M/S. INDO NATIONAL LIMITED,CHENNAI vs. ACIT, CORP CRICLE -2(2). CHENNAI, CHENNAI

biotechnology or of manufacture or production of any article (not being an hnology or of manufacture or production of any article (not being an hnology or of manufacture or production of any article (not being an article or thing specified in 11th Schedule), an amount equal to two times article or thing specified in 11 Schedule), an amount equal to two times (200%) of the expenditure incurred on scientific research shall be allowed (200%) of the expenditure incurred on scientific research shall be allowed (200%) of the expenditure incurred on scientific research shall be allowed as deduction. According to the AO, for claiming deduction u/s. 35(2AB) of as deduction. According to the AO, for claiming deduction u/s. 35(2AB) of as deduction. According to the AO, for claiming deduction u/s. 35(2AB) of the Act, the assessee had to enter into an agreement with the pre the Act, the assessee had to enter into an agreement with the pre the Act, the assessee had to enter into an agreement with the prescribed authority for co-operation in such research and development facility and operation in such research and development facility and operation in such research and development facility and the prescribed authority [ the prescribed authority [prescribed authority is Secretary, Department of prescribed authority is Secretary, Department of Scientific and Industrial Research (DSIR) Scientific and Industrial Research (DSIR)] who shall submit its report in who shall submit its report in relation to the approval o relation to the approval of the expenditure incurred by the said facility to f the expenditure incurred by the said facility to the Ld. PCIT or other authorities. However, according to the AO, the the Ld. PCIT or other authorities. However, according to the AO, the the Ld. PCIT or other authorities. However, according to the AO, the assessee did not furnish the approval received in Form 3CL from the assessee did not furnish the approval received in Form 3CL from the assessee did not furnish the approval received in Form 3CL from the DSIR. Therefore, according to him, the assessee was not eligible to DSIR. Therefore, according to him, the assessee was not eligible to DSIR. Therefore, according to him, the assessee was not eligible to claim deduction u/s. 35(2AB) of the Act. The AO accordingly only allowed the deduction u/s. 35(2AB) of the Act. The AO accordingly only allowed the deduction u/s. 35(2AB) of the Act. The AO accordingly only allowed the normal deduction for the actual revenue expenditure of Rs.9,89,166/ normal deduction for the actual revenue expenditure of Rs.9,89,166/ normal deduction for the actual revenue expenditure of Rs.9,89,166/- out of total claim of Rs.19,78,332/ claim of Rs.19,78,332/-, and the weighted component of , and the weighted component of Rs.9,89,166/- was disallowed and added to was disallowed and added to the total income of the the total income of the assessee. Aggrieved, the assessee preferred an appeal before the assessee. Aggrieved, the assessee preferred an appeal before the assessee. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A), who was pleased to dismiss the same and confirmed the action Ld.CIT(A), who was pleased to dismiss the same and confirmed the action Ld.CIT(A), who was pleased to dismiss the same and confirmed the action of the AO. Aggrieved, the assessee is before us. of the AO. Aggrieved, the assessee is before us.

4.1 We have heard both the parties and peru We have heard both the parties and perused the records. sed the records. The undisputed facts are that, the assessee has an approved in undisputed facts are that, the assessee has an approved in undisputed facts are that, the assessee has an approved in-house in R&D facility for which the DSIR has issued approval in Form 3C facility for which the DSIR has issued approval in Form 3C facility for which the DSIR has issued approval in Form 3CM vide letter & 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd ::4 ::

F.No.TU/IV-R-D/743/2012 dated 18.07.2012 D/743/2012 dated 18.07.2012, which letter is placed before , which letter is placed before us. Further, according to ing to the assessee, it is maintaining separate accounts separate accounts for the R&D facility which has been audited in Form 3CLA. Having regard for the R&D facility which has been audited in Form 3CLA. Having regard for the R&D facility which has been audited in Form 3CLA. Having regard to the provisions of sub to the provisions of sub-sub clauses (1) to (4) of Section 35(2AB) of the sub clauses (1) to (4) of Section 35(2AB) of the Act, if the aforesaid facts are correct, then f the aforesaid facts are correct, then the assessee had satisfied the essee had satisfied the three conditions set out therein, for claiming weighted deduction in three conditions set out therein, for claiming weighted deduction in three conditions set out therein, for claiming weighted deduction in respect of the expenditure incurred at the in respect of the expenditure incurred at the in-house in R&D facility. house in R&D facility.

According to the AO however, since the expenditure as set out in According to the AO however, since the expenditure as set out in According to the AO however, since the expenditure as set out in Form 3CLA had not been certif had not been certified and approved by the DSIR in their Form 3CL, ied and approved by the DSIR in their Form 3CL, he had denied weighted component of deduction and instead restricted denied weighted component of deduction and instead restricted denied weighted component of deduction and instead restricted the claim to the actual amount of expenditure. the claim to the actual amount of expenditure. The Ld. AR brought to our The Ld. AR brought to our notice that Rule 6 of the Income Tax Rules, 1962 [herein after the notice that Rule 6 of the Income Tax Rules, 1962 [herein after the notice that Rule 6 of the Income Tax Rules, 1962 [herein after the Rules],which contained the procedure for obtaining the approval from Rules],which contained the procedure for obtaining the approval from Rules],which contained the procedure for obtaining the approval from DSIR, as it stood then, nowhere prescribed that the DSIR was required to DSIR, as it stood then, nowhere prescribed that the DSIR was required to DSIR, as it stood then, nowhere prescribed that the DSIR was required to certify the quantum of weighted deduction or the amount certified in Form certify the quantum of weighted deduction or the amount certified in Form certify the quantum of weighted deduction or the amount certified in Form 3CL was to be considered as the sum eli 3CL was to be considered as the sum eligible for weighted deduction. It gible for weighted deduction. It was shown to us that, the above Rule 6 underwent amendment by the was shown to us that, the above Rule 6 underwent amendment by the was shown to us that, the above Rule 6 underwent amendment by the Income Tax (10th Amendment) Rules, 2016, wherein sub Income Tax (10th Amendment) Rules, 2016, wherein sub Income Tax (10th Amendment) Rules, 2016, wherein sub-clause sub clause (7A) was amended with effect from 01.07.2016, hence applicable clause (7A) was amended with effect from 01.07.2016, hence applicable clause (7A) was amended with effect from 01.07.2016, hence applicable from AY 2017-18and onwa 18and onwards, in terms of which the rds, in terms of which the Legislature mandated the DSIR to quantify the quantum of deduction allowable mandated the DSIR to quantify the quantum of deduction allowable mandated the DSIR to quantify the quantum of deduction allowable u/s.35(2AB)of the Act in Part u/s.35(2AB)of the Act in Part-B Part of Form 3CL. Accordingly the basis Accordingly the basis & 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd on which the AO is noted to have denied the deduction, is found to be not on which the AO is noted to have denied the deduction, is found to be not on which the AO is noted to have denied the deduction, is found to be not applicable in the context of the relevant year in question. able in the context of the relevant year in question. able in the context of the relevant year in question. Hence, the position prevailing prior to amendment of the Rule was that, the Form position prevailing prior to amendment of the Rule was that, the Form position prevailing prior to amendment of the Rule was that, the Form 3CL issued by DSIR was not relevant to ascertain the claim of weighted 3CL issued by DSIR was not relevant to ascertain the claim of weighted 3CL issued by DSIR was not relevant to ascertain the claim of weighted deduction u/s 35(2AB) of the Act. deduction u/s 35(2AB) of the Act.

