TaxTMI 
TaxTMI 
2016 (3) TMI 1347
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....y the Appellant as a part of business transfer agreement with MIS TVS Electronics Ltd. 3 The learned CIT(A) has erred in law and in facts, by failing to appreciate that the expression "any other business or commercial right of similar nature" would include such "Customer Relationship Rights (Non-compete fees)", which is essential to carry on the business after the business transfer. 4 The learned CIT(A) has erred in law and in facts, by not giving the Appellant the advantage of ruling held in the following cases: i) by The Honourable Karnataka High Court in CIT vs. Ingersoll Rand International Ind.Ltd. ii) by the ITAT Chennai Bench in ITO Vs Medicorp Technologies India Ltd (2009) 30 SOT 506 5 The learned CIT(A) has erred in law and in facts, by differentiating the Customer relationship rights (non-compete fees) from any other business or commercial rights. The Appellant has claimed depreciation on Customer Rights on the understanding that the consideration was paid to TVS Electronics Ltd to acquire certain commercial rights, including these customer relationship right, which are in the nature of intangible capital assets and essential for carrying on the business. Thus these r....
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....Officer held that the payment made in respect of customer relationship right is only in the nature of goodwill for which no depreciation was allowable. Accordingly, the Assessing Officer denied the benefit of depreciation on the amount paid in respect of customer relationship right and brought to tax the said amount for all the assessment years under consideration. The assessee challenged the action of the Assessing Officer before the CIT (Appeals). The CIT (Appeals) confirmed the action of the Assessing Officer in disallowing depreciation on the said amount by following the judgment of Hon'ble Delhi High Court in the case of Sharp Business System Vs. CIT (2013) 211 Taxman 576. 4. Before us, the learned Authorise Representative of the assessee has submitted that as per Article 11 of the Business Transfer Agreement (BTA), the seller agreed and undertook that it was not directly or indirectly for a period of three years (i) participate or engage in any jurisdiction or in any capacity in Contract Manufacturing Services (CMS) business and contract manufacturing related to medical and power electronics and (ii) Solicit / entics the employee of the CMS business of buyer of the asses....
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.... Hon'ble Delhi High Court in the case of Areva T & D India Ltd. V DCIT (2012) 345 ITR 421 and submitted that in an identical case there was a lump sum sale, the Hon'ble Delhi High Court has held that the intangible assets in the nature of business information, business record, contract, employees and know-how fall in the genus of intangible assets that form part of the tool of trade of assessee facilitating smooth carrying on the business and therefore eligible for depreciation under Section 31(1)(ii) of the Act. 5. On the other hand, the learned Departmental Representative has submitted that neither anything mentioned in the BTA nor in the arrangement between parties which can indicate that there was any transfer of intangible asset in the transaction of contract manufacture service division of TVS Electronics Ltd.. Further, the term 'customer relationship right' does not find place in Section 32(1)(ii) and this term also not similar to the terms of know how, patent, copy right, trade mark, business or franchise. Therefore, in view of the judgment of Hon'ble Delhi High Court in the case of Sharp Business System (supra), the payments made by the assessee on account of ....
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....compete fees as well as in the absence of any such value assigned to the non-compete fees in the books of accounts, we do not find any substance in the contention of the learned Authorised Representative that the said payment is made as non-compete fees. The assessee in its books of accounts has allocated sum to the intangible being customer relationship. Therefore, though the seller has agreed not to engage in any business for a period of three years or participate or engage as owner, partner shareholder, consultant, advisor or any other capacity solicit the employees of the CMS Business however in the absence of any intention of parties to pay consideration for such restrictive covenants in the agreement the payment in question cannot be regarded as non-compete fees. Therefore, the decision of the Hon'ble jurisdictional High Court in the case of Ingersoll Rand International India Ltd. (supra) will not help the case of the assessee. As regards the nature of payment in question, as treated by the assessee in the books of accounts being customer relationship, the issue is clearly decided against the assessee by the decision of the Hon'ble Delhi High Court in the case of Shar....