TMI Blog2008 (2) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... of ejusdem generis would come into operation. The term or any other business or commercial rights of similar nature has to be interpreted in such a way that it would have same similarities as other assets mentioned in cl. (b) of Expln. 3. The other assets mentioned are know-how, patents, copyrights, trademarks, licences, franchises, licence, etc. In all these cases no physical asset comes into possession of the assessee. What comes in is only a right to carry on the business smoothly and successfully and in our view even the right obtained by way of non-compete fee would also be covered by the term or any other business or commercial rights of similar nature because after obtaining non-compete right, the assessee can develop and run his business without bothering about the competition. Tribunal has already held in the case of Radaan Media Works India Ltd. that the assessee would be entitled to depreciation even in respect of non-compete fee which was held to be in the nature of intangible asset. Therefore, we find nothing wrong with the order of the CIT(A) on this issue and accordingly confirm the same. The appeal of the Revenue is dismissed. Reopening of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al to the present one wherein the Court has held that such payments are not bona fide, and only collusive in nature. The non-compete fee were paid to its own directors who are holding substantial share in the company and who have to act in the best interest of the company. 5. Appeal before the Tribunal was preferred in the case of M/s Radaan Media Works (P) Ltd. for the asst. yr. 2001-02 on identical issues. 2. The brief facts of the case are that there was company known as Media Artist (P) Ltd. (MAPL) which was incorporated in 1986 as a private limited company carrying on business of post-production facilities for feature films, production of advertisement films and 1V serials and trading in cine equipments and technology marketing. The name of the company was changed to Real Image India Technologies (P) Ltd. (RIMT) in March, 2000. There was another company known as Real Image (P) Ltd. (RIPL) which was incorporated in the year 1992 to carry on the business of technology marketing. There was a firm also known as M/s J.S. which started its business of production of advertisement films in 1986. There was another company known as RI Computers (P) Ltd. (RICPL) which was manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a stipulated period. This right is acquired so as to ensure that the recipient of the non-compete fee does not compete in any manner with the business in which they were associated. It would be the right of the person to carry on a business in competition but for such agreement of non-compete. There can, therefore, be little doubt that what is acquired by the payer of the non-compete fee is a right. Now that it has been established that what is acquired under a non-compete fee is right, whether such right can be called a business or commercial right which is similar in nature to intangible assets such as know-how, patents, copyrights, trademarks, licences or franchises, is explained hereafter. Each one of the intangible assets listed out by s. 32 effectively gives a right to an assessee to carry on a business more effectively and efficiently by making use of a knowledge which is available and which is being purchased or by permitting an assessee to carry on a business to the exclusion of another. For example a copyright holder or a trademark holder is able to restrain any other person from using the said copyright or trademark and thereby is able to carry on his business more effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition with the business which is being acquired. A non-compete agreement also normally prohibits the recipient of the non-compete fee from soliciting or attempting to influence any employee or other person engaged in the existing business either by way of requiring that employee or other person to take up employment with the person who is in receipt of the non-compete fee or a person who is a competitor of the business which is being acquired. The question of consideration is therefore restricted to whether such right is a business or commercial. The fact of the matter remains that such right is acquired to carry on the business more efficiently and profitably. The right is acquired for carrying on the business. There should therefore be no difficulty in calling such right a 'business right'. Even otherwise such right can be called a commercial right. The word 'commercial' is defined in the Black's Law Dictionary as 'related to or connected with trade and traffic or commerce in general', 'commerce' is defined in the Black's Law Dictionary as 'the exchange of goods, productions, or property of any kind; the buying, selling and exchanging o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets enumerated in s. 32 of the IT Act effectively confer a right upon an assessee for, carrying on a business more efficiently by utilizing an available knowledge or by carrying on a business more efficiently by utilizing an available knowledge or by carrying on a business to the exclusion of another assessee. I concur with the views of the learned Authorised Representative that a copyright holder or a trademark holder is able to restrain any other person from using the said copyright or trademark and is thereby able to carry on his business more effectively. I find that the object of the acquiring a know-how, patent, copyright, trademark, licence or franchise is to pursue business against the rivals in the same business in a more efficient manner. The object of entering into a non-compete agreement is found to be almost identical, i.e., carrying on business in a more efficient manner by getting rid of competition at least for a limited period of time. Therefore, through payment of non-compete fee the appellant company undoubtedly acquired a commercial or business right which is held to be similar in nature to know-how, patent, copyright, trademark, licence, franchise etc. The com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve is proviso three and not Expln. (3). Expln. 3 reads as under:] Explanation 3: For the purposes of this sub-section, the expressions assets and block of assets shall mean- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. 8. A reading of the above two provisions makes it clear that in the year under consideration depreciation has to be allowed on intangible assets also cl. (b) of Expln. 3 defines intangible assets as know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature . Therefore, it has to be seen whether the payment for non-compete fee could be construed as commercial right of similar nature or not. When a businessman pays money to another businessman for restraining the other businessman from competing with the assessee, he gets a vested right which can be enforced under law and without that the other businessman can compete with the first businessman. When by payment of non-compete fee, the businessman gets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be held to be subject to depreciation. 11. In any case, the Tribunal has already held in the case of Radaan Media Works India Ltd. that the assessee would be entitled to depreciation even in respect of non-compete fee which was held to be in the nature of intangible asset. Therefore, we find nothing wrong with the order of the CIT(A) on this issue and accordingly confirm the same. 12. The appeal of the Revenue is dismissed. 13. In the cross-objection, the assessee has taken various grounds but at the time of hearing, the learned counsel for the assessee pointed out that only two issues are involved, viz., (i) reopening of the assessment and (ii) confirmation of disallowance of payment amounting to Rs. 1,87,94,660 towards non-compete fee as capital expenditure. 14. After hearing both the parties we find that this issue stands covered against the assessee by the decision of the Hon'ble Supreme Court in the case of Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 210 CTR (SC) 30 : (2007) 291 ITR 500 (SC). In that case it was observed that taxing income escaping assessment in the case of an intimation under s. 143(1)(a) is covered by the main provision of s. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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