The ACIT, Central Circle-2,, Baroda v. M/s. Suresh Tobacco Co.,,

ITA 2321/AHD/2007 | 2003-2004
Pronouncement Date: 31-08-2010 | Result: Dismissed

Appeal Details

RSA Number 232120514 RSA 2007
Assessee PAN AALFS6798D
Bench Ahmedabad
Appeal Number ITA 2321/AHD/2007
Duration Of Justice 3 year(s) 2 month(s) 29 day(s)
Appellant The ACIT, Central Circle-2,, Baroda
Respondent M/s. Suresh Tobacco Co.,,
Appeal Type Income Tax Appeal
Pronouncement Date 31-08-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 31-08-2010
Date Of Final Hearing 22-07-2010
Next Hearing Date 22-07-2010
Assessment Year 2003-2004
Appeal Filed On 01-06-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE SHRI BHAVNESH SAINI J.M. AND SHRI D.C. AGRA WAL A.M . ITA NO.2321 2322/AHD/2007 AND 2606/AHD/2009 A. Y.: 2003-04 2004-05 AND 2005-06 THE A. C. I. T. CENTRAL CENRCLE-2 6 TH FLOOR AAYAKAR BHAVAN RACE COURSE CIRCLE BARODA VS M/S. SURESH TOBACCO CO. BORSAD DISTRICT BARODA PAN NO. AALFS 6798D (APPELLANT) (RESPONDENT) ITA NO.1699 AND 1700/AHD/2007 A.Y.: 2003-04 AND 2004-05 THE A. C. I. T. CENTRAL CENRCLE-2 6 TH FLOOR AAYAKAR BHAVAN RACE COURSE CIRCLE BARODA VS M/S. CHHAGANBHAI C. PATEL & CO. (NOW NAGINBHAI C. PATEL & BROS.) VASAD ROAD BORSAD ANAND PAN NO. AABFC 6442 R (APPELLANT) (RESPONDENT) ITA NO.1697 AND 1698/AHD/2007 AY.: 2003-04 AND 2004-05 THE A. C. I. T. CENTRAL CENRCLE-2 6 TH FLOOR AAYAKAR BHAVAN VS M/S. BANLAXMI INDUSTRIES VASAD ROAD BORSAD ANAND ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 2 RACE COURSE CIRCLE BARODA PAN NO. AACFB 4117 D (APPELLANT) (RESPONDENT) FOR DEPARTMENT: SHRI BHUBNESH KULSHRESTHA D R FOR ASSESSEE: SHRI S. N. SOPARKAR AR O R D E R PER BENCH: THIS ORDER SHALL DISPOSE OF ALL THE ABOVE APPEALS FILED BY THE REVENUE AGAINST DIFFERENT ASSESSEES FO R DIFFERENT ASSESSMENT YEARS ON THE IDENTICAL GROUNDS OF APPEAL S. 2. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH TH E PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD POINTED OUT BY THE PARTIES. BOT H THE PARTIES MAINLY ARGUED IN THE CASE OF M/S. SURESH TOBACCO CO. AND S UBMITTED THAT THE FINDINGS IN THAT CASE MAY BE FOLLOWED IN ALL TH E CASES. ITA NO. 2321/AHD/2007(A. Y. 2003-04) M/S. SURESH TOBACCO CO. 3. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE O RDER OF CIT (A) IV AHMEDABAD DATED 23-01-2007 ON THE FOLLOWING GR OUND: 1. THE LD. CIT (APPEALS) ERRED IN LAW AND ON FACTS IN ALLOWING DEPRECIATION ON INTANGIBLE ASSETS BY IGNOR ING THE FACT OF THE CASE THAT FAMILY SETTLEMENT AGREEMENT D ATED 24-12-2002 BETWEEN FAMILY MEMBERS OF SURESH TOBACCO WHICH WAS FOUND DURING SEARCH NOWHERE DEALS WITH A NY CONDITIONS RELATED TO DISCONTINUATION OF BUSINESS O F TOBACCO IN FUTURE AND THERE WAS NO EVALUATION THAT WAS ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 3 DONE FOR THE ASSETS AND NO NEW ASSETS HAS COME INTO EXISTENCE. 