AI Drafter 
TaxTMI 
TaxTMI 
2022 (11) TMI 723
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....m Software Technology Park and claimed deduction u/s.10A of the Act. The assessee has filed its return of income for the AY 2004-05 on 01.11.2004 declaring a loss of Rs.26,62,56,653/-. The assessment has been completed u/s.143(3) of the Act, on 22.12.2006 and determined total income of Rs.34,14,15,708/-, by making various additions and also re-computation of deduction claimed u/s.10A of the Act. The assessee carried the matter in appeal before the First Appellate Authority, and the Ld.CIT(A) for the reasons stated in their appellate order dated 29.11.2010 partly allowed the appeal filed by the assessee. ITA No.121/Chny/2011 for the AY 2004-05 - (assessee's appeal): 3. The first issue that came up for our consideration from Ground No.1 of the assessee's appeal is assessment of income from sale of course material under the head 'income from other sources'. The AO assessed income from course material under the head 'income from other sources' and also denied deduction claimed u/s.10A of the Act, on the ground that the receipts are not in the nature of profits & gains derived from export unit. 3.1 The Ld.AR for the assessee submitted that the main business of the assessee is t....
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....se material, is not entitled for deduction u/s.10B of the Act. Therefore, consistent with view taken by the co-ordinate bench, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the assessee. As regards alternate claim of the assessee, the AO is directed to verify the claim and if found correct, the assessed net income under the head 'income from other sources'. 4. The next issue that came up for our consideration from Ground No.2 of the assessee's appeal is assessment of rental income under the head 'income from other sources'. The AO has assessed rental income under the head 'income from other sources' on the ground that said income is not in the nature of profits & gains derived from export unit and thus, denied deduction claimed u/s.10A of the Act. The Ld.CIT(A) assessed rental income under the head 'income from business' and also allowed consequent expenses like depreciation on building, rates & taxes, insurance, and repairs & maintenance. However, affirmed the findings of the AO in not allowing deduction u/s.10A of the Act. 4.1 The Ld.Counsel for the assessee submitted that rental income derived by the assessee is assessable under the....
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....ation from Ground No.3 of the assessee's appeal is depreciation on non-compete fee. The AO has disallowed depreciation on non-compete fee on the ground that the noncompete fee/good will is not depreciable asset, eligible for depreciation u/s.32(i)(ii) of the Act, nor the expenditure on acquisition of goodwill, is eligible item for deduction u/s.35D(2) of the Act. The Ld.CIT(A) allowed depreciation on non-compete fee, by following the decision of ITAT in the assessee's own case for the earlier assessment years. 5.1 The Ld.Counsel for the assessee submitted that this issue is covered in favour of the assessee by the decision of the Hon'ble Madras High Court in the case of Pentasoft Technology Ltd. v. DCIT reported in [2014] 264 CTR 0187 (Mad), where the Hon'ble Madras High Court allowed depreciation on non-compete fee as an intangible asset in terms of sec.32(1) of the Act. 5.2 The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), submitted that non-compete fee is not an intangible asset eligible for depreciation u/s.32(1)(ii) of the Act. However, fairly agreed that the issue is covered in favour of the assessee by the decision of the Hon'ble Madras High Court. ....
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....nfidential or 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., and PMGL 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 utilize 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 t....
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.... are not presently concerned. On the appeal 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 of its 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 was transfer of all rights over the IPRs as ....
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....refore, the non-compete clause under the agreement should be read as a supporting clause to the transferor 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 Tax reported in 327 ITR 323 (SC), the assessee therein before the Hon'ble Apex Court claimed depreciation on the membership card held by it with the Bombay Stock Exchange enables 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....
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....transfer of the trade mark, patents and other rights in favour of the assessee was undoubtedly the transfer of intangible assets, which in terms of section 32(1)(ii) of the Act would be a capital asset entitled to depreciation. 5.4 In this view of the matter and by respectfully following the decision of the jurisdictional High Court of Madras in Pentasoft Technology Ltd. (supra), we are of the considered view that the assessee is entitled for depreciation on non-compete fee and thus, we direct the AO to allow depreciation on non-compete fee as claimed by the assessee. 6. In the result, appeal filed by the assessee in ITA No.121/Chny/2011 is partly allowed. ITA No.449/Chny/2004-05 for the AY 2004-05 - (Revenue's appeal) 7. The first issue that came up for our consideration from Ground No.1 of the Revenue's appeal is exclusion of software development expenses and exchange fluctuation loss from export turnover but not from total turnover. The AO while re-computing deduction u/s.10A of the Act, excluded expenditure incurred towards software development expenses as per Explanation (2) to sec.10A of the Act, and exchange fluctuation loss, but does not exclude same from total ....
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....entical issue has been considered by the Tribunal in the assessee's own case for the AY 2002-03 in ITA No.1540//Mds/2006, where the Tribunal after considering relevant facts held that IPR is eligible for depreciation u/s.32(1)(i) of the Act. Therefore, consistent with view taken by the co- ordinate Bench, we are of the considered view that there is no error in the reasons given by the Ld.CIT(A) to delete additions made towards disallowance of depreciation on IPR and thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the Revenue. 9. The next issue that came up for our consideration from Ground No.3 of the Revenue's appeal is expenditure on purchase of software treated as Revenue expenditure. The AO has disallowed a sum of Rs.18,24,821/- towards expenditure incurred for purchase of software as capital in nature, since, the assessee derived enduring benefit, but has allowed depreciation. The Ld.CIT(A) by following the decision of CIT v. Southern Roadways Ltd. reported in 288 ITR 15, allowed relief and held that expenditure incurred for purchase of software is Revenue in nature. 9.1 The Ld.Counsel for the assessee submitted that the asses....
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....fore the AO to justify credit in the name of M/s.Penta Media Graphics Ltd. Before the Ld.CIT(A), the assessee claims to have filed reconciliation along with ledger account of M/s.Penta Media Graphics Ltd., in the books of accounts of the assessee and vice-versa. The assessee further claimed that it has reconciled difference between ledger account of M/s.Penta Media Graphics Ltd., in their books of accounts with creditors books and explained the difference of Rs.3 lakhs. The Ld.CIT(A) after considering relevant facts deleted the additions made by the AO. We find that although, the assessee has filed reconciliation and further evidences first time before the Ld.CIT(A), the Ld.CIT(A) has allowed relief to the assessee without confronting those evidences to the AO for his rebuttal. No doubt, the assessee has filed details of ledger account along with confirmation from the party and explained the credit. But, the Ld.CIT(A) should have confronted those evidences to the AO for his comments before allowing the relief to the assessee. Therefore, we are of the considered view that the issue needs to go back to the file of the AO to verify additional evidences filed by the assessee including ....