TMI Blog2021 (8) TMI 1243X X X X Extracts X X X X X X X X Extracts X X X X ..... s clear that the allowance of depreciation on goodwill is granted. There was no contrary view placed by the ld. DR before us. Thus, the ground No. 8 raised by the assessee is allowed. Disallowance of depreciation on non-compete fees - HELD THAT:- Tribunal in assessee s own case for A.Y. 2003-04 [ 2016 (2) TMI 187 - ITAT PUNE] it is clear that the allowance of depreciation on non-compete fees is granted. Disallowance of depreciation on technical know-how and other assets - HELD THAT:- In the light of the orders of this Tribunal in assessee s own case for A.Y. 2004-05 [ 2018 (1) TMI 12 - ITAT PUNE] it is clear that the allowance of depreciation on technical know-how and other assets is granted. There was no contrary view placed by the ld. DR before us. - Decided in favour of assessee. Short grant of credit of taxes deducted at source - HELD THAT:- AR filed details of annual tax statement in Form No. 26AS and prayed to give a direction to the AO/TPO for examination of the same afresh. Upon hearing both the parties, we deem it proper to remand this issue to the file of AO/TPO for fresh adjudication by examining the details provided in Form No. 26AS and to decide the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which, the AO passed final assessment order to that effect which is impugned before us. 5. Heard both parties and perused the material available on record. We note that the Group Consultancy Services Agreement was executed on 29- 03-2010 between the assessee and its AE. The said agreement is in effect from 01-04-2009 which is place at page No. 495 of the paper book. The assessee has been shown as recipient and its AE has shown as provider. It is observed that the provider (AE) agreed to provide the recipient (assessee) with the consultancy services described more detail in Schedule-1 and the said schedule is at page No. 501 of the paper book. The consultancy services are predominantly provided from the UK, by telephone / teleconference, email or written correspondence, with occasional business trips to the recipient s premises as required. The said AE in order to provide such consultancy services employees personnel in the UK with substantial experience in the provision of specialist consultancy services in relation to areas including but not limited to production, finance, treasury, administration, legal, intellectual property sales and marketing. It is also noted the recipient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AP system. Further, the ld. AR also referred to Page Nos. 422, 423 and 448 of the paper book and submitted that all the details regarding the services rendered and availed were filed before the DRP as additional evidences and the DRP sought remand report from the TPO. The contention of ld. AR is that having filed evidences in support of services availed and rendered the TPO held that the assessee failed to furnish evidences for the cost incurred by the AE for providing such services to the assessee. We note that the remand report is at Page Nos. 471 to 478 of the paper book. The TPO discussed regarding the additional evidences filed by the assessee in respect of CCR Division Cost and information substantiating the services received and benefit derived from various employees from Johnson Matthey UK which is evident in Para No. 3.2 of remand report but however the TPO held that the assessee failed to furnish information regarding the cost incurred by the AE for providing such services to the assessee. Therefore, it is clear that the TPO on one hand admitted that the assessee availed services from its AE and rendering of services by the AE to the assessee. In our opinion the said serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 [`Act', for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: 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, trademarks, licences, franchises or any other business or commercial rights of similar nature. Explanation 3 states that the expression `asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words `any other business or commercial rights of similar natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h respect to claim of depreciation on goodwill, we are of the considered view that the authorities below have erred in disallowing the claim of depreciation on goodwill. Accordingly, ground Nos. 4 to 6 raised in the appeal on this issue is allowed and impugned order is set aside. 9. In the light of the above orders of this Tribunal in assessee s own case for A.Y. 2003-04 it is clear that the allowance of depreciation on goodwill is granted. There was no contrary view placed by the ld. DR before us. Thus, the ground No. 8 raised by the assessee is allowed. 10. Ground No. 9 raised by the assessee questioning the action of AO/TPO in disallowance of depreciation on non-compete fees. 11. We note that in assessee s own case for A.Y. 2003-04 in ITA No. 7547/PN/2010 vide order dated 01-01-2016 this Tribunal granted allowance of depreciation on non-compete fees. For ready reference the relevant portion of the said order in A.Y. 2003-04 is reproduced here-inbelow : 12. We have heard the submissions made by the representatives of rival sides and have perused the orders of authorities below. We have also perused the decisions on which the rival sides have placed reliance. The fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is to be seen is, what are the nature of intangible assets which would constitute business or commercial rights to be eligible for depreciation. In this regard, it is necessary to notice that the intangible assets enumerated in Sec.32 of the 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 to the exclusion of another assessee. A non-compete right encompasses a right under which one person is prohibited from competing in business with another for a stipulated period. It would be the right of the person to carry on a business in competition but for such agreement of non-compete. Therefore the right acquired under a non-compete agreement is a right for which a valuable consideration is paid. 