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TMI Blog2020 (1) TMI 1637X X X X Extracts X X X X X X X X Extracts X X X X ..... nt had been declined by the CIT(A), for the reason, that no depreciation was allowable on goodwill . As pursuant to the judgment of Smifs Securities Limited the issue as regards allowability of depreciation on goodwill is no more res integra. As such, the claim of depreciation raised by the assessee on the amount of excess payment which was capitalised in its books of account as goodwill , is found to be in order. We direct the A.O to allow depreciation on the goodwill that was capitalised by the assessee in its financial statements. Decided in favour of assessee. - ITA No. 6035/Mum/2009 - - - Dated:- 10-1-2020 - Shri Ravish Sood, Judicial Member And Shri N.K. Pradhan, Accountant Member For the Appellant : Shri Nitesh Joshi, A.R. For the Respondent : Shri Amit Pratap Singh, D.R. ORDER PER RAVISH SOOD, JM The present appeal filed by the assessee was recalled by the Tribunal vide its order passed in M.A. No.374/Mum/2017, dated 19.07.2019 for the limited purpose of adjudicating Ground of appeal No. III which had inadvertently remained omitted to be disposed off by the Tribunal while disposing off the appeal of the assessee for A.Y. 2003-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lter the grounds of Appeal at the time of hearing. 2. Briefly stated, we restrict ourselves to the facts of the case to the extent they are relevant for the disposal of the aforesaid Ground of appeal No III raised by the assessee in its appeal before us. The assessee company which is engaged in the business of providing television audience measurement services had during the year under consideration acquired one unit of M/s A.C. Nielson ORG-Marg Research Pvt. Ld. known as Adex Business along with all its assets and liabilities for a total consideration of Rs.12,10,31,250/-. The assessee company had made a payment of Rs.11,44,77,378/- to M/s A.C. Nielson ORG-Marg Research Pvt. Ltd. over and above the value of the net assets of Adex Business . As the value of the net assets over the liabilities amounted to Rs.65,53,872/-, therefore, the excess amount of Rs.11,44,77,378/- [Rs.12,10,31,250/- (-) Rs.65,53, 872/-] was claimed by the assessee company to have been paid towards goodwill in its books of account. On a perusal of the financial statements for the year under consideration, it was gathered by the A.O that the auditor of the assessee company had capitalised the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee assailed the assessment framed by the A.O before the CIT(A). It was observed by the CIT(A) that in the business transfer agreement , dated 17.09.2002 on the basis of which the assessee had acquired the Adex Business , there was no mention of any bifurcation of the consideration that was paid by the assessee towards various assets. In fact, it was noticed by the CIT(A) that in the aforesaid agreement only the value of the fixed assets and receivables of the Adex Business were mentioned. On the basis of the aforesaid facts, the CIT(A) held a conviction that the amount paid by the assessee over and above the value of net assets of Adex Business was to be treated to have been paid towards goodwill . Apart from that, it was observed by the CIT(A) that the consideration paid by the assessee was not only for acquiring intangible assets, as claimed, but was also paid to M/s A.C. Nielson ORG Marg Research Pvt. Ltd. for its agreeing for not carrying out the same business which was earlier carried out by it in its Adex Business . Also, it was noticed by the CIT(A) that M/s A.C. Nielson ORG Marg Research Pvt. Ltd. had not bifurcated the payment which was received from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 31.01.2006 furnished with the A.O the bifurcated details of the aforesaid payment of Rs.11,44,77,378/-, which was claimed to have been paid towards viz. (i) 1/3rd of the payment was towards cost of goodwill: Rs.3,81,59,126/-; and (ii) the balance 2/3rd of the payment was towards the cost of know-how and intangibles of the Adex Business : Rs.7,63,18,252/-. However, as no basis for the aforesaid bifurcation was either discernible from the business transfer agreement nor any material in support thereof was furnished by the assessee in the course of the assessment proceedings, therefore, the A.O declined to accept the said claim of the assessee. Accordingly, the A.O declined to attribute any part of the excess payment of Rs. 11,44,77,378/- made by the assessee towards acquisition of know-how and intangible assets and rejected its claim of depreciation on the same. 6. As observed by us hereinabove, the CIT(A) on appeal was of the view that the amount paid by the assessee over and above the value of net assets of Adex Business was to be treated to have been paid towards goodwill . Apart from that, it was also observed by the CIT(A) that the consideration paid by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of 'Adex Business' has been shown as Capital gain. This shows that there was no attempt to determine the nature of the assets required by the appellant and amount paid by the appellant towards each assets/intangible rights. Had this been the case, M/s ORG should not have treated the entire consideration as having been received on transfer of business. In such a case, M/s ORG would have computed the income under the head Business Income in respect of the amount received for transferring depreciable intangible assets. The appellant is claiming the amount should be bifurcated towards 7 assets but has not given any basis for the same. Further, there is no provision in the agreement which shows that the appellant acquired only 7 assets. As already stated, M/s ORG has agreed not to do the same business which was earlier carried on by Adex Business . This amount can be for this purpose also. Further, the auditor of the appellant company has treated the amount of Rs.11,44,77,378/- as goodwill. Since no depreciation is allowable on goodwill, the Assessing Officer was justified in not allowing any depreciation to the appellant. The action of the Assessing Officer is upheld. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a similar nature . It was observed by the Hon ble Court that the principle of ejusdem generis would strictly apply while interpreting the aforesaid expression which finds place in Explanation 3(b) to Sec. 32(1) of the Act. In the case before the Hon ble Apex Court, pursuant to the scheme of amalgamation of M/s YSN Shares and Securities (P) Ltd. with M/s Smifs Securities Ltd. which was duly sanctioned by the Hon ble High Courts of Bombay and Calcutta with retrospective affect from 01.04.1998, the assets and liabilities of M/s YSN Shares Securities Pvt. Ltd. were transferred to and stood vested with M/s Smifs Securities Ltd. In the process goodwill had arisen in the books of M/s Smifs Securities Ltd. It was the claim of the assessee that the excess consideration paid over the value of net assets acquired of M/s YSN Shares Securities (P) Ltd [amalgamating company] should be considered as goodwill arising on amalgamation. In fact, it was the claim of the assessee that the extra consideration was paid towards the reputation which the amalgamating company i.e. M/s YSN Shares Securities Pvt. Ltd. was enjoying in order to retain its existing clientele. However, the A.O decl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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