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TMI Blog2023 (5) TMI 1209X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of acquisition as IP was just a part of the assets acquired from Four Soft. Therefore, argument of the Revenue that the underlying asset consisting goodwill is transferred cannot be accepted as IP in entirety did not result in creation of goodwill and the goodwill is a sum paid for acquisition of all the assets and rights i.e. the Business Commercial Rights acquired from Four Soft. As find from the details furnished by the assessee that post transfer of IP to Blujay UK, IP platform licence access was provided back to Blujay India which is in turn providing software development support distribution services in India to domestic third parties. 50% of such income has also been offered to tax in India. From the details furnished by the assessee, we find it is only the ownership of the IP that is transferred to Blujay UK and Blujay India is still benefitting out of the other assets acquired namely business contracts, employees, business permits, policies, readymade business etc. - Transfer of IP to UK was on back-to-back basis without any capital gains and the assessee has not claimed any depreciation on the IP transferred during the year. We find merit in the argument of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53,42,477/- and the acquisition was completed on 4th October 2013. The transaction was accounted as a business acquisition and purchase consideration was allocated to tangible, intangible assets and liabilities at fair value as determined by an independent valuer. The excess of purchase consideration over the fair value of net assets acquired has been recognized as Goodwill. The acquisition of tangible assets and liabilities was done on book value basis. As regards the intangible property, sale consideration was mutually agreed between parties based on valuation report obtained from independent valuer. 5. He noted that the assessee has considered excess of purchase consideration over the fair value of net assets as goodwill and has furnished the computation as below: Particulars Amount (in Rs.) Net assets acquired (A) 8,11,32,473 Intellectual property(B) 62,40,77,295 Total value of net assets (C) C=A+B 70,52,09,768 Purchase consideration (D) 1,13,53,42,477 Goodwill (E = D-C) 43,01,32,709 6. He noted that the assessee has claimed depreciation of Rs. 5,37,66,588 @half of 25% on goodwill of Rs.43,01,32,709/-. He, therefore, asked the assessee to furnish the details as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Supreme Court in the case of SMIFS Securities Ltd, it was argued that goodwill is an intangible asset and depreciation on goodwill is allowable. The assessee also relied on various other decisions to support his case that the excess amount paid over and above the asset acquired is to be treated as goodwill and the assessee is entitled to claim depreciation on the same. 9. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He noted that in August 2013, Kewill announced its acquisition of the assets of Foursoft Limited, a publicly listed Solutions provider based in India. As part of the transaction, a newly established Indian subsidiary of Kewill (Kewill India) has been formed to acquire the assets, including intellectual property, largely software from Foursoft Ltd. The eproducts consisting of innovative and market-leading software solutions developed by Foursoft in-house on the-new technology platform for freight forwarders, custom brokers, warehouses, shipping liners and manufacturers. The products are 4S eTrans, 4S eLog, 4S Visilog and 4S visilog plus. It has been stated by the company in the submission that eProduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, if any, is attached then depreciation on Goodwill should be allowed, if applicable, in the hands of the holding company only and not to the assessee. 12. So far as assessee's reliance in case of CIT Vs Smifs Securities is concerned, he noted that the Hon'ble Supreme Court has categorically mentioned that CIT(A) & the Tribunal held that the difference between the cost of an asset and the amount paid in the process of amalgamation constituted goodwill and this aspect was not challenged by department before the High Court. Therefore, the Hon'ble Supreme Court has not discussed the issue whether the difference between the cost of an asset and the amount paid in process of amalgamation constituted goodwill or not which is eligible for depreciation. Therefore, reliance placed by assessee on Hon'ble Supreme Court judgment in case of CIT vs Smifs Security was held by him as not tenable. Rejecting the various explanation given by the assessee, the Assessing Officer rejected the claim of depreciation of Rs.5,37,66,588/- on the goodwill of Rs.43,01,32,709/-. 