4. THE LEARNED CIT (A) NOTED IN THE IMPUGNED ORDER THAT ASSESSEE CLAIMED DEPRECIATION OF INTANGIBLE ASSETS ACQUIRED AFTER PAYMENT OF RS.58.80 LACS IN THE FAMILY SETTLEMENT A GREEMENT DATED 24-12-2002 AMONG FAMILY MEMBERS. IT WAS CONTENDED T HAT ACCORDING TO THE SETTLEMENT OTHER FAMILY CONCERN M/S. CHHAGAN BHAI CHHOTABHAI PATEL GROUP WOULD RETIRE FROM THE BUSINESS AND TRAD EMARK OF M/S. SURESH TOBACCO CO. SHALL BE UTILIZED BY THE ASSESSE E IN FUTURE. THE RETIRING GROUP WAS ALSO PROHIBITED FROM CARRYING OU T TOBACCO BUSINESS UNDER SAME BRAND WHICH ALREADY REGISTERED AS TRADE MARK. THIS PROHIBITION WAS MENTIONED IN THE DISSOLUTION/RETIRE MENT DEED OF THE OUTGOING PARTNERS. HENCE ACQUISITION OF TRADE MARK HAS BECOME INTANGIBLE ASSET OF THE ASSESSEE. THE ASSESSEE RELI ED UPON DECISION IN THE CASE OF M/S. CHELPARK CO. LTD. VS CIT 191 IT R 249 IN WHICH HONBLE MADRAS HIGH COURT HAS HELD AS UNDER: IN THE CASE OF CHELPARK COMPANY LTD. VS CIT& (191) ITR 249) (MAD) THE ASSESSEE WAS ENGAGED IN THE BUSINES S OF MANUFACTURE OF INK. OVER THE YEARS THE ASSESSEE HAD ESTABLISHED A GOOD REPUTATION AND MARKET FOR WRITIN G INKS BY THE MANUFACTURE AND SALE OF INK UNDER T HE BRAND NAME OF QUINK. THE MANAGING DIRECTOR OF THE ASSESSEE W HO WAS HEADING THE COMPANY FOR SUBSTANTIAL PERIOD OF T IME LEFT THE COMPANY AND DECIDED TO START HIS OWN VENTU RE. THE ASSESSEE BELIEVED THAT IF THE MANAGING DIRECTOR STARTED THE NEW VENTURE IT WILL MAKE THE GOODWILL OF THE ASSESSEE COMPANY VULNERABLE. CONSIDERING THE ABOVE AND OTHER FACTORS IT WAS DECIDED THAT AN AGREEMENT BE ENTERED INTO WITH THE MANAGING DIRECTOR SO AS TO PR EVENT HIM TO COMMENCE HIS VENTURE WHICH WOULD HAVE MADE T HE GOODWILL OF THE ASSESSEE VULNERABLE. IT WAS FURTHER FOUND ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 4 THAT PURSUANT TO THE ABOVE AGREEMENT THE MANAGING DIRECTOR HAD LIQUIDATED HIS VENTURE AND HAD LEFT TH E SHORES OF INDIA. THIS CLEARLY ESTABLISHED THAT THE BENEFIT THAT THE ASSESSEE OBTAINED WAS OF PERMANENT OR ENDURING QUAL ITY IN THE SENSE THAT COMPETITION WAS TOTALLY DELIMINAT ED AND PROTECTION HAD BEEN ACQUIRED BY THE ASSESSEE FOR IT S BUSINESS FOR REST OF THE PERIOD OF THE BUSINESS ACT IVITIES. CONSIDERING THESE FACTS IT WAS HELD THAT THE AMOUN TS PAID WERE IN THE NATURE OF CAPITAL EXPENDITURE. 5. THE LEARNED CIT (A) CONSIDERING THE SUBMISSION O F THE ASSESSEE ALLOWED DEPRECIATION ON INTANGIBLE ASSETS AS CLAIMED BY ASSESSEE. HIS FINDINGS ARE REPRODUCED AS UNDER 3.1 I HAVE CAREFULLY CONSIDERED T HE CONTENTIONS AS WELL AS GONE THROUGH THE RECORDS. ON PERUSAL OF THE I. T. ACT 1961 IT HAS BEEN NOTICED THAT DEPRECIATION IS ALLOWABLE EVEN IN CASE OF INTANGIBLE ASSETS SUCH AS TRADE MARK ETC. AS PER PART- B OF APPENDIX I ATTACHED TO IT RULES 1962 W. E. F. 1/4/2000. THEREFORE THE AMOUNT OF RS.58.80 LAKHS PAID FOR PROHIBITING THE OUT GOING P ARTNERS FROM ENGAGING THE EXISTING BUSINESS AND USING KNOW HOW. HENCE COMPETITION HAS BEEN ELIMINATED BY ACQUIRING INTANGIBLE ASSET OF TRADE MARK. KEEPING IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES OF HT CASE AS WELL AS RESPE CTFULLY FOLLOWING THE JUDGMENT OF HON. ITAT MADRAS BENCH I N CASE OF CHELPARK COMPANY LTD. THE DEPRECIATION IS ALLOWABLE TO THE APPELLANT HENCE THIRD GROUND OF A PPEAL IS ALLOWED. 