9911796707
TMI Blog2012 (4) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... e made by the A.O. on adhoc basis appears to be on higher side, a reasonable disallowance of ₹ 1,50,000/-. Dis-allowance of claim of depreciation on various intangible assets grouped under the head 'Goodwill' – that the business of IHCL was acquired by the assessee as a going concern – The consideration is not paid independently for each asset or liability – Held that:- when depreciation has neither been claimed nor allowed on intangible assets in the preceding years the assessee, in our opinion, cannot be allowed to claim depreciation on intangible assets in the impugned assessment year – against assessee. - I T Appeal No. 8500 (Mum.) of 2010 - - - Dated:- 20-1-2012 - N. V. Vasudevan And R. K. Panda, JJ. Rajan R. Vora for the Appellant B. Jaya Kumar for the Respondent ORDER R. K. Panda, Accountant Member This appeal filed by the assessee is directed against the order dated 26.10.2010 of the A.O. passed u/s 143(3) r.w.s. 144C(13) of the Act. 2. In ground of appeal No. 1 the assessee has challenged the order of the A.O. in making adjustment of ₹ 460391/- u/s 92CA(3) of the Act. 2.1 Facts of the case in brief are that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e attention of the Bench to the following table of comparison of rate per passenger for individual airlines which is as under: Airline Passenger Rate (Rupees) Air India 171 Cathay Pacific 153 Emirates 167 Air France 154 Malaysian Airlines 294 Virgin Atlantic 292 Singapore Airlines 323 3.1 Referring to the above table he submitted that the rate per passenger for Singapore Airline is the highest, whereas the rate for Virgin Atlantic is third highest. He submitted that it categorically shows that the transactions are at arms length price. 3.2 Without prejudice to the above contention that the sale of food items should be viewed as a single transaction, the ld. counsel for the assessee submitted that highest and the lowest charged to an independent party (Non AE) for a particular item constitutes an arms length range and any price which falls in that range is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that even after insertion of section 14A, only the expenditure that has been specifically incurred in relation to earning exempt income has to be disallowed. He submitted that the investments in mutual funds are made based on predetermined investment criteria decided by the Board of Directors. The board has listed down specific Mutual Funds (such as HSBC Mutual Fund, Birla Mutual fund and Tata Mutual Fund) in which investments could be made and this decision is being delegated to CFO. He submitted that Taj Sats has made investment only in TATA Liquid Fund and that too in two tranches only during the year under consideration. The CFO, based on the criteria determined by board, has made investments without any research and analysis and no other person is involved in the above investments made in mutual fund. Dividend income is directly reinvested into the scheme by the Fund and therefore no expenses are being incurred for collection of dividend income. He submitted that no overhead expenditure is relatable to the dividend income in this year. Further, no direct or indirect cost (administration cost in the nature of salary, telephone, etc) could be said to have been incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case, in brief are that the assessee has claimed depreciation of ₹ 17,91,79,623/- u/s.32 read with I.T. Rules, 1962. From the working of the depreciation chart filed by the assessee, the AO noted that the assessee has claimed depreciation of ₹ 7,77,77,860/- on goodwill. The AO observed that during the Assessment Year 2005-06, the AO in the order passed u/s. 143(3) dated 18.12.2008 has disallowed depreciation of ₹ 10,37,03,814/- for the detailed reasons mentioned therein. He, therefore, asked the assessee to show cause as to why the depreciation on goodwill should not be disallowed. 8.1 It was submitted by the assessee that Taj Sats has recognized the goodwill of ₹ 73,74,49,343/- in the books at the time of formation of the Joint Venture. The assessee has claimed depreciation on various intangibles/rights grouped under the head 'Goodwill' in the books amounting to ₹ 7,77,77,860/- for the Assessment Year 2006-07. It was submitted that the business of Indian Hotels Company Limited (IHCL) was acquired by the assessee as a going concern. Taj Sats is a Joint Venture between Indian Hotels Company Ltd. and Singapore Air Terminus Services Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is entitled to claim depreciation on the above. 