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TMI Blog2011 (1) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... y to fall or come within the sweep of meaning of intangible asset. The dictionary clause clearly stipulates that business or commercial rights should be of similar nature as know-how, patents, copy-rights, trademarks, licences, franchises, etc. and all these assets which are not manufactured or produced overnight but are brought into existence by experience and reputation. Revision u/s 263 - it was not appropriate on the part of the Commissioner to exercise his power under section 263 solely on the ground that in the books of account it was mentioned as "goodwill" and nothing else. As has been held by the apex court in Malabar Industrial Co. Ltd. (2000 -TMI - 5786 - SUPREME Court), Max India Ltd. (2007 -TMI - 2388 - Supreme Court of India) and CIT v. Vimgi Investment P. Ltd. (2007 -TMI - 13309 - DELHI High Court) once a plausible view is taken, it is not open to the Commissioner to exercise the power under section 263 of the Act. - - - - - Dated:- 14-1-2011 - DIPAK MISRA, MANMOHAN JJ JUDGMENT Dipak Misra C. J.- Regard being had to the similarity of the questions involved in these three appeals, they were heard analogously and are being disposed of by a singular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h assessment or interfere with it if he is satisfied that further enquiry is necessary on the foundation that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue which was not so in the case at hand ; that no material was available on record to enable the Commissioner to exercise the power under section 263 of the Act to reach a conclusion that the same warranted a further enquiry ; that the claim put forth by the assessee for depreciation on the goodwill was on the foundation that it has paid the said amount to its various bottlers for marketing and trading reputation, trading style and name, territory know-how and information of territory and that it included the cost of know-how relating to acquiring business, customer, database, distribution network, contract and other commercial rights and, therefore, it was within the purview of section 32(1)(ii) of the Act ; and that once a plausible view has been taken by the Assessing Officer, the same did not warrant any interference in exercise of suo motu jurisdiction under section 263 of the Act. 5. The Commissioner of Income-tax repelled the submissions raised on behalf of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligatory on the part of the Commissioner to examine the entire record of proceeding and take into account all the material facts on record which are of relevance. The Tribunal apprised itself of the fact that payments have been made towards business acquired on slump price and a part of the price so paid is allocated to the intangible assets covered under the head "goodwill". After so stating, the Tribunal expressed the view thus : "The allocation of amount paid as a slump price is not in dispute and the fact that a part of consideration represents consideration for rights, as detailed in the audit report notes extracted above, is also not in dispute. The case of the Commissioner mainly is that depreciation is not admissible on goodwill but the fact the accounting treatment of a payment per se cannot govern its treatment in the income-tax proceedings. Even if an amount is termed as `goodwill' in the books of account but it is a business or commercial rights in the nature of know-how, patent, copyrights, trade marks, licences, franchises, the claim of depreciation is indeed admissible thereon. It is not that `goodwill' is specifically excluded from the intangible assets eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self cannot imply that there was no application of mind. It is well settled in law that when Assessing Officer takes a possible view of the matter on the merits, his order cannot be subjected to review merely because other view is possible, as held by the hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (243 ITR 83)." 8. Being of the aforesaid view, the Tribunal allowed the appeal and dis-lodged the order passed by the Commissioner. 9. We have heard Mr. Sanjeev Sabharwal, learned counsel for the Revenue, and Mr. Ajay Vohra and Ms. Kavita Jha, learned counsel for the respondents. 10. Before we advert to the justifiability and sustainability of the order passed by the Tribunal, it is appropriate to refer to certain citations relating to the scope of interference under section 263 of the Act by the competent authority. 11. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC), their Lord-ships of the apex court, after referring to section 263 of the Act, have opined thus (headnote) : "A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)." 12. Be it noted, in Malabar Industrial Co. Ltd. [2000] 243 ITR 83, the apex court has also opined that where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, the said advertence cannot be given the sanction of law as it would not come within the ambit and sweep of an erroneous order prejudicial to the interests of the Revenue. It is obligatory on the part of the Revenue to show that the order of the Assessing Officer was not in accordance with law. 13. In Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi), it has been held that (page 386) : "These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 444) : "A bare perusal of the aforesaid provision shows that the Com-missioner can exercise powers under sub-section (1) of section 263 of the Act only after examining `the record of any proceedings under the Act'. The expression `record' has also been defined in clause (b) of the Explanation so as to include all records relating to any proceedings available at the time of examination by the Commissioner. Thus, it is not only the assessment order but the entire record which has to be examined before arriving at a conclusion as to whether the Assessing Officer had examined any issue or not. The assessee has no control over the way an assessment order is drafted. The assessee on its part had produced enough material on record to show that the matter had been discussed in detail by the Assessing Officer. The