The Commissioner Of Income Tax, Chennai v. M/S.computer Age Managementservices Pvt. Ltd., Chennai-2

In the High Court of Judicature at Madras Dated : 08.7.2019 Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal Nos.409, 410 and 412 of 2019& CMP.Nos.13651 & 13674 of 2019 The Commissioner of Income Tax, Chennai...Appellant Vs M/s.Computer Age ManagementServices Pvt. Ltd., Chennai-2...Respondent APPEALS under Section 260A of the Income Tax Act, 1961against the common order dated 14.12.2018 made respectively inITA.Nos.1141, 1140 & 1142/Chny/2018 on the file of the IncomeTax Appellate Tribunal, Chennai 'C' Bench respectively for theassessment years 2013-14, 2012-13 and 2014-15 against theorder's of the Commissioner of Income Tax (Appeals)5 dated12.01.2018 in I.T.A. Nos.72/CIT(A)-5/2016-2017 ITA.No. 71/CIT(A)-5/2016-2017, I.T.A. No.s 70/C.I.T.(A) -5/2016-2017 againstthe Assessment order dated 27.02.2015 for the Assessment year2012-2013 in P.A.N. No. AAACC 3035G by the Deputy Commissionerof Income Tax, LTU II, Chennai and Assessment order dated09.12.2016 for the Assessment year 2013-2014 in PAN No. and Assessment year 2014-2015 in PAN No. AAACC3035Gby the Deputy Commissioner of Income Tax, LTU 2, Chennai For Appellant : Mrs.Hemalatha, SSC For Respondent : Ms.K.S.Neelayadakshi for Mr.Sandeep Bagmar COMMON JUDGMENT(Judgment was delivered by T.S.Sivagnanam,J) We have heard Mrs.R.Hemalatha, learned Senior StandingCounsel for the appellant and Ms.K.S.Neelayadakshi, learnedcounsel accepting notice on behalf of Mr.Sandeep Bagmar, learnedcounsel for the respondent. https://hcservices.ecourts.gov.in/hcservices/ 2. These appeals, filed by the Revenue under Section 260A ofthe Income Tax Act, 1961 (for short, the Act), are directedagainst the common order dated 14.12.2018 in ITA.Nos.1140 to1142/Chny/2018 on the file of the Income Tax Appellate Tribunal,Chennai 'C' Bench respectively for the assessment years 2012-13,2013-14 and 2014-15. 3. The Revenue has filed these appeals by raising thefollowing substantial questions of law :“Common Question in all the TCAs: Whether, on the facts and in thecircumstances of the case, the Tribunal wasright in holding that the software licenseacquired by the assessee are in the natureof software application and hence, theassessee was eligible to claim depreciationat 60% ?Additional Question in TCA.No.412 of 2019(AY 2014-15) :Whether, on the facts and in thecircumstances of the case, the Tribunal wasright in holding that the non compete feewas a revenue expenditure and had to beallowed in one go irrespective of the methodof accounting adopted by the assessee?” 4. The assessee is engaged in the business of registrar andtransfer agent licensed by the Security Exchange Bureau of India(SEBI). In these appeals, two issues are raised by the Revenuefor consideration. The first issue, which is common for all theassessment years, is as to whether the assessee was entitled toclaim depreciation at 60% in respect of the software or softwareapplications. The second issue, which pertains to theassessment year 2014-15 alone, is as to whether the paymenteffected for non compete fee should be treated as revenueexpenditure or otherwise. 5. The Assessing officer held that the assessee was notentitled to depreciation at 60%, but was entitled to only 25% byreferring to Part B of New Appendix I, which deals withintangible assets. The assessee carried the matter on appeal tothe Commissioner of Income Tax (Appeals)-5, Chennai-34 (forbrevity, the Act), who confirmed the orders passed by theAssessing Officer. On further appeal by the assessee, theTribunal accepted the case of the assessee and it was held thatthe assessee was entitled to depreciation at 60% in terms ofEntry 5 of Part A of New Appendix I read with Note 7. 6. Mr.R.Hemalatha, learned Senior Standing Counsel appearingfor the Revenue would vehemently contend that what were acquired 5. The Assessing officer held that the assessee was notentitled to depreciation at 60%, but was entitled to only 25% byreferring to Part B of New Appendix I, which deals withintangible assets. The assessee carried the matter on appeal tothe Commissioner of Income Tax (Appeals)-5, Chennai-34 (forbrevity, the Act), who confirmed the orders passed by theAssessing Officer. On further appeal by the assessee, theTribunal accepted the case of the assessee and it was held thatthe assessee was entitled to depreciation at 60% in terms ofEntry 5 of Part A of New Appendix I read with Note 7. 6. Mr.R.Hemalatha, learned Senior Standing Counsel appearingfor the Revenue would vehemently contend that what were acquired https://hcservices.ecourts.gov.in/hcservices/ by the assessee were only licenses, which are intangible.However, the Assessing Officer held that they would fall underPart B of New Appendix I and that the assessee was entitled todepreciation at 25%. 7. As noticed above, the assessee is in the business ofregistrar and transfer agent as licensed by the SEBI handlinglarge volume of market sensitive data and information, which isavailable only through general customized application software.The assessee acquired software licenses capitalized during therelevant years in the books of accounts and claimed depreciationat 60%. In paragraph 20 of the order passed by the Tribunal, thenature of items, on which, the assessee claimed depreciation at60%, has been listed out and they are 17 in number, from which,we find that substantial amount of server licences, which havebeen obtained by the assessee are customized and some of whichare single user licenses. 8. The question would be as to whether the softwareapplication, which was acquired by the assessee would fall underEntry 5 of Part A of New Appendix I, which states that computersincluding computer software are entitled to depreciation at60%. Note 7 of the Appendix defines the expression 'computersoftware' to mean any programs recorded on CD or disc, tape,perforated media or other information storage devices. 