6. THE LEARNED D R RELIED UPON THE ORDER OF THE A O AND SUBMITTED THAT THE DISPUTE WAS SETTLED IN THE AGREEMENT OF FA MILY UNDERSTANDING DATED 24-12-2002 WHICH NOWHERE DEALS WITH ANY CONDI TION RELATED TO DISCONTINUATION OF BUSINESS OF TOBACCO IN FUTURE AN D THAT CHHANGAIBHAI C. PATEL GROUP GET TWO IMMOVABLE PROPE RTIES AND BUSINESS OF COLD STORAGE AND IN ADDITION TO THE SAM E A SUM OF RS.209 ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 5 LACS IS TO BE PAID AND THE REST OF THE PROPERTIES S HALL BE HELD BY THE ASSESSEE GROUP. THERE WAS NO CONDITION THAT CHHAGAN BHAI PATEL GROUP WILL NOT CARRY OUT ANY BUSINESS OF TOBACCO IN FUTURE AND PAYMENT IS MADE TOWARDS SUCH COMMITMENTS. IT IS A C ASE OF DIVISION OF THE PROPERTIES AND NO PAYMENT IS MADE TOWARDS CO ST OF ANY NEW CAPITAL ASSET. NO CAPITAL ASSET HAS COME INTO EXIST ENCE. THEREFORE NO PAYMENT WAS MADE FOR ACQUIRING ANY TANGIBLE OR INTA NGIBLE ASSET. LEARNED D R REFERRED TO PB-3 WHICH IS DEED OF DISSO LUTION IN THE CASE OF THE ASSESSEE AND SUBMITTED THAT IN PARA 5 IT IS MENTIONED THAT RETIRING PARTNERS WOULD WITHDRAW THEIR RIGHTS IN TH E FIRM. THIS VALUE OF THE WINDING IS INCLUDED IN THE REPAYMENT OF CAPITAL TO THE RETIRING PARTNERS AND NO PARTNER WILL GET EXTRA AMOUNT. LEAR NED D R SUBMITTED THAT THERE WAS NO NEGATIVE CLAUSE MENTIONED IN THE DISSOLUTION DEED. NO AMOUNT IS ALSO MENTIONED BUT IN THE FAMILY SETTL EMENT DEED CONSOLIDATED AMOUNT OF RS.209 LACS HAS BEEN MENTION ED. THE LEARNED D R SUBMITTED THAT NO DETAIL HAS BEEN FILED BEFORE A O THEREFORE RULE 46A HAS BEEN VIOLATED HOWEVER LEA RNED D R CONCEDED THAT NO SUCH GROUND IS TAKEN IN THE DEPART MENTAL APPEAL. LEARNED D R SUBMITTED THAT VALUATION OF ASSET HAS N OT BEEN DONE IN THE MATTER TO INDICATE THAT THE DEPARTING GROUP GET S ANYTHING MORE THAN THEIR SHARE IN THE ASSET. 7. ON THE OTHER HAND LEARNED COUNSEL FOR THE ASSES SEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND ALSO REFERRED TO WRITTEN SUBMISSION FILED BEFORE LEARNED CIT (A) IN WHICH IT IS EXPLAINED THAT THERE WAS A JOINT FAMILY OF S/SHRI C HHAGANBHAI CHHOTABHAI PATEL NAGINBHAI CHHOTABHAI PATEL NATUB HAI CHHOTABHAI ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 6 PATEL AND BROTHERS. WITH THE EXPANSION IN THE FAMIL Y IT WAS DECIDED TO DO THE BUSINESS THEREFORE FAMILY BUSINESS WAS STA RTED IN THE YEAR 1954 IN PARTNERSHIP WITH TWO OTHERS IN THE NAME OF SAURASHTRA TOBACCO CO. THE TWO OTHERS RETIRED DURING 1956 AND 1960. THE BUSINESS WAS IN PROGRESS AND OTHER BUSINESS CONCERN S MAINLY M/S. SURESH TOBACCO CO. AND M/S. CHHAGANBHAI CHHOTABHAI PATEL & BROTHERS ETC. ETC. WERE STARTED. THE TRADE MARK WAS REGISTERED WHICH INCLUDES SURESH TAMAKU RAJESH FALL PATTI AND DADA FALL PATTI ETC. HOWEVER DUE TO THE DISPUTES IT WAS DIFFICULT TO RUN THE BUSINESS IN THE FAMILY OF TWO GROUPS