4.2 In view of the above the above, and in our considered view therefore, the in our considered view therefore, the requirement to claim weighted deduction u/s 35(2AB), prior to AY 2017 requirement to claim weighted deduction u/s 35(2AB), prior to AY 2017 requirement to claim weighted deduction u/s 35(2AB), prior to AY 2017- 18, was (a) entering into an agreement between the facility and the DSIR 18, was (a) entering into an agreement between the facility and the DSIR 18, was (a) entering into an agreement between the facility and the DSIR and (b) recognition of the R&D facility by DSIR in Form 3CM, and (b) recognition of the R&D facility by DSIR in Form 3CM, and (b) recognition of the R&D facility by DSIR in Form 3CM, and once these two conditions are met, the expenditure set out in separate audited these two conditions are met, the expenditure set out in separate audited these two conditions are met, the expenditure set out in separate audited accounts of the R&D facility i.e. Form 3CLA, will qualify for weighted accounts of the R&D facility i.e. Form 3CLA, will qualify for weighted accounts of the R&D facility i.e. Form 3CLA, will qualify for weighted deduction u/s u 35(2AB) of the Act. We further note that the impugned deduction u/s u 35(2AB) of the Act. We further note that the impugned deduction u/s u 35(2AB) of the Act. We further note that the impugned issue stands squarely covered i issue stands squarely covered in assessee'sfavour by the decision n assessee'sfavour by the decision rendered by this Tribunal rendered by this Tribunal in the case of M/s.SundaramFasteners Ltd., Fasteners Ltd., in wherein, at Para No.4.3 at Page No.12, it , wherein, at Para No.4.3 at Page No.12, it has been observed as under: has been observed as under:

4.3 We We We note note note that that that the the the assessee assessee assessee has has has claimed claimed claimed deduction deduction deduction of of of Rs.14,20,60,668/- and the AO allowed deduction of only Rs.13,52,44,00/ and the AO allowed deduction of only Rs.13,52,44,00/ and the AO allowed deduction of only Rs.13,52,44,00/- as approved by the DSIR. It is noted that prior to the amendment as approved by the DSIR. It is noted that prior to the amendment as approved by the DSIR. It is noted that prior to the amendment brought in Rule 6(7A) of the Income Tax Rules, 1962 (hereinafter i brought in Rule 6(7A) of the Income Tax Rules, 1962 (hereinafter i brought in Rule 6(7A) of the Income Tax Rules, 1962 (hereinafter in short ‘the Rules’) w.e.f. 01.07.2016 i.e. from AY 2016 ‘the Rules’) w.e.f. 01.07.2016 i.e. from AY 2016-17, the prescribed 17, the prescribed authority had to submit its report in relation to the approval of in authority had to submit its report in relation to the approval of in authority had to submit its report in relation to the approval of in-house facility and development facility in Form 3CL to DG (Income Tax facility and development facility in Form 3CL to DG (Income Tax facility and development facility in Form 3CL to DG (Income Tax Exemption) within sixty days of its grant Exemption) within sixty days of its granting approval unlike after the ing approval unlike after the amendment, the quantum of expenditure incurred for in amendment, the quantum of expenditure incurred for in-house research & house research & development facility by assessee was required to be given by the development facility by assessee was required to be given by the development facility by assessee was required to be given by the authority; and since, the year under consideration (i.e. AY 2013 authority; and since, the year under consideration (i.e. AY 2013- 14) and the amendment was not applicable as noted (supra) in the case of s not applicable as noted (supra) in the case of s not applicable as noted (supra) in the case of & 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd ::6 ::

Crompton Greaves Ltd., the assessee has rightly contended that Crompton Greaves Ltd., the assessee has rightly contended that Crompton Greaves Ltd., the assessee has rightly contended that amendment was not applicable, and the prescribed authority was not amendment was not applicable, and the prescribed authority was not amendment was not applicable, and the prescribed authority was not required to quantify the expenditure and had to only give report in relation required to quantify the expenditure and had to only give report in relation required to quantify the expenditure and had to only give report in relation to the approval of in-house facility and development facility, and therefore, house facility and development facility, and therefore, house facility and development facility, and therefore, in the absence of any requirement of law, the AO erred in curtailing the in the absence of any requirement of law, the AO erred in curtailing the in the absence of any requirement of law, the AO erred in curtailing the expenditure and consequent weighted deduction claimed by assessee. expenditure and consequent weighted deduction claimed by assessee. expenditure and consequent weighted deduction claimed by assessee. Therefore, the non-approval of the exp approval of the expenditure by the DSIR doesn’t enditure by the DSIR doesn’t disentitle the assessee to make the claim of Rs.14,20,60,668/ disentitle the assessee to make the claim of Rs.14,20,60,668/- - in the relevant year under consideration and hence, the AO couldn’t have relevant year under consideration and hence, the AO couldn’t have relevant year under consideration and hence, the AO couldn’t have disallowed Rs.68,16,668/ disallowed Rs.68,16,668/-. Therefore, respectfully following the ratio of . Therefore, respectfully following the ratio of the decision of the Tribunal in the case of Crompton Greaves Ltd. (supra), the Tribunal in the case of Crompton Greaves Ltd. (supra), the Tribunal in the case of Crompton Greaves Ltd. (supra), we allow grounds of appeal of the assessee and direct deletion of we allow grounds of appeal of the assessee and direct deletion of we allow grounds of appeal of the assessee and direct deletion of Rs.68,16,668/-. Since the assessee produced the Since the assessee produced the DSIRapproval in Form 3C DSIRapproval in Form 3CM vide 4.3 letter F.No.TU/IV-R-D/743/2012 dated 18.07.2012 D/743/2012 dated 18.07.2012, before us for the first before us for the first time, for the interest of justice and fair time, for the interest of justice and fair-play, we set aside this issue back set aside this issue back to AO to examine whether the assessee met the two conditions as stated to AO to examine whether the assessee met the two conditions as stated to AO to examine whether the assessee met the two conditions as stated at para 4.2 (supra) and assessee is directed to produce relevant at para 4.2 (supra) and assessee is directed to produce relevant at para 4.2 (supra) and assessee is directed to produce relevant documents to substantiate the same. And the AO to pass order on this tantiate the same. And the AO to pass order on this tantiate the same. And the AO to pass order on this issue in accordance to law after hearing the assessee. issue in accordance to law after hearing the assessee. issue in accordance to law after hearing the assessee. This ground is therefore allowed for statistical purposes. therefore allowed for statistical purposes.

