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TMI Blog2015 (7) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... High court of Allahabad and vide judgment dated 9.9.2014, the Hon'ble High court of Allahabad has set aside the order of the Tribunal and restored the proceedings back to the Tribunal for a decision afresh on merit after hearing both the parties. Consequently these appeals were listed for hearing and arguments of both the parties were heard. 3. The facts in brief relating to the controversy involved in these appeals culled out from the orders of the lower authorities are that the assessee, a Public Limited Company acquired cement undertaking from J.K. Synthetics Ltd. as a going concern w.e.f. 4.11.2004 in pursuance of the order of the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) dated 23.1.2003. JKSL have been declared as a sick company by the Board of Industrial and Financial Reconstruction (BIFR) on 2.4.1998 and the Industrial Development Bank of India (IDBI) was appointed as an operating agency. A draft rehabilitation scheme was circulated which envisaged transfer of the cement undertakings of the sick company to the assessee on the payment of outstanding dues of the financial institutions and banks as consideration for the transfer. The scheme w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or acquiring brands of the demerged company upon which depreciation was allowable under section 32 of the Income-tax Act, 1961 (hereinafter called in short "the Act"). 6. Aggrieved, the Revenue is before the Tribunal and the ld. D.R., besides placing reliable upon the order of the Assessing Officer, has contended that the revised claim of the assessee for enhanced depreciation includes depreciation on the amount of goodwill which is not a fixed asset as per provisions of section 32 of the Act. Therefore, the enhanced claim of depreciation cannot be allowed. In support of his contention, the ld. D.R. has placed reliance upon the order of the Tribunal in the case of R.G. Keswani vs. ACIT, Mumbai, 116 ITD 133 (Mumbai) and DCIT vs. Toyo Engineering India Ltd., 18 ITR (T) 159 (Mumbai-Trib.). Reliance was also placed upon the order of the Tribunal in the case of CHOWGULE & CO. (P.) LTD. vs. ACIT, 131 ITD 545 (Panaji). 7. In opugnation, the ld. counsel for the assessee, besides placing reliance upon the order of the ld. CIT(A), has contended that the cost of asset of the cement company, which are to be merged with the assesseecompany, was specified in the scheme. Though a sum of Rs. 7.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f asset or at the most it will be called to be cost of goodwill. But for both the reasons the assessee is entitled for depreciation. The assessee has originally claimed depreciation at Rs. 72,32,58,987.38 on its capital assets of Rs. 5,67,62,40,544.27. Having included the cost of goodwill which was spread over to the cost of various assets, the total cost of assets comes to Rs. 5,75,05,10,044.63 on which depreciation was claimed at Rs. 73,26,86,528.73. The Revenue's stand is that cost of goodwill was spread over on various assets whereas depreciation could have been claimed on the cost of goodwill and since the goodwill is not an intangible asset of the assessee-company, the assessee is not entitled for depreciation. 10. Our attention was also invited to Explanation 3 below section 32(1) of the Act. While allowing the claim of the assessee, the ld. CIT(A) has held that issuance of shares for Rs. 7.44 crores was a part payment of purchase consideration towards cost of acquisition of cement undertaking, therefore, the cost of shares issued to the shareholder of JKSL is eligible for depreciation and the ld. CIT(A) has also held that even if it is considered to be the cost of goodwill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, trade marks, licences, franchises or any other business or commercial rights of similar nature. Areading 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 which finds place in Explanation 3(b). In the circumstances, we are of the view that "goodwill" is an asset under Explanation 3(b) to section 32(1) of the Act. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income-tax (Appeals) ("the CIT(A)", for short) has come to the conclusion that the authorised representatives had filed copies of the orders of the High Court ordering amalgamation of the above two companies ; that the assets and liabilities of M/s. YSN Shares and Securities P. Ltd. were transferred to the assessee for a consideration ; that the difference between the cost of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeared in the books of the transferor. The balance payment of Rs. 16,58,76,000 over and above the book value of net tangible assets, was allocated by the transferee towards acquisition of bundle of business and commercial rights, clearly defined in the slump sale agreement, compendiously termed as "goodwill" in the books of account, which comprised, inter alia, the following : (i) business claims, (ii) business information, (iii) business records, (iv) contracts, (v) skilled employees, (vi) know-how. It is also observed that the Assessing Officer accepted the allocation of the slump consideration of Rs. 44.7 crores paid by the transferee, between tangible assets and intangible assets (described as goodwill) acquired as part of the running business. The Assessing Officer, however, held that depreciation in terms of section 32(1)(ii) of the Act was not, in law, available on goodwill. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal approved the reasoning of the Assessing Officer thereby holding disallowance of depreciation on the amount described as goodwill. It was thus argued on behalf of the assessee-company that section 32(1)(ii) would mean right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 the case of the assessee, intangible assets, viz., business claims ; business information ; business records ; contracts; employees ; and know-how, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible assets are, therefore, comparable to a licence to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares and Stocks Ltd. [2010] 327 ITR 323 (SC) wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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