9911796707
TMI Blog2014 (9) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer in relation to depreciation claimed by the Appellant on Goodwill of Rs. 25,609,516. (b) The Learned CIT(A) has erred in considering the transaction of purchase of business rights as sham transaction disregarding the facts and the commercial rationale of the transaction. Ground No.2 Without prejudice to above, the Learned CIT(A) has erred based on the facts and circumstances of the case and in law, in not allowing the consideration of Rs. 2,00,00,000 paid to Rajkumar Koneru IT Enbaled Services Private Limited ('RKIT') as a revenue expenditure deductible under section 37(1) of the Income-tax Act, 1961. Ground No.3 The Learned CIT(A) has erred in computing interest under Section 234B and 234C of the Act after considering the above additions/disallowance. Ground No.4 (a) The Learned CIT(A) has erred in not adjudicating on the ground in relation to levy of interest under Section 234B of the Act on additions made due to retrospective amendments in the Act. (b) On the facts and circumstances of the case and in law, the Learend CIT(A) has erred in levying interest under section 234B of the Act without appreciating the facts that * the additions of Rs. 68,479,558 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed reliance on the judgement of Hon'ble Supreme Court rendered in the case of CIT vs. Smifs Securities Ltd. reported at 348 ITR 302 (SC). He submitted that this decision of the Hon'ble Supreme Court has been followed by the Coordinate Bench of this Tribunal (ITAT 'D' Bench Ahmedabad) in the case of M/s.Punit Engineering Works vs. The ITO in ITA No.492/Ahd/2011 for AY 2007- 08 vide order dated 27/06/2014. 3.1. The ld.counsel for the assessee placed reliance on the following case-laws:- "1.CIT vs. Smifs Securities Ltd.(2012) 24 taxmann.com 222(SC) 2. CIT vs. Birla Global Asset Finance Co.Ltd. (2014) 41 taxmann.com 262 (Bombay High Court) 3. CIT vs. Manipal Universal Learning (P) Ltd. (2013) 34 taxmann.com 9 (Karnataka High Court) 4. Areva T & D India Ltd. vs. DCIT (2012) 20 taxmann.com 29 (Delhi High Court) 5. B.Raveendran Pillai vs. CIT (2010) 194 Taxman 477 (Kerala High Court) 6. Cyber India Online Ltd. vs. ACIT (2014) 42 taxmann.com 108 (Delhi ITAT) 7. India Capital Markets (P) Ltd. vs. DCIT (2013) 29 taxmann.com 304 (Mumbai ITAT) 8. RFCL Ltd. vs. DCIT (ITA No.293 & 294/CHD/2012) (Chandigarh ITAT) 9. DCIT Vs. Worldwide Media (P) Ltd. (2014) 43 taxmann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are as under:- 4.1. The AO disallowed the claim of the assessee in paras 4.8 to 4.10 of his order, which are in the following terms:- "4.8. In the facts of the present case, as far as creation of goodwill of Rs. 4,54,637/- on the transaction with India Infocomm Ltd and Rs. 51,54,880/- on creation of goodwill on the transaction with New Era Publications is concerned, it is seen that the assessee has paid excess amount over and above the net assets, which has been claimed as goodwill. In fact, in reality, the losses suffered by these concerns have been compensated by the assessee company which has been shown as Goodwill on which depreciation has been claimed. This clearly is beyond the meaning of the assets contemplated by the section on which depreciation is allowable. 4.9 As far as the transaction of purchase of Commercial Rights from Rajkumar Koneru IT Enabled Services Private Limited ("RKIT Limited") is concerned, the agreement between the assessee company (earstwhile Writers and Publishers Ltd) and RKIT was shown to be entered on 11.08.2006 whereby the overseas rights have been shown to be acquired from RKIT for a consideration of Rs. 2,00,00,000/- from the effective date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3. Payment of Rs. 2 cores of RKIT for termination of agreement by the merged entity of India Infocom Ltd. Depreciation on these items was claimed by the appellant on the ground that it has acquired intangible assets on which depreciation is permissible. As far as first two items are concerned, these are directly covered by explanation 7A to section 43(1). This sub-section defines actual cost for the purpose of claim of depreciation. Similarly section 43(6) defines WDV and as per explanation 2 B to the section, the WDV of block of asset in the case of resulting company will be the WDV of assets transferred of the demerged company immediately before the demerger. Since first two intangible assets were created by way of scheme of demerger and issue of shares of the resulting company to the demerged company, the actual cost will be same as it was in the case of demerged company. In these cases the WDV of the assets acquired will also be same as per explanation 2B to section 43(6) of IT act. In view of this, any excess credited to goodwill account is over and above the actual cost and WDV defined in these explanations and the same has to be ignored for the purpose of claim of deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of demerger scheme is September 1 2006 by the agreement dated 11.06.2007. This agreement was approved by honorable Gujarat high Court on this date. This means negotiations and diligence for the scheme of arrangement started much in advance. Since no such payment is envisaged in demerger scheme, appellant made the payment by creating documents in the form of overseas right agreement and termination agreement. Since there is no contemporary evidence of rights agreement dated 01.04.2006, it is presumed that both the agreements i.e. rights and termination are executed together. Since there was no possibility of getting old stamp paper, the right agreement was prepared on plain paper. The very fact that appellant used termination agreement on Stamp paper, the requirement of using Stamp paper is not unknown to the appellant. This put question mark on these two agreements which are nothing but an attempt to get money on account of demerger and to claim tax deduction. 5. It was specifically asked to the appellant's counsel to submit the details of accounting and tax treatment given by the other entity to the transaction namely RK IT. However appellant did not submit any details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance on the decision rendered in the case of M/s.R.G. Keswani vs. ACIT (116 ITD 133 - Delhi) and in respect of the consideration paid to RKIT, the AO observed that Indiainfo.com Ltd. has not recognized any income on account of overseas right agreement between the RKIT and IIL either in FY 2006-07. 