5. Ground No. 3 is noted to be against the action of the Ld. CIT(A) is noted to be against the action of the Ld. CIT(A) is noted to be against the action of the Ld. CIT(A) confirming the action confirming the action of the AO in disallowing the payment of non of the AO in disallowing the payment of non- compete fees holding it to be capital in nature. The assessee has also compete fees holding it to be capital in nature. The assessee has also compete fees holding it to be capital in nature. The assessee has also alternatively claimed that, in case if the non alternatively claimed that, in case if the non-compete fee is not allowed compete fee is not allowed as revenue expenditure, and is treated as capital in nature, then i as revenue expenditure, and is treated as capital in nature, then i as revenue expenditure, and is treated as capital in nature, then in such an event, the AO ought to be directed to allow depreciation thereon by an event, the AO ought to be directed to allow depreciation thereon by an event, the AO ought to be directed to allow depreciation thereon by treating the payment as ‘intangible asset’. treating the payment as ‘intangible asset’.

& 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd ::7 ::

5.1 Brief facts as noted are that, the assessee has debited Brief facts as noted are that, the assessee has debited Brief facts as noted are that, the assessee has debited miscellaneous expenses of Rs.3,13,24,374/ miscellaneous expenses of Rs.3,13,24,374/- in the Profit & Loss Account in the Profit & Loss Account for the year ended 31.03.2015. The AO is noted to for the year ended 31.03.2015. The AO is noted to have called have called for the breakup of the details of the expenditure; and upon examining the breakup of the details of the expenditure; and upon examining the breakup of the details of the expenditure; and upon examining the details, the AO noted that, the assessee has debited sum of details, the AO noted that, the assessee has debited sum of details, the AO noted that, the assessee has debited sum of Rs.2,37,07,960/- paid by way of non paid by way of non-compete fees under the h compete fees under the head ‘miscellaneous expenses’ and therefore, the AO required the assessee to ‘miscellaneous expenses’ and therefore, the AO required the assessee to ‘miscellaneous expenses’ and therefore, the AO required the assessee to submit the details of the same. On perusal of the details, the AO noted submit the details of the same. On perusal of the details, the AO noted submit the details of the same. On perusal of the details, the AO noted that the assessee has agreed to pay non that the assessee has agreed to pay non-compete fee to two companies compete fee to two companies (1) M/s. JSK Marketing Pvt Ltd (in shor (1) M/s. JSK Marketing Pvt Ltd (in short “M/s.JSK”) and (2) M/s. RAL t “M/s.JSK”) and (2) M/s. RAL Consumer Products Pvt Ltd (in short “M/s.RAL”). The AO noted that these Consumer Products Pvt Ltd (in short “M/s.RAL”). The AO noted that these Consumer Products Pvt Ltd (in short “M/s.RAL”). The AO noted that these two companies were respectively controlled by (100% shareholding) two companies were respectively controlled by (100% shareholding) two companies were respectively controlled by (100% shareholding) directors/promoters of assessee company viz., Shri. Kunal K. Jiwaraka directors/promoters of assessee company viz., Shri. Kunal K. Jiwaraka directors/promoters of assessee company viz., Shri. Kunal K. Jiwaraka and Shri. Rajendra Prasad Khaitan. According to the AO, an agreement a Prasad Khaitan. According to the AO, an agreement a Prasad Khaitan. According to the AO, an agreement dated 14.08.2014 has been entered into by the assessee company with dated 14.08.2014 has been entered into by the assessee company with dated 14.08.2014 has been entered into by the assessee company with the promoters/directors in respect of both M/s. JSK and M/s. RAL for not the promoters/directors in respect of both M/s. JSK and M/s. RAL for not the promoters/directors in respect of both M/s. JSK and M/s. RAL for not competing with the assessee company; and in lieu of it, assess competing with the assessee company; and in lieu of it, assess competing with the assessee company; and in lieu of it, assessee agreed to pay such non-compete fee amounting to Rs.2,37,07,960/ compete fee amounting to Rs.2,37,07,960/ compete fee amounting to Rs.2,37,07,960/-, which expense, according to AO needs to be capitalized in the books of accounts expense, according to AO needs to be capitalized in the books of accounts expense, according to AO needs to be capitalized in the books of accounts of the assessee. According to him, any payment for acquiring business or of the assessee. According to him, any payment for acquiring business or of the assessee. According to him, any payment for acquiring business or commercial rights would fall unde commercial rights would fall under the definition of intangible assets. r the definition of intangible assets.

Further, according to the AO, the assessee had entered into non Further, according to the AO, the assessee had entered into non Further, according to the AO, the assessee had entered into non-compete & 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd agreement to avoid competition in terms of which it acquired valuable agreement to avoid competition in terms of which it acquired valuable agreement to avoid competition in terms of which it acquired valuable rights from the Directors by preventing them from directly or indirectly rights from the Directors by preventing them from directly or indirectly rights from the Directors by preventing them from directly or indirectly competing in the same line of business. This in AO’s view came under the ompeting in the same line of business. This in AO’s view came under the ompeting in the same line of business. This in AO’s view came under the definition of commercial right having economic interest and money value. definition of commercial right having economic interest and money value. definition of commercial right having economic interest and money value.

Hence, according to the AO, the non Hence, according to the AO, the non-compete fee is in the nature of compete fee is in the nature of business or commercial rights of similar n business or commercial rights of similar nature. The AO therefore held ature. The AO therefore held that the payment of non that the payment of non-compete fee was not revenue but capital in compete fee was not revenue but capital in nature and hence disallowed the same. nature and hence disallowed the same.

