IN THE HIGH COURT OF JUDICATURE AT BOMBAY
\nORDINARY ORIGINAL CIVIL JURISDICTION
\nINCOME TAX APPEAL NO. 556 OF 2017<\/p>\n
Pr.Commisisoner of Income Tax – 7 … Appellant
\nVersus
\nPiramal Glass Limited … Respondent<\/p>\n
Mr. Suresh Kumar for the Appellant.
\nMr. Mehul Agarwal i\/b. Mr. Atul Jasani for the Respondent.<\/p>\n
CORAM : AKIL KURESHI &<\/p>\n
S.J. KATHAWALLA, JJ.<\/p>\n
DATE : 11TH JUNE, 2019
\nP.C.:<\/p>\n
1. This Appeal filed by the Revenue to challenge the Judgment of the Income
\nTax Appellate Tribunal (‘the Tribunal’ for short). Following questions of law are
\npresented for our consideration :<\/p>\n
“(a) Whether on the facts and in the circumstances of the case
\nand in law, the ITAT is right in deleting the disallowance of
\ndepreciation claim on the non-compete fees paid when it is
\nclear that it does not represent any intangible asset qualified
\nfor the depreciation as per Section 32 of the I.T. Act, 1961 ?<\/p>\n
(b) Whether on the facts and in the circumstances of the case
\nand in law, the ITAT is right in deleting the disallowance of
\ninterest on the borrowed funds when the Assessee had not
\ndemonstrated whether the purpose for which advance were
\nmade is covered by the principle of commercial expediency
\nand also the investment was made for acquiring the
\ncontrolling interest in the associate concern ?<\/p>\n
(c) Whether on the facts and in the circumstances of the case
\nand in law, the ITAT is right in deleting the disallowance of
\ninterest on the borrowed funds given to the sister concern and
\nits directors when it is for the assessee to prove that each of
\nthe loan on which the assessee paid interest in the accounting
\nyear was utilized for the purposes of the business ?”<\/p>\n
2. We notice that before the Tribunal there was Cross Appeal filed by the
\nRevenue. From the Revenue’s Appeal disposed of by the Tribunal, following two
\nadditional questions are framed in this Appeal :<\/p>\n
“(i) Whether on the facts and in the circumstances
\nof the case and in law, the ITAT was justified in
\ndeleting the ground raised by the revenue on write of
\nof non compete fees of Rs.18 Crores over a period of
\n18 years without discussing the issue on merits ?<\/p>\n
(ii) Whether on the facts and in the circumstances of
\nthe case and in law, non-compete fee of Rs.18 Crores
\npaid by the assessee can be written of in 18 years in a
\nmanner granted by the CIT(A) ? ”<\/p>\n
3. Question No. (a) noted above pertains to the decision of the Tribunal to
\ngrant depreciation on the Assessee’s payment of non-compete fees. According to the
\nRevenue, this being an intangible asset, no depreciation under Section 32 of the
\nIncome Tax Act, 1961 (‘the Act’ for short) was available.<\/p>\n
4. We however notice that similar issue has been considered by the diferent High Courts and held in favour of the Assessee. A reference can be made to the
\ndecision of the Division Bench of the Gujarat High Court in the case of Principal
\nCommissioner of Income Tax v. Ferromatice Milacron India (P.) Limited 1 . It
\nwas also the case where the Assessee had incurred expenditure pursuant to the noncompete
\nagreement and claimed depreciation on such asset. While dismissing the
\nRevenue’s Appeal against the Judgment of the Tribunal, following observations were
\nmade :<\/p>\n
“We may recall the Assessing Officer does not dispute that
\nthe expenditure was capital in nature since by making such
\nexpenditure, the assessee had acquired certain enduring
\nbenefits. He was, however, of the opinion that to claim
\ndepreciation, the assessee must satisfy the requirement of
\nSection 32(1)(ii) of the Act, in which Explanation 3 provides
\nthat for the purpose of the said sub-section the expression
\n“assets” would mean ( as per clause (b) ) intangible assets,
\nbeing known-how, patents, copyrights, trade marks, licenses,
\nfranchises or any other business or commercial rights of
\nsimilar nature. In the opinion of the Assessing Officer, the
\nnon-compete fee would not satisfy this discrimination. <\/p>\n
Going
\nby his opinion, no matter what the rights acquired by the
\nassessee through such non-compete agreement, the same
\nwould never qualify for depreciation in section 32(1)(ii) of the
\nAct as being depreciable intangible asset. This view was
\nplainly opposed to the well settled principles. In case of
\nTechno Shares & Stocks Limited (supra) the Supreme Court
\n1 (2018) 99 taxmann.com 154 (Gujarat)
\nheld that payment for acquiring membership card of Bombay
\nStock Exchange was intangible assets on which the
\ndepreciation can be claimed. It was observed that the right of
\nsuch membership included right of nomination as a license
\nwhich was one of the items which would fall under Section
\n32(1)(ii). The right to participate in the market had an
\neconomic and money value. The expenses incurred by the
