TMI Blog2023 (2) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of depreciation on software - AO held that as per depreciation schedule Rule 5, such depreciation @ 60% is allowed on 'computers including software' - HELD THAT:- We do not concur with the observations of Ld. AO that the software which is in-built into the computer system would alone be eligible for higher rate of depreciation since the expression used is computers including software . The literal interpretation of the same would be that computers or any other software purchased by the assessee would have same rate of depreciation on the logic that software would primarily be used along with computer system. However, there is no requirement that the same should be in-built into the computer system. The same may be independently purchased by the assessee and could be used along with computer system. Nevertheless, the same would remain computer software only which would have same rate of depreciation as applicable to a computer system. The decision of Amway India Enterprises [ 2008 (2) TMI 454 - ITAT DELHI-C] supports our view. It could also be seen that similar rate of 60% has already been allowed by revenue to the assessee in all the other years and this disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary facts showing the circumstances and the fact whether debtors have actually been written-off in this year is not available on record. The assessee has kept the details of bad-debts written off. Therefore, on the facts and circumstances of the case, we remit this issue back to the file of Ld. AO for de novo adjudication to ascertain the facts whether the debts have actually been written-off in this year which would be evident form perusal of provision for bad and doubtful account. The assessee is directed to furnish requisite details. - ITA No.2254/Chny/2018 And ITA No.3480/Chny/2018 And ITA No.3481/Chny/2018 And ITA No.2746/Chny/2019 - - - Dated:- 31-1-2023 - Hon ble Shri Mahavir Singh, Vice President And Hon ble Shri Manoj Kumar Aggarwal, AM For the Appellant : Shri Pradeep Dinodia, (FCA), Shri Ravikumar, (CA) Shri Anil Kumar, (CA) - Ld. ARs For the Respondent : Shri AR.V. Sreenivasan (Add.CIT)-Ld. DR ORDER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. Aforesaid appeals by assessee for different Assessment Years (AY) assail separate appellate orders and one of the issues is stated to be common issue. The Ld. AR placed on record issue-wise ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A) ought to have appreciated that the in-house blending unit was erected and fabricated by the supplier at the premises of the appellant and raised various invoices towards the same. The asset was installed on 01.03.2011 by the appellant and the additional invoice raised by the contractor on 31.03.2011 were only towards additional fabrication of the unit. The learned CIT (A) ought to have appreciated further that when the normal depreciation in respect of the said asset is allowed by considering the installation of the asset on the said date, he ought to have allowed the additional depreciation on the asset also. Ground No 4: The learned CIT (A) erred in upholding the disallowance of bad debts written off claimed by the appellant amounting to Rs. 1,21,11,523/-. The learned CIT (A) ought to have appreciated that the write off of the debtors by the appellant in the books of account is sufficient to claim the bad debts and the appellant need not prove the debt has become bad, in order to claim the same under section 36(1)(vii) of the Income tax Act, by following the decision of Hon' ble Supreme Court in the case of TRF Ltd Vs CIT (323 ITR 397). 3. As is evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified number of years. In other words, it only confers a right to sue in case of breach by a person to whom the amount is paid. Further, it could be enforced only when the default occurs. Further, the sum so received by recipient would be liable to tax u/s 28 (va) except when the receipts are chargeable to tax under the head capital gains . The assessee has not treated the payment on revenue account but treated the same as intangible asset and incorrectly claimed depreciation. Accordingly, the depreciation claim of Rs.107.81 Lacs was disallowed. 4.3 The Ld. CIT(A) endorsed the views of Ld. AO that non-compete fees so paid by the assessee was not an asset which the assessee could use like license or franchise etc. in its business. It was a payment made to ward-off competition for a specified number of years. In other words, it only confers a right to sue in case of breach by a person to whom the amount is paid. Further, it can be enforceable only when default occurs. Accordingly, the impugned disallowance was confirmed against which the assessee is in further appeal before us. Our findings and Adjudication 5. From the fact, it emerges that the assessee has purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10-11 on this issue and therefore, the arguments of Ld. AR could not be accepted. The Ld. Sr. DR relied on the decision of Hon ble Delhi High Court in the case of Sharp Business System vs. CIT (27 Taxmann.com 50) which was followed by same court in Fortis Hospitals Ltd. vs. ACIT (ITA No.132/2021 dated 29.07.2021) . The Ld. AR, on the other hand, inter-alia, relied on the decision of Hon ble High Court of Madras in Pentasoft Technologies Ltd. vs. DCIT (41 Taxmann.com 120) as well as the decision of Hon ble High Court of Delhi in Areva T D India Ltd. (345 ITR 421) besides the decision of Hon ble Apex Court in CIT vs. Smifs Securities Ltd. (348 ITR 392) to support the argument that the non-compete fees would constitute intangible asset which would be eligible for depreciation at applicable rate. 7. We find that this claim has been made by the assessee for the first time in AY 2010-11. The return for that year was scrutinized by Ld. AO and no addition was made on this account. The assessees return of income for AY 2012-13 as well as for AY 2015-16 has been processed u/s 143(1) wherein this issue has reached finality and the similar claim made by the assessee has been acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right of similar nature and the expression 'similar nature' shall be relatable to patents, copy rights and trade mark licence or franchise or any other business. Therefore, it is submitted that this negative right cannot be construed either as a licence or as a commercial right to be eligible for deduction. 21. We are unable to agree with the stand taken by the Revenue for the simple reason that the agreement between the parties is a composite agreement. Under the agreement, the transferor had transferred all its rights, copy rights, trade marks in respect of the word 'pentasoft' as well as the training and development division 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness or commercial right conferred by the rules of the Bombay Stock Exchange on the non-defaulting continuing member. 27. We are conscious of the fact that the Hon'ble Supreme Court clarified that the said judgment is strictly confined to the right of the membership conferred upon the member under the Bombay Stock Exchange membership card during the relevant assessment years and that judgment should not be understood to mean that every business or commercial right would constitute a 'licence' or a 'franchise'. Therefore, the said decision was rendered after taking into consideration the Rules of the Bombay Stock Exchange. 28. In the case of hand, we have analysed the agreement and also in the previous portion of this order elaborated upon the various terms and conditions, which bind the parties had observed that the earlier transfer of the trade mark, patents and other rights in favour of the assessee was undoubtedly the transfer of intangible assets, which in terms of section 32(1)(ii) of the Act would be a capital asset entitled to depreciation. 29. In the light of the above, we have no hesitation in setting aside the order passed by the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(ii) would mean rights similar in nature as the specified assets, viz., intangible, valuable and capable of being transferred and that such assets were eligible for depreciation. On behalf of the respondent it was argued that applying the doctrine of noscitur sociis the expression any other business or commercial rights of similar nature used in Explanation 3(b) to Section 32(1) has to take colour from the preceding words knowhow, patents, copyrights, trademarks, licenses, franchises . It was urged that the Supreme Court had clearly held in Techno Shares Stocks Ltd. ( supra) that Our judgment should not be understood to mean that every business or commercial right would constitute a licence or a franchise in terms of section 32(1)(ii) of 1961 Act . 13. In the present case, applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression business or commercial rights of similar nature specified in Section 32(1)(ii) of the Act, it is seen that such rights need not answer the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money value is a license or akin to a license which is one of the items falling in Section 32(1)(ii) of the Act. 14. In view of the above discussion, we are of the view that the specified intangible assets acquired under slump sale agreement were in the nature of business or commercial rights of similar nature specified in Section 32(1)(ii) of the Act and were accordingly eligible for depreciation under that Section. 15. In view of the above, it is not necessary to decide the alternative submission made on behalf of the assessee that goodwill per se is eligible for depreciation under Section 32(1)(ii) of the Act. In the circumstances, the substantial question of law is decided in the affirmative and this appeal is allowed in favour of the assessee and against the Revenue and the impugned order is set aside. It was held by Hon ble Court that that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. Therefore, the nature of business or commercial rights could not be restricted to only the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the judgment, it has referred to the decision of this Court in G.D. Naidu. The discussion is in paragraph 9 and the conclusion is in paragraph 10. 