2018 (8) TMI 2049 - AT - Income Tax

Depreciation claim on customer contracts - revenue has argued that the claim of the depreciation of the assessee does not fall u/s 32 - HELD THAT - As specifically held that the customer contract falls under the expression any other business or commercial right on similar nature as defined in explanation-3 to Section 32 (1)(ii) of the Act and hence eligible for depreciation. The factual position is also the same in the instant case also wherein the assessee company which is subsidiary of Blue Star Ltd. (including Rs. 60 Crs. for Intangible Assets Goodwill) from D.S. Gupta Construction Pvt. Ltd. and thereafter the Blue Star Ltd. under a Deed of Adherence assigned the business to the assessee company and the assessee company claimed the depreciation on the intangible and goodwill acquired out of the aforesaid acquisition. Since the nature of the case and transaction are the same therefore we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere at this appellate stage. Accordingly this issue is being decided in favour of the assessee.

Summary

Issues:
1. Whether depreciation on customer contracts falls under Section 32 of the Income Tax Act, 1961.
2. Whether payment for acquiring Customer Contracts qualifies for depreciation under Section 32(1)(ii) of the Income Tax Act, 1961.

Analysis:

Issue Nos. 1 & 2:
The revenue challenged the CIT(A)'s decision to allow depreciation on customer contracts amounting to Rs. 5,62,45,313. The revenue argued that the claim did not fall under Section 32 of the Income Tax Act, 1961. However, the assessee contended that the CIT(A)'s decision was supported by precedents like India Capital Markets P. Ltd. Vs. DCIT (2013) 56 SOT 32 (Mum) and CIT Vs. Smifs Securities Ltd. (2012) 348 ITR 302 (SC). The CIT(A) relied on earlier rulings and allowed the claim based on the intangible nature of customer contracts. The CIT(A) highlighted that the customer contract qualifies as "any other business or commercial rights of similar nature" under Explanation 3 to Section 32(1)(ii) and is eligible for depreciation. The Tribunal upheld the CIT(A)'s decision, emphasizing the similarity of the present case to past rulings. The Tribunal concluded that the CIT(A) had correctly and judiciously decided the matter, ruling in favor of the assessee and dismissing the revenue's appeal.

This detailed analysis covers the issues raised in the judgment, providing a comprehensive understanding of the legal reasoning and decisions made by the authorities involved.