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TMI Blog2014 (9) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... rizations etc. relating to the business of Maintenance Division of ECE Ltd. including the benefits accruing from existing and prospective service contracts with third parties in whose premises the products of the vendor have been installed. AMCs would not fall under any of the specified intangible assets such as know-how, patents, copyrights, trademarks, licenses and franchises listed under Section 32(1)(ii) of the Act - the present Agreement represent a bundle of rights in the form of “commercial rights” which eventually constitute the basic income earning apparatus of the Assessee – the contention of the assessee is accepted that AMCs are commercial rights and the same should rightly be categorized as “business or commercial rights” for the purposes of Section 32(1)(ii) of the Act - AMCs should get covered within the expression" business or commercial rights of similar nature" specified u/s 32(1)(ii) of the Act and accordingly eligible for depreciation – Decided in faovur of assessee. Admission of additional ground - Depreciation in goodwill u/s 32(1)(ii) – Held that:- Following the decision in Commissioner of Income Tax, Kolkata Versus Smifs Securities Ltd. [2012 (8) TMI 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee against the Order of the Ld.CIT (A)-XIX, New Delhi dated 06.11.2007 for the Assessment Year 2003-04. 2. The grounds of appeal raised in the present Appeal by the assessee before us are as follows:- 1. That the order of learned Commissioner of Income Tax (Appeals) (CIT (A)) is bad both in laws and on facts of the case. 2. That the learned CIT(A) without appreciating the facts erroneously confirmed disallowance of claim of depreciation of ₹ 2,29,34,250/ on intangible assets. 3. That the learned CIT(A) has made erroneous observations on facts and wrongly held that consideration paid to acquire rights under the contract did not represent depreciable intangible asset, in terms of Section 32(1)(ii) of the Act. 3. The assessee has also raised an additional ground before us for the first time as below:- That on the facts and in the circumstances of the case, depreciation u/s 32(1)(ii) may be allowed on the amount of ₹ 1,85,44,612/- allocated by the appellant in its accounts towards goodwill as part of consideration to M/s ECE Industries Ltd. together with the latter s business and commercial rights under the agreement dated October 16, 2002. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 143 by filing revised return. According to him, the initiation of the claim is required and completion on the basis of fact is a must. Therefore depreciation on good will cannot be claimed without filing of revised return and the ld DR referred decision of Goetze (India) Limited Vs. Commissioner of Income Tax (2006) 284 ITR 323 (SC) wherein it has been held that fresh claims made before the AO should be made by way of filing revised return and not otherwise. According to the DR the case laws cited by the Ld. AR are not applicable in this case. According to the ld DR, the particulars necessary for the purpose of assessment have to be submitted before the completion of the assessment proceeding and if the information is supplied subsequent to the completion of the assessment, it would mean that assessment order will have to be reopened and the Act does not contemplate such reopening of assessment. Therefore the ld DR submitted that if no claim for depreciation on good will was made in the return of income then deduction should not be allowed. 9. We have heard both the parties and have perused the case-laws cited before us in this respect. We find that, the following case law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Commissioner has, therefore, plenary officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do. (emphasis supplied) 12. The above observations are squarely applicable to the interpretation of Section 251 (1)(a) of the Act. The declaration of law is clear that the power of the Appellate Assistant Commissioner is co- terminus with that of the Income Tax Officer, if that be so, there appears to be no reason as. to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise an Appellate Authority while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same. Under Section 254 of the Income Tax Act the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with the appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. I~ for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item We do not see any reason to restrict the power of the Tribunal under Section 254 only .to decide the grounds which arise from the order of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the same were part of the purchase consideration as could be seen from Article 3.1 of the said Agreement. Therefore, for reasons stated above, we are inclined to allow the application for additional ground as non- allowance could result in denial of justice, as was argued by the Ld. AR before us. Hence, this issue under consideration is answered in the affirmative and decided in favour of the Assessee. In the result, the Application for additional grounds as raised by the assessee/ appellant is admitted. 18. On merits, the key issues for our consideration are outlined below: (a) Whether claim for depreciation of ₹ 2,29,34,250/- on intangible assets i.e. Maintenance Portfolio in the present case as disallowed by AO and upheld by CIT(A), is allowable under Section 32(1)(ii) of the Act; (b) Whether depreciation u/s 32(1)(ii) may be allowed on the amount of ₹ 1,85,44,612/- allocated by the appellant in its accounts towards goodwill as part of consideration to M/s ECE Industries Ltd. together with the latter s - business and commercial rights under the agreement dated October 16, 2002 19. During the relevant year as stated above, the Assessee acquired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maintenance Portfolio 18,34,74,000 4. Goodwill 1,85,44,612 Total 24,33,00,000 24 Thus it is evident that in terms of the accounting policies of the Assessee, for the purposes of capitalization of amount paid for acquisition of intangibles being ₹ 20,20,18,612/-, allocation was made as shown in the Balance Sheet to the following categories: 1. Maintenance Portfolio - ₹ 18,34,74,000 2. Goodwill - ₹ 1,85,44,612 25. In terms of Section 3 of the said Agreement, the final break-up of the consideration was as under:- S. No. Particulars Amount (In Rs.) 1. Net Current Assets 3,72,90,000 2. Fixed Assets 39,91,388 3. Maintenance Portfolio 18,34,74,000 4. Goodwill 1,85,44,612 Total 24,33,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Ld.CIT (A) and wants us not to interfere in the impugned order. 