Thyssen Krupp Elevator (I) Pvt. Ltd, V. ACIT Circle-16 (1),

ITA 153/DEL/2008

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81604 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 02-01-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 17-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA
• Assessee Lawyers: S D KAPILA
• Keywords: Reopening of assessment; Depreciation; Opportunity of being heard; Question of law; Right to appeal; Revised return
• Section: 32

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H: NEW DELHI BEFORE SHRI J. S REDDY, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 153 /DEL/ 2008 (ASSESSMENT YEAR: 2003 - 04 ) ITA NO. 154/DEL/2008 (ASSESSMENT YEAR: 2003 - 04) THYSSENKRUPP ELEVATOR (INDIA) PVT. LTD, PLOT NO. 330, FUNCTIONAL INDUSTRIAL ESTATE, PATPARGANJ, DELHI - 110 092 VS. ACIT, CIRCLE 16(1), 221 C. R. BUILDING, NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : S. D. KAPILA , ADV. RESPONDENT BY : SAMEER SHARMA, SR. DR O R D E R PER A. T. VARKEY , JUDICIAL MEMBER 1. THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD.CIT ( A) - XIX, NEW DELHI DATED 06.11.2007 FOR THE ASSESSMENT YEAR 200 3 - 04 . 2. THE GROUNDS OF APPEAL RAISED IN THE PRESENT APPEAL BY THE ASSESSEE BEFORE US ARE AS FOLLOWS: - 1. THAT THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ( CIT ( A)) IS BAD BOTH IN LAWS AND ON FACTS OF THE CASE. 2. THAT THE LEARNED CIT(A) WITHOUT APPRECIATING THE FACTS ERR ONEOUSLY CONFIRMED DISALLOWANCE OF CLAIM OF DEPRECIATIO N OF RS. 2,29,34,250/ ON INTANGIBLE ASSETS. 3. THAT THE LEARNED CIT(A) HAS MADE ERRONEOUS OBSERVATIONS ON FACTS AND WRONGLY HELD THAT CONSIDERATION PAID TO ACQUIRE RIGHTS UNDER THE CONTRACT DID NOT REPRESENT DEPRECIABLE INTANGIBLE ASSET, IN TERMS OF SECTION 32(1)(II) OF THE ACT. 3. THE ASSESSEE HAS ALSO RAISED AN A DDITIONAL GROUND BEFORE US FOR THE FIRST TIME AS BELOW : - PAGE NO. 2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, DEPRECIATION U/S 32(1)(II) MAY BE ALLOWED ON THE AMOUNT OF RS. 1,85,44,612/ - ALLOCATED BY THE APPELLANT IN ITS ACCOUNTS TOWARDS GOODWILL AS PART OF CONSIDERATION TO M/S ECE INDUSTRIES LTD. TOGETHER WITH THE LATTERS BUSINESS AND COMMERCIAL RIGHTS UNDER THE AGREEMENT D ATED OCTOBER 16, 2002. 4. THE ASSESSEE VIDE ITS APPLICATION FOR ADDITIONAL GROUND MADE UN DER RULE 11 OF ITAT RULES, 1963, HAS SOUGHT TO CLAIM DEPRECIATION ON GOODWILL IN TERMS OF SEC. 32(1)(II) OF ACT. SINCE TH IS GROUND HAS BEEN RAISED BY THE ASSESSEE B Y WAY OF AN ADDITIONAL GROUND , BEFORE DEALING WITH THIS MATTER ON MERITS IT IS IMMINENT FOR US TO DISPOSE OF TH IS APPLICATION REGARDING MAINTAINABILITY OF ADDITIONAL GROUNDS RAISED BY THE ASSESSEE . 