Income Tax Appellate Tribunal - Delhi
M/S. Fortis Hospitals Ltd., New Delhi vs Acit, New Delhi on 15 December, 2020
1 M. A No. 72/Del/2020
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'FRIDAY' NEW DELHI
BEFORE MS SUCHITRA KAMBLE, JUDICIAL MEMBER
AND
SH. PRASHANT MAHARISHI, ACCOUNTANT MEMBER
MA NO. 72/Del/2020
In
( I.T.A. No. 2910//DEL/2017 (A.Y 2010-11)
Fortis Hospitals Ltd. Vs ACIT
Okhla Road Circle-9(2), Room NO. 413,
New Delhi-110025 C. R. Building, I. P. Estate,
PAN: AABCF3718N New Delhi
(APPLICANT) (RESPONDENT)
Applicant by Sh. R. M. Mehta, Adv
Respondent by Sh. F. R. Meena, Sr. DR
Date of Hearing 16.10.2020
Date of Pronouncement 15 .12.2020
ORDER
PER SUCHITRA KAMBLE, JM
This Misc. Application is filed by the assessee in respect of order dated 30.08.2019 passed by this Tribunal.
2. The Ld. AR submitted that the assessee during the year under consideration acquired the Wockhardt Group of hospitals pursuant to an agreement entered into on 24.08.2009. The said agreement included payment of non-compete fee of Rs. 15.50 cr which was capitalized by the assessee in its books of account, on which depreciation was claimed. In the assessment, the AO rejected the claim for depreciation on the ground that since TDS u/s 194L had been deducted on the payment of Rs. 15.50 cr., provisions of Section 40(a)(ia) of the Act were applicable. He, however, proceeded to make 2 M. A No. 72/Del/2020 disallowance of the entire amount i.e. Rs. 15.50 cr instead of the amount claimed as depreciation i.e. 1,93,75,000/- (inadvertently mentioned as Rs. 1,48,63,000/- in the orders). On further appeal, the CIT(A) vide Para 5:1 of his order accepted the argument of the assessee that Section 194L having ceased to operate w.e.f. 01.06.2000, the assessee was not obliged to deduct tax at source and therefore Section 40(a)(ia) would not apply. The CIT(A) restored the claim on account of depreciation by treating the non-compete fee as an intangible asset. The Ld. AR submitted that inadvertently, certain mistakes apparent from the record within the meaning of Section 254(2) of the Act have crept into the order causing thereby prejudice to the case of the assessee. These are adverted to as follows:
i) In the course of the hearing, the judgment of the Jurisdictional High Court in the case of Areva T&D India Ltd. vs. DCIT (2012) 20 taxmann.com 29 (Delhi) was cited on behalf of the assessee, noted by the Tribunal in para 6, but not considered.
ii) Similarly, other judgments relied upon and noted in the same para have not been considered and very significantly, the judgments at Serial Nos. (i) &
(ii) are of the Hon'ble Karnataka & Gujarat High Courts allowing depreciation on non-compete fee treating it to be an intangible asset, following the jurisdictional High Court in the case of Areva (Supra).
iii) At Serial No. (iv) is the decision of the Ahmedabad Bench of the Tribunal allowing depreciation on non-compete fee referring to both the judgments of the Delhi High Court i.e. Areva and Sharp (Supra), which was not considered.
iv) The assessee had as an alternative submission urged before the Tribunal that since the agreement between itself and Wockhardt had not been examined either by the AO or the CIT(A) the matter could be restored to the AO for a proper examination as had been done by the Delhi Bench of the Tribunal in the case of DCIT vs. Caparo Engg India P Ltd. in ITA 3661/2013, a decision 3 M. A No. 72/Del/2020 cited during the hearing but not mentioned or considered. The submission is also not mentioned in the order.
v) In para 7 of the order of the Tribunal while dealing with the issue under consideration observes as under:
"the CIT(A) observed in the order that the assessee paid non-compete fee of Rs. 15,50 cr. as part of the sale consideration for acquiring the Wockhardt Group of Hospitals without deducting the tax within the meaning of Section 194L of the Act and accordingly provisions of Section 40(a)(ia) came into play. (Extract from 5:1 of the order of the CIT(A).
In the same para the CIT(A) in the last sentence observes:
"It is clear from the language of the statue that the assessee was not obliged in law to deduct any tax since Section 194L invoked by the assessing officer ceased to operate w.e.f. 1st June 2000."
The reproduction of only a part of the para gives an impression that the issue of the applicability of Section 40(a)(ia) has been decided against the assessee whereas the fact is to the contrary.
vi) Para 4 in the order states that "the CIT(A) dismissed the appeal of the assessee", whereas the correct fact is that the appeal was partly allowed and the revenue came in appeal before the Tribunal.
