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TMI Blog2021 (11) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... is engaged in the business of providing Vocational training to the students in the fields of fire safety, lift technology, fiber optics, etc. 3. The first issue relates to disallowance of depreciation claimed on goodwill. The A.O. noticed that the assessee has claimed depreciation on goodwill. The depreciation was claimed on the amount of Rs. 25.38 crores @ full rate, since it was used for more than 180 days and on Rs. 5.18 crores @ 50% of eligible amount of depreciation, since it was used for less than 180 days.The total amount of depreciation claimed onGood will was Rs. 6,99,31,440/-. In this regard, the AO noticed that the assessee had acquired a vocational training institute giving training to the students from a person named Shri M.V. Thomas, who was running the said institution under the name and style "NIFE ACADEMY". It was noticed that the holding company of the assessee has entered into a Business Transfer Agreement (BTA) on 4.12.2013 with Shri M.V. Thomas for acquiring the academy NIFE for a lumpsum amount of Rs. 28.50 Crores plus some adjustment on slump sale basis. In pursuance of the above said agreement entered by holding company, the assessee had paid aggregate amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted a colourable device to reduce tax liability by claiming higher amount of depreciation and for the purpose, it has paid higher amount for purchasing assets on slump sale. The A.O. also took support of the decision rendered by Mumbai Bench of ITAT in the case of Deputy Commissioner of Income-tax Vs. Toyo Engineering India Ltd. (2013) 33 Taxmann.com 560, wherein it was held that no depreciation will be allowed on goodwill in a case where from purchase of goodwill was not proved by the assessee. Accordingly, the A.O. disallowed depreciation claimed by the assessee on goodwill. 7. The Ld. CIT(A) noticed that the assessee company was formed only on 23.12.2013 while the agreement had been entered by the holding company on 4.12.2013 i.e. prior to the incorporation of the assessee company. Accordingly, he took the view that any business of the parent company cannot automatically devolve to the assessee herein without following due legal and statutory procedures. He further noticed that the agreement has been entered during the financial year relevant to the assessment y ear 2014-15. However, the assessee has not claimed depreciation on Good will amount in assessment 2014-15 & 2015- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... classified as goodwill. This is in consonance with Accounting Standard-10 issued by Institute of Chartered Accountants of India. The Ld. A.R. submitted that this principle was appreciated by Hon'ble Delhi High Court in the case of Truine Energy Services Pvt. Ltd. Vs. Deputy Commissioner of Income-tax (2016) 65 Taxmann.com 288. The Ld. A.R. submitted that the A.O. had placed reliance on the decision rendered by Mumbai Bench of Tribunal in the case of Toyo Engineering India Pvt. Ltd. (supra). She submitted that the above said decision is distinguishable on facts. She submitted that the above said decision rendered by Mumbai Tribunal was distinguished by Chennai Bench of Tribunal in the case of ACIT Vs. M/s. Dorma India Pvt. Ltd. (ITA Nos.1666/CHNY/2019 dated 20.11.2019). The Chennai Bench of Tribunal noticed that the amount paid for acquisition of business by Toyo Engineering India Ltd consisted predominantly acquiring of land admeasuring 5559.90 Sq.mtrs. and a building thereon. In those facts, the Chennai bench of Tribunal observed that "non-allocation of fair market value on land and building weighed heavily on Tribunal in coming to conclusion that no payment of goodwill was made" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the Ld. CIT(A) was justified in rejecting the claim of depreciation in view of the above said deficiencies. 14. In the rejoinder, the Ld. A.R. submitted that the agreement was entered by the holding company on behalf of the assessee company and the assessee company was formed to execute the above said agreement. She submitted that the assessee company only has paid the consideration for purchase of NIFE Academy and hence it is the assessee which has paid for "goodwill". Accordingly, she submitted that the assessee company is eligible for depreciation on goodwill payment. 15. The Ld. A.R. further submitted that though the agreement was entered for purchase of NIFE Academy in 2013, the deal was finally concluded in 2015 only and accordingly payment was made during the year under consideration. Accordingly, the Ld. A.R. submitted that the assessee has claimed depreciation from the current year onwards. She further submitted that the holding company entered into an amendment agreement with Shri M V Thomas on 30th January, 2014 and this fact shows that the deal was not concluded by that time. The Ld A.R also furnished a copy of amendment agreement as additional evidence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der:- "16.1 Goodwill, in general, is recorded in the books only when some consideration in money or money's worth has been paid for it. Whenever a business id acquired for a price (payable either in cash or in shares or otherwise) which is in excess of the value of the net assets of the business taken over, the excess id termed as 'goodwill'. Goodwill arises from business connections, trade name or reputation of an enterprise or from other intangible benefits enjoyed by an enterprise." 