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TMI Blog2023 (9) TMI 483X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of undertakings and it is equally true that separate considerations have been determined and paid in respect of transfer of brands and transfer of undertaking we find that on the date of transfer of brand, its value in the books of transferor company was NIL The assessee has determined the brand value at Rs. 7.24 crores to be paid to the transferor company. This consideration was discharged by the assessee by way of issue of 1640037 equity shares of Rs. 10/- each fully paid up at a premium of 34.20 totaling to Rs. 7,24,98,000/-. This value has been put subsequent to the demerger of edible oil brand. Explanation 3 to section 2(19AA) clearly says that for determining the value of property, any change in the value of assets, consequent to their revaluation shall be ignored. Therefore, since the value of edible oil brand in the books of transferor company was NIL, any change in its value subsequently, has to be ignored. Assessee can transfer a unit or a division of an undertaking or a business activity and has rightly transferred the edible oil brand independently to the transfer of edible oil undertaking. But since the book value of edible oil brand on the date of the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umya Jain, CA For the Department : Ms. Sugam Thomas Josh, CIT- DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER:- This appeal by the Revenue is preferred against the order of the ld. CIT(A), Meerut dated 22.03.2018 pertaining to Assessment Year 2007-08. 2. Grievances of the revenue read as under: [ I. Because the Ld. CIT(A) has erred in law and facts for deleting the addition of Rs. 1.81.24.500/- made on account of disallowance of depreciation on Edible Oil Brand despite that the demerger process is not according with the provisions of section 2(19AA) of the Income Tax Act, 1961. II. Because the Ld. CIT(A) has erred in law and facts for deleting the addition of Rs. 1,81,24.500/- made on account of disallowance of depreciation on Edible Oil Brand despite that the written down value of the block asset of the resulting assessment company shall be the written down value of the transferred asset of demerged company. III Because the Ld. CIT(A) has erred in law and facts for deleting the addition of Rs. 1.81.24.500/- made on account of disallowance of depreciation on Edible Oil Brand despite that as per provisions of Explanation of Section 43(1) of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2 Consequently, as such transfer of Edible Oil Brands have been by virtue of the demerger scheme of arrangement and the same should have been transferred at NIL value to the resulting company, so the depreciation of Rs. 1,81,24,500/- @ 25% claimed by the resulting company is not admissible. As such, depreciation in the subsequent years i.e. Asstt. Year 2008- 09 and onwards is also not admissible. 6. The assessee was asked to justify its claim, and the assessee replied as under: As regards your honour's query regarding allowability of depreciation of Rs. 1,81,24,500 on acquisition of brand, it is respectfully submitted as under: The aforesaid query, it appears, has been raised on the basis of the comments of the Special Auditor in para 4-4.2 on page 44 of the Special Audit Report. In the said para, the Special Auditors have mentioned that the edible oil brands were acquired by the assessee-company as part of demerger and vesting of the edible oil business into the assessee-company under the scheme of reorganization of Amrit Corp Limited (ACL) [formerly known as M/s. Amrit Banaspati Company Limited (ABCL)]. It is further observed that since the edible oil brands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. The Assessing Officer found that the value of edible oil brands just before the merger was NIL. Therefore, there is no block of intangible assets in the balance sheet of the demerged company. Referring to the provisions of section 2(19)AA of the Act, r.w. explanations thereon, the Assessing Officer came to the conclusion that the claim of depreciation by the assessee is not as per the provisions of the law. Depreciation claimed amounting to Rs. 1,81,24,500 /- was disallowed. 8. The assessee challenged the disallowance before the ld. CIT(A) and explained that the transfer of edible oil brands and the demerger of edible oil undertaking were two separate and independent transactions duly approved by the Hon'ble High Court. The ld. CIT(A) was convinced that the merger, as defined in section 2(19AA) of the Act also included transfer of part of an undertaking, as long as the same constitutes functioning business, the edible oil undertaking could function de hors the edible oil brand , and since the transfer of edible oil brand took place in exchange of consideration discharged by way of issuance of shares, the assessee was eligible to claim depreciation and deleted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) the liabilities which arise out of the activities or operations of the undertaking: (b) the specific loans or borrowings (including debentures) raised, incurred and utilised solely for the activities or operations of the undertaking; and (c) in cases, other than those referred to in clause (a) or clause (b), so much of the amounts of general or multipurpose borrowings, if any, of the demerged company as stand in the same proportion which the value of the assets transferred in a demerger bears to the total value of the assets of such demerged company immediately before the demerger. Explanation 3-For determining the value of the property referred to in sub-clause (iii), any change in the value of assets consequent to their revaluation shall be ignored. Explanation 4.--For the purposes of this clause, the splitting up or the reconstruction of any authority or a body constituted or established under a Central, State or Provincial Act, or a local authority or a public sector company, into separate authorities or bodies or local authorities or companies, as the case may be, shall be deemed to be a demerger if such split up or reconstruction fulfils such conditions as may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t relevant. Moreover, a perusal of the assessment order of the transferor company exhibited at pages 96 to 104 of the paper book shows that the transferor company has declared long-term capital gain on the sale of brand at Rs. 7,24,98,000/ but nowhere in the assessment order, there is any mention of cost of acquisition. It appears that the entire sale consideration of Rs. 7,24,98, 000/ has been returned as long-term capital gain. This also proves that in the books of transferor company, value of edible oil brand was NIL. The assessee has also relied upon various judicial decisions which we find to be not relevant on the facts of the case in hand and hence not considered. 16. Ground No. 6 relates to deletion of addition of Rs. 10,27,867/- made on account of disallowance of royalty paid on brand Gagan . 17. The root cause for disallowance of the royalty amount of Rs. 10,27,867/- is that since there was a total merger of Amrit Corp Ltd, brand Gagan also stood transferred to the assessee and, therefore, there is no question of paying royalty to itself. 18. A perusal of the scheme of arrangement shows that while edible oil brands and edible oil undertaking were transfered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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