37. In paragraph 9 of the judgment, the Court has not discussed the decision of G.D. Naidu, though it has referred to it in paragraph 5 of the judgment. This is pointed out because, the Court has discussed the decision in Blaze Central (P.) Ltd. (supra), which was distinguished in G.D. Naidu. We find that in paragraph 9 of the judgment, the Court after referring to Empire Jute Co. Ltd. (supra) and Alembic Chemical Works Co. Ltd. (supra), has pointed out that the single test, that is, whether the payment results in an enduring benefit cannot be conclusive in a decision as to whether an expenditure qualifies as one falling or in the capital field and that the decisions have emphasized the need to shift from a narrower field to a broader one, to ascertain the real nature of the advantage, which the taxpayer would derive. 38. Thus, the test to be applied following Empire Jute Co. Ltd. (supra) is to see as to whether it added to the capital of the assessee, whether a new asset was created and whether there was an addition or expansi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p or undertaking or assisting in the setting-up or undertaking any business in India, of selling, marketing and trade of electronic office products for seven years. The facts of the case of the assessee before us are entirely different. This aspect had been noted by the Tribunal in paragraph 11 of the impugned order. The Tribunal also took note of the fact that in the assessee's own case, the High Court of Delhi decided the issue in favour of the assessee. 16. Before us, a chart has been filed showing the issue relating to depreciation on non compete fee. From the chart, we find that for the assessment year 2001-02, the Assessing Officer himself allowed it, which was confirmed by the CIT(A) and the decision of the CIT(A) was accepted by the Department. For the assessment year 2002-03, no scrutiny assessment had been carried out. For the assessment year 2003-04, the CIT(A) allowed it and the Assessing Officer gave effect to the order passed by the CIT(A). For the assessment year 2004-05, no scrutiny assessment was carried out and for the assessment year 2005-06, the claim was allowed by the CIT(A) and it was given effect to by the Assessing Officer. Thus, the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Bench of Delhi Tribunal in Amway India Enterprises vs. DCIT [111 ITD 112 (Delhi)] supports our view. It could also be seen that similar rate of 60% has already been allowed by revenue to the assessee in all the other years and this dispute has been raised in this year only. Therefore, we direct Ld. AO to allow depreciation at higher rate of 60%. The corresponding grounds raised by the assessee stand allowed. 13. Issue No.3 - Disallowance of additional depreciation on newly installed In-house blending plant 13.1 The assessee made additions of Rs.324.90 Lacs to fixed asset in respect of In house blending unit' which include professional fees of Rs.72.12 Lacs being paid to M/s. Fehrer Automotive GmbH. The Ld. AO held that additional depreciation has been claimed on Professional service charges which do not form an element of 'Actual Cost'. The legislative intent behind granting additional depreciation was to provide incentives for fresh investments in the industrial sector. To give impetus to such investment, such additional deprecation of 20% was granted. The Explanation-3 to Section 43(1) extends the meaning of 'actual cost' in certain circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity which has not been challenged by revenue any further. In AY 2014-15, no dispute has been raised by the revenue on additional depreciation claimed by the assessee on newly installed Plant machinery. Therefore, considering the fact of the case, denial of additional depreciation on Professional fees as well as additional material issued by the assessee at year-end could not be held to be justified. The Ld. AO is directed to allow the same. The corresponding grounds raised by the assessee stand allowed. 14. Issue No.4 - Disallowance of Bad debts claimed: 14.1 The assessee claimed doubtful bad-debts for Rs.121.11 Lacs in the computation of income. It transpired that the said amount was provided in the books for AY 2010-11 and disallowed in computation of business income for that year. The Ld. AO noted that that the bad debts pertained to PIPL and debtors had not become bankrupt. The assessee did not make required efforts to recover the debts and therefore, the same was disallowed. The Ld. CIT(A) held that the burden was on assessee to show that the there was no reasonable expectation of recovering the debts. Since the burden was not discharged, the action of Ld. AO was c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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