AMERICAN EXPRESS SERVICES INDIA LTD, NEW DELHI V. ACIT 5(2), MUMBAI

CO 202/MUM/2009

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7058 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 03-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-08-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 14-10-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R R VORA
• Keywords: Depreciation; Transfer pricing; Revenue expenditure
• Section: 143(3); 37(1); 32; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, MUMBAI. BEFORE SHRI B.R.MITTAL, JUDICIAL MEMBER AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER I.T.A NO.4106/ MUM/2007 ASSESSMENT YEAR: 2002-03 ACIT 2(1) .. APPELLANT R.NO.575, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20 VS AMERICAN EXPRESS SERVICES INDIA LTD. .. RESPOND EN T JIJI HOUSE, 2 ND FLOOR, DAMODAR SUKHADWALA MARG, MUMBAI-01 PA NO.AABCT 0555 D C.O.NO.202/MUM/2009 (ARISING OUT OF ITA NO.4106/M/2007) ASSESSMENT YEAR: 2002-03 AMERICAN EXPRESS SERVICES INDIA LTD. .. CROSS OB JECTOR JIJI HOUSE, 2 ND FLOOR, DAMODAR SUKHADWALA MARG, MUMBAI-01 PA NO.AABCT 0555 D VS ACIT 2(1) .. RESPONDENT R.NO.575, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20 APPEARANCES: USHA NAIR, FOR THE REVENUE R.R.VORA AND NIKHIL TIWARI , FOR THE ASSESSEE DATE OF HEARING : 12.1.2012 DATE OF PRONOUNCEMENT : 03 .2.2012 O R D E R PER PRAMOD KUMAR: I.T.A NO.4106/ MUM/2007 C.O.NO.202/MUM/2009 ASSESSMENT YEAR: 2002-03 2 1. THIS SET OF APPEAL FILED BY THE ASSESSING OFFICER AND THE CROSS OBJECTION FILED BY THE ASSESSEE, ARE DIRECTED AGAINST THE ORDER DATED 1 ST MARCH, 2007 PASSED BY THE LEARNED CIT(A), IN THE MATTER OF ASSESSMENT UNDER SECTIO N 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2002-03. THE GRIEV ANCES RAISED IN THE APPEAL AND THE CROSS OBJECTION ARE SOMEWHAT INTERCONNECTED, AND, ARE REQUIRED TO BE DISPOSED OF TOGETHER. 2. THE REVENUE IN ITS GROUND RAISED THE FOLLOWING GRI EVANCE: THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO TR EAT THE DATA BASE AS PLANT AND ALLOW DEPRECIATION ON IT ACCORDINGLY. 3. THE ASSESSEE IN ITS CROSS OBJECTION RAISED THE FOLLOWIN G GRIEVANCES: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD ACIT ERRED IN OBJECTING THE ORDER OF THE CIT(A) ON THE GROUND THAT THE BUSINESS DATABASE OF AMERICAN EXPRESS SERVICES INDIA LTD., IS NOT A PLANT THROUGH WHICH THE BUSINESS IS CARRIED ON BY THE RESPONDE NT, WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. WITHOUT PREJUDICE TO ABOVE, SHOULD HAVE APPRECIAT ED THAT IN CASE THE SAME IS NOT CONSIDERED AS AN TANGIBLE ASSET I.E. PLA NT, THE SAME WOULD CONSTITUTE AN INTANGIBLE ASSET ELIGIBLE FOR DE PRECIATION UNDER SECTION 32 OF THE I.T.ACT. 3. WITHOUT PREJUDICE TO GROUND NO.1 TO 2, SHOULD HA VE APPRECIATED THAT THE AMOUNT PAID TOWARDS ACQUISITION OF DATABASE IS REVENUE EXPENDITURE ALLOWABLE UNDER SECTION 37(1) OF THE ACT . 