THEREFORE IT WAS AGREED TO DISSOLVE THE FIRMS AND IT WAS ALSO AGREED UPON BY THE CHHAGANBHAI CHHO TABHAI PATEL GROUP THAT THEY WOULD NOT USE THE NAME AND ALSO THE TRADE MARK OF THE BUSINESS. IT WAS AGREED BY BOTH THE GROUPS THAT SINCE THERE ARE DIFFERENT FAMILY CONCERNS WITH DIFFERENT CONSTITUTI ONS NO-COMPETE CLAUSE BE PUT IN THE DISSOLUTION DEED OF THE FIRMS. DEED OF PARTNERSHIP DISSOLUTION WAS EXECUTED IN THE CASE OF THE ASSESSE E AND PARA 3 READS AS UNDER (PB-2): (3) WHEREAS THE TRADEMARKS OF THE FIRM SURESH TOBACCO WHICH IS REGISTERED TRADEMARK NO. 284503 DA TED 02.12.1972 CLASS 34 RAJESH FOLL PATTI WHICH IS REG ISTERED TRADEMARK NO.334671-B AND DADA FOLL PATTI TRADEMARK AND OTHER TRADEMARKS APPLIED FOR REGISTRATION ARE O F THE PARTY OF SECOND PART. WHEREAS THESE TRADEMARKS SHOU LD NOT BE USED BY THE RETIRING PARTIES. THE TRADEMARKS ARE THE PROPERTY OF THE PARTNERSHIP FIRM M/S SURESH TOBACCO CO. THERE WILLNOT BE ANY RIGHTS OF SHANTAB EN CHHAGANBHAI PATEL AND VIKAS SURESHBHAI PATEL OR THE IR LEGAL HEIRS ALSO RETIRING SHANTABEN CHAGGANBHAI PAT E AND VIKAS SURESHBHAI PATEL SHALL NOT CARRY ANY BUSINESS IN THE ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 7 FIRM NAME M/S. SURESH TOBACCO CO. AND SHALL NOT USE THE ABOVE STATED TRADEMARKS AND LABEL. 8. IT IS EXPLAINED THAT IN VIEW OF THE ABOVE BACKGR OUND THE ASSESSEE HAS MADE PAYMENT TO THE OUTGOING GROUP SO AS TO PREVENT THEM FROM USING THE TRADEMARK AND NAME OF THE BUSIN ESS WHICH IS EVIDENT FROM THE CLAUSE IN THE DISSOLUTION DEED. SI NCE BOTH THE GROUPS KNOW THE SECRET OF BUSINESS THEREFORE IT W AS NECESSARY TO MAKE THE PAYMENT FOR THE ABOVE NEGATIVE CONDITION. THE ASSESSEE CLAIMED DEDUCTION U/S 32 I.E. DEPRECIATION OF THE A MOUNT PAID TO THE OUTGOING GROUP WHICH WAS PAID UNDER THE AGREEMENT. DETAILED SUBMISSION WAS FILED BEFORE THE A O TO EXPLAIN THAT COST OF ACQUISITION OF BUSINESS IS AN INTANGIBLE ASSET FOR WHICH DEPREC IATION IS ALLOWABLE IN PART B OF APPENDIX I OF IT RULES WHICH PROVIDES INTANGIBLE ASSETS KNOW-HOW PATENTS COPY RIGHTS TRADE MARKS LICE NSES FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THE ASSESSEE FULFILLED THE ABOVE CONDITIONS BUT THE A O HAS FAILED TO APPRECIATE THE RESTRICTIVE CLAUSES IN VARIOUS DOCUM ENTS INCLUDING DISSOLUTION DEED THROUGH WHICH THE ASSESSEE PAID TH E AMOUNT FOR ACQUIRING THE RIGHT OF BUSINESS. THE LEARNED COUNSE L FOR THE ASSESSEE HAS ALSO SUBMITTED THAT SIMILAR CLAUSE IS MENTIONED IN CLAUSE 8 OF THE DISSOLUTION DEED (PB-3). HE HAS THEREFORE SUBMITTE D THAT THE LEARNED D R WAS NOT JUSTIFIED IN CONTENDING THAT THERE WAS NO NEGATIVE CLAUSE MENTIONED IN THE DISSOLUTION DEED. LEARNED COUNSEL FOR THE ASSESSEE FILED THE DETAILS OF PAYMENT OF RS.209 LACS BY VARI OUS PARTIES ALONG WITH MODE AND METHOD OF PAYMENT. IT IS ALSO EXPLAIN ED IN THE SAME THAT NONE OF THE FIXED ASSETS OF BUSINESS ACQUIRED AS ABOVE ARE RE- VALUED AT THE TIME OF ACQUISITION WHICH WAS ALSO EX PLAINED BEFORE THE ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 8 A O. HE HAS ALSO RELIED UPON ORDER OF ITAT PUNE B BENCH IN THE CASE OF MODULAR INFOTECH PVT. LTD. VS DCIT 131 TTJ 243. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIALS AVAILABLE ON RECORD. SECTION 32 (1) READS AS UNDER: 32(1) - IN RESPECT OF DEPRECIATION OF (I) BUILDINGS MACHINERY PLANT OR FURNITURE BEING TANGIBLE ASSETS: (II) KNOW-HOW PATENTS COPY RIGHTS TRADE MARKS LICENSES FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE BEING INTANGIBL E ASSETS ACQUIRED ON OR AFTER FIRST DAY OF APRIL 199 8 OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS OR PROFESSION THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED: --- THE EXPLANATION (3) TO THE ABOVE PROVISION PROVIDES THAT FOR THE PURPOSE OF THIS SUB-SECTION THE EXPRESSION ASSETS AND BLOCK OF ASSETS SHALL MEAN (A) -------------- ------- (B) INTANGIBLE ASSETS BEING KNOW-HOW PATENTS COPY RI GHTS TRADE MARKS LICENSES FRANCHISE OR ANY OTHER BUSIN ESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. 10. THE PART B TO APPENDIX I OF THE IT RULES PROVID ES DEPRECIATION ALLOWANCE FOR INTANGIBLE ASSETS I.E. KNOW-HOW PATE NTS COPY RIGHTS TRADE MARKS LICENSES FRANCHISE OR ANY OTHER BUSIN ESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE AT THE RATE OF 25% OF THE WRITTEN DOWN VALUE. 11. WE MAY NOTE THAT THE A O HAS SPECIFICALLY NOTED IN THE ASSESSMENT ORDER THAT DIVISION OF THE PROPERTIES AN D BUSINESS HAD TAKEN PLACE AS PER TERMS OF THE FAMILY SETTLEMENT A GREEMENT. DURING THE COURSE OF ARGUMENTS BEFORE THE TRIBUNAL LEARNE D COUNSEL FOR THE ASSESSEE WAS DIRECTED TO FILE BIFURCATION OF VALUAT ION OF THE PROPERTIES ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 9 FOR WHICH RS.209 LACS HAD BEEN PAID BY ONE GROUP TO THE OTHER GROUP. IT WAS ALSO DIRECTED TO CLARIFY WHETHER IT INCLUDES THE AMOUNT PAID IN RESPECT OF PROHIBITION CLAUSE MENTIONED IN THE DISS OLUTION/RETIREMENT DEED. LEARNED COUNSEL FOR THE ASSESSEE FILED THE CH ART TO SHOW THE BIFURCATION OF PAYMENT OF RS.209 LACS AND STATED TH AT VALUATION IS MADE WITH MUTUAL UNDERSTANDING OF PARTIES AND AS PE R FAMILY SETTLEMENT DEED FOUND IN SEARCH THE RELEVANT PORTI ON IS REPRODUCED AS UNDER: SURESH TOBACCO GROUP MODE AND METHOD OF PAYMENT OF RS.209 LACS WAS ALREA DY EXPLAINED TO THE A. O. BY A LETTER DATED 2 ND FEBRUARY 2006 (COPY ANNEXED ) SR. NO. NAME OF THE FIRM PAYMENT TOWARDS AMOUNT (RS.) 01. NATUBHAI C. PATEL & CO. FORMERLY KNOWN BANALAKSHMI INDUSTRIES (SEE ATTACHED LIST ITEMS 1 -2) BUSINESS ACQUISITION 30 00 000 02 (NOT RELEVANT TO THE APPEALS) - - 03 SURESH TOBACCO CO. (SEE THE ATTACHED LIST ITEMS 7-9 BUSINESS ACQUISITION 58 80 000 04 NAGINBHAI C. PATEL & BROS. FORMERLY KNOWN AS CHHAGANBHAI CHHOTABHAI PATEL & BROS. (SEE THE ATTACHED LIST ITEMS 5-6) BUSINESS ACQUISITION 50 00 000 5 TO 10 (NOT RELEVANT TO THE APPEALS) - - 11 TOTAL ( C) = (A + B) 2 09 08 407 NOTE: NONE OF THE FIXED ASSETS OF BUSINESSES ACQUIR ED AS ABOVE ARE RE-VALUED AT THE TIME OF ACQUISITION. ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 10 THE ASSESSMENT ORDERS IN ALL THE APPEALS OF THE THR EE ASSESSEES SHOW THAT ASSESSEE MADE A CLAIM OF DEPRECIATION ON THE AMOUNT AS PER FACTS STATED ABOVE. 12. IT IS NOT IN DISPUTE THAT FAMILY SETTLEMENT AGR EEMENT DATED 24- 12-2002 EXECUTED BETWEEN THE GROUPS WAS FOUND DURIN G THE COURSE OF SEARCH ACCORDING TO IT THE DISPUTES BETWEEN GROU PS WERE SETTLED AND BUSINESS WERE DISSOLVED. PROPERTIES WERE SETTLE D BY THE GROUPS DETAILS OF SAME ARE MENTIONED IN THE SAME DEED DIST RIBUTING THE PARTNERSHIP BUSINESS OF JOINT FAMILY AND PROPERTIES OF JOINT FAMILIES. THE DETAILS OF DISSOLUTION OF FIRMS ARE MENTIONED A ND IT IS ALSO MENTIONED THAT DETAILED SEPARATE DEED OF EACH FIRM REGARDING HAVING RETIRED FROM THE PARTNERSHIP FIRM HAS BEEN EXECUTED OR TO BE EXECUTED WHERE RESPECTIVE PARTIES WOULD SIGN THE SAME. THE P ROPERTIES AND BUSINESS DISTRIBUTED HAVE BEEN MENTIONED AND IT IS ALSO MENTIONED THAT THE FAMILY MEMBERS OF SECOND PART TO THIS AGRE EMENT WILL HAVE TO PAY RS.209 LACS AS PART OF THIS UNDERSTANDING TO TH E FAMILY MEMBERS OF THE FIRST PART I.E. CHHAGANBHAI CHHOTABHAI PATEL GROUP WHO ACCORDING TO A O GOT TWO PROPERTIES AND BUSINESS OF COLD STORAGE IN ORDER TO BRING THE PERMANENT END TO THE DISPUTE. IT WOULD THEREFORE SHOW THAT THROUGH THE FAMILY SETTLEMENT AGREEMENT I N QUESTION THE DISSOLUTION DEED OF FIRMS WERE EXECUTED OR TO BE EX ECUTED. THEREFORE THE DISSOLUTION DEEDS OF THE RESPECTIVE FIRMS SHALL BE PART AND PARCEL OF THE FAMILY SETTLEMENT AGREEMENT DATED 24-12-2 002. PB-1 IS ONE OF THE DEEDS OF RETIREMENT FROM THE ASSESSEE FIRM W HICH PROVIDES THAT THE RETIRING PARTNER SHALL NOT USE THE TRADE MARKS AND THAT THEY SHALL NOT CARRY ON ANY BUSINESS IN THE NAME OF THE ASSESS EE AND THEY SHALL ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 11 ALSO NOT CARRY OUT SIMILAR BUSINESS AND SHALL NOT U SE THE TRADE MARK OF THE ASSESSEE. THE A O THEREFORE DID NOT APPRECIAT E THIS FACT THAT DISSOLUTION DEEDS ARE THE PART OF THE FAMILY SETTLE MENT AGREEMENT. THEREFORE THE DISSOLUTION DEEDS BEING PART OF THE SETTLEMENT AGREEMENT PROVIDES FOR DISCONTINUATION BUSINESS BY THE RETIRING PARTNERS IN FUTURE. HONBLE MADRAS HIGH COURT IN TH E CASE OF CHELPARK CO. LTD. (SUPRA) CONSIDERED THE FACT THAT BY MAKING PAYMENT BY THE ASSESSEE IT HAD ACQUIRED AN ENDURING RIGHT OR ADVA NTAGE TO CARRY ON ITS BUSINESS FREE FROM POTENTIAL AND POSITIVELY DET RIMENTAL COMPETITION FROM THE PARTNERSHIP FOR SO LONG AS THE ASSESSEE CA RRIED ON ITS BUSINESS OF MANUFACTURE AND SALE OF INK. THUS ON A DUE CONSIDERATION OF THE TERMS OF THE AGREEMENT THE DE ED OF DISSOLUTION AND FACTS OF THE CASE IT WAS HELD THAT THE AMOUNT PAID BY THE ASSESSEE WAS IN THE NATURE OF CAPITAL EXPENDITURE. ITAT PUNE BENCH IN THE CASE OF MODULAR INFOTECH PVT. LTD. VS DCIT ( SUPRA) HELD AS UNDER: SEC. 32 PRESCRIBES THE ENTITLEMENT OF DEPRECIATION W. E. F. 1 ST APRIL 1998 IN RESPECT OF CERTAIN INTANGIBLE ASSET S SUCH AS KNOW-HOW PATENTS