TaxTMI 
TaxTMI 
2015 (8) TMI 843
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.... (Appeals) has erred in not treating the payment made to Mr. Shekhar Shah towards Non-Compete Rights as Intangible Asset and thereby disallowing the depreciation of Rs. 2,22,473/- on the said Non-compete Rights. 2. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in disallowing the contractual payments made of Rs. 74,02,764 made to M/s Xylon Holdings Pvt Ltd". 4. Brief facts qua the issue raised in ground no. 1 is that the assessee company was incorporated in 1997 as M/s Vossloh Schwabe India P Ltd. Company with the objective of marketing and distributing the products of VOSSLOH VGE Group in India. The assessee company entered into a non-compete agreement with Mr. Shekhar K Shah to prevent him for starting a business in India in competition with the assessee. Not only that, the assessee employed him for carrying on its own business. By this agreement not only assessee-company obtained a restrictive advantage but also employed Mr. Shekhar K Shah to promote and carry on the business of the assessee company which was essentially enhancement of business by it. Mr. Shah was paid non-compete fee of Rs. 50 lakhs, which was ....
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....ated in section 32 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 to the exclusion of another assessee. A non-compete right encompasses a right under which one person is prohibited from competing in business with another for a stipulated period. It would be the right of the person to carry on a business in competition but for such agreement of non-compete. Therefore the right acquired under a non-compete agreement is a right for which a valuable consideration is paid. 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 he was earlier associated. Generally, non-compete fee is paid for a definite period. The idea is that by that time, the business would stand firmly on its footing and can sustain later on. This clearly shows that the commercial right comes into existence whenever the assessee makes payment for non-compete fee. Here the doctrine of ejusdem generis would come into operation and therefore the non-compete fee vests a right in the assessee to carry on business without competition wh....
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....ponents and materials for the assembly and manufacture of the products. Xylon, was entitled to a fee of 5% of costs being incurred by it for manufacturing. In a way, Xylon acted as a toll manufacturer. Any liability incurred during the course of its operations, that is those of pertaining to the manufacturing operations were agreed to be taken over by the assessee company. Later, on termination of the manufacturing agreement, the assessee company has entered into agreement on 8th August, 2003 for taking over the liabilities of Xylon. In terms of the said agreement, the assessee agreed to take over from Xylon the finished and unfinished products i.e. inventories and related liabilities. The assessee thus took over the following: Particulars Amount(Rs. in lakhs) Secured Loans GE Countrywide Ltd 29.17 Current liabilities and Provisions - Creditors of goods 428.31 - Balance due to Appellant Co. 173.56 - Creditors for expenses 57.27 - Provisions for gratuity 1.33 - Provisions for taxation 9.29 - Deferred tax liabililty 51.69 - Sales tax liability 7.67 Total liabilities to be transferred 758.29 Value of inventori....
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....ture of capital expenditure. However, the assessee pointed out that the facts as given in the later decision was entirely different with that of the assessee. The Ld. CIT(A), noted that the assessee has taken income-tax liability of its joint venture partner amounting to Rs. 58,13,845 and excise duty liability, amounting to Rs. 15,90,229/-, out of which, Rs. 7,94,956/- relates to the penalty paid under Excise Duty Act and invasion of excise duties and further equal amount was imposed as additional duty. Hence same cannot be held to be allowable deductions being penal in nature. He rejected the assessee's contention and held that the Assessing Officer was right in disallowing the said payment towards the income-tax liabilities and also disallowance of excise duties. 14. Before us, the Ld. Counsel besides retreating the submissions made before the authorities below, submitted that what assessee has paid was purely on account of expense on account of discharge of contractual liability and, therefore, the same is allowable as business expense. Apart from relying on the Dashmesh Transport Co P Ltd., reported in 93 ITR 275, further reliance was placed on the decision of Mumbai Bench o....