4. ON THE FACTS AND CIRCUSMTANES OF THE CASE, THE CIT( A) ERRED IN CONFIRMING THE ACTION OF THE AO IN ATTRIBUTING THE VALUE TO BUSINESS DATABASE AT RS.3 CRORES AS AGAINST THE BUSINESS VALUATION O F RS.12 CRORES, ON ADHOC BASIS WITHOUT ANY JUSTIFICATION OR SUPP ORT FOR SUCH VALUATION WITHOUT APPRECIATING THE FACTS OF THE CASE. 5. WITHOUT PREJUDICE TO ABOVE, SHOULD HAVE DIRECTED THE AO TO CONSIDER THE ALLEGED EXCESS VALUATION (TO THE EXTENT O F RS.9 CRORES) AS AMOUNT PAID TOWARDS GOODWILL OF THE BUSINESS AND ACCORD INGLY DEPRECIATION SHOULD HAVE BEEN GRANTED ON THE SAME. 6. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN HOLDING THAT THERE EXISTS NO GOODWILL IN THE BUSINESS ACQUIRED AND AC CORDINGLY I.T.A NO.4106/ MUM/2007 C.O.NO.202/MUM/2009 ASSESSMENT YEAR: 2002-03 3 IGNORING THE VALUE OF GOODWILL BEING AMOUNT PAID BY THE RESPONDENT I.E. RS.8 CRORES WITHOUT APPRECIATING THE FACTS OF TH E CASE. 7. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO, BY HOLDING THAT GOODWILL PURCHASED FOR THE PURPOSE OF THE BUSINESS IS N OT AN INTANGIBLE ASSET ELIGIBLE FOR DEPRECIATION UNDER SECTI ON 32 OF THE ACT. 4. BRIEFLY STATED, THE MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE IS A JOINT VENTURE BETWEEN TATA FINANCE LTD AND AMERICAN EXPRESS INTERNA TIONAL. IT IS ENGAGED IN THE BUSINESS OF MONEY CHANGING, FOREIGN EXCHANGE AND OTHER RELATED SERVICES AS PERMITTED BY RESERVE BANK OF INDIA, IN THE CAPACITY OF A FULL FLEDGED MONEY CHANGER. ON 1 ST SEPTEMBER, 2001, THE ASSESSEE PURCHASED 4 FOREIGN EXCHA NGE SERVICE LOCATIONS OF AMERICAN EXPRESS-TRS (LEGAL ENTITY: AEB INDIA) FOR A CONSIDERATION OF RS.26.77 CRORES. THE ABOVE CONSIDERATION HAD THE FOLL OWING COMPOSITION:- ACQUIRED BUSINESS DATA BASE : RS.12 CRORES NET CURRENT ASSETS : RS. 5 CRORES MISCELLANEOUS ASSETS : RS.1.77 CRORES BALANCE GOODWILL : RS.8 CRORES 5. WHAT WAS TERMED AS ACQUIRED BUSINESS DATABASE WAS A D ATABASE OF CUSTOMERS DEVELOPED BY AEB-INDIA BASED ON ITS LONG STAN DING RELATIONSHIP WITH VARIOUS TRAVEL AGENCIES AND CORPORATION, AND ALL OTHE R INFORMATION RELATING TO THE CUSTOMERS OF THE ACQUIRED BUSINESS UNDERTAKING. 6. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER TOOK NOTE OF THE ABOVE FACTS AND OPINED THAT DEFINITELY IT IS ADVANTAGEOUS ON THE PART OF THE ASSESSEE TO HAVE THIS VALUABLE DATABASE IN ITS POSSESSION, BU T SO FAR AS PAYMENT AN EXORBITANT SUM OF RS.12 CRORES FOR THIS DATABASE, I DO NOT AGREE WITH THE CONTENTION OF THE ASSESSEE THAT IT WILL GARNER SUFFICIENT BENEFIT, AND HENCE THIS PAYMENT HAS BEEN MADE. HE WAS OF THE VIEW THAT BY NO STRETCH OF IM AGINATION, CAN THIS HUGE PAYMENT BE JUSTIFIED. HE PROCEEDED TO DISALLOW ONLY 25% OF PAYMENT I.E. RS.3 CRORES, AND DECLINED THE DEPRECIATION IN RESPECT OF THE SAME ON T HE GROUND THAT IT CANNOT BE TREATED AS PLANT AND MACHINERY. THE PAYMENT OF RS. 8 CRORES