5.2 After holding so, the AO also disallowed the alternative claim of the After holding so, the AO also disallowed the alternative claim of the After holding so, the AO also disallowed the alternative claim of the assessee for depreciation on such capital expen assessee for depreciation on such capital expenditure. The AO was of the diture. The AO was of the opinion that depreciation is allowable only if the opinion that depreciation is allowable only if the intangible asset intangible asset satisfies the following conditions: the following conditions:

(i) a technical feasibility study supporting the completion of development of the (i) a technical feasibility study supporting the completion of development of the (i) a technical feasibility study supporting the completion of development of the intangible asset

(ii) ability to use or sell the created intangible asset the created intangible asset

(iii) existence of market for output of the intangible asset or internal use of the (iii) existence of market for output of the intangible asset or internal use of the (iii) existence of market for output of the intangible asset or internal use of the intangible asset

(iv) availability of adequate technical, financial, and other resources to complete (iv) availability of adequate technical, financial, and other resources to complete (iv) availability of adequate technical, financial, and other resources to complete the development and to use or sell the in the development and to use or sell the intangible asset

(v) ability to measure the expenditure on the intangible asset reliably and fairly. (v) ability to measure the expenditure on the intangible asset reliably and fairly. (v) ability to measure the expenditure on the intangible asset reliably and fairly.

5.3 According to the AO, the assessee did not satisfy the aforesaid According to the AO, the assessee did not satisfy the aforesaid According to the AO, the assessee did not satisfy the aforesaid conditions and also noted that the advantage gained by the assessee was conditions and also noted that the advantage gained by the assessee was conditions and also noted that the advantage gained by the assessee was for a restricted period (as per Schedule 1 of the agreement). He thus period (as per Schedule 1 of the agreement). He thus period (as per Schedule 1 of the agreement). He thus observed that, the payment did observed that, the payment didn’t necessarily confer any exclusive right t necessarily confer any exclusive right & 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd to carry on primary business activity. According to him, to carry on primary business activity. According to him, to carry on primary business activity. According to him, this intangible asset cannot be sold independently unlike other intangi cannot be sold independently unlike other intangible assets in the ble assets in the form of knowhow, franchise rights, license etc. Hence according to him, form of knowhow, franchise rights, license etc. Hence according to him, form of knowhow, franchise rights, license etc. Hence according to him, the same cannot be treated as an intangible asset as defined under the the same cannot be treated as an intangible asset as defined under the the same cannot be treated as an intangible asset as defined under the Act and hence the corresponding claim of depreciation was denied. Act and hence the corresponding claim of depreciation was denied. Act and hence the corresponding claim of depreciation was denied.

Aggrieved, the assessee pre Aggrieved, the assessee preferred an appeal before the Ld.CIT(A), who ferred an appeal before the Ld.CIT(A), who confirmed the action of the AO by holding as under: confirmed the action of the AO by holding as under:

“19. Regarding ground of disallowance of non “19. Regarding ground of disallowance of non-compete fee of Rs.2.37,07,960/, Rs.2.37,07,960/, the appellant has countered the case laws relied uponby the AO. The appellant the appellant has countered the case laws relied uponby the AO. The appellant the appellant has countered the case laws relied uponby the AO. The appellant submitted that in the case of Pent ted that in the case of PentasoftTechnologies, the Hon'ble Madras High softTechnologies, the Hon'ble Madras High Court (2008) did not adjudicate adjudicate on the question of allowability of non-compete fee compete fee as revenueexpenditure or not. Further, the decision of ITAT in the cases of as revenueexpenditure or not. Further, the decision of ITAT in the cases of as revenueexpenditure or not. Further, the decision of ITAT in the cases of RealImage Tech (P) Ltd. an RealImage Tech (P) Ltd. and Indo Global Corporate Finance dealt the issueof d Indo Global Corporate Finance dealt the issueof depreciation on non-compete fee and not the nature of expenditure.The appellant compete fee and not the nature of expenditure.The appellant compete fee and not the nature of expenditure.The appellant further relied upon Hon'ble Madras High Court case ofHatsunAgro Products Ltd. further relied upon Hon'ble Madras High Court case ofHatsunAgro Products Ltd. further relied upon Hon'ble Madras High Court case ofHatsunAgro Products Ltd. vs. JCIT (407 ITR 674) (2017) and Hon'blePunjab vs. JCIT (407 ITR 674) (2017) and Hon'blePunjab and Haryana High Court in the and Haryana High Court in the case of CIT Vs. Max India Ltd.(2018), where non case of CIT Vs. Max India Ltd.(2018), where non-compete fee was a paid to a ex compete fee was a paid to a ex- employee restraininghim from doing particular business. employee restraininghim from doing particular business.

- Revathi Equipment Ltd. vs. ACIT (Madras High Court) 129 Revathi Equipment Ltd. vs. ACIT (Madras High Court) 129 taxmann. com 382 taxmann. com 382 (2021)- AO held the portion of fee as capital in nature and reopening the case AO held the portion of fee as capital in nature and reopening the case AO held the portion of fee as capital in nature and reopening the case was held justified. In the instant case of the appellant, the entire issued was held justified. In the instant case of the appellant, the entire issued was held justified. In the instant case of the appellant, the entire issued related to wholesale dealership is subjected to non related to wholesale dealership is subjected to non-compete fee. - ITO Vs. Smartchem ITO Vs. Smartchem Technologies Ltd. 103 taxmann.com 360 (SC) Technologies Ltd. 103 taxmann.com 360 (SC) –SLP was granted against the High Court's order. granted against the High Court's order. - GKN Driveline India Ltd. vs. CIT 88 taxmann.com 208 (Delhi) (2017) GKN Driveline India Ltd. vs. CIT 88 taxmann.com 208 (Delhi) (2017) GKN Driveline India Ltd. vs. CIT 88 taxmann.com 208 (Delhi) (2017)- Payments were held for an enduring benefit and not non Payments were held for an enduring benefit and not non-competeobligation competeobligation regarding agreement for regarding agreement for purchase of assets and liabilitiesof a new factory. purchase of assets and liabilitiesof a new factory. - NELITO Systems Ltd. vs. DCIT 27 taxmann.com 201 (Mum NELITO Systems Ltd. vs. DCIT 27 taxmann.com 201 (Mum-/TAT)(2012) /TAT)(2012) - non-compete fee is a capital expenditure not allowable u/s37(1). compete fee is a capital expenditure not allowable u/s37(1).

& 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd ::10 ::

5.4 Aggrieved by the aforesaid action of the Ld.CIT(A), the assessee is Aggrieved by the aforesaid action of the Ld.CIT(A), the assessee is Aggrieved by the aforesaid action of the Ld.CIT(A), the assessee is before us.

