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2013 (1) TMI 646 - AT - Income TaxDisallowance of depreciation on intangible asset Depreciation on Goodwill - Assessee is a share broker and the main source of income is generated through brokerage Assessee has purchased entire clientele business of M/s. AFC Pvt. Ltd. by assigning all clients to the assessee for a consideration of 2.50 crores. - Booked these expenses as purchase of goodwill and has claimed 25% of depreciation - Held that - It cannot be denied that by getting a right over 3709 clients of M/s. AFC such right is used as a tool to carry on the business by the assessee. Merely because the assessee showed the payment to be on account of goodwill in the books of account no adverse inference could be drawn against the assessee. Following the decision in case of Smifs Securities Ltd. (2012 (8) TMI 713 - SUPREME COURT) that goodwill is an asset eligible for depreciation. It can also be seen from the angle of purchase of entire marketing network by the assessee from M/s. AFC even if considered from this angle the assessee is eligible for depreciation In favour of assessee TDS on Subscription for e-magazine/journal Disallowance u/s 40(a)(ia) Held that - Assessee made the payment for terminal charges for on line information and data base access and retrieval services and therefore no TDS was required to be deducted as the payment was for a subscription of financial e-magazine In favour of assessee
Issues Involved:
1. Disallowance of depreciation on intangible asset. 2. Alternative plea for treating capital expenditure as revenue expenditure. 3. Deletion of addition made due to non-deduction of TDS on Bloomberg Data Services charges. 4. Applicability of section 2(22)(e) regarding deemed dividend. Issue-wise Detailed Analysis: 1. Disallowance of Depreciation on Intangible Asset: The assessee challenged the disallowance of depreciation on an intangible asset amounting to Rs. 62,50,000/-. The assessee had purchased the entire clientele business of M/s. Ashmavir Financial Consultants Pvt. Ltd. (M/s. AFC) for Rs. 2.50 crores and claimed depreciation on this purchase, booked as goodwill. The Assessing Officer (AO) disallowed this claim, arguing that goodwill does not find reference in section 32 of the Act and that the clientele business did not constitute a depreciable intangible asset. The CIT(A) upheld this view, stating that the payment was for the purchase of clientele business and not goodwill, and thus not eligible for depreciation. The Tribunal, however, noted that the right to deal with 3709 clients of M/s. AFC constitutes a commercial right. It applied the rule of ejusdem generis, interpreting "any other business or commercial rights of similar nature" to include such rights as tools of trade facilitating business. The Tribunal cited precedents, including the decision in the case of AREVA T & D India Ltd. and Techno Shares and Stocks Ltd., to support that such rights are eligible for depreciation. Consequently, the Tribunal directed the AO to allow depreciation on the amount of Rs. 2.50 crores at 25%, amounting to Rs. 62,50,000/-. 2. Alternative Plea for Treating Capital Expenditure as Revenue Expenditure: The assessee's alternative plea was that if depreciation was not allowed, the expenditure should be treated as revenue expenditure. Since the Tribunal allowed the depreciation claim, this ground became redundant and was dismissed. 3. Deletion of Addition Made Due to Non-Deduction of TDS on Bloomberg Data Services Charges: The Revenue challenged the CIT(A)'s deletion of an addition made by the AO for non-deduction of TDS on payments to Bloomberg Data Services amounting to Rs. 4,74,109/-. The AO had disallowed the payment under section 40A(ia) due to non-deduction of TDS. The CIT(A) found that the payment was for a subscription to a financial e-magazine, which did not require TDS deduction. The Tribunal upheld the CIT(A)'s decision, confirming that the payment was indeed a subscription and not liable for TDS. 4. Applicability of Section 2(22)(e) Regarding Deemed Dividend: The Revenue also contested the CIT(A)'s decision that section 2(22)(e) was not applicable to a loan of Rs. 1.40 crores received by the assessee from Nich Financial Services Ltd. The AO had treated this loan as deemed dividend. The CIT(A) referred to the previous year's decision, which concluded that the loan was in the ordinary course of business where lending was a substantial part of the lender's business, thus not falling under deemed dividend provisions. The Tribunal, referencing its prior decision and the jurisdictional High Court's ruling in CIT v. Universal Medicare, affirmed that deemed dividend under section 2(22)(e) applies only in the hands of the shareholder, and since the assessee was not a shareholder, the addition was deleted. Conclusion: The Tribunal allowed the assessee's appeal regarding the depreciation on intangible assets and dismissed the alternative plea for revenue expenditure. It upheld the CIT(A)'s decisions on the non-deduction of TDS and the non-applicability of section 2(22)(e), thereby dismissing the Revenue's appeal.
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