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TMI Blog2015 (1) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... HMA CHOWLA, JJ. For the Appellant : Shri Mahender Kumar For the Respondent : Smt.Jyoti Kumari, CIT DR ORDER Per SUSHMA CHOWLA, J.M. : These two appeals filed by the assessee are against the consolidated order of the Commissioner of Income Tax (Appeals), Shimla dated 13.12.2012 relating to assessment years 2006-07 and 2009-10 against the order passed u/s 143(3) r.w.s.147 of the Income Tax Act, 1961 (in short 'the Act'). 2. The assessee has raised following ground of appeal in ITA No.189/Chd/2013 relating to assessment year 2006-07: 1) That the order passed by the Hon'ble Commissioner of Income-tax (Appeals) ["CIT(A)"] under section 250 of the Act is contrary to the provisions of the law. 2) That the Hon'ble CIT(A) erred in upholding the order of learned Assessing Officer (AO") passed under section 147 read with section 143(3) of the Act on the facts and circumstance of the case, thereby the assessment is void-ab-initio. 3) That the Hon'ble CIT(A) erred in upholding the order of the learned AO in making an addition of ₹ 15,926,686 on account of disallowance of depreciation claimed on intangible assets recorded as Goodwill in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten request made by the Appellant to keep the matter in abeyance till the disposal of appeal by the Hon'ble Bench for the AYs 2007-08 and 2008-09 involving identical grounds; 4) Even if the order is passed ex-parte, the Hon'ble CIT(A) has erred by not considering the Hon'ble Supreme Court decision in the case of Commissioner of Income-tax Vs SMIFS Securities Limited (348 ITR 302); 5) That the Hon'ble CIT(A) erred in law and on facts by disregarding the contention of the Appellant that the Goodwill recorded in the books represents intangible assets eligible for depreciation under section 32(1 )(ii), although the same was recorded as Goodwill in the books of accounts; 6) That the Hon'ble CIT(A) erred in law and on facts by holding that depreciation on 'Goodwill' is not allowable since the same does not find a mention in the words used in section 32(1 )(ii) of the Act, although the Appellant has submitted that the amount recorded as 'Goodwill' in fact represents amount paid towards intangible assets eligible for depreciation; and 7) That the Hon'ble CIT(A) erred in law and on facts by granting restrictive meaning to section 32(1)(ii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. We have heard the rival contentions and perused the record. The brief facts of the case are that during the financial year 2005-06 the assessee had entered into a Business Purchase Agreement with RAnbaxy Laboratories Limited for purchase of the entire Animal Health Care and Diagnostics Business Division of Ranbaxy. As per the claim of the assessee As a part of the BPA, all the assets, personnel, marketing capabilities, licenses, permits, leases, tenancy rights, contracts and all other rights and powers etc related to the Allied Business divisions were transferred by Ranbaxy to RFCL for a consideration of ₹ 62 Crores. Further, the above consideration comprised the value for both tangible as well as intangible assets. The intangible assets acquired by RFCL were in the nature of trademarks and brand names, client portfolio consisting of the detailed list of wholesale stockists and all marketing and promotional information and documents in relation to the products, all licenses, covenants, permissions, health registrations, approvals and concessions from any Government authority for carrying on the Allied Business, all other information and technology in relation to the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of entire Animal Health Care and Diagnostics Business Division of Ranbaxy by the assessee, though during the financial year 2005-06 and referred to various clauses of the Business Purchase Agreement entered into between the assessee and transferor and had also considered various aspects of the issue, bifurcation of total value between different assets and also the nature of intangibles acquired by the assessee in line with Business Purchase Agreement entered into with M/s Ranbaxy Laboratories. The Tribunal vide paras 19 to 30 had observed as under: "19. The issue arising before us is whether the assessee is entitled to the claim of depreciation on the said acquisition of intangible assets in line with the acquisition of business of Animal Health Care and Diagnostics Business divisions of Ranbaxy and/or also whether the assessee is entitled to the claim of depreciation on the amount booked under the head goodwill simpliciter. 20. Under the amended provisions of section 32 of the Act w.e.f. 1.4.1999, ambit of depreciation has been enlarged to cover both the tangible and intangible assets. The depreciation on buildings, machinery plant of furniture being tangible assets was b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assets referred in Section 32(1)(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 of "business or commercial rights" cannot be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of "business or commercial rights" can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in case of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in value or physical wear and tear is not an essential condition for admissibility for depreciation, if the asset is used as a business tool for earning income." 24. The above said ratio was referred to by Mumbai Bench of the Tribunal in M/s India Capital Markets P. Ltd. Vs. DCIT (supra) wherein the purchase of clientele business by the assessee from M/s AFC was held to be right which could be used as a tool to carry on the business and the consideration paid for which was held eligible for depreciation. 25. As pointed out in paras hereinabove the assessee in addition to building, plant & machinery, furniture, fixtures, vehicles and net current assets alongwith brands valued at ₹ 49.26 crores had also acquired the under-mentioned assets: S. No. Details of Intangible Assets acquired Paper Book Reference Page Numbers 1. Stockist Agreements 51-75 2. Distribution Agreements 76-79 3. Lease Agreements 81 4. Distribution and Marketing Agreements 82 5. List of Employees 83-86 6. List of Licenses and Permissions (Export Registrations) 126 7. Various Products --Enlarged product range and customer base 108-120 8. Name License 45 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Supreme Court is as under: "The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 ['Act', for short] We quote hereinbelow Explanation 3 to Section 32(1) of the Act: "Explanation 3 - For the purposes of this sub-section, the expressions 'assets' and 'block of assets' shall mean-la] tangible assets, being buildings, machinery, plant or Furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature." Explanation 3 states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading of the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial right of a similar nature. The principle of ejusdem generis would strictly apply while interpreting the said expression w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it had contributed part of the consideration for acquisition of the goodwill of the business being run by the seller and once such contribution has been so made, the assessee is entitled to the claim of depreciation on such goodwill as held by the Hon'ble Supreme Court in CIT Vs. SNIFS Securities Ltd. (supra). Similarly other arguments raised by the learned D.R. for the Revenue that residual concession, various rights, licences, approvals, etc. was not correct, does not stand in view of our decision in paras hereinabove in turn following the ratio laid down by the Hon'ble Delhi in Areva T and D India Ltd. Vs. DCIT (supra). 30. The last objection of the authorities below and learned D.R. for the Revenue was that the Tax Auditors had denied benefit of depreciation on goodwill booked in the Balance Sheet. It is an established rule that the treatment of an entry in the books of account does not establish its allowability in the hands of the assessee. It is the nature of the expenditure which determines allowability of the expenditure in the hands of the assessee. The opinion of the auditors is not determinative of the correct position of law and while allowing the claim in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No.294/Chd/2012 are similar to the facts in ITA No.293/Chd/2012. The assessee during the year under consideration had claimed depreciation on goodwill represented by various intangible assets amounting to ₹ 3,34,82,355/-. The assessee during the year under consideration had claimed the said depreciation on intangible assets on account of following acquisitions: a) Purchase of entire Animal Health Care and Diagnostics Business divisions of Ranbaxy Laboratories Limited ("Ranbaxy Acquisition") b) Purchase of the entire Biomed division of Wipro Limited comprising of Diagnostics, Medical systems and life sciences business ("Wipro Acquisition") c) Purchase of the entire medical diagnostic business of Godrej Industries Limited ("Godrej Acquisition") 32. The assessee has tabulated value of intangible assets under all the above acquisition and corresponding depreciation claimed during the year, in its written submissions and the same are as under: Particulars Financial year of acquisition Value of Intangible Assets acquired (Rs.in crores) Depreciation claimed (Amount in Rs) Ranbaxy Acquisition 2005-06 12.74 33,482,355 Wipro Acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Details of trade marks 54 2. List of Contracts 55 3. Details of Licenses 56 4. List of employees 58 5. Details of Insurance Policies 65 36. The third acquisition by the assessee during the year was by way of BAA with M/s Godrej Industries Ltd. The assessee purchased the entire medical diagnostic business of Godrej (hereinafter referred to as "the Allied Business"). As a part of the BAA, all the assets, liabilities, employees, contracts, consumables and all other rights and privileges, etc related to the Allied Business division were transferred by M/s Godrej Industries Ltd. for a consideration of ₹ 6 crores. Clause 2.1 of the BAA details the assets, rights, titles etc. that were conveyed to the assessee as a going concern on a slump sale basis. The relevant extract of clause 2.1 reads as under: "2.1 Subject to the provisions of this Agreement, on the Closing Date, the Seller shall sell, transfer, convey and deliver to the Purchaser and the Purchaser shall purchase, acquire and accept from the Seller, all rights, title and interest of the Seller in and to the Specified Business, as a going concern on a slump sale basis. The term &# ..... X X X X Extracts X X X X X X X X Extracts X X X X
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