18. It is also relevant to note that Smifs Securities Ltd. (supra) was a case where assets of company - YSN shares and Securities (P.) Ltd. were transferred to Smifs Securities Ltd. under a scheme of amalgamation. And, the excess consideration paid by the Assessee therein over the value of net assets of YSN Shares and Securities (P.) Ltd. acquired by the Assessee, was accounted as goodwill. 19. In view of the above, we are inclined to accept the contention advanced on behalf of the Assessee that the consideration paid by the Assessee in excess of its value of tangible assets was rightly classified as goodwill." 17. We have noticed that the Ld. CIT(A) has referred to the decision re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys for which the assets were used by them." A careful perusal of the above said proviso would show that the same is applicable to the cases of "Succession", "Amalgamation" and "Demerger", i.e, transactions between related parties. In the instant cases NIFE academy has been acquired through Business Transfer Agreement by the holding company of the assessee from Shri M V Thomas. It is not the case of the revenue that this transaction is between two related parties. Hence this purchase would not fall under the categories of succession, amalgamation and demerger. We have noticed that the tax authorities have observed that the spirit of the above said provisions should be applied to the present case. We are unable to agree. It is well settled proposition of law that the Income tax provisions should be construed strictly. Hence the scope of the above said proviso cannot be extended to the transaction of purchases between two unrelated parties. 19. The next question to be addressed is whether the assessee has acquired the good will, which is eligible for depreciation. In the instant case, the tax authorities have brought out following important points:- a) The agreement with Shri M.V. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 5 to sec.32 shall apply. Accordingly, the depreciation shall be deemed to have been allowed in the earlier years. Accordingly, the depreciation is allowable in this year on WDV only. For this purpose, the actual payment is not relevant. These facts also require verification. 20. Accordingly, in our view, the eligibility of the assessee to claim depreciation on Goodwill cannot be decided unless the above said factual aspects are clarified. We have held, following the decision rendered by Hon'ble Delhi High Court, that the excess amount paid over and above the net asset value on acquiring a business concern shall constitute goodwill. However, the said legal principle can be applied only if the facts relating to the case are clear. We have noticed that the facts are not clear in the instant case. Accordingly, in the interest of natural justice, we are of the view that the assessee should be provided with an opportunity to present the relevant facts. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and restore the same to the file of the A.O. for examining afresh in the light of observations made (supra). After considering the information and explanations furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at i nterest paid u/s. 201(1A) is also in the nature of tax and notwithstanding the fact that it is not the tax liability of the assessee, the same cannot be allowed as a deduction. The following were the relevant observations of the Hon'ble Madras High Court:- "14. As already noticed the p ayment of interest takes colour from the nature of the levy with reference to which such interest is paid and the tax required to be but not paid in time, which rendered the assessee liable for payment of i nterest was in the nature of a direct tax and similar to the income-tax payable under the Income-tax Act. The interest paid under Section 201(1A) of the Act, therefore, would not assume the character of business expenditure and cannot be regarded as a compensatory p ayment as contended by learned counsel for the assessee. 15. Counsel for the assessee in support of his submission that the i nterest paid by the assessee was merely compensatory in character besides relying on the case of Makalakshmi Sugar Mills Co. also relied on the decision of the apex court in the cases of Prakash Cotton Mills Pvt Ltd. CIT [1993] 201 ITR 684; Malwa Vanaspati and Chemical Co. v. CIT [1997] 225 ITR 383 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est payment on late payment of tax at source is not eligible business expenditure for deduction and it is not compensatory in nature." 24. Following the above said decision, we decide this issue against the assessee and accordingly uphold the decision rendered by Ld CIT(A) on this issue. 25. The last issue relates to the disallowance of interest payments u/s 40(a)(ia) of the Act for non-deduction of tax at source. The AO noticed that the assessee has not deducted tax at source from various payments, which included payment of interest on borrowings amounting to Rs. 65,66,637/-. The AO disallowed 30% of the above said amount u/s 40(a)(ia) of the Act. 26. Before the AO, the assessee submitted that the above said interest amount of Rs. 65,66,637/- consisted of interest payments made on bank loans amounting to Rs. 52,56,362/- and interest payment to others amounting to Rs. 13,10,274/-. The assessee submitted that interest paid to banks is not liable to TDS and it has voluntarily disallowed the remaining amount of Rs. 13,10,274/-. The Ld CIT(A) accordingly deleted the disallowance of Rs. 13,10,274/-. However, he confirmed the disallowance made out of Rs. 52,56,362/- on the reasoning t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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