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TMI Blog2020 (10) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... erred by assessee in the case of Bombay Dyeing Mfg. [ 1996 (2) TMI 8 - SUPREME COURT ] and India Cements Ltd. [ 1965 (12) TMI 22 - SUPREME COURT ] are accordingly germane and support the case of the assessee. Provision for warranty claimed as expenditure - claim denied by AO on the ground that it is an unascertained liability and a contingent liability - CIT(A) in principal upheld the action of the Assessing Officer but directed that only the provision made during the year should be disallowed - HELD THAT:- We find that the authorities below have erred in considering the provisions of warranty as contingent liability. As already submitted by learned Counsel of the assessee in assessee s own case, subsequently revenue authorities have allowed the expenditure on the basis of Rotork Controls India P. Ltd. case [ 2009 (5) TMI 16 - SUPREME COURT ]. Depreciation in respect of customer contracts - Assessee had claimed that the customer contracts are valuable right and therefore capital asset - HELD THAT:- In the case of Areva T D India Ltd. Vs. CIT [ 2012 (4) TMI 79 - DELHI HIGH COURT ] has held that excess amount paid over and above tangible asset for acquisition of various business and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the above, the Id. CIT(A) ought to have appreciated that the expenditure of ₹ 72,080,000 incurred for acquiring commercial rights should be allowed as revenue expenditure. 8. The Id. CIT(A) erred in not commenting on the following ground: 14. The learned Assistant Commissioner erred in initiating penalty proceedings under section 271(1)(c) 9. Each one of the above ground of appeal is without prejudice to the other. 3. Grounds of appeal in assessment year 2005-06 read as under :- The appellant objects to the order dated 24th November 2009 passed by the Learned Commissioner of the Income Tax (Appeals) - 12 on the following among other grounds of appeals : 1. The Learned Commissioner (Appeals) erred in disallowing depreciation of ₹ 15,767,500 claimed by the appellant in respect of customer contracts. 2. The Learned Commissioner (Appeals) erred in holding that the customer contracts cannot be said to be a commercial right or business right which is a depreciable intangible right qualifying for deduction under section 32(l)(ii). 4. As regards ground No. 1 senior counsel Shri Percy Pardiwala submitted that he should not be pressing for the same. Hence this ground is dismiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lia relies on the following decisions:- 1. CIT v Bombay Dyeing and Manufacturing Co. Ltd 219 ITR 521 (SC). The facts in the said decision were that a company was amalgamated with the assessee company. In connection with the amalgamation, the assessee incurred an expenditure of ₹ 10,350 towards professional charges. The appellant claimed deduction for the said amount. The Income tax Officer and the Appellate Assistant Commissioner rejected the claim of the assessee but the Tribunal allowed the claim on the ground that as both the companies were carrying on complementary business and their amalgamation was necessary for the smooth and efficient conduct of the business, it was an expenditure laid out wholly and exclusively for the purpose of the business of the assessee. The Supreme Court at page 524 referred to it's earlier decision in the case of Bombay Steam Navigation Co. Pvt. Ltd. 56 ITR 52 and while holding that the expenditure was allowable as a revenue expenditure, observed as under:- It is an expenditure laid out wholly and exclusively for the purpose of the business of the assessee. In view of the said finding and also in view of the decision of this Court in Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid decision were that the assessee obtained a loan of ₹ 40 lakhs from the Industrial Finance Corporation secured by a charge on fixed assets. In connection therewith the assessee spent a sum of ₹ 84,633 towards stamp duty, registration fees, lawyer's fees etc. and claimed the same as a deduction. In the books of account the amounts were capitalized. However, for the purpose of income tax, the expenditure was claimed as a deduction. The Supreme Court in the above decision held that it was irrelevant to consider the object with which the loan was obtained. The expenditure of ₹ 84,633 was incurred for the purpose of assessee's business and was therefore allowable as a deduction. The Supreme Court held that where there is no express prohibition, on outgoing, by means of which an assessee procures the use of a thing by which he makes a profit, is deductible from the receipt of the business to ascertain the taxable income. It is submitted that the expenditure of ₹ 59,17,000 was incurred during the course of the appellant's business and therefore no disallowance of the same ought to be made. 7. We may gainfully refer to the order of learned CIT(A) on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t situation of commercial happening which are incomparable in substance operational in two different fields. Therefore. I am in total consonance with the view of the AO that the ratio of the decision of CIT v. Bombay Dyeing Mfg. cannot be made applicable in this case. Further, I also find that the decision of India Cement Ltd. v. CIT, 60 ITR 52 (SC) was in different context where the stamp duty professional charge was allowed as a revenue expenditure. ' 3.4 In this connection, I am inclined to refer the decision of Supreme Court in the case of Brooke Bond India Ltd. v. CIT, 225 ITR 798 (SC) wherein the expenditure on fees paid for enhancement of capital was held as capital expenditure. The rationale of decision behind treating the share issue expenses as capital expenditure was that it was a part parcel of capital apparatus. Following the legal analogy of aforesaid case, it can be safely inferred that stamp duty incurred in respect of a purchase of going on business is an inalienable part of capital cost. 3.5 The line that divides revenue expenditure from capital expenditure is often very thin and hazy. None of the tests evolved from time to time to determine what is attributab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel of the assessee in the case of Bombay Dyeing Mfg. (supra) and India Cements Ltd. (supra) are accordingly germane and support the case of the assessee. Learned CIT(A) has been in error in holding that the case laws are not applicable here. Apropos ground No. 3 and 4. 9. The assessee had made provision for warranty of ₹ 2,76,18,000/- which was claimed as expenditure. The same was denied by the Assessing Officer on the ground that it is an unascertained liability and a contingent liability. Learned CIT(A) in principal upheld the action of the Assessing Officer but directed that only the provision made during the year should be disallowed. 10. Against this order assessee is in appeal before us. The learned counsel of the assessee submitted that issue is squarely covered by the decision of honourable Supreme Court in the case of Rotork Controls India P. Ltd. Vs. CIT (314 ITR 62)(SC). He submitted that subsequently the assessing officer and learned CIT appeals have followed this decision of Supreme Court and allowed assessee's claim in subsequent years. 11. Upon hearing both the counsel and perusing the record, we find that Hon'ble Supreme Court in the case of Rotork ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d No. 5 and 6 additional ground 13. The assessee has claimed depreciation in respect of customer contracts. The assessee had claimed that the customer contracts are valuable right and therefore capital asset. In this regard assessee referred to the provisions of section 2(11) 32(1)(ii) of the Act. This was denied by the authorities below it was held that the assessee cannot be allowed depreciation as intangible asset under section 32(1)(ii) on this, as this does not fall under the definition of intangible asset as contained in section 2(11). We may refer to the order of learned CIT(A) as under :- 5.7 I have considered the entire gamut of arguments taken by the appellant. I find that Sec.2(11) defines block of asset which is eligible for depreciation. Sec.2(11)(b) defines 'intangible asset, being know-how, patent, copyright, trademark, licence, franchisee or any other business or commercial right of similar nature. Further, I also find that depreciation has been provided on such 'intangible right' u/s. 32(1)(ii). First of all, it is to be looked into as to whether the 'customer contract1 is really representing any 'intangible right' or not which is coming und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple of ejusdem generis applies. The maxim ejusdem generis serves to restrict the meaning of a general word to things or matters of the same genus as the preceeding particular words (CIT v. Statesman Ltd. (1992) 198 ITR 582 (Cal.). It is a well recognised rule of construction that when two or more words which are susceptible of analogous meaning are coupled together noscitur a sociis, they are understood to be used in their cognate sense. They take their colour from each other that is, the more general is restricted to a sense analogous to the less general. The words used together should be understood as deriving colour and sense from each other. They should be read together as one. It normally follows the principle of English decision in Grenfell v. IRC (1876) 1 ExD 242. Similar view is taken in US law (Chests of Tea 1824 9 Wheaton (S) 430). Indian law has adopted it in a number of cases as in Motipur Zamindary Co. (P) Ltd. v. State of Bihar (1962) 13 STC 1 (SC) and in the sales tax law as Filterco v. CST (1986) 61 STC 318.) If we apply the principle of ejusdem generis in the context of interpretation of Sec.2(ii), I find that the meaning commercial right is to be understood in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below: ₹ 000 Fixed assets 25,122 Technical know-how 48,520 Customer contracts 72,080 Deferred tax asset net 19,297 Receivables net 184,147 Inventories net 178 ,462 Loans and advances 146,401 Cash 150 674,179 Less : current liabilities and provisions (519,775) Net assets taken over 154,404 Purchase consideration 260,507 Goodwill, being excess of purchase consideration over assets taken over 106,103 18. In this regard we may gainfully refer to the provisions of section 32(1)(ii) Explanation (3), which defines the assets eligible for depreciation as under :- Explanation 3.-For the purposes of this sub-section, the expression assets shall mean- (a) 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. 19. In this regard we find that Hon'ble Supreme Court in Techno Shares and Stocks Limited, BSE membership card can be considered as intangible asset for the purpose of depreciation u/s. 32(1)(ii) (37 ITR 323). From this the ratio emerges that that depreciation is allowable not only on the specified category of intan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e categorised under the goodwill and difference between purchase consideration and value of tangible asset taken over being the balancing figure was held to be goodwill and depreciation thereon was held to be allowable on the touchstone of decision of Hon'ble Supreme Court in the case of Techno Shares and Stocks Ltd. (supra) and CIT Vs. Simfs Securities Ltd. (supra). This decision of Hon'ble Delhi High Court has subsequently been confirmed by Hon'ble Supreme Court. The details of value of tangible assets taken over by the assessee by the slump sale agreement are necessary to be considered for adjudication of this issue. Hence, in our considered opinion the issue of depreciation of goodwill and customer contracts being an intangible asset claimed in this case by the assessee needs to be examined by the Assessing Officer on the touchstone of the aforesaid decision. Accordingly the issue of depreciation of customer contracts and goodwill is remitted to the file of the AO. Needless to add the assessee should be granted an opportunity of being heard. A.Y. 2005-06 21. Solitary issue raised in this appeal is to depreciation on customer contracts. We have already remitted this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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