5.5 Assailing the actio Assailing the action of the Ld. CIT(A), the Ld. AR for the assessee n of the Ld. CIT(A), the Ld. AR for the assessee first took us through the background facts leading to the impugned non first took us through the background facts leading to the impugned non first took us through the background facts leading to the impugned non- compete agreement between the assessee and M/s JSK & M/s RAL. It was compete agreement between the assessee and M/s JSK & M/s RAL. It was compete agreement between the assessee and M/s JSK & M/s RAL. It was brought to our notice that, the assessee had two promoter directors brought to our notice that, the assessee had two promoter directors brought to our notice that, the assessee had two promoter directors, Shri Kunal K Jiwarajkaand Shri Shri Rajendra Prasad Khaitan who held held 9.95% and 9.12% equity stake in the assessee company respectively. He submitted equity stake in the assessee company respectively. He submitted equity stake in the assessee company respectively. He submitted that, these two directors held 100% stake in the companies M/s JSK & that, these two directors held 100% stake in the companies M/s JSK & that, these two directors held 100% stake in the companies M/s JSK & M/s RAL which distributed the which distributed the assessee company’s products in various company’s products in various Indian States. According to him, during the relevant year, the assessee . According to him, during the relevant year, the assessee . According to him, during the relevant year, the assessee had intended to take over the distribution networks in certain areas where had intended to take over the distribution networks in certain areas where had intended to take over the distribution networks in certain areas where these two companies were already operating. Having regard to the fact these two companies were already operating. Having regard to the fact these two companies were already operating. Having regard to the fact that, the distribution network of remaining areas would continue under e distribution network of remaining areas would continue under e distribution network of remaining areas would continue under them, and given their expertise and access to company’s confidential them, and given their expertise and access to company’s confidential them, and given their expertise and access to company’s confidential information, it was mutually agreed to enter into a non information, it was mutually agreed to enter into a non information, it was mutually agreed to enter into a non-compete agreement in terms of which M/s JSK & M/s RAL would give up agreement in terms of which M/s JSK & M/s RAL would give up agreement in terms of which M/s JSK & M/s RAL would give up their distribution networks in certain areas, which was defined as ‘Discontinued distribution networks in certain areas, which was defined as ‘Discontinued distribution networks in certain areas, which was defined as ‘Discontinued Territories’ and would retain the distribution business for remaining areas Territories’ and would retain the distribution business for remaining areas Territories’ and would retain the distribution business for remaining areas & 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd known as ‘Continuing Territories’. It was also agreed that M/s JSK & M/s known as ‘Continuing Territories’. It was also agreed that M/s JSK & M/s known as ‘Continuing Territories’. It was also agreed that M/s JSK & M/s RAL would abstain from car RAL would abstain from carrying out any distribution activities for rying out any distribution activities for specified period in the ‘Discontinued Territories specified period in the ‘Discontinued Territories’ and for doing so, the for doing so, the assessee agreed to pay lump sum consideration by way of non assessee agreed to pay lump sum consideration by way of non assessee agreed to pay lump sum consideration by way of non-compete fee of Rs.2,37,07,960/ fee of Rs.2,37,07,960/-. According to Ld. AR, the payment of non . According to Ld. AR, the payment of non- compete fee didn’t alter the assessee’s capital structure and was t alter the assessee’s capital structure and was t alter the assessee’s capital structure and was therefore revenue in nature. He further submitted that the decisions therefore revenue in nature. He further submitted that the decisions therefore revenue in nature. He further submitted that the decisions relied upon by the lower authorities to treat the impugned payment as relied upon by the lower authorities to treat the impugned payment as relied upon by the lower authorities to treat the impugned payment as capital in nature was distinguishable and capital in nature was distinguishable and instead, he relie he relied upon the decision of Hon’ble Madras High Court in the case of decision of Hon’ble Madras High Court in the case of M/s.HatsunAgro M/s.HatsunAgro Products Ltd vs JCIT (407 ITR 674) Products Ltd vs JCIT (407 ITR 674) wherein the non wherein the non-compete fee payment was allowed as revenue expenditure. Alternatively, the Ld. AR payment was allowed as revenue expenditure. Alternatively, the Ld. AR payment was allowed as revenue expenditure. Alternatively, the Ld. AR claimed that, given the fact that both the l claimed that, given the fact that both the lower authorities had held the ower authorities had held the payment to be in nature of acquisition of valuable commercial payment to be in nature of acquisition of valuable commercial payment to be in nature of acquisition of valuable commercial/business rights, it fell within the definition of ‘asset’ as set out in Section 2(11) of rights, it fell within the definition of ‘asset’ as set out in Section 2(11) of rights, it fell within the definition of ‘asset’ as set out in Section 2(11) of the Act and therefore the assessee ought to be allowed depreciation on the Act and therefore the assessee ought to be allowed depreciation on the Act and therefore the assessee ought to be allowed depreciation on the same. Per contra, the Ld. CIT, DR supported the order of the lower same. Per contra, the Ld. CIT, DR supported the order of the lower same. Per contra, the Ld. CIT, DR supported the order of the lower authorities.

5.6 Heard both the parties Heard both the parties, and before we enter in to the merits of the , and before we enter in to the merits of the disallowance made on the claim of expenditure made towards payment of disallowance made on the claim of expenditure made towards payment of disallowance made on the claim of expenditure made towards payment of non-compete fees, we note that AO/ compete fees, we note that AO/Ld CIT(A) has not questioned the Ld CIT(A) has not questioned the genuineness of the impugned payment made to two promoters concerns genuineness of the impugned payment made to two promoters concerns genuineness of the impugned payment made to two promoters concerns & 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd ::12 ::