TOWARDS GOODWILL WAS STATED TO BE DISALLOWED IN THE ABSENCE OF THE JUSTIFIC ATION. AGGRIEVED, ASSESSEE I.T.A NO.4106/ MUM/2007 C.O.NO.202/MUM/2009 ASSESSMENT YEAR: 2002-03 4 CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT COMPLETE SUCCESS. WHILE CIT(A) UPHELD AOS ADOPTING THE VALUE OF DATABASE AT RS.3 CRORES, HE DIRECTED THE AO TO ALLOW DEPRECIATION ON THE DATABASE AT THAT VALUE. THE CIT(A) ALSO UPHELD AOS DECLINING DEPRECIATION AS GOODWILL. NONE OF THE PAR TY IS SATISFIED. WHILE ASSESSEE IS MAINLY AGGRIEVED THAT THE CIT(A) OUGHT TO HAVE HELD THAT DEPRECIATION IS ADMISSIBLE IN RESPECT OF FULL AMOUNT PAID BY IT FOR ACQUIRED BU SINESS DATABASE, AND THAT HE OUGHT TO HAVE UPHELD ADMISSIBILITY OF DEPRECIATION ON GOODWILL AS WELL, THE ASSESSING OFFICER IS AGGRIEVED THAT THE CIT(A) OUGHT TO HAVE D ECLINED DEPRECIATION ENTIRELY IN RESPECT OF ACQUIRED BUSINESS DATABASE. THE ASSESSEE HAS RA ISED A FURTHER ALTERNATIVE PLEA THAT ENTIRE PAYMENT FOR ACQUIRING DATABASE SHOULD BE ALLOWED AS REVENUE DEDUCTION, BUT LEARNED COUNSEL DID NOT REALL Y PRESS THE SAME. 7. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLI CABLE LEGAL POSITION. 8. WE FIND THAT IT IS NOT IN DISPUTE THAT THE TRANSACT ION BETWEEN THE ASSESSEE AND AMERICAN EXPRESS BANK, INTER ALIA, INCLUDING FOR PURCHASE OF ACQUIRED BUSINESS DATABASE WERE SUBJECTED TO TRANSFER PRICING SCRUTINY AN D, THE TRANSFER PRICING OFFICER VIDE ORDER DATED 15.2.2005 HAS ACCEPTED THE TRANSACTI ON WITHOUT MAKING ANY ADJUSTMENT TO THE ARMS LENGTH PRICE. IN THIS VIEW OF THE MATTER AND AS HELD BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ORACLE INDIA PVT LTD (243 CTR 103), WHEN THE PRICE FIXED IS ACCEPTABLE AS ARMS LENGTH PRICE BY TRAN SFER PRICING OFFICER (TPO) UNDER SECTION 92 OF THE ACT, IT CANNOT BE OPEN TO THE ASSESSIN G OFFICER TO DISTURB THAT PRICE SO PAID AS UNREASONABLE. WE HAVE ALSO NOTED THAT THE ASSESSING OFFICER HAS DOUBTED THE APPROPRIATENESS OF THE CONSIDERATION OF RS.12 CRORE S WITHOUT ANY COGENT MATERIAL TO COME TO THE CONCLUSION THAT THIS IS EXCESSIVE OR UNR EASONABLE, BUT THEN THE TPO WHOSE DUTY IS IT TO EXAMINE WHETHER OR NOT THE PRICE PAID IN INTRA ASSOCIATE ENTERPRISES TRANSACTIONS ARE AT ARMS LENGTH PRICE OR NOT HAS ACCEPTED THE TRANSACTION WITHOUT MAKING ANY ARMS LENGTH PRICE ADJUSTMENT. THE RE IS NO MATERIAL WHATSOEVER TO ESTABLISH OR EVEN INDICATE THAT THE PRICE OF RS.12 CRORES PAID FOR THE ACQUIRED BUSINESS DATABASE IS EXCESSIVE OR UNREASONABLE AND ONLY THE BASIS OF ASSESSING OFFICERS COMING TO THE CONCLUSION ABOUT HIS SUBJECTIV E JUDGMENT. WHEN THE I.T.A NO.4106/ MUM/2007 C.O.NO.202/MUM/2009 ASSESSMENT YEAR: 2002-03 5 VALUATION OF ACQUIRED BUSINESS DATABASE HAS BEEN EXAMINE D BY TPO WHILE CONCLUDING THAT THE DATABASE PRICE ADJUSTMENT FOR T HE SAID YEAR AND NO ADVERSE INFERENCES HAVE BEEN RECORDED IN RESPECT OF THE SAME, THERE COULD BE NO GOOD