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TMI Blog2019 (5) TMI 1208X X X X Extracts X X X X X X X X Extracts X X X X ..... ther assets relating to development, manufacturing process, registration, use, sale marketing and distribution of product are intangible assets eligible for depreciation? (D) Whether the Hon'ble ITAT erred in deleting the disallowance of depreciation claimed by the assessee to the tune of Rs. 2,25,14,448/on intangible assets purchased by the Appellant company and depreciation claimed by the appellant to the tune of Rs. 2,29,30,000/on marketing rights purchased by the appellant company; without considering the fact that neither any specific detail of the nature of such intangible assets purchased was submitted nor any business benefit was derived from such intangible assets." 2. Heard Mr. Nikunt Raval, learned senior standing counsel with Ms. Kalpana Raval, learned senior standing counsel for the Revenue. 3. Question No.(A) pertains to deletion of disallowance of legal and professional expenses of Rs. 10,25,500/. 3.1 The assessee has debited legal and professional expenses of Rs. 10,25,500/incurred in relation to buy back of shares of the company from its shareholders which pertains to reduction of shares capital of the company. The Assessing Officer disallowed such exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in nature. 4.2 In the appeal, the CIT (Appeals) also upheld such disallowance on the same logic. 4.3 The assessee company therefore, filed appeal before the Tribunal. The Tribunal allowed the said expenditure as customary expenses allowable under section 37 of the Act. 4.4 The Tribunal relied upon the decision of this Court in case of Gujarat State Export Corporation Ltd v. CIT reported in (1994) 209 ITR 649, wherein the payment of fees to the Sports Club of Gujarat Limited has been examined and it was held that if the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefits of the business, it is properly attributable to capital and is of the nature of capital expenditure. However, if it is made for running the business or working with a view to produce the profits, it is a revenue expenditure. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. In view of this test laid down, the court, therefore, held that the payment of entrance fee for becoming a member of the sports club cannot be termed as a capital expenditure. The Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the lumpsum consideration paid by them. It was further submitted that intellectual properties such as manufacturing and process know how and other intangible assets such as commercial right, registrations and licenses have not been considered as an asset and the amount paid by the assessee was a composite consideration for acquisition of a set of assets which constitutes a separate business in itself. 5.3 Assessing Officer brushed aside the submissions made by the assessee and held that the assessee company could not justify in any logical and convincing way the basis on which such a huge payment was made to acquire what the assessee terms 'intangible assets'. The Assessing Officer further held that the assessee company could not justify why it paid Rs. 27,50,38,000/for what was essentially just land and 86 building as per the books of Mitsu. Therefore, the Assessing Officer rejected the payment made by the assessee company and disallowed the depreciation of Rs. 22,930,000/claimed on the intangible assets and added back the same to the income of the assessee company. The Assessing Officer in the same way also disallowed the value of marketing rights of Rs. 183,440,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide order dated 01.08.2008 has considered the sale of business to the assessee as slump sales and observed that the assessee has transferred machinery and infrastructure including licenses and right to manufacture products for the year 1999 onwards and even on date of sale. This fact is not disputed by the Revenue authorities. The assessee has sold a business which includes the necessary rights and technology. The value of technology and rights are determined the parties to the transaction on commercial consideration and after mutual negotiations. Accordingly, we feel that this transaction is nothing but slump soles exigible to longterm capital gain. Accordingly, this issue of appeal of the assessee is allowed. Thus, it is clear that when the slump sale with consideration of 27.50 crores as longterm capital gain has been accepted in the case of seller company, then it cannot be said that the assessee company has not paid the consideration as mentioned in Business Transfer Agreement. Once the sale is recognized and transaction has been upheld by the ITAT also then purchases have to be reeognized as true. The learned counsel for the assessee also placed reliance in the case of CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to manufacture and technical of knowhow for carrying on lmidacloprid Business. The Seller company is also engaged in manufacturing pesticides for the last 15 years and the assessee company is also manufacturing pesticides for the last 3 years. This very facts means that the seller company was having better experience in terms of marketing of knowhow as it was more experienced as compare to assessee who was in the market of pesticides for last 3 years only. Further reliance is placed on the judgement of Hon'ble Delhi High Court in the case of Areva T Et D India Ltd. v. DCIT [2012] 20 taxmann.com 29 (Delhi) held that specified intangible assets , viz business claims, business information, business records contracts, 'employees and of knowhow acquired by assessee under slump sale agreement are in the nature of "business or' commercial right' of similar nature specified in section 32(1)(ii) and are accordingly eligible for depreciation. Considering the above facts we are of the view that the assessee company has acquired lmidicaholopid business for total consideration of Rs. 27.50 crores which inter~a1ia included intangible assets of worth Rs. 18.34 crores on which deprecia ..... 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