TMI Blog2018 (6) TMI 1540X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase of software - disallowance of depreciation - Held that:- Following the decision of Kawasaki Microelectronics Inc – India Branch V. DDIT (IT), Circle 1(1), Bangalore [2015 (9) TMI 9 - ITAT BANGALORE], which is on similar facts as those in the case on hand, we are of the opinion and hold that once the assessee has capitalized the payment in question though the assessee has not deducted tax at source on such payment, the provisions of Sec. 40(a)(i) cannot be invoked for disallowance of depreciation. - Revenue appeal dismissed. - I.T. A. No.715/Bang/2017 - - - Dated:- 15-6-2018 - SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER For the Appellant : Shri B. R. Ramesh, JCIT (D.R) For the Respondent : Shri Narendra Sharma, Advocate. ORDER Per Shri Jason P Boaz, A.M. : This appeal by Revenue is directed against the order of Commissioner of Income Tax (Appeals)-6, Bangalore dt.9.12.2016 for the Assessment Year 2012-13. 2. Briefly stated, the facts of the case are as under :- 2.1 The assessee-company, a dealer in mobile phones and accessories, filed its return of income for Assessment Year 2012-13 on 30.09.2012 declaring in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arnataka High Court in the case of Ingersoll Rand International Ind. Ltd. (supra) was followed after considering the decision of the Hon'ble High Court of Delhi cited (supra). 5.3.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial decisions cited. We find that the issue of allowing depreciation on the additional amount paid by the assessee as goodwill has been considered and decided in favour of the assessee by a co-ordinate bench of this Tribunal in the assessee's own case for Assessment Years 2010-11 and 2011-12 (supra), wherein the co-ordinate bench of this Tribunal has followed the decision of the Hon'ble Karnataka High Court in the case of Ingersol Rand International Ind Ltd. (supra) after duly considering the decision of the Hon'ble High Court of Delhi in the case of Sharp Business Systems (supra). At paras 4 to 7 of its order in ITA Nos.1185 1186/Bang/2016 dt.3.11.2016, the co-ordinate bench has held as under :- 4. Regarding the first issue, it is submitted by the learned AR of the assessee that the copy of Assets Purchase Agreement is available on pages 78 to 115 of the paper book an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper book is relevant as per which it is held by Hon ble Karnataka High Court that the right acquired by the assessee on payment of non compete fees is a commercial or a business right which is similar in nature to know how, patents, copyrights, licenses, franchises etc and it falls in the category of Intangible Assets and consequently depreciation is allowable u/s 32 (1) (iii). 5. As against this, learned DR of the revenue supported the orders of the authorities below. He also submitted that it is noted by the learned CIT (A) in Para 14 of his order that in the Remand Report (Copy on pages 142 to 144 of the paper book), the A.O. has distinguished the facts of the present case with the facts in the case of CIT vs. M/s Ingersoll Rand International Ind. Ltd. (supra). At this juncture, a query was raised by the bench asking the learned DR of the revenue to point out the difference in facts as reported by the AO in the remand report. In reply, learned DR of the revenue pointed out that the A.O. reported that the AO has reproduced relevant observations of Hon ble High Court as per which, in that case, the right acquired by way of non compete can be transferred to any other perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly or indirectly participating in a business which is similar to the business being acquired, from directly or indirectly soliciting or influencing clients or customers of the existing business or any other person either not. to do business with the person who has acquired the business and paid the non-compete tee or to do business with the per-son receiving the non-compete fee to do business with a person who is directly or indirectly in competition with the business which is being acquired. The right is acquired for carrying on the business and therefore, t is a business right. The word commercal is defined in Black s Law Dictionary as related to or connected with trade and commerce in general commerce is defined as the exchange of goods, productions or property of any kind, the buying, selling and exchanging of articles . A right by way of non-compete is acquired essentially for trade and commerce and therefore, it will also qualify as a commercial right. A right acquired by way of non-compete can be transferred to any other person in the sense that the acquirer gets the right to enforce the performance of the terms of agreement under which a person is restraining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness being acquired, from directly or indirectly soliciting or influencing clients or customers of the existing business or any other person either not to do business with the person who has acquired the business and paid non compete fees or to do business with a person who is directly or indirectly in competition with the business which is being acquired. These rights are held to be business rights. Thereafter, it is noted by Hon ble Karnataka High Court that this right can be transferred to any other person in the sense that the acquirer gets the right to enforce the performance of the terms of agreement under which a person is restrained from competing. In the present case also, it is specified in Para 11 of the agreement page 102 of the paper book that unless permitted by the assessee i.e. SMPL, WAVE and Mr. V. F. John Yesudhas will not do anything which may amount to competition with the present assessee. Hence in the present case also, the