REASON FOR THE AO TO DEVIATE FROM THE STAND OF THE TPO AND SUBSTITUTE HIS OWN OPINION AS TO WHAT SHOULD BE THE CORRECT PRICE AT WHICH ACQUIRED B USINESS DATABASE SHOULD HAVE BEEN PURCHASED. IN THIS VIEW OF THE MATTER AND IN T HE LIGHT OF THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF ORACLE INDIA P. LTD (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) WAS INDEED IN ERROR IN RESTRICT ING THE VALUE OF ACQUIRED BUSINESS DATABASE AT RS.3 CRORES AS AGAINST RS.12 CRORES PAID BY TH E ASSESSEE. TO THIS EXTENT, WE VACATE THE ORDER OF THE CIT(A). WE FURTHER FIND THAT SO FAR AS THE QUESTION ABOUT ADMISSIBILITY OF DEPRECIATION OF ACQUIRED BUSINESS DATAB ASE IS CONCERNED, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF H ONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN COCA COLA BEVERAGES PVT LTD ( 331 ITR 192), WHEREIN, THEIR LORDSHIPS, INTER ALIA, HAVE OBSERVED THAT IT IS WORTH NOTING, THE SCOPE OF SECTION 32 HAS BEEN WIDENED BY THE FINANCE (NO. 2) ACT, 1998 W HEREBY DEPRECIATION IS NOW ALLOWED ON INTANGIBLE ASSETS ACQUIRED ON OR AFTER 1ST A PRIL, 1998. AS PER SECTION 32(1)(II), DEPRECIATION IS ALLOWABLE IN RESPECT OF KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE . IN VIEW OF THESE DISCUSSIONS AS ALSO BEARING IN MIND THE E NTIRETY OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE C IT(A) OUGHT TO HAVE ALLOWED THE DEPRECIATION ON THE ENTIRE PAYMENT OF RS.12 CRORES TO WARDS ACQUIRED BUSINESS DATABASE. WE, THEREFORE, REJECT THE APPEAL FILED BY THE ASSESSING OFFICER AGAINST PARTIAL RELIEF GRANTED BY THE CIT(A) AND UPHOLD THE GRIEVANCE OF THE ASSESSEE IN THIS REGARD. 9. AS REGARDS THE QUESTION OF CLAIMING PAYMENT TOWARDS ACQUIRING DATABASE AS REVENUE EXPENDITURE, LEARNED COUNSEL FOR THE ASSESSEE DI D NOT PRESS THE SAME. ACCORDINGLY, THE GRIEVANCE IS DISMISSED AS NOT PRESSED. 10. THERE IS ONE MORE ISSUE TO BE DECIDED I.E. DEPRECI ATION ON GOODWILL. ALTHOUGH THE ASSESSEE HIMSELF TAKEN THE GROUND, NO SPECIFIC ARGUM ENTS WERE ADVANCED BEFORE US. IN ANY CASE, ONCE THE ASSESSEE HAS HIMSELF ACCEPTED TH IS PAYMENT AS GOODWILL I.T.A NO.4106/ MUM/2007 C.O.NO.202/MUM/2009 ASSESSMENT YEAR: 2002-03 6 SIMPLICITOR, THERE CANNOT BE ANY GOOD REASON TO UPHOL D THE ADMISSIBILITY OF DEPRECIATION THEREON. WE, THEREFORE, REJECT THIS GR IEVANCE OF THE ASSESSEE AS WELL. 11. TO SUM UP, WHILE THE GRIEVANCE OF THE ASSESSING OFFI CER IS DISMISSED THE GRIEVANCES OF THE ASSESSEE ARE PARTLY ALLOWED AS INDICATE D ABOVE. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED AND CROSS OBJECT ION FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 3 RD FEBRUARY, 2012 SD/- (B.R.MITTAL) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATED 3 RD FEBRUARY, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),XXXIII, MUMBA I 4. COMMISSIONER OF INCOME TAX, 2 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI