TaxTMI 
TaxTMI 
2022 (10) TMI 483
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....icense fee of Rs.37,16,87,188/- 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 facts 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. 10,31,761/- 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. 4) The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing." Ground No.1 and 2 of the Revenue 3. The ld. Sr. DR submitted that in the facts and circumstances of the case, the ld.CIT(A) has erred in deleting the addition made on account of disallowance of licence fee paid to Remfry & Sagar Consultants Pvt. Ltd. (RSCPL) by ignoring the fact that the assessee being a law firm was using the goodwill of RSCPL being a company prohibited from arguing law in India as per the Advocates Act, 1961 ....
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.... 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' (the name of the partnership firm at that time) as partners. Year 1970: Mr. Bernier and Mr. Burrington retired. Mr. Holloway, Mr. Silverstone and Mrs. Remfry entered into a fresh deed of partnership. As per the partnership deed, Mr. Holloway and Mrs. Silverstone were entitled and empowered to sell all or any of the assets of the partnership firm, including the name and goodwill of the business. Year 1973: Mr. Holloway and Mrs. Silverstone transferred absolutely, the business with all assets including name and goodwill thereof, vesting in 'Remfry & Son' for valuable consideration, to Dr. V. Sagar, with effect from April 1, 1973. Year 1990: Dr. V. Sagar merged his own sole-proprietorship practice in the name of 'Sagar & Co.' into 'Remfry &....
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...., 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 with other assets, this Goodwill was of business and not of any profession of law. 8.4. Thus, Dr. Sagar become an absolute owner of the business carried on in the name and style of "Remfry and Sons" which is in the business of trade mark and patent agent. 8.5. On 1st June, 1990, Dr. V. Sagar merged his legal practice in the name of "Sagar & Co." with the business of trade mark and patent agents carried on in the name and style of 'Remfry & Sons' and changed the name of the proprietorship into 'Remfry and Sagar'. Dr. V. Sagar was carrying practice and profession of "Attorneys-at-Law" with specialization in the areas of intellectual Property Law and Corporate Law under the name and style of 'Remfry & Sagar', in New Delhi and Mumbai. The goodwill in the name of 'Remfry & Sagar' and all the rights associated thereof....
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....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 and legally documented arrangements. 8.10. The issue for consideration is whether such an arrangement is permissible in law. The pith and substance of the argument of the revenue is that such segregation of goodwill from the legal practice cannot be permitted. It is further argued that under the Advocates Act, 1961, the goodwill earned by an advocate cannot be alienated to any person or company which is not entitled to practice under the Advocates Act, 1961. 8.11. At the same time, the revenue concedes that the legal heirs of the advocates would be entitled to the benefit of the goodwill earned and created by the legal practitioner. It was submitted that the legal heirs may be entitled to consideration for the goodwill on behalf of the deceased father but they cannot be regarded as the lawful owners of the goodwill or having the rights of owning the ....
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....rtain 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'ble Supreme Court in the case of Devidas Vithaldas & Co. Vs. CIT, Bombay, reported in 84 ITR 277 (S.C.), held as follows. "Held, by Shelat, Khanna andMitter JJ (SDhri CJ dissenting), reversing the decision of the High Court, that the transaction under the deed of dissolution was a licence and not a sale of the goodwill and the payments were in the nature of royalty and had to be treated as admissible deductions; because (i) though clause 2 of the deed of dissolution used expressions such as 'agreed to sell' and 'the purchase price of the goodwill', these expressions were not determinative of the exact nature of the transaction; (ii) neither clause 2 nor any other provision in the deed fixed any lump sum as price in respect of which annual payments were provided; (iii) the duration of payment was indefinite and the amount was indefinite and depended upon the rise an....
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....fession 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. 8.18. Another important fact that has to be considered is that, Dr. V. Sagar had the sole and exclusive rights to the said goodwill. The goodwill was held by him. Without legal authorization from him, the assessee firm could not use the name and style of "Remfry & Sagar" along with its goodwill and other assets and rights. The assessee firm had to seek permissions and licences to coneinue and carry on this profession under this name as it is run doing. Hence obtaining a license is a must for assessee firm to continue and carry on its profession as the goodwill is not owned by it the payment made in pursuance of an agreement which enables the assessee firm to carry on its profesions, in the manner in which it is now doing, is definitely an expenditure laid down wholly and exclusively for the purpose of business or profession. The argument of the Ld. Special Council that the purpose t....
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....ssecretarial, accounting & other support services paid to M/s. IPSS (India) Pvt. Ltd. not appreciating the fact that M/s. IPSS (India) Pvt. Ltd. was a related company and the payment was made in excess of agreed ratio as per the agreement entered into by the assessee." 8.25. After perusing the findings of the CIT(A) on this issue, we uphold the same as Ld. Departmental Representative could not controvert the factual finding. The CIT(A) at page 56 has recorded that the addition was made by the A.O on the ground that, this is not authorized by the partnership deed. Such ground of the disallowance cannot be sustained. 8.26 In result, these grounds are dismissed." 6. It is also pertinent to note that the said order of the Tribunal dated 06.09.2016 (supra) has been followed by the Tribunal while adjudicating the appeals of the Revenue for the subsequent AYs 2011-12, 2013-14 and 2014-15. 7. Thus, respectfully following the aforesaid precedence, we hold that the said deduction claimed by the assessee on account of licence fee paid to M/s Remfry & Sagar Consultants Pvt. Ltd., is allowable as revenue expenditure u/s 37 of the Act. Consequently, grounds No.1 and 2 of the Revenue bei....