The Ld. AR relied upon the following decisions:
a) ACIT vs. Saurashtra Kutch Stock Exchange Ltd. (2008) 173 Taxman 322 (SC) (affirming the Judgment of the Gujarat High Court)
b) Honda Siel Power Products Ltd. vs. CIT (2007) 165 Taxman 207 (SC)
c) Gopal Ram Pema Ram vs. ACIT (2014) 50 taxmann.com 132 (Jodhpur-
Tri.) 4 M. A No. 72/Del/2020
d) Reliance Communications Ltd. vs. DCIT (2017) 183 TTJ (Mum) 388
e) Rohit Tandon vs. ITO (2017) 183 TTJ (Asr) 492 Thus, the Ld. AR submitted that the order of the Tribunal dated 30.08.2019 be rectified as per Section 254(2) of the Income Tax Act, 1961.
3. The Ld. DR vehemently opposed the Misc. Application and submitted that the Tribunal in the order dated 30.08.2019 has considered all the contentions of the Ld. AR made during the course of hearing. The Ld. DR further submitted that the case laws submitted by the Ld. AR were also considered by the Tribunal in the order and the Tribunal has rightly relied upon the jurisdictional High Court decision. Thus, there is no mistake apparent on record. The present Misc. Application is not for rectification but is for review of the order dated 30.08.2019 which is not permissible under the provisions of the Income Tax Act, 1961 under Section 254.
4. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that in para 4 of the order dated 30.08.2019, there is typographical error. The said para 4 is modified as under:
"4. .........the CIT(A) partly allowed the appeal of the assessee."
Now coming to the judicial precedents cited by the Ld. AR during the hearing of the main appeal. The decision of Areva T & D India Ltd. vs. DCIT (2012) 20 taxmann.com 29 (Del HC), the question of law before the Hon'ble High Court was that "Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that know-how, business contacts, business information, etc. acquired as part of the slump sale described as "goodwill" were not entitled for depreciation under Section 32(1)(ii) of the Income Tax Act?" and for this question the Hon'ble High Court held that the specified intangible assets acquired under slump sale agreement were in the nature of "business or commercial rights of similar nature" specified in Section 32(1)(ii) of 5 M. A No. 72/Del/2020 the Act and were accordingly eligible for depreciation under that Section. Thus, facts of this case are totally distinguishable to the present case where the issue is that of non-compete fee and not that of goodwill. Besides this, in the present case the assessee, itself declared that the non-compete fee/payment was capital in nature. In case of CIT vs. Ingersoll Rand International Ind. Ltd. (2014) 48 taxamann.com 349 (Kar. HC), the Hon'ble Karnataka High Court framed the question of law as to whether the Tribunal was correct in holding that non-compete fee being in the nature of capital expenditure, depreciation is to be allowed on the non-compete fee as it constitutes a commercial or a business right under Sec. 32(1)(ii) of the Act?. The Hon'ble Karnataka High Court held the question in favour of assessee therein and also relied the decision of the Hon'ble Delhi High Court in case of Areva T & D India Ltd. (supra). In case of Pr. CIT vs. Ferronmatic Milacron India (P.) Ltd. (2018) 89 taxmann.com 154 (Guj. HC), the Hon'ble Gujarat High Court framed one of the question as to whether the Appellate Tribunal had erred in law and on facts in upholding the order of the CIT(A) deleting the addition made on account of disallowance of Rs. 1,28,37,000/- on account of disallowance of depreciation on no-compete fees?. For which, the Hon'ble High Court held the question in favour of assessee therein and also relied the decision of the Hon'ble Delhi High Court in case of Areva T & D India Ltd. (supra). In case of Kapi Chits (Kakatiya) P. Ltd. vs. ACIT (2017) 85 taxmann.com 300 (Hyd. Tri.), the Tribunal held that non-compete fee payment is in the nature of revenue expenditure and is an allowable deduction u/s 37(1) of the I.T. Act. In case of DCIT vs. Zydus Wellness Ltd. (2016) 76 taxmann.com 328 (Ahmd. Trib.), the Tribunal allowed the claim of depreciation of goodwill made by the assessee therein. All these cases were though not discussed at length but these cases were considered while making the final observations as the Hon'ble Delhi High Court in case of Sharp Business System vs. CIT (ITA No. 492/2012 order dated 05.11.2012) categorically mentioned that non compete fee did not confer any exclusive right to carry on the primary business activity. The rest of the cases cited by the assessee are not coming under the jurisdictional High Court decision of Sharp 6 M. A No. 72/Del/2020 Business system (supra). Being the jurisdictional High Court decision, we have followed Sharp Business system and accordingly taken a view that the depreciation claimed on the said non-compete fee cannot be allowed. Thus, we do not entertain the arguments in this part of the Misc. Application and the issue related to this in present misc. application is dismissed.
5. In result, Misc. application filed by the assessee is partly allowed.
Order pronounced in the Open Court on this 15th Day of December, 2020 Sd/- Sd/-
(PRASHANT MAHARISHI) (SUCHITRA KAMBLE)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 15/12/2020
R. Naheed
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI