2013 (8) TMI 589 - AT - Income Tax

Disallowance of fee paid to the Registrar of Companies - Amortization u/s. 35D - CIT upheld disallowance - Held that - Fee paid to the Registrar for expansion of the capital base of the company - directly related to the capital expenditure incurred by the company - Amount paid to the Registrar of Companies, as filing fee for enhancement of capital was not revenue expenditure - Following decision of Punjab State Industrial Development Corporation Limited Versus Commissioner of Income-Tax 1996 (12) TMI 6 - SUPREME Court - Decided against Assessee. Depreciation of goodwill - CIT disallowed goodwill - Held that - figure of the goodwill in the assessee s case has arisen when the existing running unit was transferred by Minda Industries Ltd. to the assessee newly firm company i.e. the assessee for a consolidated consideration of Rs. 2.75 crores and the difference between the net value of assets, which assets were recorded at book value, was recognized as goodwill in the books of accounts - transaction took place in the preceding assessment years and the figure of goodwill is coming from the previous balance sheet - Addition of the words business or commercial rights of similar nature after the specified intangible assets clearly demonstrates intention of Legislature to provide depreciation to other categories of intangible assets which are not exhaustively enumerated. It is observed that in case of the assessee, intangible assets being Business claims; business information; business records; contracts; skilled employees; knowhow were invaluable and resulted in carrying on the transmission and distribution business by the assessee, without any interruption - Therefore, specified intangible assets acquired under slump sale agreement were in the nature of business or commercial rights of similar nature specified in Section 32(1)(ii) and were accordingly eligible for depreciation. It is not necessary to decide the alternative submission made on behalf of the assessee that goodwill per se is eligible for depreciation u/s 32(1)(ii) Following decision of AREVA T & D INDIA LTD. Versus THE DEPUTY COMMISSIONER OF INCOME-TAX 2012 (4) TMI 79 - DELHI HIGH COURT - Decided in favor of assessee. Disallowance u/s 40A(2)(b) - Payment made to sister concern - Held that - assessee has not supported the expenditure in this regard with proper details and supporting. Assessee has merely stated that certain list of services were being rendered for which payment is made @ 2% of the sales of the assessee company - assessee has not given any submission in this regard that the expenditure incurred by the assessee were commensurate with the market rates - matter in this regard needs to be remitted back to the file of the Assessing Officer - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of Rs. 2,29,300/- on account of fee paid to the Registrar of Companies for the increase in authorized share capital.
2. Disallowance of claim of Rs. 4,80,044/- on account of depreciation of goodwill.
3. Disallowance of Rs. 48,22,346/- under section 40A(2)(b) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 2,29,300/- on account of fee paid to the Registrar of Companies:

The Assessing Officer (AO) noted that the fee paid to the Registrar of Companies (ROC) for increasing the authorized share capital was capital in nature, citing the decisions of the Hon'ble Apex Court in Punjab State Industrial Development Corporation Ltd. vs. C.I.T. and Brooke Bond India Ltd. vs. C.I.T. The Ld. Commissioner of Income Tax (Appeals) [CIT(A)] affirmed this view, referencing additional case laws and rejecting the assessee's alternative claim for amortization under section 35D of the Income Tax Act. The Tribunal upheld these findings, stating that the fee for increasing share capital cannot be allowed as a revenue expense and is not covered under section 35D.

2. Disallowance of claim of Rs. 4,80,044/- on account of depreciation of goodwill:

The AO disallowed the depreciation on goodwill, arguing that goodwill is not included in the list of intangible assets eligible for depreciation under section 32 of the Income Tax Act. The AO distinguished goodwill from other intangible assets like know-how, patents, and trademarks, arguing that goodwill does not necessarily depreciate over time. The CIT(A) upheld this view, citing various judicial decisions that supported a strict interpretation of the statute, which excludes goodwill from the list of depreciable intangible assets.

However, the assessee argued that goodwill should be considered under the residual category of "any other business or commercial rights of a similar nature" as per section 32(1)(ii). The Tribunal agreed with the assessee, referencing the Delhi High Court's decision in Areva T&D India Ltd. vs. DCIT, which held that goodwill acquired under a slump sale agreement is eligible for depreciation as it falls under the category of "business or commercial rights of similar nature." The Tribunal thus allowed the depreciation on goodwill, overturning the lower authorities' decisions.

3. Disallowance of Rs. 48,22,346/- under section 40A(2)(b):

The AO disallowed the professional charges paid to the sister concern, M/s Minda Industries Ltd., under section 40A(2)(b), citing a lack of evidence to justify the payments. The CIT(A) upheld this disallowance, noting that the assessee failed to provide details on how the costs were apportioned and whether the payments were reasonable and not excessive.

The Tribunal noted that the assessee did not provide adequate details or evidence to support the expenditure. The Tribunal remitted the matter back to the AO for a fresh examination, instructing the AO to verify the reasonableness of the payments in comparison to market rates and to provide the assessee with an opportunity to present additional evidence.

Conclusion:

The Tribunal upheld the disallowance of the fee paid to the ROC for increasing share capital, allowed the depreciation on goodwill, and remitted the issue of professional charges back to the AO for further examination. The appeal was thus partly allowed.