Tribunal Upholds Disallowance of Depreciation on Non-Compete Fee

The Tribunal dismissed the appeal against the Commissioner's order, upholding the disallowance of depreciation claimed on non compete fee. The Tribunal held that non compete fee does not qualify as an intangible asset under Section 32(1)(ii) of the Income Tax Act, following the decision of the jurisdictional High Court. The Rule of Consistency was deemed inapplicable, as the departmental authorities were not aware of the High Court's decision in previous assessment years. The Tribunal emphasized the binding nature of the High Court's decision and upheld the disallowance of depreciation on non compete fee for the current assessment year.

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Issues:
Appeal against the order of Commissioner of Income-Tax for assessment year 2014-15. Disallowance of depreciation claimed on non complete fee. Applicability of Rule of Consistency. Interpretation of non compete fee as an intangible asset under Section 32(1)(ii).

Analysis:

1. Appeal against Commissioner's Order:
The judgment deals with an appeal by the assessee against the order of the Commissioner of Income-Tax for the assessment year 2014-15. The assessee had declared a loss of &8377; 23,12,53,397 and claimed depreciation of &8377; 1,94,33,166 on non complete fee. However, the assessing officer disallowed the claim of depreciation, which was upheld by the Commissioner (Appeals).

2. Non Complete Fee Disallowance:
The assessing officer disallowed the claim of depreciation on non complete fee, stating that it is not in the nature of an intangible asset as per Section 32(1)(ii) of the Income Tax Act. The Commissioner (Appeals) upheld this disallowance based on the decision of the Hon'ble Delhi High Court in a similar case. The Tribunal, following the High Court's decision, held that non compete fee is not similar to know how, patent, copyright, trademark, licenses, franchises, or any other business or commercial right of similar nature. The Tribunal concluded that the claim of depreciation on non compete fee is unacceptable.

3. Rule of Consistency:
The assessee argued that the Rule of Consistency should apply as depreciation on non compete fee was allowed in preceding assessment years. However, the Tribunal disagreed, stating that the departmental authorities did not have the benefit of the High Court's decision at that time. The Tribunal emphasized that it is bound by the decision of the Hon'ble jurisdictional High Court and upheld the disallowance of depreciation on non compete fee for the current assessment year.

4. Interpretation of Non Compete Fee as Intangible Asset:
The Tribunal analyzed the nature of the non compete fee acquired by the assessee through an agreement and its treatment as capital expenditure. Despite some non-jurisdictional High Courts allowing depreciation on non compete fee as an intangible asset, the Tribunal followed the decision of the Hon'ble jurisdictional High Court. The Tribunal distinguished non compete fee as a right in personem, limited to the seller, and not a right in rem against the world at large. Consequently, the Tribunal dismissed the appeal and upheld the decision of the Commissioner (Appeals).

In conclusion, the Tribunal dismissed the appeal against the Commissioner's order, upholding the disallowance of depreciation claimed on non compete fee based on the interpretation of the non compete fee as not falling under the category of intangible assets specified in Section 32(1)(ii) of the Income Tax Act. The Tribunal emphasized the binding nature of the decision of the Hon'ble jurisdictional High Court and rejected the application of the Rule of Consistency in this case.

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