Tribunal allows depreciation claim on Goodwill/Non-Compete Fee, remands issues for further review.

The Tribunal allowed the depreciation claim on Goodwill/Non-Compete Fee, following the jurisdictional High Court's judgment. The issues regarding depreciation on interiors and computer software were remanded to the CIT (A) for further consideration and decision. The appeal was partly allowed.

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Issues Involved:
1. Disallowance of depreciation on Goodwill.
2. Disallowance of depreciation on interiors.
3. Disallowance of depreciation on computer software (specific to A.Y. 2010-11).

Detailed Analysis:

1. Disallowance of Depreciation on Goodwill:
The primary issue revolves around whether the payment of Rs. 1050.42 Lacs should be treated as Goodwill or Non-Compete Fee and if depreciation is allowable. The assessee argued that the payment was for acquiring various assets and rights, including the trade mark "WAVETEL" and other intellectual property rights, and thus should be considered as Goodwill. Even if considered as Non-Compete Fee, the assessee claimed depreciation should be allowed at the same rate applicable to intangible assets, citing the Karnataka High Court's judgment in CIT vs. M/s Ingersoll Rand International Ind. Ltd., which held that non-compete fees confer a commercial or business right eligible for depreciation under Section 32(1)(iii).

The Revenue countered, supporting the orders of the authorities below, and argued that the facts of the present case differ from the Ingersoll Rand case, as the rights acquired by the assessee cannot be transferred to another person. They cited the Delhi High Court's judgment in Sharp Business System vs. CIT, which held that non-compete fees are not eligible for depreciation if the rights cannot be transferred.

Upon consideration, the Tribunal found that the facts of the present case align with the Ingersoll Rand case, where the right acquired by the assessee can be enforced and transferred in the sense of enforcing the terms of the agreement. Thus, the Tribunal held that the right acquired, whether considered as Goodwill or a non-compete right, is eligible for depreciation under Section 32(1)(iii). The Tribunal followed the jurisdictional High Court's judgment and allowed the depreciation claim for both assessment years.

2. Disallowance of Depreciation on Interiors:
The second issue pertains to the disallowance of depreciation on interiors amounting to Rs. 890,704 for A.Y. 2010-11 and Rs. 565,953 for A.Y. 2011-12. The Tribunal noted that the CIT (A) had not decided on this issue. Therefore, the matter was restored to the file of the CIT (A) for a decision on the allowability of depreciation on interiors.

3. Disallowance of Depreciation on Computer Software (Specific to A.Y. 2010-11):
The third issue, specific to A.Y. 2010-11, concerns the disallowance of depreciation on computer software amounting to Rs. 404,253. Similar to the second issue, the Tribunal found that the CIT (A) had not addressed this matter. Consequently, the issue was also restored to the file of the CIT (A) for a decision.

Conclusion:
The appeal was partly allowed. The Tribunal allowed the depreciation claim on Goodwill/Non-Compete Fee, following the jurisdictional High Court's judgment. The issues concerning depreciation on interiors and computer software were remanded to the CIT (A) for further consideration and decision. The order was pronounced in the open court.

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