5 . BRIEF FACTS RELEVANT TO THE ISSUE UNDER CONSIDERATION ARE - T HE ASSESSEE IS A PRIVATE LIMITED COMPANY INCORPORATED ON 1 ST FEBRUARY 1990. DURING THE RELEVANT YEAR, THE ASSESSEE ACQUIRED THE RUNNING BUSINESS IN TERMS OF UNDERTA KING SALE AGREEMENT DATED 16 TH OCTOBER 2002 (HEREINAFTER REFERRED TO AS THE AGREEMENT) OF M/S. ECE INDUSTRIES LIMITED HAVING ITS REGISTERED OFFICE AT NEW DELHI. THE ASSESSEE HAD ACQUIRED THE ELEVATOR DIVISION BUSINESS OF ECE INDUSTRIES LIMITED WHICH COMPRISED OF MARKETING, SELLING, ERECTION, INSTALLATION, COMMISSIONING, SERVICE, REPAIR, MAINTENANCE AND MODERNIZATION INCLUDING MAJOR REPAIRS OF PRODUCTS ON SLUMP BASIS. 6 . FURTHER, THE ASSESSEE HAD VALUED THE SAID AT RS. 20,32,10,000 , OUT OF WHICH THE VALUATION FOR MAINTENANCE DIVISIO N OF ECE LTD. ALONE WAS WORKED OUT TO THE TUNE OF RS. 18,34,74,000 WHICH WAS EVEN REFLECTED UNDER THE TRANSFER AND UNDERTAKING AGREEMENT EXECUTED BETWEEN THE ASSESSEE AND ECE LTD. THE BALANCE CONSIDERATION I.E. OUT OF THE TOTAL CONSIDERATION OF RS. 20,32,1 0,000 WHICH WAS RS. 1,85,44,612 / - THE SAME WAS SEPARATELY SHOWN IN THE BALANCE SHEET AND WAS TREATED TO BE GOODWILL PERTAINING TO THE BUSINESS. IT IS THIS VALUE OF GOODWILL WHICH HAS BEEN CLAIMED BY THE ASSESSEE AS ELIGIBLE FOR DEPRECIATION FOR THE FIRST TIME DIRECTLY BEFORE THIS TRIBUNAL. 7 . THE LD. AR SUBMIT S THAT THE ASSESSEE IS ENTITLED TO RAISE ADDITIONAL GROUNDS NOT MERELY IN TERMS OF LEGAL SUBMISSION BUT ALSO ADDITIONAL CLAIMS NOT MADE IN THE RETURN FILED BY IT AND CITED THE DECISION OF THE HONBLE SUPREME COURT IN JUTE PAGE NO. 3 CORPORATION OF INDIA LTD. VS. CIT ( 1991) 187 ITR 688 AND CITED NUMBER OF DECISION S TO SUBSTANTIATE THAT FOR THE FIRST TIME ADDITIONAL GROUNDS CAN BE RAISED BEFORE THE TRIBUNAL. 8 . ON THE OTHER HAND THE DR CONTENDED THAT IT IS A FACT THAT THE DEPRECIATION ON GOODWILL WAS NOT CLAIMED BY THE ASSESSEE WHILE FILING RETURN U/S 139(1) OF THE ACT, NOR IN THE ASSESSMENT PROCEEDING U/S 143 BY FILING REVISED RETURN. ACCORDING TO HIM, THE INITIATION OF THE CLAIM IS REQUIRED AND COMPLETION ON THE BASIS OF FACT IS A MUST. THEREFORE DEPRECIATION ON GOOD WILL CANNOT BE CLAIMED WITHOUT FILING OF REVISED RETURN AND THE LD DR REFERRED DECISION OF GOETZE (INDIA) LIMITED VS. COMMISSIONER OF INCOME TAX (2006) 284 ITR 323 (SC) WHEREIN IT HAS BEEN HELD THAT FRESH CLAIM S MADE BEFORE THE AO SHOULD BE MADE BY WAY OF FILING REVISED RETURN AND NOT OTHERWISE. ACCORDING TO THE DR THE CASE LAWS CITED BY THE LD. AR ARE NOT APPLICABLE IN THIS CASE. ACCORDING TO THE LD DR, THE PARTICULARS NECESSARY FOR THE PURPOSE OF ASSESSMENT HAVE TO BE SUBMITTED BE FORE THE COMPLETION OF THE ASSESSMENT PROCEEDING AND IF THE INFORMATION IS SUPPLIED SUBSEQUENT TO THE COMPLETION OF THE ASSESSMENT, IT WOULD MEAN THAT ASSESSMENT ORDER WI LL HAVE TO BE REOPENED AND THE A CT DOES NOT CONTEMPLATE SUCH REOPENING OF ASSESSMENT. THEREFORE THE LD DR SUBMITTED THAT IF NO CLAIM FOR DEPRECIATION ON GOOD WILL WAS MADE IN THE RETURN OF INCOME THEN DEDUCTION SHOULD NOT BE ALLOWED. 9 . WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE CASE - LAWS CITED BEFORE US IN THIS RESPECT. WE FIND THAT, THE FOLLOWING CASE LAWS ESTABLISH CLEARLY THAT AN ASSESSEE IS ENTITLED TO RAISE A DDITIONAL GROUNDS NOT MERELY IN TERMS OF LEGAL SUBMISSIONS, BUT ALSO ADDITIONAL CLAIMS NOT MADE IN THE RETURN FILED BY IT. IT IS NECESSARY FOR US TO REFER TO SOME OF THESE DECIS IONS . THE FIRST IS WITH RESPECT TO AN OBSERVATION OF THE SUPREME COURT IN JUTE CORPN. OF INDIA LTD. V CIT (SUPRA) [1991] 187 ITR 688/[1990] 53 TAXMAN 85 . 10 . IN JUTE CORPN. OF INDIA LTD. (SUPRA) FOR THE ASSESSMENT YEAR 1974 - 75 THE APPELLANT DID NOT CLAIM ANY DEDUCTION OF ITS LIABILITY TOWARDS PURCHASE TAX UNDER THE PROVISIONS OF THE BENGAL RAW JUTE TAXATION ACT, 1941, AS IT ENTERTAINED A PAGE NO. 4 BELIEF THAT IT WAS NOT LIABLE TO PAY PURCHASE TAX UNDER THAT ACT. SUBSEQUENTLY, THE APPELLANT WAS ASSESSED TO PURCHASE TAX AND THE ORDER OF ASSESSMENT WAS RECEIVED BY IT ON 23RD NOVEMBER, 1973. THE APPELLANT CHALLENGED THE SAME AND OBTAINED A STAY ORDER. THE APPELLANT ALSO FILED AN APPEAL FROM THE ASSESSMENT ORDER UNDER THE INCOME TAX ACT. IT WAS ONLY DURING THE HEARING OF THE APPEAL THAT THE ASSESSEE CLAIMED AN ADDITIONAL DEDUCTION IN RESPECT OF ITS LIABILITY TO PURCHASE TAX. THE APPELLATE ASSISTANT COMMISSIONER (AAC) PERMITTED IT TO RAISE THE CLAIM AND ALLOWED THE DEDUCTI ON. THE TRIBUNAL HELD THAT THE AAC HAD NO JURISDICTION TO ENTERTAIN THE ADDITIONAL GROUND OR TO GRANT RELIEF ON A GROUND WHICH HAD NOT BEEN RAISED BEFORE THE INCOME TAX OFFICER. THE T RIBUNAL ALSO REFUSED THE APPELLANT'S APPLICATION FOR MAKING A REFERENCE TO THE HIGH COURT. THE HIGH COURT UPHELD T HE DECISION OF THE TRIBUNAL AND REFUSED TO CALL FOR A STATEMENT OF CASE. IT IS IN THESE CIRCUMSTANCES THAT THE APPELLANT FILED THE APPEAL BEFORE THE SUPREME COURT AND THE HONBLE SUPREME