TaxTMI 
TaxTMI 
2021 (1) TMI 1032
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....n law, the Ld. CIT(A) has erred in deleting the addition made on account of disallowance of license fee of Rs. 27,56,00,686/- paid to Remfry & Sagar Consultants Pvt. Ltd. (RSCPL) by ignoring the fact that the value of license fee paid by the assessee has been increasing year after year and no expenditure being incurred by RSCPL towards improvement, development or protection of the said goodwill. 3. On the fact and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of disallowance of Rs. 12,89,393/- out of travelling and entertainment expense by ignoring the fact that personal element in respect of these expenses cannot be ruled out considering the nature of expenses." 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee is a law firm by profession and derived income from business or profession and income from other source. Assessee's claim of an expenditure of Rs. 27,56,00,686/- being the licence fee paid to M/s. Remfry & Sagar Consultants Pvt. Ltd. (RSCPL) for the use of goodwill of "Remfry & Sagar" and to practice in its name has been disallowed by the Assessing Officer (AO)....
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....e Tribunal after noting the entire facts and rival contentions made by the parties as well as relevant provision of law has held that the license fee paid to M/s. RSCPL is allowable as Revenue expenditure. The relevant observation and the finding of the Tribunal read as under: "8. We have heard both the parties at length. We have considered the written submission, the papers on record as well as the case laws cited by both parties. On a careful consideration of the same we hold as follows: 8.1. Before we adjudicate the issue as to whether the disallowance of license fee paid by the assessee to RSCPL for license to practice as 'Remfry & Sagar' and for use of the said name, trade mark and goodwill by the A.O is to be upheld or not, for the purpose of the ready reference we recapitulate the facts of the case as below: Facts Year 1827: A sole proprietorship firm was established as "Grant and Remfry", by a British immigrant, Mr. Henry Oliver Remfry, which was subsequently converted into partnership firm and operated by five generations of Remfry family, until the year 1957. Year 1957: Mr. Hollaway, Mrs. Silverstone, Mr. Bernier and Mr. Burrington joined 'Remfry & Son'....
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....ns', was carrying on a business of patent agents. Vide terms of the deed of partnership dated 6th April 1970, 50% of the goodwill of the business belonged to the partner Mrs. Holloway and other 50% to Mrs. Silver Stone. Both of them held 50% of all the other capital assets and properties of the firm. Though Mrs. Remfry was having a share in the net profits of the partnership, she had no ownership rights in the goodwill of this firm. This demonstrates that the name and goodwill of the business 'Remfry & Sons' is distinct and separate from the other assets of the partnership firm and that it vested only in two partners of the firm and not the firm. This is clear from reading of Clause 2 & 3 of the said partnership deed. 8.3. On the fourth day of April 1973, Mr. Vidya Sagar purchased by way of sale, from Mr. Holloway and Mrs. Silver Stone, the business carried on under the name and style of 'Remfry & Sons' along with all its assets including capital asset as on 31st March 1973 and the name and goodwill thereof which was referred to as "the said business" in that agreement for a total consideration of Rs. 3 lacs. Thus when Dr.V.Sagar purchased the Goodwill along w....
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....e that the partnership deed dated 5th June 2001 is under the name and style of "Remfry & Sagar" and this partnership deed has come into force on 1st June 2001. Thus what is licensed by RSCPL to the assessee firm is Goodwill and its associated rights to practice as "Attorneys-at-law and not to do business of trademark and Patent Agents. 8.8. Vide agreement dated 5th June 2001, RSCPL permitted to use of "goodwill" to the partnership and permitted them to use the name of 'Remfry & Sagar' with retrospective effect i.e. 1st June 2001. While Clause No. 16.1 of this agreement, the license fee in question is to be paid in pursuance to this agreement. 8.9. It is clear that Dr. V. Sagar has arranged his affairs in such a way that the goodwill earned by him over the years is enjoyed by his children who are his legal heirs. All the documentation shows that this is a very well thought out strategy by Dr.V.Sagar to retain his hard earned as well as purchased goodwill and to use it for his future generations, irrespective of the fact whether they were in the practice of law. Such well considered and thought out arrangements cannot be said to be colourful devices. These are transparent a....
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....the goodwill. 8.13. The submission of the Ld. Special counsel for the revenue that goodwill of a profession cannot be segregated from the persona of the person is against the propositions of law laid down by the Hon'ble Supreme Court in the case of Devi Das Mittal Daas Vithaldas & Co. VS. CIT Bombay City (supra). The constitutional bench of the Hon'ble Supreme Court consisting of four findings was considering a case of chartered accountant who was carrying on his profession in the name of Devi Dass & Co. Vide partnership dated 31 January 1948, wherein he retained/reserved the right of goodwill of the profession carried on by him earlier in sole proprietorship. On 2nd June 1951, he retired from the said partnership. The goodwill in the partnership was sold to the other partner and the consideration was to be paid to the Chartered Accountant at the certain rate and after his death to his wife and thereafter his son were to paid annual consideration. The question before the Hon'ble Court was whether such the amounts paid to the wife and thereof to the son is allowable deduction or not under the Income tax Act. 8.14. The Larger Bench consisting of four Judges of Hon'....
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.... accepted that both the entities i.e. the assessee as well as RSCPL, pay taxes, at the maximum rate and that there is no loss of Revenue on account of this arrangement. The taxes due to the Government have not been avoided or evaded by this arrangement. Thus the disallowance made on the ground of diversion of profits is devoid of merit. 8.17. Though the Ld. Special Counsel for the Revenue argued that good will of a profession cannot be sold to a company which does not have a right to carry on practice, no specific law or section was brought to the notice of the Bench in support of the argument. Only several submissions have been made. Certain judgements of Foreign Courts were cited, which were based on "ethical considerations" and not legal prohibition. In any event, the ITAT has no power or authority to adjudicate the issue as to whether, the gift of goodwill by Dr.V.Sagar of his profession of law, to a company is violating the Advocates Act, 1961 or the Bar Council Rules. No authority has held that this arrangement violates any Act or law of the land, though the assessee firm has been carrying on its profession of Attorneys at law under this arrangement for the last many years. 8....