TMI Blog2021 (1) TMI 1032X X X X Extracts X X X X X X X X Extracts X X X X ..... ot sustainable in the eyes of law. So, we find no scope to interfere into the findings returned by the ld. CIT (A), hence ground no.2 is determined against the Revenue. - ITA No.6699/Del./2017 - - - Dated:- 22-1-2021 - Shri N.K. Billaiya, Accountant Member And Shri Kuldip Singh, Judicial Member For the Assessee : Shri K.V.S.R. Krishna, Advocate For the Revenue : Smt. Sushma Singh, CIT DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, ACIT, Circle 61 (1), New Delhi (hereinafter referred to as the Revenue ), by filing the present appeal sought to set aside the impugned order dated 25.08.2017 passed by the Commissioner of Income-tax (Appeals)-30, New Delhi qua the assessment year 2013-14 on the grounds inter alia that :- 1. On the fact and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of disallowance of license fee of ₹ 27,56,00,686/- paid to Remfry Sagar Consultants Pvt. Ltd. (RSCPL) by ignoring the fact that the assessee being law firm was using goodwill of RSCPL being a company prohibited from practicing law in India as per Advocates Act, 1961 and Bar Council Rule. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the expenses paid by the assessee to R S Consultant being not in the nature of licence fee and relied upon the order passed by the AO. 6. To repel the arguments addressed by the ld. DR for the Revenue, ld. AR for the assessee contended that this issue is covered by the earlier year s order of the coordinate Bench of the Tribunal in assessee s own case in ITA No.2979/Del/2016 for AY 2015-16 order dated 26.07.2019 and the Bench reached the conclusion that licence fee paid to M/s. RSCPL is allowable as revenue expenses. 7. When we examine the impugned order passed by the ld. CIT(A) who has followed the earlier year s order of the Tribunal by deleting the addition had thrashed the facts in detail in the light of the Agreement dated June 5, 2001 vide which RSCPL has granted a licence for the use of goodwill to the assessee subject to payment of licence fee @ 25% of the amount of bills raised and agreement was valid for 5 years. So, keeping in view the fact that the agreement is still in operation, we have no reservation to interfere into the findings returned by the ld. CIT (A). 8. Coordinate Bench of the Tribunal in the order (supra) relied on earlier year s order and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;RSCPL'), wherein substantial shareholding was held by Dr. Sagar's children, viz., Ms. Rosemary Sagar and Mr. Hemant Sagar, who were not lawyers. At the time of the said transfer, goodwill was valued at ₹ 45 crores on which stamp duty of ₹ 90 lakhs was paid by Dr. V. Sagar. (ii) On June 5, 2001, Dr. V. Sagar entered into partnership with Mr. R. Sampath, Mrs. Ashwin Julka, Mr. Ramit Nagpal and Mr. Prem Sewak to continue the said practice of law. (iii) By an agreement dated June 5, 2001 RSCPL granted a License for the use of Goodwill in 'Remfry Sagar' to the appellant firm for a period of 5 years subject to payment of license fees @ 25% of the amount of bills raised. Latter this was raised to 28% of the bills raised on renewal of agreement after 5 years. (iv) In addition to the above, RSCPL and the appellant firm entered into an agreement dated June 5, 2001, for use of infrastructure and provision of secretarial, accounting and other supporting services. Feb 2011: Demise of Dr. V. Sagar In pursuance of the aforesaid license agreement dated June _5, 2001 entered into between the appellant and RSCPL, the _appellant paid license ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conveyed and transferred by way of gift to RSCPL the said goodwill in the name of 'Remfry Sagar' and all the rights associated therewith(hereinafter referred collectively referred to as goodwill ). Dr. V. Sagar also sold and transferred to RSCPL, the infrastructure associated with his practice. 8.6. From the above, it is clear that from 1st June 1990 to 31st May 2001, Dr. V. Sagar was only carrying on the practice and profession of Attorney-At-law, which included the business of Remfry and Sons acquired by him. In other words, prior to 1st June, 1990, the Goodwill of Remfry and Sons was goodwill of business and not of advocacy profession, but thereafter there is a merger of the profession of law and the business of trade mark and patent. Agents and this was carried on as a profession of law. 8.7. Vide Partnership dated 5th June 2001 between Dr. V. Sagar and four other partners it was agreed to carry on the practice and profession of Attorney-At-Law with the specialization in the area of Intellectual Property Law and Corporate Law with the object of carrying on, without break and in continuity, the practice, hither to carried on by Dr. V. Sagar. The four other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actitioner are entitled to receive consideration for goodwill on behalf of the deceased parent, it would be difficult to hold that, the goodwill cannot be separated from the legal practice and the fruits of such goodwill cannot be enjoyed by the legal heirs of the legal practitioner or that it can be enjoyed by the legal heirs only in a particular manner. 8.12. Be it as it may, the submission of the assessee that goodwill is a separate intangible asset which can be alienated and that which cannot be attached to a firm and that it can be vested in one or more partner of the firm, in exclusion of others, is well settled. The assessee partnership firm formed for carrying a profession and practice of Dr. V. Sagar under the name and style of 'Remfry Sagar' could not have carried out the profession as it is doing run by using the goodwill and name of Remfry Sagar unless specifically authorized to do so by the owner of the goodwill. As rightly pointed out by the Ld. Counsel for the assessee that in the present day professional practice and professional firms across the globe are in the names of the original founders, though they are no longer part of the practi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were to be made so long as the business was carried on in the name of D.V. Co. And not otherwise; and (v) the document was silent as to what was to happen to the goodwill if A or his partners were to cease to carry on business in that name or at all. Justice S.M. Sikri C.J, has written a dissenting judgment, the pith and substance of which is that the entire arrangement was made for evasion of taxes. He held as follows: In my view, it is a very ingenious attempt to avoid payment of tax by making it appear somehow that the payment of purchase money may be treated as payment of a royalty. In the view I take of the deed, it is not necessary to discuss the numerous cases referred to by Shlat J. In my opinion, the High Court came to the correct conclusion and the appeals should be dismissed with costs. 8.15. In the case of hand, this is exactly the case of the Revenue. The majority of the three Judges of Hon'ble Supreme Court did not agree with the minority view and have decided the issue in favour of the assessee. 8.16. Applying the propositions laid down in this case law to the facts of the case, we have to necessarily hold, that the argument of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... devoid of merit. Irrespective of whether the gift of Dr. V. Sagar to RSCPL being ethical or not and irrespective of the fact whether the gift is legally valid or not, from the view point of the assessee firm, as it could not have continued and carried on the profession of Attorneys-at- Law in the name of Remfry Sagar and use its goodwill and all its associated rights without the impugned agreement with RSCPL. Hence the payment has to be held as that which is incurred wholly and exclusively for the purpose of business or profession. 8.19. The contention of the Special Council for the Revenue that the arrangement is just a revenue shown arrangement is just an inference and is not supported by any material. Thus the argument of violation of Bar Council Rules is devoid of merit. 8.20. For all these reasons we are of the considered opinion that the deduction claimed by the assessee of license fee paid to M/s RSCPL has to be allowed as a deduction u/s 37 of the Act. 7. Thus, respectfully following the aforesaid precedence, we hold that the said deduction claimed by the assessee on account of license fee paid to M/s. RSCPL is allowable as Revenue expenditure u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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