COURT HELD AS UNDER: - 5. IN CIT VS. KANPUR COAL SYNDICATE, A THREE JUDGE BENCH OF THIS COURT DISCUSSED THE SCOPE OF SECTION 31(3)(A) OF THE INCOME TAX ACT, 1922 WHICH IS ALMOST IDENTICAL TO SECTION 251(1)(A). THE COURT HELD AS UNDER: (ITR P. 229) IF AN APPEAL LIES, SECTION 31 OF THE ACT DESCRIBES THE POWERS OF THE APPELL ATE ASSISTANT COMMISSIONER IN SUCH AN APPEAL. UNDER SECTION 31(3)(A) IN DISPOSING OF SUCH AN APPEAL THE APPELLANT ASSISTANT COMMISSIONER MAY, IN THE CASE OF AN ORDER OF ASSESSMENT, CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT; UNDER CLAUSE (B) THEREOF HE MAY SET ASIDE THE ASSESSMENT AND DIRECT THE INCOME TAX OFFICER TO MAKE A FRESH ASSESSMENT. THE APPELLANT ASSISTANT COMMISSIONER HAS, THEREFORE, PLENARY OFFICER. HE CAN DO WHAT THE INCOME - TAX OFFICER CAN DO AND ALSO DIRECT HIM TO DO WHAT HE HAS FAILED TO DO. (EMPHASIS SUPPLIED) 1 2 . THE ABOVE OBSERVATIONS ARE SQUARELY APPLICABLE TO THE INTERPRETATION OF SECTION 251 (1)(A) OF THE ACT. THE DECLARATION OF LAW IS CLEAR THAT THE POWER OF THE APPELLATE ASSISTANT COMMISSIONER IS CO - TERMINUS WITH THAT OF THE INCO ME TAX OFFICER, IF THAT BE SO, THERE APPEARS TO BE NO REASON AS. TO WHY THE APPELLATE AUTHORITY CANNOT MODIFY THE ASSESSMENT ORDER ON AN ADDITIONAL GROUND EVEN IF NOT RAISED BEFORE THE INCOME TAX OFFICER. NO EXCEPTION COULD BE TAKEN TO THIS VIEW AS THE ACT DOES NOT PLACE ANY RESTRICTION OR LIMITATION ON THE EXERCISE OF APPELLATE POWER. EVEN OTHERWISE AN APPELLATE AUTHORITY WHILE HEARING APPEAL PAGE NO. 5 AGAINST THE ORDER OF A SUBORDINATE AUTHORITY HAS ALL THE POWERS WHICH THE ORIGINAL AUTHORITY MAY HAVE IN DECIDING T HE QUESTION BEFORE IT SUBJECT TO THE RESTRICTIONS OR LIMITATIONS IF ANY PRESCRIBED BY THE STATUTORY PROVISIONS. IN THE ABSENCE OF ANY STATUTORY PROVISION THE APPELLATE AUTHORITY IS VESTED WITH ALL THE PLENARY POWERS WHICH THE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTER. THERE APPEARS TO BE NO GOOD REASON AND NONE WAS PLACED BEFORE US TO JUSTIFY CURTAILMENT OF THE POWER OF THE APPELLATE ASSISTANT COMMISSIONER IN ENTERTAINING AN ADDITIONAL GROUND RAISED BY THE ASSESSEE IN SEEKING MODIFICATION OF THE ORDER OF ASSESSMENT PASSED BY THE INCOME TAX OFFICER.' [ EMPHASIS SUPPLIED] 11 . THE NEXT JUDGMENT IS THE JUDGMENT OF A BENCH OF THREE LEARNED JUDGES OF THE SUPREME COURT IN NATIONAL THERMAL POWER CO. LTD. V. CIT [1998] 229 ITR 383 . IN THAT CASE, THE ASSESSEE HAD DEPOSITED ITS FUNDS NOT IMMEDIATELY REQUIRED BY IT ON SHORT TERM DEPOSITS WITH BANKS. THE INTEREST RECEIVED ON