13. In appeal, the learned CIT (A) deleted the disallowance made by the Assessing Officer on the ground that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oodwill of Rs.43.01 crores and accordingly claimed depreciation proportionately on the goodwill. However, there was no asset of goodwill in the hands of the transferor company and subsequently there is no purchase of the same as an identifiable asset. The acquisition agreement dated 10.8.2016 also does not discuss about the goodwill or quantify the same. He submitted that the assessee has not produced any other basis of valuation of goodwill. He submitted that goodwill is not populated as an identifiable asset in the books of account of Four Soft, goodwill has neither been quantified in the books of Four Soft Ltd or in the acquisition agreement. It is only appropriated that the price paid above the fair market value of assets of Four Soft is due to advantages arising from the assets of Four Soft Ltd. Therefore, the valuation of goodwill is to be apportioned to the most valued products of Four Soft i.e. 4S extra, 4S elog, 4S virilog and 4S virilog plus. He submitted that the Assessing Officer in the instant case has clearly mentioned that the assessee company has transferred the entire valuable assets of the company to its parent concern at book value and did not offer any capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n over; and d) Right to enjoy all advantages of established trade. 20. He submitted that the assessee has reduced the value of sale consideration of the Intellectual Property paid to Blujay Solutions Limited, UK from the block of fixed assets. Thereby there is no depreciation claimed on the Intellectual Property purchased from Four Soft India and sold to its Parent Company i.e., BluJay Solutions Ltd, UK. The assessee has transferred the Property of INR 62,40,77,295 at book value to its Parent Company i.e., BluJay Solutions Limited, UK and has not claimed any benefit of depreciation. 21. The learned Counsel for the assessee submitted that the assessee has transferred the Intellectual Property to its Parent Company because all the IP is held by the Group as per the Group Policy. This is the general structure in the MNEs, where the Parent entity holds all the IP and not the captive service provider. The assessee which is the captive service provider will still have all the access to such Intellectual Property through the Group. In respect of the distribution of Parent Company Software Products, user licenses that are sold to external customers in India by the assessee, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai vs. CIT (ITA 1741 of 2009) 21) Hon'ble Bombay High Court in the case of CIT vs. Birla Global Asset Finance Co. Ltd (ITA 6835 of 2010) 22) ITAT Delhi in the case of Cyber India Online Ltd vs. ACIT (ITA 1299 of 2010) 23) ITAT Delhi in the case of Hindustan Coca Cola Beverages (P) Ltd vs. DCIT (ITA 1884 of 2006) 24) ITAT Ahmedabad in the case of Urmin Marketing (P) Ltd vs. DCIT (ITA 1806/Ahd/2019) 24. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has entered into a business acquisition agreement to acquire business of Foursoft India Ltd as a going concern on a slump sale basis for a consideration of Rs.113,53,42,477/- and the acquisition was completed on 4th October 2013. The transaction was accounted as a business acquisition and purchase consideration was allocated to tangible, intangible assets and liabilities at fair value as determined by an independent valuer. The excess of purchase consideration over the fair value of net assets acquired was rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fresh application for Permits 4. All the Employees 5. Registered Trademarks and Copyrights 6. Business Intellectual Property 7. Books and Records 8. Original Deeds and documents of title 9. Business Liabilities, duties and Obligations 10. Insurance Policies 27. We therefore, find merit in the argument of the learned Counsel for the assessee that the purchase consideration of INR 113 crores was attributed to the business acquired from Four Soft which is a bundle of the components as listed above and described in Clause 6.2.2. of the BTA. We further find from the details furnished by the learned Counsel for the assessee in the paper book that with the above benefits accrued on transfer of business, the business of the assessee has increased substantially from financial year 2013-14 to 2020-21, the details of which are as under: Year Revenue from operations 2013-14 20,28,88,247 2014-15 41,23,17,354 2015-16 41,09,92,024 2016-17 39,53,90,897 2017-18 37,55,95,589 2018-19 38,93,10,570 2019-20 51,87,19,877 2020-21 58,73,44,657 28. In our opinion, the transfer of IP from Blujay India to Blujay UK cannot question the benefits accrued from the above bundle of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a going concern and on a slump sale basis by paying a consideration of Rs. 7.94 crores as per