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Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI L.P. SAHU
ORDER PER H.S. SIDHU : JM This Appeal by the Revenue and Cross Objection by the Assessee are directed against the assessment order dated 29.7.2011 of the Ld. CIT(A)-XX, New Delhi pertaining to assessment year 2004-05.
The Revenue has raised the following grounds in its appeal:-
“1. Ld. CIT(A) erred in law and on the facts and circumstances of the case in directing the AO to allow depreciation on expenditure of Rs.
1,21,28,599/- being non-compete convenant fee paid by the assessee to M/s Bayer India Ltd. without appreciating the provisions of section 32(1)(ii) of the Income Tax Act, 1961.
2. The appellant craves to amend modify, add or forgo any ground(s) of appeal at any time before
or during the hearing of this appeal.”
2.1 The Assessee has raised the following grounds in its Cross Objection:-
That on the facts and circumstances of the case
and in law, the Ld. CIT(A) has erred in dismissing the assessee’s claim that the expenditure incurred on non-compete fee for Rs.
1,21,28,599/- is a revenue expenditure allowable under section 37(1) of the Act.
2. That without prejudice to the Ground No. 1, the CIT(A) ought to have allowed 10/30th of Rs.
1,21,28,599/- paid on account of non-compete fee as the benefit of such non competition convenant is for a limited period of 30 months.
That the respondent reserves its right to add,
alter, amend or withdraw any ground of objection either before or at the time of hearing of this appeal.
3. The brief facts of the case are that the assessee company filed its return of income on 31.10.2004, declaring total loss of Rs. 10,95,94,750/-. The assessment in this case was completed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred as the Act) on 29.12.2006 and AO assessed the loss of Rs. 7,26,83,466/-. The AO has disallowed non-compete fee paid by the assessee and also disallowed excess depreciation claimed by the assessee. Aggrieved by the aforesaid assessment order, the assessee filed the Appeal before the Ld. CIT(A), who vide his impugned order dated 29.7.2011 has partly allowed the appeal of the assessee by holding that assessee is entitled for depreciation on the non-compete fee paid to the seller. Against the impugned order, the Revenue is in appeal before us and Assessee has filed the Cross Objection.
Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal
On the other hand, Ld. Counsel of the assessee has reiterated the contentions raised in the grounds of appeal of the Cross Objection. 3
We have heard both the parties and perused the relevant records available with us, especially the order of the Revenue Authorities. We find that the decision of the ITAT, Chennai Bench in the case of ITO vs. Medicorp Technology India Ltd. (122 TTJ 394) and ACIT vs. Rea Image Tech. Pvt. Ltd. (120 TTJ 983) are squarely applicable to the case of the assessee. In this case non compete fee sounds a negative. However, so far as the seller is concerned, he is selling his business right. Business right implies right to carry on any business in the market place. This is a recognized right. We note that the amendment to section 55(2)(a) by the Finance Act, 2002 with effect from AY 2003-04 also recognized the right to carry on business as capital asset under the head capital gains. The seller in this agreement is voluntarily selling this right to the buyer. As a consequence of this agreement the seller has forfeited his right to conduct business in the territory for a period of 30 months. Therefore, the assessee in effect has acquired a right of the seller. Therefore, this particular payment as per the agreement falls within section 32(1)(ii) of the I.T. Act, 1961, as a result, the assessee is entitled for depreciation on the non-compete fee paid to the seller. Hence, Ld. CIT(A) was right in directing the AO to calculate the depreciation accordingly, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue in dispute and reject the grounds raised by the Revenue as well as by the Assessee in their respective Appeal and Cross Objection.
In the result, the Appeal filed by the Revenue as well as Cross Objection filed by the Assessee stand dismissed.
Order pronounced in the Open Court on 07/12/2017.