9. The case of the Revenue is that software are licences andthat they are intangible assets and would fall under Part B ofNew Appendix I, which deals with knowhow, patents, copyrights,trademarks, licenses, francises or any other business orcommercial rights of similar nature. 10. We find that Part B of New Appendix I is a general entrywhereas Entry 5 of Part A of New Appendix I is a specific entryread with Note 7. In the instant case, the Tribunal, in ourconsidered view, rightly held that the assessee is eligible toclaim depreciation at 60%. 11. In the decision rendered by a Division Bench of thisCourt in the case of CIT Vs. M/s.Cactus Imaging India PrivateLimited [reported in (2018) 406 ITR 406], to which, one of us(TSSJ) was a party, an identical question came up forconsideration wherein the object was printer (computer printer).This Court, after taking into consideration as to how theentries would be interpreted, referred to the decision in thecase of Bimetal Bearings Ltd. Vs. State of Tamil Nadu [reportedin(1991) 80 STC 167] and held as hereunder : “9. The Hon'ble Division Bench took noteof the decision of the Hon'ble Supreme Courtpointing out that the 'entry' to be https://hcservices.ecourts.gov.in/hcservices/ 11. In the decision rendered by a Division Bench of thisCourt in the case of CIT Vs. M/s.Cactus Imaging India PrivateLimited [reported in (2018) 406 ITR 406], to which, one of us(TSSJ) was a party, an identical question came up forconsideration wherein the object was printer (computer printer).This Court, after taking into consideration as to how theentries would be interpreted, referred to the decision in thecase of Bimetal Bearings Ltd. Vs. State of Tamil Nadu [reportedin(1991) 80 STC 167] and held as hereunder : “9. The Hon'ble Division Bench took noteof the decision of the Hon'ble Supreme Courtpointing out that the 'entry' to be https://hcservices.ecourts.gov.in/hcservices/ interpreted is in a taxing statute; fulleffect should be given to all words usedtherein and if a particular article wouldfall within a description, by the force ofwords used, it is impermissible to ignore thedescription, and denote the article underanother entry, by a process of reasoning.10. It was further pointed out that therule of construction by reference tocontemporanea expositio is a well-establishedrule for interpreting a statute by referenceto the exposition it has received fromcontemporary authority, though it must giveway where the language of the statute isplain and unambiguous.11.Byapplyingtheruleofinterpretation, we find that the relevantentry under old appendix I Clause III (5)states computers including computer softwareand the Notes under the Appendix defines'computer software' in Clause 7 to mean anycomputer program recorded on disc, tape,perforated media or other information storagedevice. Noteworthy to mention that the notescontained in the appendix, the term'computer' has not been defined. Therefore,as pointed out by the Division Bench inBimetal Bearings Ltd. (supra), if aparticular article would fall within thedescription by the force of words used, it isimpermissible to ignore the word description.Thus, going by the usage of the equipmentpurchased by the petitioner, we have to takea decision.” 12. As held in the above decision, if a particular articlewould fall within the description by the force of the wordsused, it is impermissible to ignore the word 'description' andgoing by the usage of the equipment purchased by the assessee, adecision has to be arrived at. We find that there is no error inthe decision arrived at by the Tribunal by taking note of thespecific entry in contra distinction with the general entry.Therefore, the first substantial question of law has to benecessarily answered against the Revenue. 13. So far as the second substantial question of law isconcerned, which arises only for the assessment year 2014-15,the Tribunal accepted the case of the assessee by interpretingthe non compete clause in the agreement, which has beenreproduced in paragraph 25 of the impugned order. After https://hcservices.ecourts.gov.in/hcservices/ 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 paymenteffected by it for obtaining certain commitments from oneMr.V.Shankar and restricting himself from indulging in anycompetition with the business of the assessee or from weaningway the employees. 14. The Tribunal took note of the decision a Division Benchof this Court in the case of M/s.Asianet Communications Ltd. Vs.CIT [TCA.No.174 of 2005 dated 26.6.2018], to which, one of us(TSSJ) was a party, wherein this Court considered a similarcondition imposed in a non compete agreement. Therefore, we findthat the Tribunal, on appreciation of the factual position,rightly held that a non compete fee has to be treated as arevenue expenditure. Hence, the second substantial question oflaw is to be necessarily answered against the Revenue. 14. The Tribunal took note of the decision a Division Benchof this Court in the case of M/s.Asianet Communications Ltd. Vs.CIT [TCA.No.174 of 2005 dated 26.6.2018], to which, one of us(TSSJ) was a party, wherein this Court considered a similarcondition imposed in a non compete agreement. Therefore, we findthat the Tribunal, on appreciation of the factual position,rightly held that a non compete fee has to be treated as arevenue expenditure. Hence, the second substantial question oflaw is to be necessarily answered against the Revenue. 15. For the above reasons, the above tax case appeals aredismissed. The substantial questions of law are answered againstthe Revenue. No costs. Consequently, the connected CMPs are alsodismissed. -s/d- Assistant Registrar(CS-I) True Copy Sub-Assistant Registrar To1.The Income Tax Appellate Tribunal, Chennai 'C' Bench, Chennai2. The Commissioner of Income Tax (Appeals)-5Chennai3.The Deputy Commissioner of Income Tax LTU-2, Chennai 101. +1 CC to Mr.Sandeep Bagmar, Advocate sr 56684.+2 Ccs to Mr.T. Ravi Kumar, Advocate sr 57107 TCA.Nos.409, 410 and 412 of 2019& CMP.Nos.13651 & 13674 of 2019 SS(CO)SP(12/09/2019)