2009 (8) TMI 1174 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to depreciation on 'business information' classified as goodwill.
2. Treatment of expenditure as 'revenue expenditure'.

Summary:

Issue 1: Entitlement to Depreciation on 'Business Information' Classified as Goodwill

The assessee company, Bosch Ltd, claimed Rs. 30.25 lakhs as depreciation on 'payment for goodwill' for the assessment year 2004-05. The CIT (LTU) concluded that the depreciation claimed was illegal and excessive, setting aside the assessment order u/s 263 of the Act. The CIT (LTU) argued that the amount of Rs. 1.38 crores, classified by the valuer as 'goodwill', was not 'business information' eligible for depreciation. The CIT (LTU) held that the valuation method used was appropriate for goodwill, not for 'business information' or 'know-how'. The assessee's contention that the amount represented the value of the skill and know-how of employees absorbed from Phillips (India) was rejected, as human resources do not fall within the definition of 'intangible assets' u/s 32.

The Tribunal, however, found that the assessee's claim was justified. The Tribunal noted that the business information brought by the employees was a significant intangible asset that contributed to the company's profits. Citing the case of Skyline Caterers (P) Ltd. v. ITO, the Tribunal concluded that the rights acquired by the assessee under the agreement with Phillips (India) fell within the expression 'any other business or commercial rights of similar nature' u/s 32(1)(ii). Therefore, the assessee was entitled to claim depreciation on 'business information' amounting to Rs. 1.38 crores under the category of 'other identifiable intangibles (goodwill)'.

Issue 2: Treatment of Expenditure as 'Revenue Expenditure'

The CIT (LTU) rejected the assessee's alternate contention that if the amount could not be considered as 'business information' eligible for depreciation, it should be treated as revenue expenditure. The Tribunal, having allowed the main grievance of the assessee regarding depreciation, found this alternate contention to be obsolete and irrelevant.

Conclusion:

The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT (LTU) and restoring the assessment order of the AO, thereby permitting the depreciation claim on 'business information' classified as goodwill. The alternate contention of treating the expenditure as 'revenue expenditure' was not taken into consideration.