CNB FINWIZ PRIVATE LIMITED,DELHI vs. ACIT, CIRCLE-6(1), DELHI

We have carefully considered the rival submissions and have gone through the orders of the authorities below. We have also perused the many orders relied on by the Ld. AR. We find that this issue would be squarely covered by the case of Indian Mortgage Corporation Pvt. Ltd. (supra), where the following has been recorded: - “7. On the contrary, Ld. Counsel for the assessee opposed these submissions and supported the order of Ld.CIT(A). He submitted that the issue is no more res-integra. The issue has already been decided in catena of judgements in favour of the assessee by allowing the depreciation @ 60%. He submitted that under the identical facts, the Hon’ble Madras High Court in the case of CIT vs Computer Age Management Services (P.) Ltd.[2019] 109 taxmann.com 134 (Madras) decided the issue in favour of the assessee by allowing depreciation @ 60%.

We have heard the rival contentions and perused the material available on record and gone through the orders of the authorities below. Ld.CIT(A has decided the issue by observing as under:- 6. “Ground no. 2 & its sub grounds: In this case the addition has been made of Rs.245,22,452/- by disallowing the excess depreciation claimed by the appellant. The AO has noted that the appellant has purchased policy administration software license and claimed depreciation @60%. The AO restricted the same as 25% on the basis that software falls under the definition of intangible assets and allowable deprecation is 25%. In appeal Ld. AR submitted that the appellant has acquired the right to use the software required for mortgage guarantee business in India. The Ld. AR further argued on the basis of various case laws that computer software cannot work in isolation and it has to be loaded on computer, so it is a part of computer and depreciation is allowable @ 60%. The Ld. AR relied on the following decisions: I. ACIT vs i-Flex Solutions Ltd [2010] (42 SOT 7) Mumbai ITAT.

Further, Ld. Counsel for the assessee has placed reliance on the decision of Hon’ble Madras High Court in the case of CIT vs Computer Age Management Services (P.) Ltd (supra). The Hon’ble High Court has held as under:- 11. “In the decision rendered by a Division Bench of this Court in thecase of CIT Vs. M/s Cactus Imaging India Private Limited [reported in (2018) 406 ITR 406], to which, one of us (TSSJ) was a party, an http://www.judis.nic.in identical question came up for consideration wherein the object was printer (computer printer). This Court, after taking into consideration as to how the entries would be interpreted, referred to the decision in the case of Bimetal Bearings Ltd. Vs. State of Tamil Nadu [reported in (1991) 80 STC 167] and held as here under: “9. The Hon'ble Division Bench took note of the decision of the Hon'ble Supreme Court pointing out that the 'entry' to be interpreted is in a taxing statute; full effect should be given to all words used therein and if a particular article would fall within a description, by the force of words used, it is impermissible to ignore the description, and denote the article under another entry, by a process of reasoning.

It was further pointed out that the rule of construction by reference to contemporaneaexpositio is a well-established rule forinterpreting a statute by reference to the exposition it has receivedfrom contemporary authority, though it must give way where thelanguage of the statute is plain and unambiguous.

By applying the rule of interpretation, we find that the relevantentry under old appendix I Clause III (5) states computers includingcomputer software and the Notes under the Appendix defines'computer software' in Clause 7 to mean any computer programrecorded on disc, tape, perforated media or other information storagehttp://www.judis.nic.in device. Noteworthy to mention that thenotes contained in the appendix, the term 'computer' has not beendefined. Therefore, as pointed out by the Division Bench in BimetalBearings Ltd. (supra), if a particular article would fall within thedescription by the force of words used, it is impermissible to ignorethe word description. Thus, going by the usage of the equipmentpurchased by the petitioner, we have to take a decision.”

As held in the above decision, if a particular article would fall withinthe description by the force of the words used, it is impermissible to ignorethe word 'description' and going by the usage of the equipment purchasedby the assessee, a decision has to be arrived at. We find that there is noerror in the decision arrived at by the Tribunal by taking note of thespecific entry in contra distinction with the general entry. Therefore, thefirst substantial question of law has to be necessarily answered againstthe Revenue.

So far as the second substantial question of law is concerned, whicharises only for the assessment year 2014-15, the Tribunal accepted thecase of the assessee by interpreting the non compete clause in theagreement, which has been reproduced in paragraph 25 of the impugnedorder. After analyzing the same, the Tribunal held that the tenor of theagreement was only 18 months and it could not be stated that theassessee derived any enduring benefit due to the payment effected by itfor obtaining certain commitments from one Mr.V.Shankar and restrictinghimself from indulging http://www.judis.nic.in in any competition with thebusiness of the assessee or from weaning way the employees.

The Tribunal took note of the decision a Division Bench of this Court inthe case of M/s. Asianet Communications Ltd. Vs. CIT [2018] 96taxmann.com 399/257 Taxman 473/407 ITR 706 (Mad.), to which, one ofus (TSSJ) was a party, wherein this Court considered a similar conditionimposed in a non compete agreement. Therefore, we find that the Tribunal,on appreciation of the factual position, rightly held that a non compete feehas to be treated as a revenue expenditure. Hence, the second substantialquestion of law is to be necessarily answered against the Revenue.” 10. In view of the binding precedents, we do not see any reason to interferewith the findings of the Ld.CIT(A), the same is hereby affirmed. Thus, groundraised by the Revenue is dismissed.”

In the result, the appeal of the assessee is allowed.