assessee i.e. the acquirer gets the right to enforce the performance of the terms of agreement under which the seller WAVE and Mr. V. F. John Yesudhas including their associates, partners and relatives shall not compete with the assessee i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that it is clear from the details on record and as per the observation / finding of the Assessing Officer at para 5.2 of the order of assessment that the above expenditure on purchase of computers and software was capitalized and depreciation @ 60% thereon was claimed. Therefore, the provisions of section 40(a)(i) of the Act would not be attracted. In support of this proposition, the learned Authorised Representative placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of Kawasaki Microelectronics Inc India Branch V. DDIT (IT), Circle 1(1), Bangalore in IT(IT)A No.1512/Bang/2010 dt.26.6.2015. 6.3.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicialpronouncement cited. On an appraisal of the facts on record, it is not in dispute that the assessee had expended an amount of ₹ 2,26,381 for acquiring computers and softwares , which were capitalized and depreciation @ 60% was claimed thereon. The Assessing Officer proceeded to disallow the depreciation claimed by the assessee by invoking the provisions of section 40(a)(i) of the Act in respect of the aforesaid payments ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation on the capitalized amount. It is not the case of the claim of any expenditure by the assessee but the expenditure which has already capitalized and consequently the provisions of section 40(a)(i) has no role to play. In support of his contention, he has relied upon the decision of Mumbai Bench, ITAT in the case of SKOL Breweries Ltd. Vs. ACIT 142 ITD 49 (Mum) as well as the decision of the Delhi Bench of ITAT in the case of SMS Demang (P.) Ltd. V DCIT (2010) 38 SOT 496. The learned Authorised Representative has contended that the issue of disallowance of depreciation by applying the provisions of section 40(a)(i) of the Act is covered in favour of the assessee by the above said decisions of the Tribunal. 5. On the other hand, the learned Departmental Representative has submitted that there is no dispute that the assessee has made the payment for purchase of software which is in the nature of royalty and therefore the provisions of section 195 are applicable on such payment for deduction of tax at source. He has further submitted that it is also not in dispute that the assessee has not deducted the TDS in respect of the payment in question and therefore the assessee has vio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rary in section 30 to 38 of the Act. Sec. 40 begins with non-obstante clause; therefore, it is an overriding effect t the provisions of sec. 30 to 38 of the I T Act. The question arises is whether any amount paid outside India or to the Non Resident without deduction of tax at source and the assessee has capitalized the same in the fixed assets and claimed only depreciation is subjected to the provisions of sec. 40(a)(i) or not ?. We quote the provisions of sec. 40(a)(i) as under: 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession ,- in the case of any assessee- [(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,- outside India; or in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or profession which means the depreciation is a deduction for an asset owned by the assessee and used for the purpose of business and not for incurring of any expenditure. 16.3 The deduction u/s 32 is not in respect of the amount paid or payable which is subjected to TDS; but is a statutory deduction on an asset which is otherwise eligible for deduction of deprecation. Depreciation is not an outgoing expenditure and therefore, the provisions of sec. 40(a)(i) of the Act are not attracted on such deduction. This view has been fortified by the decision of the Hon'ble Punjab Haryana High Court in the case of Mark Auto Industries Ltd. (supra) in pars 5 6 as under: 5. Adverting to questions (ii) and (iii), the issue which arises for consideration is whether the assessee could be disallowed claim for depreciation under Section 40(a)(i) of the Act on the ground that the payments made for technical know-how which had been capitalized, no tax deduction at source has been made thereon. The Tribunal while accepting the plea of the assessee, in para 3, had noticed as under: 3. Ground no. 4 is against deletion of an addition of ₹ 6,88,1751- made by the AO on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee, the provisions of section 40(a)(i) are applicable for disallowance of depreciation on such capitalized expenditure. We do not agree with the contention of the learned D.R, because a remedy for violation of provisions of section 195 is available with the Assessing Officer under Section 201 201A of the Act. The provisions of section 40(a) is only an additional measure to enforce the compliance of Chapter XVIIB of the Act, by disallowing an expenditure which is otherwise allowable under the provisions of the Act. Therefore, the question of disallowance under Section 40(a) arises only when an expenditure is claimed by the assessee without deducting the tax at source as per the provisions of Chapter-XVIIB of the Act, 1961. In the case on hand, when the assessee has not claimed, the said payment as an expenditure then the question of disallowance under Section 40(a)(i) does not arise. The only remedy which might have been resorted to by the Assessing Officer is the action under Section 201 and 201A of the Act. A similar view has been taken by the Delhi Bench of the Tribunal in the case of SMS Demang (P) Ltd. (supra) in para 8 as under :- 8. As regards the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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