31. Now, it would be relevant to turn to the observations made by the Ld. AO while, disallowing the claim of the Assessee for depreciation on maintenance portfolio under Section 32(1) of the Act and observed as under:- (a) The Assessee during the relevant year earned revenues amounting to ₹ 5.10 crores which was shown in the Profit and Loss Account on the basis of aforesaid acquisition of the Maintenance Portfolio . Further, when the AO sought a reply from the Assessee on the reason for claiming depreciation on Maintenance Portfolio, the Assessee responded by stating that, the Assessee had not acquired the Manufacturing Division of ECE Elevators and had only acquired the Maintenance Division which shall yield revenue once the warranty period comes to an end. (b) On the basis of the reply provided by the Assessee, the AO observed that, the Assessee was following the complete contract method hence, the Assessee was not eligible for claiming depreciation as there was no income from the said contracts which was offered to taxation. Accordingly, the depreciation claim of the Assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total payment of ₹ 18,34,74,000/- claim to be for acquiring the maintenance portfolio by the appellant is nothing but the payment for taking over the exclusive business of a company. In a case of taking over of a business, the total payment is inclusive of acquiring assets and rights to run to existing business of the vendor. As the AO has already allowed depreciation on fixed assets as per Income Tax law, that issue is not in dispute. (d) The only issue for consideration in this appeal on this ground is whether the total payment of ₹ 18,34,74,000/- claimed to be for acquiring the maintenance business will fall under the head intangible assets and depreciation could be allowed on it or not as per Income Tax Act. The Ld. CIT(A) further observed that, In fact, there is no transfer of Brand involved in this transaction. It is only for a period of 3 years that the vendor has agreed to resist from carrying on the service contract work with some exceptions. The vendor is obliged to carry service contract work for Govt/ semi-govt and some private customers (left by the purchaser/ appellant company). Hence, it is not a complete transfer or sale of service contracts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business rights for which bulk of the consideration was paid by the Assessee. Apart from the maintenance contracts, we find that the Assessee has obtained all Intellectual Property Rights in the form of know- how relating to the complete business of the Maintenance Division of ECE Ltd. We also note that apart from aforesaid IPR s, the Assessee has also received leases, licenses, offers and purchase orders etc. relating to the said Maintenance Division of ECE Ltd. Likewise, the Assessee has also obtained various rights, permits, authorizations etc. relating to the business of Maintenance Division of ECE Ltd. including the benefits accruing from existing and prospective service contracts with third parties in whose premises the products of the vendor have been installed. 36. Section 32 of the Act deals with depreciation and the expression intangible assets is defined in Section 32(1)(ii) as under: In respect of depreciation of know-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after 1st day of April 1998 37. On a perusal of the meaning of the categories o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(1)(ii) of the Act. 38. Further, as regards maintenance portfolio purchased by the assessee/ appellant by way of slump-sale arrangement, it is pertinent to note that the same constitutes the basic income earning apparatus of the Assessee and cannot be vitiated or watered down by certain residual conditionalities inasmuch as continuance of certain govt. contracts with the ECE Division etc. in the slump-sale arrangement since, the same would lapse once the contract term under respective maintenance contracts are concluded. Secondly, it would be prudent to state that these AMC s in terms of value only comes next to the value of fixed assets. 39. Thus, on the basis of above discussions, we are of the view that AMC s would not fall under any of the specified intangible assets such as know-how, patents, copyrights, trademarks, licenses and franchises listed under Section 32(1)(ii) of the Act. In this regard, the Ld. AR had argued before us that, such AMC s form the very essence of the transaction of slump-sale i.e. purchase of the Maintenance portfolio business in the instant case and any transfer of such AMC s could only be effected in the form of intangible commercial righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 32 of the Act deals with depreciation and the expression intangible assets is defined in Section 32(1)(ii) as under: In respect of depreciation of know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after 1st day of April 1998 45. It has to be noted that goodwill does not find any mention in the said Section extracted above however, pursuant to the Apex Court ruling in the case of Commissioner of Income-tax, Kolkata v. Smifs Securities Ltd., [2012] 24 taxmann.com 222 (SC),it was held that excess consideration paid by the assessee over the value of net assets should be considered as goodwill of business. The Apex Court went on to further observe that, a reading the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 would include goodwill in terms of the principle of ejusdem generis. 46. In light of the Apex Court ruling in Smifs Securities (supra), we observe that in the present case the audited balance-sheet of the Assessee for the year ending 31.03.2003 peg the values of maintenance portfolio at & ..... X X X X Extracts X X X X X X X X Extracts X X X X
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