Court upholds ITAT decision on non-compete fees as non-depreciable intangible assets

The court dismissed the appeal, upholding the ITAT's decision that non-compete fees do not qualify as intangible assets for depreciation under Section 32(1)(ii). The court found the ITAT within its jurisdiction to address the issue and followed the precedent set in Sharp Business Systems. The appellant's arguments did not merit a different conclusion, and the appeal was dismissed with no order as to costs.

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Issues Involved:
1. Condonation of delay in filing the appeal.
2. Depreciation claim on non-compete fee as an intangible asset under Section 32(1)(ii) of the Income Tax Act, 1961.
3. Jurisdiction of the ITAT in reopening issues not disputed by the respondent.
4. Applicability of Section 40(a)(ia) regarding non-deduction of TDS on non-compete fee.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appellant sought condonation of delay in filing the appeal, claiming the certified copy of the impugned order dated 30.08.2019 was received on 27.09.2019. An application under Section 254(2) of the Income Tax Act, 1961 was filed on 26.02.2020 and dismissed on 15.12.2020, with the copy received on 25.01.2021. The appellant also cited the Supreme Court's orders in Suo Motu Writ Petition (Civil) No. 3 of 2020, extending the period of limitation. The court allowed the application and condoned the delay.

2. Depreciation Claim on Non-Compete Fee:
The appellant entered into a Business Transfer Agreement with Wockhardt Hospitals Ltd. on 24.08.2009, paying a non-compete fee of Rs. 15.50 crores, which was capitalized in the books of accounts. The return of income for AY 2010-11 claimed depreciation of Rs. 1,93,75,000/- on the non-compete fee as an intangible asset under Section 32(1)(ii). The Assessing Officer disallowed the claim, citing non-deduction of TDS under Section 40(a)(ia). The CIT(A) partially allowed the appeal, directing the AO to allow depreciation, stating Section 194L ceased to operate from 01.06.2000. The ITAT, relying on the judgment in Sharp Business System v. Income-tax – III, held that the non-compete fee is not an intangible asset and disallowed the depreciation claim.

3. Jurisdiction of the ITAT:
The appellant argued that the ITAT exceeded its jurisdiction by delving into issues accepted by the AO, who disallowed the depreciation claim solely on non-deduction of TDS. The CIT(A) directed the AO to allow depreciation, and the respondent did not challenge this. The ITAT, however, reopened the issue, leading to the appellant's contention that the ITAT lacked jurisdiction. The court found no merit in this argument, stating the AO did not address whether the non-compete fee is an intangible asset, and the CIT(A)'s direction was challenged by the respondent.

4. Applicability of Section 40(a)(ia):
The AO disallowed the non-compete fee under Section 40(a)(ia) due to non-deduction of TDS, considering it compensation. The CIT(A) noted Section 194L ceased to operate from 01.06.2000, thus no TDS was required, and directed allowing depreciation. The ITAT upheld the disallowance, referencing Sharp Business Systems, which held non-compete fees are not intangible assets and cannot claim depreciation under Section 32(1)(ii).

Conclusion:
The court dismissed the appeal, upholding the ITAT's decision that non-compete fees do not qualify as intangible assets for depreciation under Section 32(1)(ii). The court found the ITAT within its jurisdiction to address the issue and followed the precedent set in Sharp Business Systems. The appellant's arguments did not merit a different conclusion, and the appeal was dismissed with no order as to costs.

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