TaxTMI 
TaxTMI 
TaxTMI 
2008 (2) TMI 490
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....paid to the director or key persons of the company while he leaves the company to discourage him to pursue a business of similar nature which will jeopardize the interest of the company. In the instant case, the money was paid to its own directors holding substantial share in the assessee company. 4. The learned CIT(A) failed to appreciate the fact that the case law [B.K. Khanna & Co. (P) Ltd. vs. CIT (2000) 164 CTR (Del) 259 : (2001) 247 ITR 705 (Del)] is very much identical to the present one wherein the Court has held that such payments are not bona fide, and only collusive in nature. The non-compete fee were paid to its own directors who are holding substantial share in the company and who have to act in the best interest of the company. 5. Appeal before the Tribunal was preferred in the case of M/s Radaan Media Works (P) Ltd. for the asst. yr. 2001-02 on identical issues." 2. The brief facts of the case are that there was company known as Media Artist (P) Ltd. (MAPL) which was incorporated in 1986 as a private limited company carrying on business of post-production facilities for feature films, production of advertisement films and 1V serials and trading in cine equipment....
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....llowing observations in his order: "The short point would be whether the right acquired by way of non-compete is a business or commercial right similar to know-how, patents, copyrights, trade marks, licences, or franchises. Before this it would be relevant to understand the nature and purpose of a non-compete fee payment. As already discussed, a non-compete right encompasses a right under which one person is prohibited from competing in business with another for a stipulated period. This right is acquired so as to ensure that the recipient of the non-compete fee does not compete in any manner with the business in which they were associated. It would be the right of the person to carry on a business in competition but for such agreement of non-compete. There can, therefore, be little doubt that what is acquired by the payer of the non-compete fee is a right. Now that it has been established that what is acquired under a non-compete fee is right, whether such right can be called a business or commercial right which is similar in nature to intangible assets such as know-how, patents, copyrights, trademarks, licences or franchises, is explained hereafter. Each one of the intangible a....
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....he receiver directly or indirectly participating in a business which is similar to the business being acquired, from directly or indirectly soliciting or influencing clients or customers of the existing business or any other person either not to do business with the person who has acquired the business and paid the non-compete fee or to do business with the person receiving the non-compete fee to do business with a person who is directly or indirectly in competition with the business which is being acquired. A non-compete agreement also normally prohibits the recipient of the non-compete fee from soliciting or attempting to influence any employee or other person engaged in the existing business either by way of requiring that employee or other person to take up employment with the person who is in receipt of the non-compete fee or a person who is a competitor of the business which is being acquired. The question of consideration is therefore restricted to whether such right is a business or commercial. The fact of the matter remains that such right is acquired to carry on the business more efficiently and profitably. The right is acquired for carrying on the business. There should ....
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....e has clearly acquired a capital asset, which is an intangible asset and provisions of s. 32 entitles the said expenditure to claim of depreciation." On the basis of the above observations he allowed the assessee's claim for depreciation vide para 4.4.3 which is as under: "4.4.3 The rival submissions have carefully been examined by me. After carefully analyzing the facts and circumstances of the appellant's case, I find that the intangible assets enumerated in s. 32 of the IT Act effectively confer a right upon an assessee for, carrying on a business more efficiently by utilizing an available knowledge or by carrying on a business more efficiently by utilizing an available knowledge or by carrying on a business to the exclusion of another assessee. I concur with the views of the learned Authorised Representative that a copyright holder or a trademark holder is able to restrain any other person from using the said copyright or trademark and is thereby able to carry on his business more effectively. I find that the object of the acquiring a know-how, patent, copyright, trademark, licence or franchise is to pursue business against the rivals in the same business in a more e....
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.... tangible and intangible assets reads as under: "Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998 but before the 1st day of April, 1999 and is put to use before the 1st day of April, 1999 for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the WDV thereof as may be prescribed." [sic-Above is proviso three and not Expln. (3). Expln. 3 reads as under:] "Explanation 3: For the purposes of this sub-section, the expressions "assets" and "block of assets" shall mean- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature." 8. A reading of the above two provisions makes it clear that in the year under consideration depreciation has to be allowed on intangible assets also cl. (b) of Expln. 3 defines intangible assets as "know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature". Therefore, it has to ....
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....ngible asset. Moreover, this right (asset) will evaporate over a period of time of five years in this case because after that the protection of non-competition will not be available to the assessee. This means, this right is subject to wear and tear by the passage of time, in the sense that after the lapse of a definite period of five years, this asset will not be available to the assessee and, therefore, this asset must be held to be subject to depreciation. 11. In any case, the Tribunal has already held in the case of Radaan Media Works India Ltd. that the assessee would be entitled to depreciation even in respect of non-compete fee which was held to be in the nature of intangible asset. Therefore, we find nothing wrong with the order of the CIT(A) on this issue and accordingly confirm the same. 12. The appeal of the Revenue is dismissed. 13. In the cross-objection, the assessee has taken various grounds but at the time of hearing, the learned counsel for the assessee pointed out that only two issues are involved, viz., (i) reopening of the assessment and (ii) confirmation of disallowance of payment amounting to Rs. 1,87,94,660 towards non-compete fee as capital expenditure. ....