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TMI Blog2015 (3) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... io laid down by the Hon'ble Supreme Court in CIT Vs. Smifs Securities Limited (2012 (8) TMI 713 - SUPREME COURT), the alternate plea of the assessee is to be allowed vis-à-vis the claim of depreciation on goodwill. Further, there is no merit in the observations of Assessing Officer that the Seller did not possess any intangible assets as the same were not reflected in its Balance Sheet. The assets acquired by assessee were self generated assets of Seller and hence no value reflected in its Balance Sheet. We find no merit in the observations of Assessing Officer in this regard and the same is dismissed. The next observation of Assessing Officer that no separate costs had been attributed to individual assets acquired by assessee have no relevance and the same is dismissed. Accordingly, we direct the Assessing Officer to allow depreciation on the WDV of intangible assets acquired in the preceding year and brought forward in the year under consideration. Thus, the Assessing Officer is directed to allow depreciation on intangible assets - Decided in favour of assessee. - ITA No. 1488/PN/2011 - - - Dated:- 25-2-2015 - G. S. Pannu, AM And Sushma Chowla, JM,JJ. For the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78/-. The Assessing Officer requisitioned the assessee to justify its claim of depreciation on intangible assets during the course of assessment proceedings. In reply, the assessee claimed that it had entered into an agreement to assets sale and transfer with M/s. Bosch Chassis Systems India Ltd. (in short 'BCSIL') on 01.02.2006, under which, the intangible assets were specified which included Customer Base, Material Suppliers, Low Cost Process Know-how, Technical Man Power, Technology and Patents. The plea of the assessee was that as per section 2(11) of the Act, the block of assets comprised of tangible assets being buildings, machinery, plant or furniture and the intangible assets comprised of Know-how, Patents, Copy Rights, Trade Marks, Licenses, etc. Under the Income Tax Act, depreciation on intangible assets acquired after 31.03.1998 were entitled to depreciation @ 25%. The Assessing Officer noted that the claim of the assessee was that it had purchased the entire business from BCSIL vide agreement dated 01.02.2006. It was further claimed by the assessee that as the entire business had been acquired, along with that the assessee had also acquired intangible assets i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order. The Assessing Officer vide para 5.5 notes that both the assessee company and seller company had appointed Valuer with joint consent to allocate costs to each other's assets. On the perusal of the valuation report, the Assessing Officer noted that the cost of the fixed assets were allocated as per the valuation report and the consideration paid over and above the same, was towards value of intangible assets. As per the Assessing Officer, the basis for determining the value of goods grouped together under the head intangible assets had not been substantiated by the assessee nor, it was clear from the agreement. The Assessing Officer, then deliberated upon the meaning of the word depreciation and considered the eligibility of each and every asset claimed by the assessee as an intangible asset and was of the view that the issue in the present case was not whether the depreciation is admissible on intangible assets or not, but the issue was whether the assets claimed by the assessee were depreciable or not. Since section 32 of the Act grants depreciation in respect of specified assets, the intangible assets in possession of the assessee did not qualify for the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2012) 348 ITR 302 (SC). The learned Authorized Representative for the assessee referred to another observation of the Assessing Officer at page 11 of the impugned order that the nature of intangible assets had not been specified by the assessee. The learned Authorized Representative for the assessee pointed out that the statement was incorrect since the nature of intangible assets acquired by the assessee was clear from the agreement itself. Reference was made to clause 1.1.2 of the agreement and the break-up of intangible assets detailed in Appendix to the agreement. Another aspect pointed out by the learned Authorized Representative for the assessee was that, it was not necessary to segregate various intangible assets for the purpose of granting depreciation on the same, as held by the Mumbai Bench of the Tribunal in DCIT Vs. Worldwide Media (P.) Ltd. (2014) 43 taxmann.com 18 (Mum. Trib). Another objection of the Assessing Officer was that, from the perusal of the balance sheet of M/s. BCSIL, it was apparent that the seller did not possess the intangible assets. The learned Authorized Representative for the assessee in this regard, stated that the intangible assets acquired by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle 2 to the agreement provided that the seller agreed to sell, to assign, transfer, convey and deliver to the purchaser the RBIC assets, which the purchaser agreed to purchase. Further, as per clause 3, it was provided that in relation to the sales agreement with customers of RBIC business currently in force and effect, the seller and/ or the purchaser would have right to the respective contracting parties of the contract offering them to enter into a new contract with the purchaser. In the event that, any contracting party refuses to accept the offer, then the purchaser until the next regular termination date, had to fulfill the respective contract for its own account in the name of Seller. As per Article 7, the aggregate price for the RBIC assets were fixed at ₹ 28,70,00,000/-, which was bifurcated between tangible assets inventory and the intangible assets. The said price agreed to by the parties was exclusive of any registration, duties, VAT, sales tax or similar taxes, if any. The Appendix -1 enlists the list of the tangible assets i.e. fixed assets and also the list of inventory on which there is no dispute and the assessee has been allowed depreciation. 11. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree stages i.e.(i) the asset which may or may not have any future economic benefits such as inventions, patents; or (ii) asset which can have future economic benefits subject to happening of certain events (unpredictable) and (iii) assets which have shown past and present economic benefit which may or may not have measured but has an assured future economic benefit. It was reported by the valuer that the case of the assessee fell within the last stage of identification. Then the valuer has identified the various parameters and facts based on which, the identification of intangible assets had been made under different heads. The list of such sub heads were Technology and Process Knowhow, Material Suppliers (vendors), Customer Base, Patents and Technical man power. 13. As per clause 29, the intangible assets though had been separately defined and identified but as per the valuer, the valuation of these individual intangible assets in isolation could not have been appropriated since the same were offered as group and hence have supplementary / complementary effect on each other in their subsequent usage and corresponding economic benefits offered by them over the period. 14. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that no separate costs had been allocated by the assessee to these assets and further, the same do not figure in the specified assets in section 32(1)(ii) of the Act. Another objection raised by the Assessing Officer was that the asset named as Customer base does not diminish in its value due to wear and tear because of its use and efflux of time. At best, the same could be called as goodwill developed by the principal, which was acquired by the assessee through the said agreement, was the observation of Assessing Officer. On the other hand, plea of the learned Authorized Representative for the assessee was that the Customer base is entitled to the depreciation under section 32(1)(ii) of the Act and further, even it is considered as goodwill, then also, in view of the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Smifs Securities Limited (supra), the assessee is entitled to the depreciation on the said goodwill. 17. On the perusal of the record and the agreement entered into between the parties, it is apparent that the assessee had acquired the entire business along with Technical Know-how of two wheeler braking system from M/s. BCSIL. On such acquisition, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that where the consideration was for the supply of Know-how being recurring, under which payments as royalty, technical assistance fee, etc. were made, then such payments ought to be charged to Profit Loss Account. The Assessing Officer denied the depreciation under section 32(1)(ii) of the Act. 21. The issue of allowability of depreciation on the nature of intangible assets eligible for depreciation under section 32(1)(ii) of the Act arose before the Hon'ble Delhi High Court in Areva T D India Ltd. Vs. DCIT (2012) 345 ITR 421 (Del). The Hon'ble Delhi High Court considered the nature of business or commercial rights as included in the definition of intangible assets under section 32(1)(ii) of the Act and observed as under:- .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. The fact that after the specified intangible assets the words 'business or commercial rights of similar nature' have been additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rebate, which was under the said old provisions of the Act, was distinct from the normal depreciation to be allowed on the assets. The said principle laid down by the Hon'ble Supreme Court has no relevance to the issue raised before us. 24. Coming to the agreement entered into between the assessee and M/s. BCSIL, the assessee had acquired the entire business along with Industrial and Technical Know-how in relation to the business of two wheeler braking system being carried out in India. Where the assessee acquired the Customer base, the list of Material suppliers, Process Know-how, then the said acquisitions were the licenses for assessee to carry on the business of two wheeler braking system in India on its acquisition from M/s. BCSIL. In line with the ratio laid down by the Hon'ble Delhi High Court in Areva T D India Ltd. Vs. DCIT (supra), the said assets are the intangible assets acquired by the assessee and are eligible for deduction under section 32(1)(ii) of the Act. 25. Similarly, the assessee had acquired technical man power, wherein the entire team of Engineers, Supervisors and skilled operators were offered to the assessee and the said officers / technici ..... X X X X Extracts X X X X X X X X Extracts X X X X
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