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TMI Blog2021 (9) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 30,49,29,397/- paid to Remfry & Sagar Consultants Pvt. Ltd. (RSCPL) by ignoring the fact that the value of license fee paid by the assessee has been increasing year after year and no expenditure being incurred by RSCPL towards improvement, development or protection of the said goodwill. 3. 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 Rs. 10,24,570/- out of travelling expense by ignoring the fact that personal element in respect of these expenses cannot be ruled out considering the nature of expenses." 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee is a law firm deriving income from business and profession. Assessee claimed expenditure of Rs. 30,49,29,397/- being the licence fee paid to M/s. Remfry & Sagar Consultants Pvt. Ltd. (RSCPL) for the use of goodwill of RSCPL and to practice in its name. Declining the contentions raised by the assessee, Assessing Officer (AO) disallowed the expenses to the tune of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason to interfere into the findings returned by the ld. CIT (A). 9. Coordinate Bench of the Tribunal in the case of assessee vide order dated 26.07.2019 in ITA No.2979/Del/2016 for AY 2015-16 dealt with the identical issue and decided in favour of the assessee by returning following findings :- "6. We find that this issue is permeating from the earlier years and the Tribunal after noting the entire facts and rival contentions made by the parties as well as relevant provision of law has held that the license fee paid to M/s. RSCPL is allowable as Revenue expenditure. The relevant observation and the finding of the Tribunal read as under: "8. We have heard both the parties at length. We have considered the written submission, the papers on record as well as the case laws cited by both parties. On a careful consideration of the same we hold as follows: 8.1. Before we adjudicate the issue as to whether the disallowance of license fee paid by the assessee to RSCPL for license to practice as 'Remfry & Sagar' and for use of the said name, trade mark and goodwill by the A.O is to be upheld or not, for the purpose of the ready reference we recapitulate the facts of the case as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fee for use of goodwill to RSCPL w.e.f. _assessment year 2002-03, which continues till date, even-after the demise of Dr. V. Sagar. 8.2. M/s 'Remfry & Sons', was carrying on a business of patent agents. Vide terms of the deed of partnership dated 6th April 1970, 50% of the goodwill of the business belonged to the partner Mrs. Holloway and other 50% to Mrs. Silver Stone. Both of them held 50% of all the other capital assets and properties of the firm. Though Mrs. Remfry was having a share in the net profits of the partnership, she had no ownership rights in the goodwill of this firm. This demonstrates that the name and goodwill of the business 'Remfry & Sons' is distinct and separate from the other assets of the partnership firm and that it vested only in two partners of the firm and not the firm. This is clear from reading of Clause 2 & 3 of the said partnership deed. 8.3. On the fourth day of April 1973, Mr. Vidya Sagar purchased by way of sale, from Mr. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 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 partners were earlier associated with the practice of Dr. V. Sagar, in their individual capacities for number of years and have acquired expertise in this field of the profession. We notice that the partnership deed dated 5th June 2001 is under the name and style of "Remfry & Sagar" and this partnership deed has come into force on 1st June 2001. Thus what is licensed by RSCPL to the assessee firm is Goodwill and its associated rights to practice as "Attorneys-at-law and not to do business of trademark and Patent Agents. 8.8. Vide agreement dated 5th June 2001, RSCPL permitted to use of "goodwill" to the partnership and permitted them to use the name of 'Remfry & Sagar' with retrospective effect i.e. 1st June 2001. While Clause No. 16.1 of this agreement, the license fee in question is to be paid in pursuance to this agreement. 8.9. It is clear that Dr. V. Sagar has arranged his affairs in such a way that the goodwill earned by him over the years is enjoyed by his children who are his legal heir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent 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 practice. This name and goodwill helps in the practice. The partnership was formed to continue the law practice of Dr. V. Sagar and this could be done only if the assessee firm is permitted to do so by the owner of the goodwill. 8.13. The submission of the Ld. Special counsel for the revenue that goodwill of a profession cannot be segregated from the persona of the person is against the propositions of law laid down by the Hon'ble Supreme Court in the case of Devi Das Mittal Daas Vithaldas & Co. VS. CIT Bombay City (supra). The constitutional bench of the Hon'ble Supreme Court consisting of four findings was considering a case of chartered accountant who was carrying on his profession in the name of Devi Dass & Co. Vide partnership dated 31 January 1948, wherein he retained/reserved the right of goodwill of the profession carried on by him earlier in sole proprietorship. On 2nd June 1951, he retired from the said partnership. The goodwill in the partnership was sold to the other partner and the consideration was to be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e propositions laid down in this case law to the facts of the case, we have to necessarily hold, that the argument of Revenue that the arrangement was for avoidance of tax and diversion of profits and hence the deduction was rightly denied by the Assessing Officer, has to be rejected. Even otherwise, it has been demonstrated by the assessee that the Revenue has accepted that both the entities i.e. the assessee as well as RSCPL, pay taxes, at the maximum rate and that there is no loss of Revenue on account of this arrangement. The taxes due to the Government have not been avoided or evaded by this arrangement. Thus the disallowance made on the ground of diversion of profits is devoid of merit. 8.17. Though the Ld. Special Counsel for the Revenue argued that good will of a profession cannot be sold to a company which does not have a right to carry on practice, no specific law or section was brought to the notice of the Bench in support of the argument. Only several submissions have been made. Certain judgements of Foreign Courts were cited, which were based on "ethical considerations" and not legal prohibition. In any event, the ITAT has no power or authority to adjudicate the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on account of license fee paid to M/s. RSCPL is allowable as Revenue expenditure u/s.37. Consequently, ground no.1 of the Revenue is dismissed and ground no.2 of the assessee is allowed." 10. Since ld. DR for the Revenue has failed to bring on record any distinguishing facts qua the year under assessment vis-à-vis preceding and succeeding years to controvert the findings returned by the coordinate Bench of the Tribunal, we are of the considered view that amount of deduction claimed by the assessee on account of licencee fee paid to RSCPL is allowable expenditure u/s 37 of the Act. Consequently, grounds no.1 & 2 are determined against the Revenue. GROUND NO.3 11. AO made an ad hoc disallowance @ 10% of the foreign travel expenses claimed by the assessee on ground of personal element in these expenses which ld. CIT (A) has deleted. Ld. DR for the Revenue challenging the impugned deletion relied upon the order passed by the AO. 12. We are of the considered view that none of the expenditure claimed by the assessee as business expenditure can be disallowed merely on the basis of surmises. Ld. CIT (A) deleted the impugned addition by following the earlier years order ..... 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