2016 (3) TMI 868 - AT - Income Tax

Depreciation on intangible assets - Held that - The assessee has not purchased any good will but has purchased license, interest, privilege, franchise etc. from M/s. DKD which are undisputedly covered by section 32(1)(ii) and, therefore, the depreciation is allowable and the ld. CIT (A) has allowed the depreciation on these intangible assets, and we have no hesitation in confirming the order of ld. CIT (A) on this aspect. Accordingly we confirm the order of ld. CIT (A). - Decided in favour of assessee

Issues Involved:
1. Disallowance of depreciation claim on intangible assets amounting to Rs. 70,07,904.

Issue-wise Detailed Analysis:

Disallowance of Depreciation Claim on Intangible Assets:
The primary issue in this appeal is the disallowance of a depreciation claim on intangible assets amounting to Rs. 70,07,904 by the Assessing Officer (AO). The learned CIT(A) had deleted this addition, prompting the revenue to appeal.

Arguments by the Assessee:
The assessee's representative argued that the issue is covered by a previous order of the Hon'ble ITAT, Jaipur Bench, in the assessee's own case for various assessment years (2001-02, 2007-08, 2002-03, 2003-04, 2004-05, 2005-06). In that order, the ITAT had deleted a similar addition. The assessee requested the tribunal to uphold the CIT(A)'s order.

Arguments by the Revenue:
The Departmental Representative (DR) supported the AO's order and requested the tribunal to reverse the CIT(A)'s decision.

Tribunal's Findings:
The tribunal examined the rival contentions and the material on record. The identical issue had been previously decided by the Coordinate Bench in the assessee's favor. The tribunal reproduced the operative portion of the Coordinate Bench's order, which detailed the following points:

1. License and Franchise Rights:
The CIT(A) had considered the agreement between the assessee and Pepsi Food Ltd., concluding that the assessee purchased license and franchise rights from Pepsi Food Ltd., which are intangible assets eligible for depreciation under the law.

2. AO's Objections:
The AO had argued that no such rights devolved upon the assessee through the business transfer agreement but through a letter of intent issued by Pepsi Food Ltd. The AO contended that the payment was for goodwill, not license and franchise rights, and thus, depreciation was not allowable.

3. CIT(A)'s Analysis:
The CIT(A) thoroughly examined the agreements and concluded that the assessee acquired license and franchise rights, not goodwill. Even if the payment was considered goodwill, depreciation would still be allowable based on legal precedents, including the decision of Hindustan Coca Cola Beverages Pvt. Ltd., affirmed by the Hon'ble Delhi High Court.

4. Intangible Assets and Goodwill:
The CIT(A) referenced decisions from various cases, including Hindustan Coca Cola and Kotak Forex Brokerage Ltd., which established that depreciation is allowable on intangible assets, including goodwill, under Section 32(1)(ii) of the Income Tax Act.

5. Tribunal's Conclusion:
The tribunal agreed with the CIT(A)'s findings, noting that the assessee had acquired license, rights, interest, and privileges, which are intangible assets eligible for depreciation. The tribunal also acknowledged the Hon'ble Kerala High Court's decision in B. Raveendran Pillai, which allowed depreciation on goodwill. The tribunal confirmed the CIT(A)'s order, dismissing the revenue's appeal.

Final Judgment:
The tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to allow the depreciation claim on intangible assets. The order was pronounced in the open court on 17/02/2016.

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