4.4. The ld.CIT(A) rejected the claim of the assessee on the basis that two items, namely, creation of goodwill of Rs. 4,54,637/- on account of scheme of merger of a division of India Infocom Ltd. and Creation of goodwill of Rs. 51,54,880/- on account of merger transaction with new era publications are directly covered by explanation 7A to section 43(1). The ld.CIT(A) observed that the depreciation is allowable on the WDV of block of asset and such WDV is defined in section 43(6) of IT Act. Therefore, even if it is held that appellant is eligible for depreciation on goodwill, the same will not form part of WDV on which depreciation can be claimed. The ld.CIT(A) was of the view that even otherwise also the claim will not be allowable since goodwill is not the intangible asset in the nature of assets mentioned in the section. As regards claim of depreciation on payment made to RKIT, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on plain paper. The very fact that appellant used termination agreement on Stamp paper, the requirement of using Stamp paper is not unknown to the appellant. This put question mark on these two agreements which are nothing but an attempt to get money on account of demerger and to claim tax deduction. 5. It was specifically asked to the appellant's counsel to submit the details of accounting and tax treatment given by the other entity to the transaction namely RK IT. However appellant did not submit any details despite the fact that the said RK IT is associate concern of India Infoline Ltd and sharing the same office address. When the transaction was treated as Sham by the assessing officer, the onus to prove the transaction genuine was very heavy on the appellant. Despite that appellant chose to remain quiet on the issue and submitted only legal submissions. Legal submissions come after facts. When the transaction is not treated genuine of facts, the legal submission on allowability cannot make any difference. This also shows that appellant was not in a position to defend this transaction and submit necessary evidences from both the sides in this regard. 6. Assessing offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides 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(l)(ii) of the Act, it is seen that such rights need not answer the description of "knowhow, patents, trademarks, licenses or franchises" but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred in Section 32(l)(ii) of the Act 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. The fact that after the specified intangible assets the words "business or commercial rights of similar nature" have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions effected by the assessee-company. More particularly, the ld.CIT(A) in the case of RKIT, to whom the assessee has paid a sum of Rs. 2 crores for acquiring the overseas rights. The ld.CIT(A) has proceeded on the assumption that the contracts as entered into by the assessee-company were not genuine. Such assumption was on the basis that the assignment agreement was executed on a plain-paper and termination agreement was executed on a stamp-paper. Under the Contract Act, there is no distinction between a contract executed on plain-paper and executed on a Stamp-paper. Both the contracts are enforceable under the Contract Act. Any non-payment of the stamp duty attracts the provisions of the respective Stamp Act. The authorities have not given any finding as to how this contract is the sham transaction without even examining the persons who have executed the same. Under these facts, we are unable to agree with the view of the authorities below that the transactions were sham or otherwise not for business purpose. Therefore, respectfully following the ratio laid down by the Hon'ble Apex Court in the case of CIT vs. Smifs Securities Ltd.(supra) and the Hon'ble Delhi Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on that date advance tax was not payable on the amount in question, the assessee would not be liable to pay interest u/s.234B when by retrospective amendment made later the amount becomes taxable. This judgment applies to the present case so far as the deferred tax is concerned. In Haryana Warehousing Corporation v. DCIT (75 ITD 155)(TM) it has been held by the Third Member that if on the date of paying advance tax there was no liability to pay the same on a particular amount, the fact that by reason of a later decision of the Supreme Court the amount became taxable would not make the assessee liable for paying interest u/s.234B. Priyanka Overseas Ltd. vs. DCIT (79 ITD 353) is a decision dealing with the liability to pay interest u/s.234B by reason of a retrospective amendment, as in the present case. The Delhi Bench of the Tribunal held that the assessee was not liable to pay interest. The order of the Hyderabad bench of the Tribunal in ACIT v Jindal Irrigation Systems Ltd. (56 ITD 164) is one in which the effect of retrospective amendment was not considered, but the case was decided on the general principle of law that "lex non cogit ad impossibili a" (the law does not compel a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d how. Sections 207 and 208 read as under: '207. Tax shall be payable in advance during any financial year, in accordance with the provisions of sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this Chapter referred to as "current income". 208. Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is five thousand rupees or more.' 7. A combined reading of the above provisions makes it clear that the assessee has to pay taxes in advance in respect of the total income of the assessee, which would be chargeable in a particular assessment year. Now before the introduction of section 35DDA, the legal dictum was very clear that the assessee could claim expenditure incurred on account of payment made for the VRS by the assessee in view of the binding decisions of the hon'ble jurisdictional High Court in the case of CIT v. George Oakes Ltd. [1992] 197 ITR 288 (Mad) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1990, it was held that in such cases interest under sections 234B and 234C was not chargeable. In these circumstances, we think that the assessee was not liable to pay advance tax and therefore levy of interest under sections 234B and 234C is not justified. Further, it is pertinent to note that the assessee by way of abundant caution deposited a sum of Rs. 90,00,000 on August 6, 2001, i.e., much before the due date of filing of the return, which also proves the bona fide credentials of the assessee. In these circumstances, we set aside the order of the learned Commissioner of Income-tax (Appeals) and delete the levy of interest under sections 234B and 234C." From a reading of the above, it is clear that the Tribunal had taken a view that the Finance Bill introduced was passed in both the Houses of Parliament, receiving the assent of the hon'ble President of India, on May 11, 2001. Till that time, the assessee could not have visualized that the individual liability would be fastened on him. It is also found by the Tribunal that the assessee fairly deposited a sum of Rs. 90,00,000 by way of self-assessment on August 6, 2001, before the date of filing the return which also ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
