Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2013 (5) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (5) TMI 302 - AT - Income TaxDepreciation on the capitalised sum of non - compete fees - disallowance as the expenditure is in no way connected with the acquisition of various assets - Non-compete fees - revenue v/s capital - assessee contested against issue not to be falling under current assessment year - Held that:- The clauses clearly show that under no circumstance, the new company, i.e. the assessee, shall be able to use the technical knowhow upto 31.03.1998. The agreement between GGL and PEL under all circumstances and for all practical purposes was a prospective agreement, which could only have been made effective from 01.04.1998. It is also interesting to note that, the AO also took note of this fact, because, the AO noted that the payment of the agreed amount was paid to PEL on 02.04.1998. This can only infer, that the agreement dated 26.02.1998 actually came into force on 01.04.1998.On these fact, it is clear that the operation of the agreement, technical knowhow and application of non compete arrangement came into force on 01.04.1998, which would fall in assessment year 1999-2000, i.e. the year under consideration. DR's submission that non compete does not find place in the provision have to be accepted because non compete fee does not fall within the ambit of any other commercial or business rights, because, even when examining the meaning of different words, as per law Lexicon, word license means an authority to do something which would otherwise be inoperative, wrongful or illegal, a formal permission from a Constituted authority to do something. The meaning of the word franchise means right conferred by the government to engage in a specific business or a exercise corporate powers,corporate franchise, general franchise. "Know-how" is the fund of technical knowledge and experience acquired by a highly specialized production organization. It is usually noted vary according to, and may even be determined by, its use. Like office or factory buildings, patents and trademarks, and good will, it may be described as a "capital asset" while it is retained by a manufacturer for his own purposes, but, unlike these, its supply to another is not a transfer of a fixed capital asset because it is not lost to supplying manufacturer In Sections 530 and 531 [disposal of know-how] 'know-how' means any industrial information and techniques likely to assist in the manufacture or processing of goods or materials, or in the working of a mine, oil-well or other source of mineral deposits (including the searching for, discovery or testing of deposits or the winning of access thereto), or in the carrying out of any agricultural, forestry or fishing operations. Thus the expression non compete fee could not be extracted. It is important, therefore, to read both the parts as read in Sharp Business Systems (2011 (6) TMI 505 - ITAT DELHI) to explain the genus of "any other business or commercial rights of similar nature" with the earlier words. as upheld by the Hon'ble Delhi High Court [2012 (11) TMI 324 - DELHI HIGH COURT]. Thus the assessee does not satisfy, the payment made to acquire non compete right, being an asset, as per the second part of clause (ii) to section 32(1), and is, therefore, not eligible for depreciation as per law - as non compete fee is not an asset, depreciation cannot be allowed - Against assessee.
|