COPYRIGHTS TRADE MARKS LICE NSES OR ANY OTHER COMMERCIAL RIGHTS OF SIMILAR NATURE AC QUIRED. THIS SECTION HAS MADE IT CLEAR THAT IF SUCH INTANGI BLE ASSET IS ACQUIRED WHOLLY OR PARTLY BY THE ASSESSEE AND US ED FOR THE PURPOSES OF BUSINESS THEN IT IS ENTITLED FOR TH E DEDUCTION OF DEPRECIATION. EXPLANATION 3 TO S. 32 F URTHER ELABORATES THAT THE EXPRESSIONS ASSETS AND BLOCK OF ASSETS MEANS TANGIBLE ASSETS AS WELL AS INTANGIBLE ASSETS. THEREFORE AS FAR AS THE APPLICABILITY OF T HIS SECTION IS CONCERNED ONE CANNOT RAISE ANY DISPUTE. THE REVE NUE HAS ALSO NOT ADJUDICATED THE APPLICABILITY OF S. 32 HOWEVER THE DISPUTE WAS THAT THERE WAS NO SUCH ASSET TO BE TERMED AS IPR IN THE HANDS OF THE ERSTWHILE FIRM. T AKING ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 12 THE SHELTER OF S. 43(6) THE VEHEMENT CONTENTION OF THE ASSESSEE COMPANY IS THAT AS FAR AS THE ASSET IN QUE STION IS CONCERNED A CONSIDERATION WAS DETERMINED AND THE IMPUGNED INTANGIBLE ASSET WAS ACQUIRED IN THE PREVI OUS YEAR. ONCE AN ACTUAL COST WAS INCURRED BY THE ASSES SEE THERE FORE THERE WAS NO REASON NOT TO CLAIM THE DEPRECIATION BEING PRESCRIBED UNDER S. 32 (II). THE RE IS FORCE IN THIS PLANK OF ARGUMENT. IT MAY NOT BE OUT OF PLACE TO MENTION THAT EVEN THE STATUTE HAS PRESCRIBED THE DEFINITION OF ACTUAL COST AS PER S. 43(1) WHICH M EANS THE ACTUAL COST IF ANY AS HAS BEEN MET DIRECTLY. NEVERTHELESS EXPLN. 3 TO THE SECTION PRESCRIBES AN AUTHORITY TO THE A O TO HAVE SATISFACTION ABOUT THE COST OF THE ASSET AND IN CASE HE IS SATISFIED HA THE MAIN P URPOSE OF THE TRANSFER OF SUCH AN ASSET IS TO REDUCE THE L IABILITY OF INCOME TAX BY CLAIMING HIGHER DEPRECIATION ON HE ENHANCED THEN THE ACTUAL TO THE ASSESSEE SHALL BE S UCH AN AMOUNT AS THE A O DETERMINED HAVING REGARD TO AL L THE CIRCUMSTANCES OF THE CASE BUT WITH A RIDER THAT A P REVIOUS APPROVAL OF THE JT. CIT IS ESSENTIALLY REQUIRED. IN THE PRESENT CASE THE ARGUMENT OF THE AUTHORISED REPRESENTATIVE IS THAT NO SUCH SATISFACTION HAS BEE N RECORDED BY THE A O AND EVEN IT IS NOT IN THE KNOWL EDGE OF THE ASSESSEE THAT WHETHER SUCH AN APPROVAL AS PRESCRIBED WAS OBTAINED BY THE A O. THERE WAS NO FALLACY IN THE VERDICT OF CIT (A) WHO HAS CONSIDERE D THE FACTUAL MATRIX OF THE CASE IN DETAIL AND THEREAFTER ARRIVED AT A RIGHT CONCLUSION THAT THE ASSESSEE WAS ENTITLE D FOR CLAIM OF DEPRECIATION ON THE AMOUNT OF IPR VALUE. SEASON RUBBERS LTD. VS. DY. CIT (1998) 62 TTJ (COAC H) 192 AND BOMBAY HOUSEHOLD & INDUSTRIAL PLASTIC MFG. CO. (P) LTD. VS. ITO (1982) 1 ITD 152 (BOM) FOLLOWED. THE ASSESSEE THEREFORE ACQUIRED EXCLUSIVE TRADE MA RK RIGHTS ENTIRE BUSINESS AND COMMERCIAL RIGHTS IN RESPECT OF BUSINE SS OF THE ASSESSEE OUT OF SETTLEMENT AGREEMENTS BETWEEN TWO G ROUPS AND PAID PRICE FOR ACQUIRING INTANGIBLE ASSETS. SINCE IN THI S CASE ACTUAL COST WAS INCURRED BY THE ASSESSEE FOR ACQUIRING INTANGIB LE ASSET AS PER ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 13 SECTION 32 (1) (II) OF THE IT ACT AND USED THE