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 he was earlier associated. The object of acquiring a know-how, patents, copyrights, trade marks, licences, franchises is to carry on business against rivals in the same business in a more efficient manner or to put it differently in a best possible ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld to be similar in nature to know-how, patents, copyrights, trade marks, licences, franchises. Therefore the commercial right thus acquired by the assessee unambiguously falls in the category of an 'intangible asset'. Their right to carry on business without competition has an economic interest and money value. The term 'or any other business or commercial rights of similar nature' has to be interpreted in such a way that it would have some similarities as other assets mentioned in Cl.(b) of Expln.3. Here the doctrine of ejusdem generis would come into operation and therefore the non-compete fee vests a right in the assessee to carry on business without competition which in turn confers a commercial right to carry on business smoothly. When once the expenditure incurred for acquiring the said right is held to be capital in nature, consequently the depreciation provided under Sec.32(1)(ii) is attracted and the assessee would be entitled to the deduction as provided in the said provision i.e., precisely what the Tribunal has held. [Emphasis applied by us] In view of the above judgment of Hon'ble High Court it is unambiguously clear that non-compete payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction under section 263 of the Act and the CIT(A) thereafter, exercised his jurisdiction in the second year itself. Objecting to the comments of learned Departmental Representative for the Revenue on the report of Ernst Young Pvt. Ltd., he pointed out that there was due diligence in valuation report. He further pointed out that no fault was found with the Valuer. In respect of reliance of the learned Departmental Representative for the Revenue on the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Nirbheram Deluram (1997) 91 Taxman 181 (SC), the learned Authorized Representative for the assessee in reply pointed out that the Full Bench of Hon ble High Court of Delhi in CIT Vs. Sardarilal and Co. (supra) had covered the said decision. He concluded by saying that whether after allocation of value to assets, the balance is taken is know-how or goodwill, there is no difference as the depreciation on same is allowable in the hands of assessee, in view of the decision of the Hon'ble Supreme Court in CIT Vs. Smifs Securities Ltd. (supra). 37. We have heard the rival contentions and perused the record. The assessee was carrying on the manufacturing and sale of catalyst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owned nor used by the assessee and the cost of acquisition of intangible assets was also incorrectly taken for the purpose of depreciation. The CIT(A) thus, show caused as to why sum of ₹ 21.93 crores claimed as depreciation on knowhow, trademarks and patents, should not be withdrawn. The basis for making the aforesaid disallowance was that the assessee had not purchased the same as per BTA. Further, there was no material available on record to show that the said know-how had been used for the purpose of assessee‟s business. The next objection of CIT(A) in this regard was that where no value was attributed to the land at Panki and Taloja, which were the premises on which ICI India Ltd.‟s business was being carried out, hence cost of intangible assets was not correctly shown. The explanation of assessee vis- -vis allocation of no value to the land at Taloja and Panki, as the same were not transferred by ICI India Ltd. and hence, adoption of Nil value, was not accepted by the CIT(A). The CIT(A) elaborately considered the takeover of assets both movable and immovable and the intangible assets and also the trademarks, patents and know-how and held that slump price pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e second issue for enhancement which was considered by the CIT(A) was the depreciation on assets acquired in the slump sale. He was of the view that as apparent from the terms of BTA, no specific cost was paid by the assessee for purchase of specific assets and the value which was assigned to the assets was merely guess work and at best an estimated cost of particular assets. He was of the view that slump price paid for acquiring bundle of rights / assets could not be apportioned amongst the individual assets for the purpose of depreciation. At best, since the assessee had acquired certain identifiable fixed assets, the value of which was shown in the chart of depreciation, depreciation was allowable on same. He was of the view that balance value has been accounted for in the books as goodwill, on which the assessee was not entitled to claim of depreciation. Hence, he directed the Assessing Officer to disallow the depreciation on all the assets acquired in slump sale. In this regard, since depreciation on goodwill at ₹ 1.59 crores and on non-compete fees at ₹ 81,45,129/- was already disallowed by the Assessing Officer, the CIT(A) enhanced the assessment by ₹ 24.83 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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