\nassessee which satisfied the test of being a license or any
\nother business or commercial right of similar nature<\/p>\n
In case of Areva T & D India Limited (supra) Division Bench
\nof Delhi High Court had an occasion to interpret the meaning
\nof intangible assets in context of section 32(1)(ii) of the Act. It
\nwas observed that on perusal of the meaning of the categories
\nof specific intangible assets referred to in section 32(1)(ii) of
\nthe Act preceding the term “business or commercial rights of
\nsimilar nature” it is seen that intangible assets are not of the
\nsame kind and are clearly distinct from one another. <\/p>\n
The
\nlegislature thus did not intend to provide for depreciation only
\nin respect of the specified intangible assets but also to other
\ncategories of intangible assets which may not be possible to
\nexhaustively enumerate. It was concluded that the assessee
\nwho had acquired commercial rights to sell products under
\nthe trade name and through the network created by the seller
\nfor sale in India were entitled to deprecation.<\/p>\n
In the present case, Mr.Patel was erstwhile partner of the
\nassessee. The assessee had made payments to him to ward of
\ncompetence and to protect its existing business. Mr.Patel, in
\nturn, had agreed not to solicit contract or seek business from
\nor to a person whose business relationship is with the
\nassessee. Mr. Patel would not solicit directly or indirectly any
\nemployee of the assessee. He would not disclose any
\nconfidential information which would include the past and
\ncurrent plan, operation of the existing business, trade secretes
\nlists etc.<\/p>\n
It can thus be seen that the rights acquired by the assessee
\nunder the said agreement not only give enduring benefit,
\nprotected the assessee’s business against competence, that too
\nfrom a person who had closely worked with the assessee in
\nthe same business. The expression “or any other business or
\ncommercial rights of similar nature” used in Explanation 3 to
\nsub-section 32(1)(ii) is wide enough to include the present
\nsituation.”<\/p>\n
5. No question of law in this respect therefore arises.<\/p>\n
6. Question No. b arises in following manner :
\nAssessee had borrowed funds and invested the same for purchase of shares
\nof subsidiary company. On the borrowing, the Assessee had paid interest of Rs.38.22
\nCrores and claimed it as business expenditure. Assessing Officer was of the opinion
\nthat such expenditure shall not allowable. The Tribunal by the impugned Judgment
\nheld that the expenditure incurred for gaining controlling interest of a subsidiary
\ncompany is a business expenditure.<\/p>\n
We notice that this Court in the case of Commissioner of Income Tax,
\nPanaji Goa v. Phil Corpn. Limited 2 held that the Assessee was entitled to deduction
\n2 202 Taxmann 368 (Bombay)
\nof interest on overdraft under Section 36(1)(iii) of the Act when the investment was
\nmade by the Assessee in shares of subsidiary of the company to have control over the
\nsaid company. Madras High Court in the case of Commissioner of Income Tax,
\nChennai v. Shriram Investments (Firm) Moogambika Complex, Chennai 3 has
\ntaken similar view. Similar opinion is expressed by Calcutta High Court in CIT v.
\nRajeeva Lochan Kanoria 4. Similar view was also expressed by Delhi High Court in
\ncase of Eicher Gooderarth Limited v. Commissioner of Income Tax 5. Under the
\ncircumstances, no question arises in this respect.<\/p>\n
7. Question No. c pertains to the interest free advances made by the Assessee
\nto the sister concern out of borrowed funds. In this case, the Tribunal by the impugned
\nJudgment followed the decision of the Supreme Court in case of S.A. Builders
\nLimited v. Commissioner of Income Tax (Appeals) Chandigarh 6 and held that
\nsuch expenditure was made for the purpose of business. No question of law therefore
\narises.<\/p>\n
8. Question Nos. (i) and (ii) proposed by the Revenue arising out of its Cross
\nAppeal before the Tribunal become infructious in view of our decision in Question
\nNo. (a). In the result, Appeal is dismissed.
\n( S.J.KATHAWALLA, J. ) ( AKIL KURESHI, J.)
\n3 229 Taxman 179 (Madras)
\n4 (1994) 208 ITR 616 (1995) 80 Taxmann 572 (Cal.)
\n5 233 Taxmann 285 (Delhi)
\n6 (2007) 156 Taxman 74 (SC)
\n::: Uploaded on – 14\/06\/2019 ::: Downloaded on – 20\/06\/2019 15:50:12 :::<\/p>\n","protected":false},"excerpt":{"rendered":"
The legislature thus did not intend to provide for depreciation only in respect of the specified intangible assets but also to other categories of intangible assets which may not be possible to exhaustively enumerate. It was concluded that the assessee who had acquired commercial rights to sell products under the trade name and through the network created by the seller for sale in India were entitled to deprecation<\/p>\n