M/s JSK & M/s RALand therefore, our adjudication of the grounds raised is and therefore, our adjudication of the grounds raised is and therefore, our adjudication of the grounds raised is confined to the impugned actions of AO/Ld CIT(A) confined to the impugned actions of AO/Ld CIT(A). Coming to the merits Coming to the merits of this ground, we note note that, the assessee company is engaged in the that, the assessee company is engaged in the business of manufacture and distribution of batterie business of manufacture and distribution of batteries, promoted by Shri promoted by Shri Kunal K Jiwarajkaand Shri Shri Rajendra Prasad Khaitan, both of whom held , both of whom held 9.95% & 9.12% of equity in the assessee 9.95% & 9.12% of equity in the assessee company respecti respectively. It has been brought to our notice that, the batteries manufactured by the brought to our notice that, the batteries manufactured by the brought to our notice that, the batteries manufactured by the assessee were being distributed by M/s JSK & M/s RAL, both of which are assessee were being distributed by M/s JSK & M/s RAL, both of which are assessee were being distributed by M/s JSK & M/s RAL, both of which are wholly owned and controlled by Shri wholly owned and controlled by Shri Kunal K Jiwarajkaand Kunal K Jiwarajkaand Shri Rajendra Prasad Khaitan. As noted from the . As noted from the material placed on record, the material placed on record, the assessee intended to undertake the distribution activity also by itself and assessee intended to undertake the distribution activity also by itself and assessee intended to undertake the distribution activity also by itself and had thus proposed to venture into specified locations wherein it would had thus proposed to venture into specified locations wherein it would had thus proposed to venture into specified locations wherein it would distribute their manufactured batteries. Since M/s JSK & M/s RAL were distribute their manufactured batteries. Since M/s JSK & M/s RAL were distribute their manufactured batteries. Since M/s JSK & M/s RAL were already established distribution players established distribution players, having significant expertise and significant expertise and access to confidential information, the assessee, is noted to have entered access to confidential information, the assessee, is noted to have entered access to confidential information, the assessee, is noted to have entered into a non-compete agreement in terms of which compete agreement in terms of which, M/s JSK & M/s RAL M/s JSK & M/s RAL essentially gave up their distribution activity essentially gave up their distribution activity rights in the specified areas rights in the specified areas for a specified period to the assessee for a specified period to the assessee, and also agreed to refrain from and also agreed to refrain from carrying on the business of distribution of batteries in the said specified carrying on the business of distribution of batteries in the said specified carrying on the business of distribution of batteries in the said specified areas. The relevant terms of the non areas. The relevant terms of the non-compete agreement have been compete agreement have been examined and it is observed that the assessee had paid a lumpsum it is observed that the assessee had paid a lumpsum it is observed that the assessee had paid a lumpsum consideration to acquire valuable commercial right viz., distribution consideration to acquire valuable commercial right viz., distribution consideration to acquire valuable commercial right viz., distribution & 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd right/network in specified areas from M/s JSK & M/s RAL and at the same right/network in specified areas from M/s JSK & M/s RAL and at the same right/network in specified areas from M/s JSK & M/s RAL and at the same time abstaining them to conduct the same business activity in time abstaining them to conduct the same business activity in time abstaining them to conduct the same business activity in that area so as to eliminate competition and obtain an enduring benefit across the so as to eliminate competition and obtain an enduring benefit across the so as to eliminate competition and obtain an enduring benefit across the specified period in the course of business. On these facts, we agree with specified period in the course of business. On these facts, we agree with specified period in the course of business. On these facts, we agree with the AO that, by payment of non the AO that, by payment of non-compete fee, the assessee had acquired compete fee, the assessee had acquired valuable commercial & busine valuable commercial & business rights resulting in enduring benefit to the ss rights resulting in enduring benefit to the company and therefore the impugned payment was capital in nature. For company and therefore the impugned payment was capital in nature. For company and therefore the impugned payment was capital in nature. For this, we gainfully refer to the decision of Special Bench of this Tribunal in this, we gainfully refer to the decision of Special Bench of this Tribunal in this, we gainfully refer to the decision of Special Bench of this Tribunal in the case of Tecumseh India Pvt Ltd Vs Addl. CIT (127 ITD 1) Tecumseh India Pvt Ltd Vs Addl. CIT (127 ITD 1) Tecumseh India Pvt Ltd Vs Addl. CIT (127 ITD 1) wherein it was held that payment of non herein it was held that payment of non-compete fees is capital in compete fees is capital in nature. The observations of this Tribunal relevant to the facts of the nature. The observations of this Tribunal relevant to the facts of the nature. The observations of this Tribunal relevant to the facts of the present case are as follows: present case are as follows:-

"Although we agree that payment made to ward off competition in "Although we agree that payment made to ward off competition in "Although we agree that payment made to ward off competition in business to a rival dealer would constitute business to a rival dealer would constitute capital expenditure if capital expenditure if the object of making that payment is to derive an advantage by the object of making that payment is to derive an advantage by the object of making that payment is to derive an advantage by eliminating the competition over some length of time, the same eliminating the competition over some length of time, the same eliminating the competition over some length of time, the same & 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd result would not follow if there is no certainty of the duration of result would not follow if there is no certainty of the duration of result would not follow if there is no certainty of the duration of the advantage and the same can be put t the advantage and the same can be put to an end at any time. o an end at any time. How long the period of contemplated advantage should be in order How long the period of contemplated advantage should be in order How long the period of contemplated advantage should be in order to to to constitute constitute constitute enduring enduring enduring benefit benefit benefit would would would depend depend depend upon upon upon the the the circumstances and the facts of each individual case." circumstances and the facts of each individual case."

…

5.7 Applying the ratio decidendi laid down in the decision (supra) to the Applying the ratio decidendi laid down in the decision (supra) to the Applying the ratio decidendi laid down in the decision (supra) to the present case, it is noted that the tenure of the non present case, it is noted that the tenure of the non-compete agreement compete agreement between the assessee and M/s JSK & M/s RAL has been defined in between the assessee and M/s JSK & M/s RAL has been defined in between the assessee and M/s JSK & M/s RAL has been defined in Schedule 1 to the agreement, which is extracted below: the agreement, which is extracted below:-

"Restricted Period" shall commence from the Implementation Date and shall "Restricted Period" shall commence from the Implementation Date and shall "Restricted Period" shall commence from the Implementation Date and shall continue as follows: continue as follows:

1.19.1, Till the time undertaking Parties continue as authorised wholesale dealer 1.19.1, Till the time undertaking Parties continue as authorised wholesale dealer 1.19.1, Till the time undertaking Parties continue as authorised wholesale dealer in the JSK Continued Territory in the JSK Continued Territory

1.19.2 In the event Undertaking Pai In the event Undertaking Pai-ties discontinue to act as authorised ties discontinue to act as authorised wholesale dealer in the JSK Continued Territory on its own accord without wholesale dealer in the JSK Continued Territory on its own accord without wholesale dealer in the JSK Continued Territory on its own accord without duress from the Company, then till the period of 2 years from the duress from the Company, then till the period of 2 years from the duress from the Company, then till the period of 2 years from the Implementation Date'; Implementation Date';

1.19.3 In the event the 1.19.3 In the event the Company discontinues the authorised wholesale Company discontinues the authorised wholesale dealership of the Undertaking Parties in the JSK Continued Territory then up to dealership of the Undertaking Parties in the JSK Continued Territory then up to dealership of the Undertaking Parties in the JSK Continued Territory then up to the date of such discontinuation". the date of such discontinuation".

