2012 (2) TMI 551 - AT - Income Tax

Treat the data base as plant and allow depreciation on it - excessive or unreasonable claim - Held that - There is no material whatsoever to establish or even indicate that the price of ₹ 12 crores paid for the Acquired Business Database is excessive or unreasonable and only the basis of Assessing Officer's coming to the conclusion about his subjective judgment. When in Assessment year 2002-03 valuation of Acquired Business Database has been examined by TPO while concluding that the database price adjustment for the said year and no adverse inferences have been recorded in respect of the same, there could be no good reason for the AO to deviate from the stand of the TPO and substitute his own opinion as to what should be the correct price at which Acquired Business Database should have been purchased. We are of the considered view that the CIT(A) was indeed in error in restricting the value of Acquired Business Database at ₹ 3 crores as against ₹ 12 crores paid by the assessee. To this extent, we vacate the order of the CIT(A). As per section 32(1)(ii), depreciation is allowable in respect of know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. In view of these discussions as also bearing in mind the entirety of the case, we are of the considered opinion that the CIT(A) ought to have allowed the depreciation on the entire payment of ₹ 12 crores towards Acquired Business Database. We, therefore, reject the appeal filed by the Assessing Officer against partial relief granted by the CIT(A) and uphold the grievance of the assessee in this regard.

Summary

Issues:
- Dispute over depreciation treatment of acquired business database
- Disallowance of depreciation on goodwill
- Consideration of acquired business database as intangible asset
- Claiming payment for acquiring database as revenue expenditure

Analysis:
1. Depreciation Treatment of Acquired Business Database:
The appeal and cross objection were directed against the order passed by the CIT(A) regarding the assessment under section 143(3) of the Income Tax Act, 1961. The revenue raised a grievance regarding the direction to treat the database as plant for depreciation purposes. On the other hand, the assessee objected to the AO's valuation of the database and the disallowance of depreciation on goodwill. The Assessing Officer doubted the excessive payment made for the database but lacked substantial evidence to support this claim. The Tribunal held that the price fixed for the database was acceptable as per transfer pricing scrutiny, and the AO had no basis to challenge it. Relying on a previous judgment, the Tribunal allowed depreciation on the entire payment made for the database, contrary to the CIT(A)'s decision to restrict it to a lower value.

2. Disallowance of Depreciation on Goodwill:
The Assessing Officer disallowed depreciation on goodwill due to a lack of justification. The Tribunal upheld this decision, stating that if the payment was accepted as goodwill simplicitor, depreciation could not be claimed on it. The Tribunal rejected the assessee's grievance on this issue.

3. Consideration of Acquired Business Database as Intangible Asset:
The Tribunal determined that the acquired business database should be considered an intangible asset eligible for depreciation under section 32 of the Income Tax Act. Citing a relevant judgment, the Tribunal concluded that depreciation should be allowed on the full amount paid for the database, contrary to the partial relief granted by the CIT(A).

4. Claiming Payment for Acquiring Database as Revenue Expenditure:
The assessee raised an alternative plea to claim the payment for acquiring the database as revenue expenditure. However, the learned counsel did not press this argument, leading to the dismissal of this grievance. The Tribunal did not entertain this issue further.

In conclusion, the Tribunal dismissed the appeal filed by the revenue and partly allowed the cross objection filed by the assessee concerning the depreciation treatment of the acquired business database and goodwill. The judgment emphasized adherence to transfer pricing scrutiny and relevant legal provisions in determining the admissibility of depreciation on intangible assets.