8.3 However, the AO was not convinced with the explanation given by the assessee. He observed that the tax auditors in the tax audit report dated 28.10.2005 without any qualification has not considered depreciation on goodwill as allowable deduction. According to the AO when any business is taken over as a going concern, it includes taking over of all assets and liabilities including the various commercial rights and licenses. The consideration is not paid independently for each asset or liability. The assessee also has not paid separately for any other intangible right or for non-compete fees or for acquiring any technical know-how. The consideration so paid by the assessee does not include acquisition of any goodwill already existing in the books of IHCL. The licenses and commercial rights so acquired as a going business concern are incidental to the business of the assessee i.e. Air Catering and Institutional Catering. Referring to the various decisions cited before him, the AO observed that it is a debatable subject whether goodwill is an intangible asset or whether acquisition of commercial rights and interest is a goodw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.1 TACL has licenses to operate kitchen at Mumbai, Kolkata and New Delhi. VII Workforce 2.6 TACL has valuable work force at Mumbai, New Delhi and Kolkata which is valued as part of Goodwill. Total 49.6 8.5 According to the AO, the assessee had acquired the catering business of Indian Hotels Company Limited, a joint venture between Indian Hotels Company Ltd. and Singapore Air Terminus Services Limited vide business transfer agreement dated 25.09.2001. The contracts for acquiring the various assets were available to the assessee at the time of making original valuation, including that of goodwill. The said contracts were included in the original valuation. The assessee has valued various assets including goodwill which was valued at ₹ 73,74,49,345/- as on 01.04.2002. The assessee did not bring in any other assets in the value of ₹ 73.74 crores at the time of acquiring the business. The assessee did not bring in any other assets in the said value during the course of assessment proceedings nor it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is how the appeal for the Assessment Year 2006-07 has come up before the Tribunal for hearing. 9.1 Referring to the decision of Hon'ble Kerala High Court in the case of B. Raveendran Pillai v. CIT [2010] 194 Taxman 477, the decision of Hon'ble Delhi High Court in the case of Hindustan Coco Cola Beverages Private Limited, the decision of the Hon'ble Supreme Court in the case of Techno Shares Stocks Ltd. v. CIT [2010] 327 ITR 323/193 Taxman 248 and various other decisions he submitted that depreciation is allowable on goodwill. Referring to a series of decisions as filed in the paper book, he submitted that goodwill is an inseparable part of the business and it goes along with the business. It cannot be sold without the business. So far as the other intangible assets described as goodwill are concerned, he submitted that these also fulfil all the conditions which are required to be satisfied in order to claim depreciation on intangible assets as provided u/s.32 of the I.T. Act. He accordingly submitted that consideration paid for availing the various rights to manage/run the Air Catering Unit is for acquisition of intangible assets covered u/s.32 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not applicable to the facts of the present case. 9.3 The Ld. Counsel for the assessee in his rejoinder submitted that there are several intangible assets and the goodwill is only nominal in nature. He submitted that respective agreements are separately filed. The assessee has satisfactorily established that these are the agreements for the intangible assets and the balance is goodwill. He again reiterated that the assessee is entitled to claim depreciation on these intangible assets as well as on goodwill. 9.4 We have considered the rival arguments made by both the sides, perused the orders of the AO and the DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Tribunal in the assessee's own case for the Assessment Year 2003-04 while setting aside the issue to the file of the A.O has observed as under :- This evidence in our humble opinion goes into the root of the matter. From the assessment order it can be clearly seen that the assessing officer had noticed from the recitals in the business transfer agreement, that intellectual properties which are listed out in Article 1. Sub-clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rating data. We have however, evaluated the information provided to us by the Company through broad inquiry, analysis and review (but have not carried out a due diligence or audit of the Company for the purpose of this engagement, nor have we independently investigated or otherwise verified the data provided). Through the above evaluation, nothing has come to our attention to indicate that the information provided was materially mis-stated/incorrect or would not afford reasonable grounds upon which to base the report. We do not imply and it should not be construed that we have verified any of the information provided to us, or that our inquiries could have verified any matter, which a more extensive examination might disclose. We are not responsible for arithmetical accuracy/logical consistency of any financial model or business plan provided by the Company and used in our valuation analysis. The terms of our engagement were such that we were entitled to rely upon the information provided by the Company without detailed inquiry. Also, we have been given to understand by the Management that it has not omitted any relevant and material factors and that it has checked out relevance or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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