TMI Blog2013 (11) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... limited company carrying on business in software development, hardware sales and educational training.It also exports software from its Software Technology Park unit (STP unit) and also engaged in domestic sales of software developed in Non-STP units.For the assessment year 2002-03, the assessee filed its return of income admitting the loss of Rs.37,12,20,853/- after claiming deduction under Section 10A of the Income Tax Act, 1961 (The Act) to the extent of Rs.50,44,22,294/-.The Assessing Officer after issuing intimation under Section 143(1) of the Act, determined the total income at Rs.3,91,06,337/- applying the principles of Section 115 JB of the Act.Thereafter, proceedings were initiated under Section 143(2) of the Act and the assessee filed revised statement declaring the loss of Rs.108,99,06,618/-.According to the assessee, the increase in loss was due to write-off of unrealized sales during the relevant previous year, which was approved by the order passed by this Court dated 28.06.2004.The Assessing Officer completed the assessment by order dated 30.03.2005 computing the total income of Rs.40,05,43,280/- as against the loss returned by the assessee.The disallowance of which, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve heard Dr.Anita Sumanth, learned counsel appearing for the assessee/appellant and Mr.N.V.Balaji, learned Standing Counsel appearing for the Revenue. 6.Learned Counsel for the assessee contended that the right granted to the assessee is in the nature of the licence and non-compete fee is in fact an indirect licence to enable the assessee to carry on business for a period of ten years and therefore, the assessee would be entitled to claim depreciation under Section 32(1)(ii) of the Act.By relying upon the findings given by the First Appellate Authority, the learned counsel submitted that the Tribunal erred in reversing the finding recorded by the First Appellate Authority and there was no basis to reverse such a finding.Further, the learned counsel submitted that while having accepted the position that the agreement and the payment in respect of non-compete fee conferred a right to the assessee, ought to have held that it is a commercial right falling within the scope of Section 32(1)(ii) of the Act as intangible assets eligible for depreciation. 7.Learned Counsel in the alternative submitted that the Tribunal ought to have allowed the payment of non-compete fee as Revenue expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act or advise or consult or be as a trustee either directly or indirectly compete with the software business among other things. The IPRs which stood transferred under the said agreement were trade names, trade marks or service marks together with the goodwill associated therewith; copy rights pending or issued registrations for any of the foregoing inventions, trade secrets and other confidential 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., andPMGL 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 utilise 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the same activities. Hence, such trade mark licence and the commercial rights acquired by payment of non-compete fee are intangible assets entitled to depreciation under Section 32(1)(ii) of the Act. 15.The Revenue preferred appeal before the Income Tax Appellate Tribunal. In fact, the assessee also preferred appeal as against the other issues, which we 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 ofits 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on exclusively to be exploited by the assessee.In order to strengthen those rights transfer under the said composite agreement, there was a non compete clause by virtue of which, the transferor was restrained from using the same trade mark, copyrights etc., in favour of the assessee. Therefore, 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 Taxreported in 327 ITR 323 (SC), the assessee therein before the Hon ble Apex Court claimeddepreciation on the membership card held by it with the Bombay Stock Exchangeenables it to trade on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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