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TMI Blog2013 (11) TMI 1487X X X X Extracts X X X X X X X X Extracts X X X X ..... ets - On a perusal of the meaning of the categories of specific intangible assets referred in section 32(1)(ii) preceding the term 'business or commercial rights of similar nature, it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. In the absence of the aforesaid intangible assets (business or commercial rights), the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring these business rights along with the tangible assets, the assessee got an up and running business – Following Hon’ble Supreme Court in the case of C.I.T., Kolkata vs. Smifs Securities Ltd [2012 (8) TMI 713 - SUPREME COURT] - Goodwill is an asset under Explanation 3(b) to Section 32(1) qualifies for depreciation u/s. 32 - Explanation 3 states that the expression ‘asset’ shall mean an intangible asset, being know how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature – Decided in favour of assessee. - I.T.A. No. 1299/Del/2010 - - - Dated:- 27-11-2013 - Shri R. P. Tolani And Shri J. S. Reddy,JJ. For the Petitioner : S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,574/- and tax payable thereon of ₹ 2,23,918/- u/s. 115JB of the I.T. Act, 1961. On 28.2.2006 the return was processed under section 143(1) and refund of ₹ 3,64,011/- was issued to the assessee. However, on 15.2.2008 a notice was sent to the asssessee under section 148 of the I.T. Act (reopening), requiring them to file the return of income. But assessee vide order dated 17.3.2008 challenged the validity of the reopening and also challenged the jurisdiction. On 7.11.2008 by a speaking order the AO repelled the challenge to the jurisdiction and sent a notice to the assessee to file the objection on merit. Thereafter on 18.11.2008 the AO completed the assessment u/s. 143(3) of the Act wherein he disallowed the assessee s claim for depreciation of ₹ 16,99,020/- on the cost of acquisition of goodwill of the business which it purchased. 5. Aggrieved by the Order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A) and vide order dated 3.12.2009, the Ld. CIT(A) dismissed the same. 5.1 The relevant finding of the Ld. CIT(A) is extracted here under to facilitate ready reference:- 3.2 During the proceedings before me, it was submitted that goodw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted the views of the ld. AO and Ld. CIT(A). 7.2 Before we deal with the issue in hand, let us gainfully refer Section 32(1) as under:- (1) In respect of depreciation of (i) Buildings, machinery, plant or furniture, being tangible assets; (ii) Know how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed. Explanation 3(b) to Section 32(1) reads as under:- (b) intangible assets, being know how, patents, copy rights, trade marks, licences, franchises or any other business or commercial rights of similar nature. 7.3 We can also gainfully refer the meaning of goodwill as defined in Lexis Nexis Tax Law Dictionary 2013 as under:- Should be recorded in the books only when some consideration in money or money s worth has been paid for it. Whenever a business is acquired for a price (payable in cash or in shares or otherwise) which is in excess of the value of the net assets of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deemed to have been owned or possessed by the Vendor Company. (b) ........ (c) The benefits occurring to the Vendor from all the contracts and agreements (including all lease and rental agreements) subsisting or otherwise and those for which the option is vesting with them. (2) The consideration for the sale of the said business is settled as ₹ 1,00,00,000/- and the Company shall credit the Vendor for the same amount and satisfy this consideration by issue of ₹ 1,00,00,000 equity shares of ₹ 1/- each at par for a total value of ₹ 1,00,00,000/- in the capital of the Vendee Company credited as fully paid in cash, ranking pari passu with the existing shares of the company. ................ 7.7 From the above, it is seen that assessee vide slump sale agreement dated 23.8.1999, acquired a going concern, business of on-line and other electronic media through internet and other net works, including databases, on-line magazines, newsletters w.e.f. 1.9.1999. As and thereof, the running business of online and other electronic media through internet was acquired by the transferee (assessee) lock, stock and barrel minus the other business no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The balance part of ₹ 16,58,76,000/- over and above the book value of net tangible assets, was allocated by the transferee (as the value shown as good will in the balance sheet). The claim of the assessee for depreciation was turned down by the Ld. AO; Ld. CIT(A) ITAT. It was held that after going through the agreement that value towards acquisition of bundle of business and commercial rights, which was defined in the slump sale agreement, compendiously termed as goodwill in the books of accounts which comprised inter-alia the following:- i) Business claim, (ii) Business information (iii) Business records, (iv) Contracts, (v) Skilled employees, (vi) Know how. 7.11 The Hon ble High Court has further held as under:- Applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression 'business or commercial rights of similar nature' specified in section 32(1)(ii), it is seen that such rights need not answer the description of 'know-how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder that section. [Para 14}. 7.12 In the present case also it is seen that assessee vide slump sale agreement dated 23.8.1999, acquired a going concern, business of on-line and other electronic media through internet and other net works including databases, including databases, on-line magazines, newsletters w.e.f. 1.9.1999 for ₹ 1 crore. The balance part of ₹ 61,76,080- over and above the book value of net tangible assets, was allocated by the transferee (as the value shown as good will in the balance sheet). The claim of the assessee for depreciation was turned down by the Ld. AO, after reopening and the appeal before the Ld. CIT(A) also failed on the ground that goodwill is not an intangible assets since it does not figure in the intangible assets prescribed u/s. 32(1)(ii) of the I.T. Act, 1961 and therefore, the claim for depreciation was turned down. The consistent stand of the assessee is that the sale was a slump sale and the total consideration was for ₹ 1 crore. The book value of the net tangible assets when subtracted from ₹ 1 crore will become ₹ 61,76,080/- which was shown as value of the goodwill (intangible assets) and this value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of goodwill qualify for depreciation u/s. 32 of the Act is no longer res integra. We find that in the judgment referred by the Ld. Counsel of the Assessee in the case Areva T D India Ltd. vs. C.I.T. C.I.T. vs. Parabolic Spring Ltd., (Supra) in a similar matter that too in respect to slump sale the Hon ble High Court has held that deprecation on goodwill can be allowed u/s. 32. We also find that Hon ble Supreme Court in the case of C.I.T., Kolkata vs. Smifs Securities Ltd (Supra) held that goodwill is an asset under Explanation 3(b) to Section 32(1) qualifies for depreciation u/s. 32. In the said case the question before the Hon ble Supreme Court in the case of Smifs Secruities (Supra) was the following : (b). Whether goodwill is an asset within the meaning of Section 32 of the I.T. Act, 1961, whether depreciation on good will is allowable under the said Section? 7.15 While answering the above question, the Hon ble Supreme Court held that in the circumstances, we are of the view that goodwill is an asset under Explanation 3(b) to Section 32(1) of the I.T. Act. In the said case the facts of the case was that the assessee company amalgamated after it was sanctioned b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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