least that the Tribunal could have done was to refer to the assessment record to verify the contentions of the assessee. Instead of doing that, the Tribunal has merely been swayed by the fact that the Assessing Officer has not mentioned anything in the assessment order. During the course of assessment proceedings, the Assessing Officer examines numerous issues. Generally, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that when the order of the Commissioner was passed there were two views on the word `profits' in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover, the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated March 5, 1997, in purported exercise of his powers under section 263 of the Income-tax Act." (underlining is ours) 17. The present factual matrix is to be tested on the anvil of the aforesaid enunciation of law. As is discernible, during the relevant assessment year, the respondent-assessee claimed Rs. 70,63,93,292 as depreciation on goodwill treating the same as an intangible asset and, hence, depreciable under section 32(1)(ii) of the Act. The assessee had preferred complete justification for the claim of depreciation at the time of fili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of depreciation admissible under the provisions of the Act. The Assessing Officer during the assessment proceedings under section 143(3) of the Act vide communication dated September 15, 2003, had raised specific queries regarding the admissibility of the claim of depreciation on goodwill. The assessee by letter dated January 8, 2004, had offered justification for depreciation on goodwill which is as follows :"Goodwill is the consideration paid to various bottlers for marketing and trading reputation, trading style and name, marketing and distribution territorial know-how and information of territory. It includes know-how related to acquired business, customer data base, distribution net work, contract and other commercial rights. Intangible assets like know-how, patents, copyrights, trademark, licenses, franchises or any other business or commercial rights of similar nature acquired after April 1, 1998, are eligible for depreciation." 19. The Assessing Officer, after examination of the annual accounts, audit report in Form 3CA, notes to the return and reply dated January 8, 2004, took the view that the assessee's claim for depreciation on goodwill was allowable more so consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee as may be prescribed ; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed : . . . Provided that no deduction shall be allowed under this clause in respect of- (a) any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, but before the 1st day of April, 2001, unless it is used (i) in a business of running it on hire for tourists ; or (ii) outside India in his business or profession in another country ; and (b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42 : Provided further that where an asset referred to in clause (i) or clause (ii) or clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent. of the amount calculated at the percentage p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them : Explanation 1.-Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work, in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure of work is a building owned by the assessee. Explanation 2.-For the purposes of this sub-section `written down value of the block of assets' shall have the same meaning as in clause (c) of sub-section (6) of section 43 : Explanation 3.-For the purposes of this sub-section, the expressions `assets' shall mean- (a) tangible assets, being building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s [1859] John 174 to encompass every positive advantage `that has been acquired by the old firm in carrying on its business, whether connected with the premises in which the business was previously carried on or with the name of the old firm, or with any other matter carrying with it the benefit of the business'. In Trego v. Hunt [1896] AC 7 (HL) Lord Herschell described goodwill as a connection which tended to become permanent because of habit or otherwise. The benefit to the business varies with the nature of the business and also from one business to another. No business commenced for the first time possesses goodwill from the start. It is generated as the business is carried on and may be augmented with the passage of time. Lawson in his introduction to the Law of Property describes it as property of a highly peculiar kind. In CIT v. Chunilal Prabhudas and Co. [1970] 76 ITR 566 the Calcutta High Court reviewed the different approaches to the concept (pages 577, 578) : `It has been horticulturally and botanically viewed as "a seed sprouting" or an "acorn growing into the mighty oak of goodwill". It has been geographically described by locality. It has been historically descr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scanned and appreciated. The claim of the assessee respondent, as is discernible, is that the Assessing Officer had treated the transactions keeping in view the concept of business or commercial rights of similar nature and put it in the compartment of intangible assets. To effectively understand what would constitute an intangible asset, certain aspects, like the nature of goodwill involved, how the goodwill has been generated, how it has been valued, agreement under which it has been acquired, what intangible asset it represents, namely, trademark, right, patent, etc. and further whether it would come within the clause, namely, "any other business or commercial rights which are of similar nature" are to be borne in mind. 23. On a scrutiny of the order passed by the Tribunal, it is clear as crystal that the depreciation was claimed on goodwill by the assessee on account of payment made for the marketing and trading reputation, trade style and name, marketing and distribution, territorial know-how, including information or consumption patterns and habits of consumers in the territory and the difference between the consideration paid for business and value of tangible assets. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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