……

"Restricted Period" shall commence from the Implementation Date and shall "Restricted Period" shall commence from the Implementation Date and shall "Restricted Period" shall commence from the Implementation Date and shall continue as follows: s:

& 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd ::15 ::

1.20.1 till the time RPK continues as the managing director of the company and 1.20.1 till the time RPK continues as the managing director of the company and 1.20.1 till the time RPK continues as the managing director of the company and undertaking parties continue as authorized wholesale dealer in the RAL undertaking parties continue as authorized wholesale dealer in the RAL undertaking parties continue as authorized wholesale dealer in the RAL continued Territory; continued Territory;

1.20.1.1 In the event Undertaking RPK resigns as joint managing director of the 1.20.1.1 In the event Undertaking RPK resigns as joint managing director of the 1.20.1.1 In the event Undertaking RPK resigns as joint managing director of the Company on his own accord without duress from the Company, then till such ompany on his own accord without duress from the Company, then till such ompany on his own accord without duress from the Company, then till such time the Undertaking Parties continue as authorised wholesale dealer in the RAL time the Undertaking Parties continue as authorised wholesale dealer in the RAL time the Undertaking Parties continue as authorised wholesale dealer in the RAL Continued Territory, Continued Territory,

1.20.1.2 In the event Undertaking Parties discontinue to act as authorized 1.20.1.2 In the event Undertaking Parties discontinue to act as authorized 1.20.1.2 In the event Undertaking Parties discontinue to act as authorized wholesale dealer in the RAL Continued Territory on its own accord without le dealer in the RAL Continued Territory on its own accord without le dealer in the RAL Continued Territory on its own accord without duress from the Company, then till such time RPK continues as the joint duress from the Company, then till such time RPK continues as the joint duress from the Company, then till such time RPK continues as the joint managing director of the Company; managing director of the Company;

1.20,1.3 In the event RPK resigns as the joint Managing Director of the 1.20,1.3 In the event RPK resigns as the joint Managing Director of the 1.20,1.3 In the event RPK resigns as the joint Managing Director of the Company on his own accord without duress from the Company and Undertaking his own accord without duress from the Company and Undertaking his own accord without duress from the Company and Undertaking Parties discontinue to act as authorised wholesale dealer in the RAL Continued Parties discontinue to act as authorised wholesale dealer in the RAL Continued Parties discontinue to act as authorised wholesale dealer in the RAL Continued territory on its own accord without duress from the Company, then till the period territory on its own accord without duress from the Company, then till the period territory on its own accord without duress from the Company, then till the period of 2 years from the Implementati of 2 years from the Implementation date;

1.20.2 In the event the Company discontinued the authorised wholesale 1.20.2 In the event the Company discontinued the authorised wholesale 1.20.2 In the event the Company discontinued the authorised wholesale dealership of the Undertaking Parties in the RAL Continued Territory OR removes dealership of the Undertaking Parties in the RAL Continued Territory OR removes dealership of the Undertaking Parties in the RAL Continued Territory OR removes RPK as joint managing director of the Company then up to the date of such RPK as joint managing director of the Company then up to the date of such RPK as joint managing director of the Company then up to the date of such removal or discontinuat removal or discontinuation.

5.8 From the above it is noted, the period of non From the above it is noted, the period of non-compete fees is not compete fees is not specifically defined in the agreement and that, it may very well exceed specifically defined in the agreement and that, it may very well exceed specifically defined in the agreement and that, it may very well exceed the period of five years as stipulated by the Hon’ble Supreme Court in the the period of five years as stipulated by the Hon’ble Supreme Court in the the period of five years as stipulated by the Hon’ble Supreme Court in the case of Assam Bengal Cement Co. Lt Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 d. v. CIT [1955] 27 ITR 34 (SC) wherein their Lordships have considered the period of five years as wherein their Lordships have considered the period of five years as wherein their Lordships have considered the period of five years as providing an enduring advantage to the assessee providing an enduring advantage to the assessee, irrespective of the fact irrespective of the fact that the payment was to be made annually. that the payment was to be made annually. In our considered view In our considered view therefore, the ratio laid down in the above decision of the Special Bench tio laid down in the above decision of the Special Bench tio laid down in the above decision of the Special Bench (supra) would be applicable to the facts of the present case. (supra) would be applicable to the facts of the present case. (supra) would be applicable to the facts of the present case.

The decision of HatsunAgro Products Ltd vs JCIT (supra) HatsunAgro Products Ltd vs JCIT (supra) relied 5.9 HatsunAgro Products Ltd vs JCIT (supra) upon by the assessee is found to be distinguishable on facts as in th upon by the assessee is found to be distinguishable on facts as in th upon by the assessee is found to be distinguishable on facts as in this & 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd judgment, the non-compete fees was paid to the employee compete fees was paid to the employee compete fees was paid to the employee-directors who were leaving the company were leaving the company, so as to ensure that they did so as to ensure that they didn’t join any of their competitors. In the present case however, the Ld. AR for the their competitors. In the present case however, the Ld. AR for the their competitors. In the present case however, the Ld. AR for the assessee has specifically pointed out that, t assessee has specifically pointed out that, the non-compete fees was not compete fees was not paid to Shri Kunal K Jiwarajkaand Kunal K Jiwarajkaand Shri Rajendra Prasad Khaitan Rajendra Prasad Khaitan. Rather it has been paid to companies, M/s JSK & M/s RAL who were engaged in has been paid to companies, M/s JSK & M/s RAL who were engaged in has been paid to companies, M/s JSK & M/s RAL who were engaged in distribution of batteries and that the payment made was towards distribution of batteries and that the payment made was towards distribution of batteries and that the payment made was towards acquisition of their distribution rights/network in specified locations along tribution rights/network in specified locations along tribution rights/network in specified locations along with their agreement to abstain for operating their business in those with their agreement to abstain for operating their business in those with their agreement to abstain for operating their business in those specified areas.

5.10 Moreover, we find the decision of the Hon’ble jurisdictional Madras we find the decision of the Hon’ble jurisdictional Madras we find the decision of the Hon’ble jurisdictional Madras High Court in the case of High Court in the case of Pentasoft Technologies Ltd Vs DCIT (41 chnologies Ltd Vs DCIT (41 taxmann.com 120) to be relevant wherein to be relevant whereinon similar facts had held the on similar facts had held the non-compete fees to be capital in nature. We further note that the compete fees to be capital in nature. We further note that the compete fees to be capital in nature. We further note that the Hon’ble jurisdictional Madras High Court in their latest judgment in the Hon’ble jurisdictional Madras High Court in their latest judgment in the Hon’ble jurisdictional Madras High Court in their latest judgment in the case of CIT Vs Areva CIT Vs Areva T & D India Ltd [TS-231-HC HC-2021(MAD)] dated 25.03.2021 wherein also the non wherein also the non-compete fees paid for compete fees paid for acquisition of business rights from two running companies was upheld to acquisition of business rights from two running companies was upheld to acquisition of business rights from two running companies was upheld to be capital in nature.

5.11 In view of the above decisions (supra), we uphold the ord In view of the above decisions (supra), we uphold the ord In view of the above decisions (supra), we uphold the order of the lower authorities to the extent holding the payment of non lower authorities to the extent holding the payment of non lower authorities to the extent holding the payment of non-compete fees & 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd to be in the nature of capital outlay and therefore to be in the nature of capital outlay and therefore, the same cannot be the same cannot be allowed as revenue expenditure u/s 37(1) of the Act. allowed as revenue expenditure u/s 37(1) of the Act.

5.12 Having held so above, we now come to the alt Having held so above, we now come to the alternate argument of ernate argument of the assessee seeking allowance of depreciation on the impugned sum. It the assessee seeking allowance of depreciation on the impugned sum. It the assessee seeking allowance of depreciation on the impugned sum. It is observed that both the lower authorities have admittedly held that the is observed that both the lower authorities have admittedly held that the is observed that both the lower authorities have admittedly held that the payment of non-compete fees amounted to acquisition of valuable compete fees amounted to acquisition of valuable compete fees amounted to acquisition of valuable ‘business or commercial righ ‘business or commercial rights’ and accordingly, we find that, these rights ts’ and accordingly, we find that, these rights within the definition of ‘intangible asset’ as set out in Section 2(11)(b) of within the definition of ‘intangible asset’ as set out in Section 2(11)(b) of within the definition of ‘intangible asset’ as set out in Section 2(11)(b) of the Act and therefore in our considered view, the assessee was legally the Act and therefore in our considered view, the assessee was legally the Act and therefore in our considered view, the assessee was legally entitled to depreciation thereon u/s 32 of the Act. Accordi entitled to depreciation thereon u/s 32 of the Act. Accordi entitled to depreciation thereon u/s 32 of the Act. According to us, the reasoning given by the lower authorities to deny the claim of depreciation reasoning given by the lower authorities to deny the claim of depreciation reasoning given by the lower authorities to deny the claim of depreciation viz., that the rights acquired upon payment of non viz., that the rights acquired upon payment of non-compete fee was not compete fee was not marketable or transferable, was of neither any relevance nor decisive to marketable or transferable, was of neither any relevance nor decisive to marketable or transferable, was of neither any relevance nor decisive to ascertain whether it resulted in creation of ‘intangible assets’ u/s 2(11)(b) sulted in creation of ‘intangible assets’ u/s 2(11)(b) sulted in creation of ‘intangible assets’ u/s 2(11)(b) of the Act. Further, we find that, the Hon’ble jurisdictional Madras High of the Act. Further, we find that, the Hon’ble jurisdictional Madras High of the Act. Further, we find that, the Hon’ble jurisdictional Madras High Court in the cases of Pentasoft Technologies Ltd Pentasoft Technologies Ltd (supra) (supra)&Areva T & D India Ltd(supra) have also held that depreciation is to be have also held that depreciation is to be have also held that depreciation is to be allowed on the non-compete fees as it results in creation of valuable business or compete fees as it results in creation of valuable business or compete fees as it results in creation of valuable business or commercial rights of enduring nature. Following the same, we direct the commercial rights of enduring nature. Following the same, we direct the commercial rights of enduring nature. Following the same, we direct the AO to allow depreciation on the non AO to allow depreciation on the non-compete fees u/s 32(1)(ii) of the Act. compete fees u/s 32(1)(ii) of the Act.

This ground is therefore p This ground is therefore partly allowed.

& 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd ::18 ::

On appeal the Ld. CIT(A) upheld the order of the AO. Aggrieved, the On appeal the Ld. CIT(A) upheld the order of the AO. Aggrieved, the On appeal the Ld. CIT(A) upheld the order of the AO. Aggrieved, the assessee is now in appeal before us. in appeal before us.

6.1 Heard both the parties. The Ld. AR has brought to our attention the Heard both the parties. The Ld. AR has brought to our attention the Heard both the parties. The Ld. AR has brought to our attention the certificate from the Electricity Department certificate from the Electricity Department placed at Page 5 of paper book placed at Page 5 of paper book wherein it is observed that the electricity authority has wherein it is observed that the electricity authority hascertif certified that the Solar Power Systems was was installed and synchronized on 31.03.2016. installed and synchronized on 31.03.2016. The Ld. AR also invited our attention to Ld. AR also invited our attention to the energy meter reading as on the energy meter reading as on 31.03.2016 placed at P placed at Page 5 & 6 of the paper book and showed us that, and showed us that, the assessee had generated 4050 units from 8.00 am to 3.00 generated 4050 units from 8.00 am to 3.00 generated 4050 units from 8.00 am to 3.00 pm on 31.03.2016 which was supplied to M/s Deccan Hospital, and in support of which was supplied to M/s Deccan Hospital, and in support of which was supplied to M/s Deccan Hospital, and in support of the same he invited our attention to the the same he invited our attention to the invoice raised on 31.03.2016 for invoice raised on 31.03.2016 for & 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd supply of 4050 units at the rate of Rs.6 per unit. supply of 4050 units at the rate of Rs.6 per unit. According to the Ld. AR According to the Ld. AR therefore, the certificate g therefore, the certificate given by the electricity department, energy iven by the electricity department, energy reading details, invoice raised on customer clearly showed that the solar reading details, invoice raised on customer clearly showed that the solar reading details, invoice raised on customer clearly showed that the solar power plant was put to use on 31.03.2016 and therefore the assessee power plant was put to use on 31.03.2016 and therefore the assessee power plant was put to use on 31.03.2016 and therefore the assessee had rightly claimed depreciation thereon of Rs.78,03,958/ had rightly claimed depreciation thereon of Rs.78,03,958/- -. However, we find that these details & evidences were not available before the lower find that these details & evidences were not available before the lower find that these details & evidences were not available before the lower authorities. Hence, in fitness of the matters, we set aside this issue authorities. Hence, in fitness of the matters, we set aside this issue authorities. Hence, in fitness of the matters, we set aside this issue afresh back to the AO for the purpose of verifying these documents now back to the AO for the purpose of verifying these documents now back to the AO for the purpose of verifying these documents now furnished by the assessee and if the sam furnished by the assessee and if the same is found to be to be in order for making the claim for AY 2015 making the claim for AY 2015-16, then AO to consider and consider and allow the depreciation on the solar power plant depreciation on the solar power plant in accordance to law in accordance to law. Needless to say, the AO shall pass a speaking order in this regard after allowing say, the AO shall pass a speaking order in this regard after allowing say, the AO shall pass a speaking order in this regard after allowing assessee an opportunity for hearing. This ground is therefore allowed for tunity for hearing. This ground is therefore allowed for tunity for hearing. This ground is therefore allowed for statistical purposes.

2016-17. Ground No. 1 . Ground No. 1 is noted to be general in nature and is therefore is noted to be general in nature and is therefore does not require any specific adjudication. does not require any specific adjudication.

& 1405/Chny/2024 1404 & 1405/Chny/2024 (AYs 2015 s 2015-16 & 2016-17) /s. Indo National Ltd M/s. Indo National Ltd ::21 ::

Overall, Overall, Overall, therefore, therefore, therefore, the the the appeal appeal appeal of of of the the the assessee assessee assessee in in in 11. No.1405/Chny/2023 is partly allowed.

Order pronounced on the 19th day of March, 2025, in Chennai. Order pronounced on the , in Chennai.