Non-compete fees do not qualify as depreciable intangible assets under Section 32(1)(ii) of the Income Tax Act, 1961.

JUDGMENT

Navin Chawla, J. (Oral)--The hearing has been conducted through video conferencing.

CM No.22635/2021 (Exemption)

1. Allowed, subject to all just exceptions.

CM APPL. 22634/2021 (Delay)

2.1. This is an application filed by the appellant seeking condonation of delay in filing of the appeal.

2.2. The appellant claims that the certified copy of the Impugned Order dated 30.08.2019 passed by the learned Income Tax Appellate Tribunal (hereinafter referred to as the `learned ITAT') was received by it on 27.09.2019. The appellant thereafter, filed an application under Section 254(2) of the INCOME TAX ACT , 1961 before the learned ITAT on 26.02.2020. The same was dismissed by the learned ITAT vide its Impugned Order dated 15.12.2020. A copy thereof was received by the appellant on 25.01.2021. The appellant also claims the benefit of the orders passed by the Supreme Court in Re: Cognizance for Extension of Limitation, in Suo Motu Writ Petition (Civil) No. 3 of 2020, extending the period of limitation.

2.3. For the reasons stated in the application, the same is allowed and the delay in filing of the appeal is condoned.

ITA 132 of 2021

3.1. This appeal has been filed by the appellant under Section 260A of the INCOME TAX ACT , 1961 (hereinafter referred to as the `Act') challenging the Order dated 30.08.2019 passed by the learned ITAT, Bench `B', New Delhi, in I.T.A. No. 2910/DEL/2017, titled ACIT, Circle - 9(2), New Delhi v. Fortis Hospitals Ltd., partly allowing the appeal filed by the respondent herein and disallowing the depreciation claimed by the appellant herein on the non-compete fee. The appeal further challenges the Order dated 15.12.2020 passed by the learned ITAT in Miscellaneous Application No. 72/DEL/2020 partly allowing the application filed by the appellant under Section 254(2) of the Act, however, upholding its finding vis-a-vis depreciation claimed by the appellant on the non-compete fee.

3.2. The appellant had entered into a Business Transfer Agreement with Wockhardt Hospitals Ltd. on 24.08.2009, for acquiring a business division of Wockhardt Hospitals Ltd. consisting of ten hospitals situated in the cities of Bangalore, Kolkata and geographical limits of Eastern Mumbai. The appellant claims to have also paid non-compete fee of Rs.15.50 crores to Wockhardt Hospitals Ltd. for not directly or indirectly carrying on the business of hospital and related services for a period of three years in the cities of Bangalore, Kolkata and geographical limits of Eastern Mumbai. The said non-compete fee is claimed to have been capitalized by the appellant in its books of accounts.

3.3. On 15.10.2010, the appellant filed the return of income for the Assessment Year 2010-11 inter alia claiming depreciation of Rs.1,93,75,000/- on the non-compete fee paid to by it to Wockhardt Hospitals Ltd., as intangible asset under Section 32 (1)(ii) of the Act.

4. By the Assessment Order dated 20.03.2013 passed by the Assessing Officer under Section 143(3) of the Act the said claim of the appellant was disallowed, observing as under:

"Disallowance on non deduction of TDS on the payment of non compete fee