Dcit New Delhi v. M S Eac Industrial Ingredients India P Ltd New Delhi

Page 1 Income Tax Appellate Tribunal Delhi Bench B New Delhi Before Shri Bhavnesh Siani Judicial Member And Shri Prashant Maharishi Accountant Member Ita No 1801 Del 2011 Assessment Year 2006 07 Dcit Circle 11 1 Room No 312 Cr Building New Delhi Vs Eac Industrial Ingredients India P Ltd B 174 First Floor West Patel Nagar New Delhi P A N Aabce 5086 G Appellant Respondent Revenue By Shri Subash Verma Sr Dr Assessee By Shri Nageswar Rao Adv Date Of Hearing 09 10 2017 Date Of Pronouncement 2 8 1 2 2017 O R D E R Per Prashant Maharishi A M 1 This Is An Appeal Filed By The Revenue Against The Order Of The Ld Cit A Xiii New Delhi Dated 01 02 2011 For The Assessment Year 2006 07 2 The Revenue Has Raised The Following Grounds Of Appeal 1 On The Facts And Circumstances Of The Case And In Law The Cit A Has Erred In Deleting The Addition Of Rs 4478750 On Account Of Disallowance Of Depreciation U S 32 Of The Act 3 The Facts Shows That Assessee Is A Company Engaged In The Business Of Wholesale Trading In General And Specialty Chemicals It Filed Its Return Of Income On 29 11 2006 At A Loss Of Rs 11261525 During The Course Of Assessment Proceedings It Was Noted That Assessee Has Acquired Running Business From Nitrex Chemicals India Ltd And Paid Non Compete Fees Of Rs 35830000 And Claimed Deprecation Thereon 25 Under The Head Intangible Assets The Claim Of The Assessee Was Rejected Because Assessee Has Debited 1 5 Of Non Compete Fees In Profit And Loss Account As Restriction I S For Period Of Five Years The Claim Of The Ld Ao Is That Assessee Has Not Acquired Any Intangible Assets As The Business Of The Assessee Is Specialized And There Are Not Many Other Players Who Can Enter Into Its Business Because Of Its Complexity Conseq Uently Depreciation Was Disallowed To The Extent Of Rs 4478750 The Assessment Order Was Passed On 18 12 2008 Determ In Ing Total Loss Of The Assessee At Rs Dcit Vs Eac Industrial Ingredients India P Ltd Ita No 1801 Del 2011 Assessment Year 2006 07 Page 2 4767780 The Assessee Preferred Appeal Before The Ld Cit A Who Allowed The Claim Of The Asse Ssee And Therefore Revenue Is In Appeal Before Us 4 The Ld Departmental Representative Stated That Issue Is Squarely Covered Against The Assessee By The Decision Of The Honble Delhi High Court In Case Of Sharp Business System Vs Cit 254 Ctr 233 Del 5 T He Ld Ar Vehemently Supported The Order Of The Ld Cit A And Submitted That Non Compete Fees Paid Part Akes The Character Of Intangible Asset In View Of Amendment W E F Assessment Year 1999 2000 And Depreciation Is Allowable In View Of The Decision Of Ho Nble Supreme Court In Case Of Smif Securities Ltd He Referred To Various Clauses Of Th E Business Transfer Agreement In The End He Submitted That Assessee Has Acquired An Intangible Asset Which Is Subject To Deprecation U S 32 1 2 Of The Act He Vehem Ently Supported The Order Of The Ld Cit A With Respect To The Decision Of The Honble Delhi High Court Referred To By The Ld Departmental Representative Of Sharp Business Systems He Submitted The Decision Honble Karnataka High Court In Case Of Cit Vs Ingersoll Rand International Ind Ltd Ita No 452 2013 Dated 30 06 2014 Where Above Decision Was Considered 6 We Have Carefully Considered The Rival Contentions And Also Perused The Orders Of The Lower Authorities Assessee Is Wholly Owned Subsidiary Of Eas Industrial Ingredients Pte Ltd Incorporated On 03 10 2005 It Purchased The Trading Unit Of Nitrex Chemicals For A Total Consideration Of 244 06 Million As A Going Concern On Slump Sale Basis Vide Business Tra Nsfer Agreement Dated 14 10 2005 According To The Bta The Assessee Has Paid A Non Compete Fee Of 35 83 Million For A Period Of Five Years Included In Above Consideration The Assessee Claimed Rs 4478750 As Depreciation On The Above Sum Considering It As Intangible Asset The Ld Assessing Officer Denied The Claim Holding That The Business Is O F Specialize Nature And There Are No Chances That Other Parties Can Enter Into The Business Due To Its Complexity Therefore According To Him The Assessee Has Not Acquired Any Intangible Asset The Ld Cit A While Adverting Ground No 4 Has Held That By The Amendment To The Income Tax Act By The Finance Act 1998 W E F Ay 1999 2000 The Intangible Asset Are Eligible For Depreciation According To Him Any Right Whi Ch Is Obtained For Carrying On The Business Will Fall In The Definition Of Intangible Asset Hence He Deleted The Addition However This Issue Squarely Is Covered Against The Assessee In View Of The Decision Of The Honble Delhi High Court In Case Of Sh Arp Business Systems Vs Cit Ita No 492 2012 Dated 05 11 2012 Wherein In Para No 11 To 13 Honble High Court Has Decided This Issue Against The Assessee That No N Compete Fee Is Not An Eligible Intangible Asset As The Words Similar Business Or Commerci Al Rights Have To Necessary Result In An Intangible Asset Against The Entire Word Dcit Vs Eac Industrial Ingredients India P Ltd Ita No 1801 Del 2011 Assessment Year 2006 07 Page 3 Which Can Be Asserted As Such To Quali F Y For Depreciation U S 32 1 Ii Of The Act Which Non Compete Fees Lacks Further The Reliance Placed By The Assessee On The Decision Of The Honble Karnataka High Court In Cit Vs Ingersoll Rang International Ltd Supra Is Perused But In View Of The Decision Of Honble Jurisdictional High Court The Decision Of The Honble Delhi High Court Binds Us Further Reliance On The Decision Of Honble Supreme Court In Case Of Cit Vs Smif Securities Ltd 13 Scc 488 Dated 22 08 2012 The Issue Was Not With Respect To Non Compete Fees But Goodwill And Stock Exchange Membership Card In The Present Case Though Goodwill Of 57 30 Million Was Pa Id But That Is Not The Issue In Dispute In View Of The Decision Of The Honble Jurisdictional High Court We Reverse The Finding Of The Ld Cit A In Granting Deprecation To The Assessee On Non Compete Fees And Restored The Order Of Ld Assessing Officer In The Result The Solitary Ground Of The Appeal Of The Revenue Is Allowed 7 In The Result Appeal Of The Revenue Is Allowed Order Pronounced In The Open Court On 2 8 12 2017 S D S D Bhavnesh Siani Prashant Maharishi Judicial Member Accountant Member Dated 2 8 1 2 2017 A K Keot Copy Forwarded To 1 Applicant 2 Respondent 3 Cit 4 Cit A 5 Dr Itat Assistant Registrar Itat New Delhi