SAME FOR THE PURPOSE OF BUSINESS THEREFORE THERE WAS NO REASON NOT TO CLA IM DEPRECIATION BEING PRESCRIBED U/S 32 (II) OF THE IT ACT BEING IN TANGIBLE ASSET ACQUIRED BY THE ASSESSEE BY TAKING OVER THE BUSINES S OF THE FIRM WITH TRADE MARK BUSINESS AND OTHER COMMERCIAL RIGHTS O F THE SIMILAR NATURE. THE A O REJECTED THE CLAIM MERELY ON THE RE ASON THAT NO SUCH CONDITION THAT SHRI CHHAGANBHAI PATEL GROUP SHALL N OT CARRY OUT THE BUSINESS OF TOBACCO IN FUTURE IS MENTIONED IN THE F AMILY SETTLEMENT AGREEMENT AND THAT NO CAPITAL ASSET CAME INTO EXIST ENCE. BOTH THE ABOVE OBJECTIONS OF THE A O HAVE BEEN DEALT WITH AB OVE AS DISSOLUTION DEED WAS PART OF THE FAMILY SETTLEMENT AGREEMENT AND THAT THE INTANGIBLE ASSET IS ACQUIRED AS PER SECTION 32 (II) READ WITH EXPLANATION (3) TO THIS SECTION. ACCORDING TO SECTI ON 36 (2) OF THE LAW OF PARTNERSHIP A PARTNER MAY MAKE AN AGREEMENT THA T HE WILL NOT CARRY ON ANY BUSINESS SIMILAR TO THAT OF THE FIRM I N WHICH HE WAS A PARTNER PROVIDED SUCH A RESTRICTION IMPOSED IS REAS ONABLE. IN THIS CASE WHERE ENTIRE DISPUTE WAS SETTLED BY THE PARTI ES AND REASONABLE CONDITIONS HAVE BEEN IMPOSED NOT TO CARRY OUT SIMIL AR BUSINESS OR USE THE TRADE MARK SUCH WOULD BE REASONABLE CONDIT ION IN THE MATTER. CONSIDERING THE ABOVE DISCUSSIONS IT IS CL EAR THAT THE ASSESSEE ACQUIRED INTANGIBLE ASSETS WITHIN THE MEAN ING OF SECTION 32(II) OF THE IT ACT AND ON THE SAME DEPRECIATION I S ALLOWABLE UNDER PART B TO APPENDIX I OF THE IT RULES. THEREFORE IN PRINCIPLE WE CONFIRM THE FINDING OF THE LEARNED CIT (A) IN HOLDI NG THAT DEPRECIATION IS ALLOWABLE TO THE ASSESSEE ON INTANGIBLE ASSET I N THE FACTS AND CIRCUMSTANCES OF THE CASE. ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 14 13. IN THE RESULT APPEAL OF THE REVENUE IS DISMISS ED. ITA NO.2322/AHD/ 2007 AND 2606/AHD/2009 M/S. SURESH TOBACCO CO. 14. IN BOTH THE APPEALS OF THE REVENUE SIMILAR GROU NDS HAVE BEEN RAISED. BY FOLLOWING THE ORDER IN ITA NO.2321/AHD/2 007 BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ITA NO.1699 AND 1700/AHD/2007 M/S. CHHAGANBHAI C. PATEL & CO. (NOW NAGINBHAI C. PATEL & BROS.) AND ITA NO.1697 AND 1698/AHD/2007 M/S. BANLAXMI INDUSTRIES 15. IN ALL THE ABOVE DEPARTMENTAL APPEALS THE GROU NDS OF APPEALS AND FACTS ARE SAME. LEARNED REPRESENTATIVES OF BOTH THE PARTIES SUBMITTED THAT THE ORDER IN THE CASE OF M/S. SURESH TOBACCO CO. (SUPRA) MAY BE FOLLOWED. WE FIND THAT LEARNED REPRE SENTATIVES OF BOTH THE PARTIES RIGHTLY STATED THAT GROUNDS OF APPEALS ARE SAME IN ALL THE APPEALS AS WELL THE FACTS. BY FOLLOWING THE ORDER I N THE CASE OF M/S. SURESH TOBACCO CO. (SUPRA) THE APPEALS OF THE REVEN UE ARE DISMISSED. ACIT CC-2 BARODA VS SURESH TOBACCO CO. & 2 ORS. 15 16. IN THE RESULT ALL THE DEPARTMENTAL APPEALS ARE DISMISSED. ORDER PRONOUNCED ON 31-08-2010. SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 31/08/2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT 6. GUARD FILE BY ORDER //TRUE COPY// DY.R/AR I TAT AHMEDABAD