TaxTMI 
TaxTMI 
2013 (11) TMI 1057
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....ncome Tax Act, 1961 (The Act) to the extent of Rs.50,44,22,294/-.The Assessing Officer after issuing intimation under Section 143(1) of the Act, determined the total income at Rs.3,91,06,337/- applying the principles of Section 115 JB of the Act.Thereafter, proceedings were initiated under Section 143(2) of the Act and the assessee filed revised statement declaring the loss of Rs.108,99,06,618/-.According to the assessee, the increase in loss was due to write-off of unrealized sales during the relevant previous year, which was approved by the order passed by this Court dated 28.06.2004.The Assessing Officer completed the assessment by order dated 30.03.2005 computing the total income of Rs.40,05,43,280/- as against the loss returned by the assessee.The disallowance of which, we are concerned in this appeal and itrelates to the disallowance of depreciation on the value of Non-compete Fee. 3. Pursuant to agreement dated 23.02.2000 entered into between the appellant and M/s.Pentamedia Graphics Limited (PMGL) for hiving off and transfer of software development and training divisions from PMGL to the assessee, the assessee paid Rs.626.08 crores towards acquisition of Intellectual Pro....
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....assessee would be entitled to claim depreciation under Section 32(1)(ii) of the Act.By relying upon the findings given by the First Appellate Authority, the learned counsel submitted that the Tribunal erred in reversing the finding recorded by the First Appellate Authority and there was no basis to reverse such a finding.Further, the learned counsel submitted that while having accepted the position that the agreement and the payment in respect of non-compete fee conferred a right to the assessee, ought to have held that it is a commercial right falling within the scope of Section 32(1)(ii) of the Act as intangible assets eligible for depreciation. 7.Learned Counsel in the alternative submitted that the Tribunal ought to have allowed the payment of non-compete fee as Revenue expenditure in view of the fact that the advantage obtained by the assessee by virtue of the non-compete fee agreement was only in the Revenue field to enable the assessee to carry on the business smoothly without interruption by the transferor company. 8.In support of her contention she placed reliance on the decision of the Hon'ble Supreme Court reported in 327 ITR 323(SC) [Techno Shares and Stocks Ltd. ....
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.... proprietary information, computer programs and all other intangible property rights of the software business. That apart the product also meant to include banking product, insurance product, finance products etc., andPMGL bound themselves not to use the name Pentasoft in the business transactions or any products developed by them and what they permitted the assessee unreservedly and without encumbrance is to utilise the said name in any of the product transferred with the software business or any of the products that may be developed by them in future. The other rights owned by PMGL with regard to the development and training also stood approval under the said agreement. Further in the agreement, the assessee had agreed that the consideration for transfer of the Intellectual property and agreeing to non compete shall be Rs.544.21 crores. It is to be pointed out that in the agreement there was no break-up details given as to how much of the above amount is allocable towards the transfer of IPR and how much towards non-compete fee. Nevertheless such details has been furnished by the assessee before the Authorities below. The Assessing Officer, after taking note of the opinion of the....
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....peal preferred by the Revenue, the Income Tax Appellate Tribunal held that non-compete fee is not an asset, which the assessee could use like licence or franchise etc., in its business and it is a payment to ward off the competitor for a specified number of years and it confers the right to sue in case of breach by a person and depreciation cannot be allowed on non-compete fee. 16. The Tribunal in para No.21 ofits order relied on its earlier decision passed in ITA No.1293(Mds)/2006 dated 23.11.2007 [M/s.A.B.Mauria India Pvt.Ltd. vs.ACIT]. Learned Counsel on either side fairly stated that they are unable to get a copy of the said decision as the said decision has not been reported. 17. Be that as it may, the only reason assigned by the Tribunal is that the non-compete fee is not an asset, which the assessee could use like a licence or franchise and therefore, depreciation cannot be allowed. 18.In the preceding paragraphs, we have referred to the agreement entered into between the parties.The said agreement dated 23.02.2000 is a composite agreement by virtue of it, there wastransfer of all rights over the IPRs as well as the training and development programmes to be exclusiv....
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....eror of the copy rights and patents rather to strengthen the commercial right, which was transferred in favour of the assessee. 22. Learned counsel for the assessee contended that the non-compete is in effect an indirect licence. However, we are not inclined to agree with the said submission since non compete, at best could be a commercial right because that right is relatable to the transfer of trade mark, copy rights and patents. Therefore, the view taken by the Commissioner of Income Tax(Appeals) in this regard is acceptable. 23. In the case of Techno Shares and Stocks Ltd vs. Commissioner of Income Taxreported in 327 ITR 323 (SC), the assessee therein before the Hon'ble Apex Court claimeddepreciation on the membership card held by it with the Bombay Stock Exchangeenables it to trade on the floor, is a business or commercial right in the nature of a licence under Section 32 (1)(ii) of the Act. 24. The Department on the other hand, pointed out that membership is a personal privilege and that it is not an asset and that it is not owned by the assessee and therefore, the claim of the assessee for depreciation was not admissible under Section 32(1)(ii) of the Act. 25. Wh....