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TMI Blog2015 (10) TMI 2566X X X X Extracts X X X X X X X X Extracts X X X X ..... dship has further held that after reversing the judgment of the High Court that main eligibility condition in the schemes was that the incentive had to be utilized for repayment of loans taken by the assessee to setup new units or for substantial expansion of an existing unit. Their lordship accordingly held that the subsidy received by the assessee was not in the course of trade but was of capital nature. Carefully perused the orders of the Tribunal referred by the assessee and we find that in the case of ACIT Vs. Shree Cement Ltd [2011 (9) TMI 561 - ITAT JAIPUR] an identical fact that the interest subsidy was considered to be the capital subsidy. Therefore, in the light of aforesaid judgments, we are of the view that the CIT(A) has rightly treated the interest subsidies as a capital receipt as it was received only for repayment of loan acquired for acquisition of capital assets. Accordingly, the Revenue fails on this issue. X X X X Extracts X X X X X X X X Extracts X X X X ..... f R.G. Keswani vs. ACIT (supra) and DCIT vs. Toyo Engineering India Ltd. (supra), the Mumbai Benches of the Tribunal have taken a view that no depreciation would be allowed on goodwill, but the controversy with regard to the allowance of depreciation on goodwill has been set at rest by the Hon'ble Apex Court in the case of CIT vs. Smifs Securities Ltd. (supra) in which their Lordships have held that the difference between the cost of an asset and amount paid constituted goodwill and that the assessee-company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-company stood increased. Therefore, the assessee is entitled for depreciation on the said goodwill. The relevant observations of the Hon'ble Apex Court are extracted hereunder in order to understand the legal proposition and controversy raised therein:- "We quote hereinbelow Explanation 3 to section 32(1) of the Act: "Explanation 3.-For the purposes of this sub-section, the expres sions 'assets' and 'block of assets' shall mean- (a) tangible assets, being buildings, machinery, plant or furniture ; (b) inta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee." 12. In the case of Areva T and D India Ltd. vs. DCIT (supra), the Hon'ble Delhi High Court has examined this issue in the light of legal provisions of the Act and various judgments of the Hon'ble Apex Court and finally concluded that specified intangible assets acquired under slump sale agreement were in the nature of "business or commercial rights of similar nature" specified in section 32(1)(ii) of the Act and were accordingly eligible for depreciation. Their Lordships has further held that even in the alternative the assessee is entitled for depreciation. The facts of that case are quite similar to the facts of the present case and we extract the findings of the Hon'ble Delhi High Court in this case as under:- " In the present case, it is seen that the assessee, vide slump sale agreement dated June 30, 2004, acquired, as a going concern, the transmission and distribution business of the transferor company with effect from April 1, 2004. As a result thereof, the running business of transmission and distribution was acquired by the transferee lock, stock and barrel minus the trade mark of the transferor which was retained by the transfero ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent case, applying the principle of ejusdem generis, which provides 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(1)(ii) of the Act. It is seen that such rights need not answer the description of "know-how, patents, trade marks, licences 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 to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of law is decided in the affirmative and this appeal is allowed in favour of the assessee and against the Revenue and the impugned order is set aside." 13. This judgment of the Hon'ble Delhi High Court was approved by the Hon'ble Apex Court as the SLP filed by the Department was dismissed on merit also. 14. Similar view was expressed by the Hon'ble Karnataka High Court in the case of CIT vs. Manipal Universal Learning Pvt. Ltd. (supra) by holding that Explanation 3 to section 32(1) of the Act defines expression "asset" to include intangible asset like goodwill and goodwill is an asset under Explanation 3(b) to section 32(1) of the Act, therefore, depreciation is allowable even on the goodwill. 15. Again in the case of CIT vs. Hindustan Coca-Cola Beverages (P) Ltd., 331 ITR 192, the Hon'ble Delhi High Court has examined the issue of depreciation on goodwill in detail and finally concluded that goodwill is a valuable commercial asset similar to other intangible assets mentioned in the definition of block of assets and hence eligible for depreciation. The view taken by the Hon'ble Delhi High Court in the case of CIT vs. Hindustan Coca-Cola Beverages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l institutions. The assessee has treated receipt of interest subsidy as capital receipt but the Assessing Officer was not convinced with treatment given by the assessee and he was of the view that subsidy has been granted as incentive to the assessee company to run the business of manufacturing of cement in the State of Rajasthan. He accordingly treated the interest subsidy received by the assessee as a Revenue receipt. 5. The assessee preferred an appeal before the CIT(A) with the submission that assessee company has acquired the cement undertaking from sick company J.K. Synthetic Ltd. against a total cost of ₹ 475.39 crores. The assessee has taken loan amounting to ₹ 497 crores from various banks and at the time of loan from banks, the assessee company's debt equity ratio was substantially high at 10 is to one. The Government of Rajasthan has considered the case of the assessee company for subsidy under the aforesaid scheme of Government of Rajasthan keeping in view that cement unit did not become sick and suspend their operations due to high debt. Pursuant to the scheme, the assessee company became entitled interalia for 5% interest subsidy. As per the eligibility c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d these sick units through the scheme of the BIFR and to acquire such utyits, the ippellant had admittedly made considerable borrowings (on which it was paying interest). As I have understood the Scheme of subsidy (formulated by the Govt. of Rajasthan), one of the eligibility conditions in the scheme in the instant case was that the there has been no default in repayment of dues against term loan of concerned financial institution(s) and/or Bank(s). This fact has been which has written to the assessee : ' Please ensure that the subsidy amount is utilized for repayment of loans and there is no defaults in repayment of dues to the banks in respect of these loans in terms of clause 9(b) (vii) of RIPS 2003,' 11.2 If the object of the subsidy scheme was to enable the assessee to run the business more profitably, then the receipt was on revenue account; on the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up or acquire a new unit or to expand its existing units, it would be clearly on capital account. The form of the mechanism through which the subsidy is given is irrelevant. The AO has also confirmed in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the investors for seven years from the date of first repayment of interest in case of interest subsidy and first payment of wages/employment in case of wage employment subsidy. Various conditions are spelt out in the scheme which are required to be fulfilled by the assessee for claiming the subsidy. We also find that scheme was launched to assist to the corporate sector in acquiring or expending their units. Certain conditions are also made in this scheme, which are required to be fulfilled by the corporate sector in order to avail the benefit of subsidy. Our attention was also invited to eligibility certificate issued by the Government of Rajasthan, copy which is at page no. 51 of the compilation in which the Government has imposed pre condition for offering the benefit of subsidy. The condition is that the subsidy amount is utilized for repayment of loans and there should not be any defaults in repayment of dues to the banks in respect of these loans, in terms of clause 9B(viii) of the RIPS, 2003. Our attention was also invited to the judgment of Appellate Authority for Industrial & Financial Reconstruction (AAIFR) in which the assessee has proposed to obtain a loan from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trade but was of capital nature. 8. We have also carefully perused the orders of the Tribunal referred by the assessee and we find that in the case of ACIT Vs. Shree Cement Ltd ITA No. 614, 615 & 635/JP/2010 an identical fact that the interest subsidy was considered to be the capital subsidy. Therefore, in the light of aforesaid judgments, we are of the view that the CIT(A) has rightly treated the interest subsidies as a capital receipt as it was received only for repayment of loan acquired for acquisition of capital assets. Accordingly, the Revenue fails on this issue. ITA No. 247/Lkw/2011 (A.Y. 2008-09) 9. Besides aforesaid grounds the Revenue has assailed the order of CIT(A) on one more ground in this appeal that the CIT(A) has erred in law on facts not appreciating the fact that the expenses incurred before commencement of the business was covered by the provisions u/s 35D of the Act. In this regard, the facts born out from the orders of the lower authorities are that the AO has observed that during the course of assessment proceeding, the assessee company has debited a preliminary or pre-operative expenses to the extent of ₹ 4,20,000/- in the P&L Account. In reply ..... X X X X Extracts X X X X X X X X Extracts X X X X
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