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TMI Blog2023 (2) TMI 1391X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT V. Smifs Securities Ltd (2012) 24 taxmann.com 222, wherein it was held that goodwill is a depreciable asset under section 32 of the Act and is eligible for depreciation." 4. The assessee is engaged in the business as manufacturers and brewers, producers, importers, buyers and sellers, stores and stockists, suppliers and distributors, wholesale and retail dealers and workers in malt, malt extract and other barley and cereal products. The only issue to be adjudicated by this bench pertains to disallowance of depreciation u/s 32 on goodwill raised by the assessee post demerger. From the record we find that the assessee had created goodwill on account of demerger which is as under:- "13.3 The difference, being the excess of the shares issued by the resulting company on demerger over the net value of assets and liabilities as recorded above of the demerged undertaking (after considering the impact of cancelation of shares as provided in clause Error! Reference source not found.) shall be credited/ adjusted in Capital Reserve Account of the resulting company. In case of there being a shortfall, the same shall be debited by the resulting company to the goodwill account. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. (MCIPL). Malt production units at Pataudi (Haryana) and Kashipur (Uttarakhand) were a part of MCIPL (the demerged company) till 31st March 2013. In accordance with the scheme of Arrangement, Reorganization& Demerger, the interest therein of MCIPL got vested in the assessee (the resulting company) w.e.f. 1st April 2013 as per order of the Hon'ble High Court of Delhi dated 5th October 2012. In terms of such order, the difference between purchase consideration and net assets acquired (net assets = assets less liabilities) was recorded as goodwill in the books of the assessee company in F.Y. 2013-14 at value of Rs. 16,62,37,413/- on which it claimed depreciation @ 25% as per Section 32 of the Income Tax Act, 1961 of Rs. 4,15,59,353/- in A.Y. 2014-15. Thus, goodwill amounting to Rs 16,62,37,413/- was recognized in the books of the appellant during FY 2013-14. It was noticed by the AO that during the year, the assessee has claimed depreciation on goodwill @ 25% of opening WDV of Rs. 12,46,78,060/- equivalent to Rs. 3,11,69,515/-. 9. At the outset, we would like to make it clear that "Goodwill" is an intangible asset and depreciation is allowable on good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2014. 13. The provisions of Section 43(1) explanation 3 reads as under: "Explanation 3,- Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business or profession and the Assessing Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income-tax (by claiming depreciation with reference to an enhanced cost), the actual cost to the assessee shall be such an amount as the Assessing Officer may, with the previous approval of the Joint Commissioner, determine having regard to all the circumstances of the case." 14. The Act provides that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know- how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv) of section 47 or Section 170 or to the amalgamating company and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee." 16. We have gone through the various provisions applicable to the company in case of demerger/amalgamation. 17. Demerger (Section 2(19AA)): means the transfer of one or more undertakings to any resulting company pursuant to a scheme of arrangement under Sections 391 to 394 of the Companies Act, 1956 in such a manner that : * All the property/liability of the undertaking becomes the property/liability of the resulting company. * All the property/liabilities are transferred at book value (excluding increase in value due to revaluation). * The resulting company issues shares to the share holders of demerged company on a proportionate basis, except where resulting company is a share holder of the demerged company. * Share holders holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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