Meaning of “Business or commercial rights of similar nature”

Case Name : Areva t & d india ltd. Vs. Dy. CIT

Citation : [2012] 20 taxmann.Com 29/208 taxman 252/345 itr 421/250 ctr 151 (delhi)

Court : Delhi high court

Section : 32

Meaning : Applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression ‘business or commercial rights of similar nature’ specified in section 32(1)(ii ), it is seen that such rights need not answer the description of ‘know-how, patents, trademarks, licenses or franchises’ but must be of similar nature as the specified assets.

Case Name : CIT  Vs. Ingersoll rand international ind. Ltd. 

Citation :  [2014] 48 Taxmann.Com 349/227 taxman 176 (mag.)(Kar.)

Court : Karnataka high court

Section : 32

Meaning : The word ‘commercial’ is defined in black’s law dictionary as ‘related to or connected with trade and commerce in general’, ‘commerce’ is defined as ‘the exchange of goods, production or property of any kind; the buying, selling and exchanging of articles’. A right by way of non-compete is acquired essentially for trade and, commerce, and therefore it will also qualify as a commercial right. A right acquired by way of non-compete can be transferred to any other person in the sense that the acquirer gets the right to enforce the performance of the terms of agreement under which a person is restrained from competing. When a businessman pays money to another businessman for restraining the other businessman from competing with the assessee, he gets a vested right which can be enforced under law and without that, the other businessman can compete with the first businessman. When by payment of non-compete fee, the businessman gets his right what he is practically getting is kind of monopoly to run his business without bothering about the competition.

Generally, non-compete fee is paid for a definite period. The idea is that by that time, the business would stand firmly on its own footing and can sustain later on. This clearly shows that the commercial right comes into existence whenever the assessee makes payment for non-compete fee. Therefore that right which the assessee acquires on payment of non-compete fee confers in him a commercial or a business right which is held to be similar in nature to know-how, patents, copyrights, trade marks, licences, franchises. Therefore, the commercial right thus acquired by the assessee unambiguously falls in the category of an ‘intangible asset’. Their right to carry on business without competition has an economic interest and money value. The words ‘or any other business or commercial rights of similar nature’ have to be interpreted in such a way that they would have some similarities as other assets mentioned in clause (b) of explanation3. Here the doctrine of ejusdem generis would come into operation and therefore the non-compete fee vests a right in the assessee to carry on business without competition which in turn confers a commercial right to carry on business smoothly.

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