER CAUSING THEREBY PREJUDICE TO T HE CASE OF THE ASSESSEE. THESE ARE ADVERTED TO AS FOLLOWS: I) IN THE COURSE OF THE HEARING, THE JUDGMENT OF TH E JURISDICTIONAL HIGH COURT IN THE CASE OF AREVA T&D INDIA LTD. VS. DCIT (2012) 20 TAXMANN.COM 29 (DELHI) WAS CITED ON BEHALF OF THE ASSESSEE, NOTED BY THE TRIBUNAL IN PARA 6, BUT NOT CONSIDERED. II) SIMILARLY, OTHER JUDGMENTS RELIED UPON AND NOTE D IN THE SAME PARA HAVE NOT BEEN CONSIDERED AND VERY SIGNIFICANTLY, THE JUD GMENTS AT SERIAL NOS. (I) & (II) ARE OF THE HONBLE KARNATAKA & GUJARAT HIGH CO URTS ALLOWING DEPRECIATION ON NON-COMPETE FEE TREATING IT TO BE AN INTANGIBLE ASSET, FOLLOWING THE JURISDICTIONAL HIGH COURT IN THE CASE OF AREVA (SUP RA). III) AT SERIAL NO. (IV) IS THE DECISION OF THE AHME DABAD BENCH OF THE TRIBUNAL ALLOWING DEPRECIATION ON NON-COMPETE FEE REFERRING TO BOTH THE JUDGMENTS OF THE DELHI HIGH COURT I.E. AREVA AND SHARP (SUPRA), WHICH WAS NOT CONSIDERED. IV) THE ASSESSEE HAD AS AN ALTERNATIVE SUBMISSION U RGED BEFORE THE TRIBUNAL THAT SINCE THE AGREEMENT BETWEEN ITSELF AND WOCKHAR DT HAD NOT BEEN EXAMINED EITHER BY THE AO OR THE CIT(A) THE MATTER COULD BE RESTORED TO THE AO FOR A PROPER EXAMINATION AS HAD BEEN DONE BY THE DELHI BE NCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. CAPARO ENGG INDIA P LTD. IN IT A 3661/2013, A DECISION 3 M. A NO. 72/DEL/2020 CITED DURING THE HEARING BUT NOT MENTIONED OR CONSI DERED. THE SUBMISSION IS ALSO NOT MENTIONED IN THE ORDER. V) IN PARA 7 OF THE ORDER OF THE TRIBUNAL WHILE DEA LING WITH THE ISSUE UNDER CONSIDERATION OBSERVES AS UNDER: THE CIT(A) OBSERVED IN THE ORDER THAT THE ASSESSEE PAID NON-COMPETE FEE OF RS. 15,50 CR. AS PART OF THE SALE CONSIDERATION FOR ACQ UIRING THE WOCKHARDT GROUP OF HOSPITALS WITHOUT DEDUCTING THE TAX WITHIN THE M EANING OF SECTION 194L OF THE ACT AND ACCORDINGLY PROVISIONS OF SECTION 40(A) (IA) CAME INTO PLAY. (EXTRACT FROM 5:1 OF THE ORDER OF THE CIT(A). IN THE SAME PARA THE CIT(A) IN THE LAST SENTENCE OB SERVES: IT IS CLEAR FROM THE LANGUAGE OF THE STATUE THAT T HE ASSESSEE WAS NOT OBLIGED IN LAW TO DEDUCT ANY TAX SINCE SECTION 194L INVOKED BY THE ASSESSING OFFICER CEASED TO OPERATE W.E.F. 1 ST JUNE 2000. THE REPRODUCTION OF ONLY A PART OF THE PARA GIVES A N IMPRESSION THAT THE ISSUE OF THE APPLICABILITY OF SECTION 40(A)(IA) HAS BEEN DECIDED AGAINST THE ASSESSEE WHEREAS THE FACT IS TO THE CONTRARY. VI) PARA 4 IN THE ORDER STATES THAT THE CIT(A) DIS MISSED THE APPEAL OF THE ASSESSEE, WHEREAS THE CORRECT FACT IS THAT THE APP EAL WAS PARTLY ALLOWED AND THE REVENUE CAME IN APPEAL BEFORE THE TRIBUNAL. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS: A) ACIT VS. SAURASHTRA KUTCH STOCK EXCHANGE LTD. (2008 ) 173 TAXMAN 322 (SC) (AFFIRMING THE JUDGMENT OF THE GUJARAT HIGH CO URT) B) HONDA SIEL POWER PRODUCTS LTD. VS. CIT (2007) 165 T AXMAN 207 (SC) C) GOPAL RAM PEMA RAM VS. ACIT (2014) 50 TAXMANN.COM 1 32 (JODHPUR- TRI.) 4 M. A NO. 72/DEL/2020 D) RELIANCE COMMUNICATIONS LTD. VS. DCIT (2017) 183 TT J (MUM) 388 E) ROHIT TANDON VS. ITO (2017) 183 TTJ (ASR) 492 THUS, THE LD. AR SUBMITTED THAT THE ORDER OF THE TR IBUNAL DATED 30.08.2019 BE RECTIFIED AS PER SECTION 254(2) OF THE INCOME TAX A CT, 1961. 3. THE LD. DR VEHEMENTLY OPPOSED THE MISC. APPLICAT ION AND SUBMITTED THAT THE TRIBUNAL IN THE ORDER DATED 30.08.2019 HAS CONSIDERED ALL THE CONTENTIONS OF THE LD. AR MADE DURING THE COURSE OF HEARING. THE LD. DR FURTHER SUBMITTED THAT THE CASE LAWS SUBMITTED BY T HE LD. AR WERE ALSO CONSIDERED BY THE TRIBUNAL IN THE ORDER AND THE TRI BUNAL HAS RIGHTLY RELIED UPON THE JURISDICTIONAL HIGH COURT DECISION. THUS, THERE IS NO MISTAKE APPARENT ON RECORD. THE PRESENT MISC. APPLICATION I S NOT FOR RECTIFICATION BUT IS FOR REVIEW OF THE ORDER DATED 30.08.2019 WHICH IS N OT PERMISSIBLE UNDER THE PROVISIONS OF THE INCOME TAX ACT, 1961 UNDER SECTIO N 254. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT I N PARA 4 OF THE ORDER DATED 30.08.2019, THERE IS TYPOGRAPHICAL ERROR. THE SAID PARA 4 IS MODIFIED AS UNDER: 4. THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. NOW COMING TO THE JUDICIAL PRECEDENTS CITED BY THE LD. AR DURING THE HEARING OF THE MAIN APPEAL. THE DECISION OF AREVA T & D INDIA LTD. VS. DCIT (2012) 20 TAXMANN.COM 29 (DEL HC), THE QUESTION OF LAW BEFORE THE HONBLE HIGH COURT WAS THAT 'WHETHER ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE, THE TRIBUNAL ERRED IN LAW IN HOLDING THAT KNOW-HOW, BUS INESS CONTACTS, BUSINESS INFORMATION, ETC. ACQUIRED AS PART OF THE SLUMP SAL E DESCRIBED AS GOODWILL WERE NOT ENTITLED FOR DEPRECIATION UNDER SECTION 32 (1)(II) OF THE INCOME TAX ACT?' AND FOR THIS QUESTION THE HONBLE HIGH COURT HELD THAT THE SPECIFIED INTANGIBLE ASSETS ACQUIRED UNDER SLUMP SALE AGREEME NT WERE IN THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' S PECIFIED IN SECTION 32(1)(II) OF 5 M. A NO. 72/DEL/2020 THE ACT AND WERE ACCORDINGLY ELIGIBLE FOR DEPRECIAT ION UNDER THAT SECTION. THUS, FACTS OF THIS CASE ARE TOTALLY DISTINGUISHABLE TO T HE PRESENT CASE WHERE THE ISSUE IS THAT OF NON-COMPETE FEE AND NOT THAT OF GOODWILL . BESIDES THIS, IN THE PRESENT CASE THE ASSESSEE, ITSELF DECLARED THAT THE NON-COM PETE FEE/PAYMENT WAS CAPITAL IN NATURE. IN CASE OF CIT VS. INGERSOLL RAN D INTERNATIONAL IND. LTD. (2014) 48 TAXAMANN.COM 349 (KAR. HC), THE HONBLE K ARNATAKA HIGH COURT FRAMED THE QUESTION OF LAW AS TO WHETHER THE TRIBUN AL WAS CORRECT IN HOLDING THAT NON-COMPETE FEE BEING IN THE NATURE OF CAPITAL EXPENDITURE, DEPRECIATION IS TO BE ALLOWED ON THE NON-COMPETE FEE AS IT CONSTITU TES A COMMERCIAL OR A BUSINESS RIGHT UNDER SEC. 32(1)(II) OF THE ACT?. TH E HONBLE KARNATAKA HIGH COURT HELD THE QUESTION IN FAVOUR OF ASSESSEE THERE IN AND ALSO RELIED THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF AREVA T & D INDIA LTD. (SUPRA). IN CASE OF PR. CIT VS. FERRONMATIC MILACRO N INDIA (P.) LTD. (2018) 89 TAXMANN.COM 154 (GUJ. HC), THE HONBLE GUJARAT HIGH COURT FRAMED ONE OF THE QUESTION AS TO WHETHER THE APPELLATE TRIBUNAL HAD E RRED IN LAW AND ON FACTS IN UPHOLDING THE ORDER OF THE CIT(A) DELETING THE ADDI TION MADE ON ACCOUNT OF DISALLOWANCE OF RS. 1,28,37,000/- ON ACCOUNT OF DIS ALLOWANCE OF DEPRECIATION ON NO-COMPETE FEES?. FOR WHICH, THE HONBLE HIGH CO URT HELD THE QUESTION IN FAVOUR OF ASSESSEE THEREIN AND ALSO RELIED THE DECI SION OF THE HONBLE DELHI HIGH COURT IN CASE OF AREVA T & D INDIA LTD. (SUPRA). IN CASE OF KAPI CHITS (KAKATIYA) P. LTD. VS. ACIT (2017) 85 TAXMANN.COM 300 (HYD. TR I.), THE TRIBUNAL HELD THAT NON-COMPETE FEE PAYMENT IS IN THE NATURE OF REVENUE EXPENDITURE AND IS AN ALLOWABLE DEDUCTION U/S 37(1) OF THE I.T. ACT. IN C ASE OF DCIT VS. ZYDUS WELLNESS LTD. (2016) 76 TAXMANN.COM 328 (AHMD. TRIB .), THE TRIBUNAL ALLOWED THE CLAIM OF DEPRECIATION OF GOODWILL MADE BY THE A SSESSEE THEREIN. ALL THESE CASES WERE THOUGH NOT DISCUSSED AT LENGTH BUT THESE CASES WERE CONSIDERED WHILE MAKING THE FINAL OBSERVATIONS AS THE HONBLE DELHI HIGH COURT IN CASE OF SHARP BUSINESS SYSTEM VS. CIT (ITA NO. 492/2012 ORD ER DATED 05.11.2012) CATEGORICALLY MENTIONED THAT NON COMPETE FEE DID NO T CONFER ANY EXCLUSIVE RIGHT TO CARRY ON THE PRIMARY BUSINESS ACTIVITY. THE REST OF THE CASES CITED BY THE ASSESSEE ARE NOT COMING UNDER THE JURISDICTIONAL HI GH COURT DECISION OF SHARP 6 M. A NO. 72/DEL/2020 BUSINESS SYSTEM (SUPRA). BEING THE JURISDICTIONAL H IGH COURT DECISION, WE HAVE FOLLOWED SHARP BUSINESS SYSTEM AND ACCORDINGLY TAKE N A VIEW THAT THE DEPRECIATION CLAIMED ON THE SAID NON-COMPETE FEE CA NNOT BE ALLOWED. THUS, WE DO NOT ENTERTAIN THE ARGUMENTS IN THIS PART OF THE MISC. APPLICATION AND THE ISSUE RELATED TO THIS IN PRESENT MISC. APPLICATION IS DISMISSED. 5. IN RESULT, MISC. APPLICATION FILED BY THE ASSESS EE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF DECEMBER, 2020 SD/- SD/- (PRASHANT MAHARISHI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL M EMBER DATED: 15/12/2020 R. NAHEED COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI