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TMI Blog2018 (7) TMI 2148X X X X Extracts X X X X X X X X Extracts X X X X ..... nds be set aside and that of the Assessing Officer be restored. 3. The Appellant craves leave to amend or alter any ground or odd a new ground which may be necessary." 2. Briefly stated, the assessee is one of the leading companies engaged in the business of sale, marketing and distribution of speciality chemicals and food ingredients worldwide. The core activity of IMCD group is to trade in speciality chemicals. IMCD B.V. operates though its branch in India, which supplies speciality chemicals in India to its Industrial customers. The assessee had filed its return of income for A.Y 2012-13 on 29.11.2012, declaring a loss of Rs. 1,76,02,955/-. The case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. During the course of the assessment proceedings the A.O observed that the loss returned by the assessee had emerged primarily on account of claim of depreciation of Rs. 1,36,81,137/- on some goodwill, which was supposedly acquired by the assessee during the year under consideration. On perusal of the details, it was observed by the A.O that the assessee had during the year under consideration acquired the textile chemical trading division of M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3;). The DRP after deliberating on the contentions advanced by the assessee, did find favour with the same. The DRP observed that the amount of Rs. 10,90,49,099/- paid by the assessee was by way of premium towards goodwill of the business as well as noncompete fees. It was noticed by the DRP that no bifurcation in respect of the aforesaid payment of Rs. 10,90,49,099/- made by the assessee was however available. In the backdrop of the aforesaid facts, the DRP relying on the judgment of the Hon‟ble High Court of Madras in the case of M/s Pentasoft Technology Ltd. Vs. DCIT (2014) 264 CTR 187 (Mad) and that of the High Court of Karnataka in the case of CIT Vs. Ingersoll Rand International Ind Ltd.(2014) (48 taxmann.com 349), concluded that the assessee was entitled to depreciation in respect of the non-compete fees paid by it. On the basis of the aforesaid deliberations, the DRP directed the A.O to allow depreciation on the amount of Rs. 10,90,49,099/- paid by the assessee towards goodwill and non-compete fees. 7. The A.O on the basis of the aforesaid directions of the DRP allowed the assessees claim for depreciation of Rs. 1,36,31,137/- paid towards goodwill and non-compete fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to terminate their relationship with the seller pursuant to the aforesaid sale of the business. The ld. A.R further relied on the judgment of the Hon‟ble Supreme Court in the case of CIT, Bangalore Vs. B.C.Srinivasa Setty (1981) 128 ITR 294 (SC). 9. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present appeal has been sought for adjudicating, as to whether the DRP is right in concluding that the claim of the assessee as regards depreciation on the composite amount of Rs. 10,90,49,099/- paid towards goodwill and non-compete fees on acquisition of a going concern was in order, or not. We have perused the orders of the lower authorities and find that the assessee had during the year under consideration taken over the running business of Mata Polymers Pvt. Ld and Silco Auxichem (I) Pvt. Ltd, for a total consideration of Rs. 13,49,99,000/-. Out of the aforesaid consideration of Rs. 13,49,99,000/- an amount of Rs. 2,59,04,000/- pertained to the net value of trade debtors, trade creditors and trade stock which were finally taken over by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be allowed. 18. In the preceding paragraphs, we have referred to the agreement entered into between the parties. The said agreement dated 23.02.2000 is a composite agreement by virtue of it, there was transfer of all rights over the IPRs as well as the training and development programmes to be exclusively used by the assessee for a fixed fee. Under the agreement, the consideration payable for transfer of IPRs and towards non-compete fee have not been segregated or distinctly mentioned. In order to qualify for a depreciation under Section 32(1)(ii) of the Act, it would first be relevant to refer to the said provision, which reads as under: "Depreciation: 32(1) [in respect of depreciation of (i)............ (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed -] Therefore, in terms of the above provision, deduction is allowable in respect of depreciation of patents, copy rights, trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a licence under Section 32 (1)(ii) of the Act. 24. The Department on the other hand, pointed out that membership is a personal privilege and that it is not an asset and that it is not owned by the assessee and therefore, the claim of the assessee for depreciation was not admissible under Section 32(1)(ii) of the Act. 25. While answering the question, the Hon‟ble Supreme Court considered the rules of the Bombay Stock Exchange and after perusing Rules 5 to 10, it held thus: ........."that the right of nomination is conferred on the member of the exchange; that , the said right shall cease and vest in the exchange when his membership gets forfeited to the exchange; that on such forfeiture the right of membership gets vested in the exchange and on such vesting the exchange has the right to deal with it as it may think fit. That, on forfeiture even the right of nomination vests in the exchange. Thus, a non-defaulting continuing member owns the right of nomination with respect to the membership of the exchange till his right of membership is forfeited to the exchange." However, the Hon‟ble Supreme Court observed that the right of membership including the right of nomi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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