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2013 (9) TMI 600 - AT - Income TaxDisallowance of non-compete fees - Capital or revenue expenditure - Deferred revenue expenses - Purchase of Merchant Banking Division - Held that:- non-compete agreement was valid for a period of three years which in our view has to be considered as sufficient length of time to treat the expenditure as capital in nature. The protection acquired by the assessee from competition was not part of the working of the business and went on to appreciate the whole of the capital amount as held by the hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. [1954 (11) TMI 2 - SUPREME Court], and, therefore, on that ground also it has to be treated as capital in nature. Therefore, we hold that expenditure has to be disallowed as capital expenditure - Decided against Assessee. Disallowance of SEBI fees - Fees paid on pro rata basis - Held that:- The assessee had paid a sum of ₹ 5 lakhs to the SEBI for granting registration for a period of three years to enable the assessee to perform certain stipulated functions. The Assessing Officer held that the expenditure was for smooth running of the assessee and was allowable as revenue expenditure but since benefit was for three years, he allowed expenditure on pro rata basis only for one year. - There is no provision in the Income-tax Act for amortisation of such expenditure. Therefore, once the expenditure has been found allowable as revenue expenditure, the same has to be allowed in full - Decided in favour of assessee. Disallowance of service tax - Section 43B - Held that:- the same issue has already been considered by the Mumbai Bench of the Tribunal in case of Pharma Search [2012 (5) TMI 90 - ITAT MUMBAI] - as per service tax law, service tax is payable as and when the payment/fees for underlying services provided are realised. Therefore, if for any reason the payment for service rendered is not realised, there is no liability as to payment of service tax. - As the assessee had not realised any payment for services during the relevant year, it had no liability to pay service tax and once there was no liability for payment of service tax, the provision of section 43B were not applicable as the said provisions can be applied only if any liability has been incurred on account of service tax during the year. The addition made was, therefore, deleted. - Decided in favour of assessee. Disallowance of depreciation - Payments made under the transfer of business agreement - Held that:- It has not been explained before us as to why the assessee would pay for rules and regulations and procedures which are available in the market and, therefore, we have to conclude that the payment of ₹ 25 lakhs had been made for the transfer of business and contracts including clients and client relationship which cannot be considered as know-how. The Commissioner of Income-tax (Appeals) has not accepted the finding of the Assessing Officer that payment was for goodwill nor any material has been produced before us to show that any part of the payment related to acquisition of goodwill. the payment was for transfer of business and contracts including clients and client relationship which in our view is not an intangible asset as defined in section 32(1)(ii) on which depreciation can be allowed - Decided against assessee. Depreciation on the non-compete fee - Held that:- by obtaining non-compete right on payment of noncompete fee, the assessee can run his business without bothering about competition and, therefore, non-compete right was an intangible asset falling in the category of any other business or commercial right under section 32(1)(ii) - depreciation will be allowed to the assessee on the non-compete expenditure incurred by it - Following decision of Real Image Technologies (P.) Limited. Versus Assistant Commissioner Of Income-Tax [2008 (2) TMI 490 - ITAT MADRAS-B] - Decided in favour of assessee.
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