the slump sale agreement between AVIS Hospitals India Limited and Beams Hospitals Private Limited dated 30.03.2015 copy of which is placed in the paper book at page at 78 to 99. We find the assessee in the return of income filed has taken the value of fixed assets at Rs. 3,31,23,000/- as per the depreciation schedule and the difference amount of Rs. 3,96,87,209/- after deducting the value of security deposits etc. was treated as goodwill on which depreciation @ 25% has been claimed. We find the AO rejected the claim of depreciation on goodwill by relying the provision of section 32 r.w.s. 43(1) and 43(6). We find the ld.CIT(A) upheld the action of the AO, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the ld.counsel for the assessee that when a purchaser acquires a business on a going concern basis by paying more than the fair market value of the net tangible asset, the difference in the purchase consideration and the net value of the assets and liabilities is attributable to the commercial benefit which is nothing but goodwill on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of PCIT vs. Zydus Wellness Ltd.(supra) has observed as under:- 3. The remaining questions no. (E) to (I) relate to the assessee's claim of depreciation. In the return filed for the assessment year 2010-11, the assessee had not raised such a claim. However, during the course of assessment proceedings, the assessee presented revised computation which included the assessee's claim of depreciation of Rs.7.19 crores on the goodwill expanded at the time of amalgamation of the companies. The assessee pointed out that such claim would be allowable by virtue of the judgement of the Supreme Court in case of Commissioner of Income-Tax, Kolkata vs. Smifs Securities Ltd. reported in 348 ITR 302. The Assessing Officer disallowed the claim on two grounds. Firstly, that the claim was not made in the original return nor did the assessee file the revised return. The second ground was that the claim was fictitious and the goodwill has been accounted as a balancing factor in the hands of the assessee without acquisition of an intangible asset as contemplated under Section 32 of the Act. 4. The assessee carried the matter in appeal. The CIT(Appeals) as well as the Tribunal both ruled i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the assessing officer. 40. Therefore, any ground, legal contention or even a claim would be permissible to be raised for the first time before the appellate authority or the Tribunal when facts necessary to examine such ground, contention or claim are already on record. In such a case the ITA 1390/Hyd/2019 situation would be akin to allowing a pure question of law to be raised at any stage of the proceedings. This is precisely what has happened in the present case. The Appellate Commissioner and the Tribunal did not need to nor did they travel beyond the materials already on record, in order to examine the claims of the assessees for deductions under section 80IB and 80HHC of the Act." 6. With respect to the claim of depreciation, the decision of Supreme Court in case of Smifs Securities Ltd. (supra) would squarely apply. There is no material referred to by the Assessing Officer to hold that the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identifiable assets and liabilities of the entity exceed the acquisition cost." 17. At this stage, it is also relevant to refer to Accounting Standard 10 as issued by the Institute of Chartered Accountants of India. The relevant extract of which reads as under:- "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is nothing but deriving undue benefit out of oneself at the cost of the revenue. Similarly, the Tribunal observed at para 7.14 of the order that the parent company appointed the valuer and not the assessee and there is unfair fixation of transfer price to benefit the transferor at the cost of the assessee, the matter being an affair between parent of the assessee and the assessee. At para 7.18 of the order, the Tribunal had given a clear finding that clause 10.2 of the second valuation report clearly indicate that the purchase consideration is for acquisition of 100% equity. Therefore, the price is paid for 100% control of equity and more in the nature of premium for acquisition of 100% equity control and therefore, the balancing charge is not in the nature of goodwill. It has observed that allowing depreciation on fictional goodwill in such a case would be a case of one making profit/loss out of oneself. In such circumstances, the Tribunal held that it was wholly unreal and artificial to separate the business from its owner and treat them as if they were separate entities trading with each other and then by means of a fictional sale introduce a fictional profit which in truth and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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