SUCH DEPOSITS WAS OFFERED BY THE ASSESSEE ITSELF FOR TAX AND THE ASSESSMENT WAS COMPLETED ON THAT BASIS. EVEN BE FORE THE COMMISSIONER OF INCOME - TAX (APPEALS), THE INCLUSION OF THIS AMOUNT WAS NEITHER CHALLENGED BY THE ASSESSEE NOR CONSIDERED BY THE COMMISSIONER OF INCOME - TAX (APPEALS). THE ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL. THE INCLUSION OF THE AMOUNT WAS NOT OBJECTED TO EVEN IN THE GROUNDS OF APPEAL AS ORIGINALLY FILED BEFORE THE TRIBUNAL. 12 . SUBSEQUENTLY, THE ASSESSEE BY A LETTER RAISED ADDITIONAL GROUNDS TO THE EFFECT THAT THE SAID SUM COULD NOT BE INCLUDED IN THE TOTAL INCOME. THE ASSESSEE CONTE NDED THAT ON A N ERRONEOUS ADMISSION, NO INCOME CAN BE INCLUDED IN THE TOTAL INCOME. IT WAS F URTHER CONTENDED THAT THE ITO AND THE COMMISSIONER O F INCOME - TAX (APPEALS) HAD ERRED AND FAILED IN THEIR DUTY IN ADJUDICATING THE MATTER CORRECTL Y AND BY MECHANICALLY INCLUDING THE AMOUNT IN THE TOTAL INCOME. IT IS PERTINENT TO NOTE THAT THE ASSESSEE CONTENDED THAT IT WAS ENTITLED TO THE DEDUCTION IN VIEW OF TWO ORDERS OF THE SPECIAL BENCHES OF THE TRIBUNAL AND THE ASSESSEE FURTHER STATED THAT IT, HAD RAISED THESE ADDITIONAL GROUNDS ON LEARNING ABOUT THE LEGAL POSITION SUBSEQUENTLY. 13 . THE TRIBUNAL DECLINED TO ENTERTAIN THESE ADDITIONAL GROUNDS. THE SUPREME COURT DID NOT ANSWER THE QUESTION ON MERITS, BUT FRAMED THE FOLLO WING QUESTION AND HELD AS UNDER : - PAGE NO. 6 '4. THE TRIBUNAL HAS FRAMED AS MANY AS FIVE QUESTIONS WHILE MAKING A REFERENCE TO US. SINCE THE TRIBUNAL HAS NOT EXAMINED THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ON MERIT, WE DO NOT PROPOSE TO ANSWER THE QUESTIONS RELATING TO THE MERIT OF TH OSE CONTENTIONS. WE REFRAME THE QUESTION WHICH ARISES FOR OUR CONSIDERATION IN ORDER TO BRING OUT THE POINT WHICH REQUIRES DETERMINATION MORE CLEARLY. IT IS AS FOLLOWS: 'WHERE ON THE FACTS FOUND BY THE AUTHORITIES BELOW A QUESTION OF LAW ARISES (THOUGH NO T RAISED BEFORE THE AUTHORITIES) WHICH BEARS ON THE TAX LIABILITY OF THE ASSESSEE, WHETHER THE TRIBUNAL HAS JURISDICTION TO EXAMINE THE SAME.' UNDER SECTION 254 OF THE INCOME TAX ACT THE APPELLATE TRIBUNAL MAY, AFTER GIVING BOTH THE PARTIES TO THE APPEAL AN OPPORTUNITY OF BEING HEARD, PASS SUCH ORDERS THEREON AS IT THINKS FIT. THE POWER OF THE TRIBUNAL IN DEALING WITH THE APPEALS IS THUS EXPRESSED IN THE WIDEST POSSIBLE TERMS. THE PURPOSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE TAXING AUTHORITIES IS TO AS SESS CORRECTLY THE TAX LIABILITY OF AN ASSESSEE IN ACCORDANCE WITH LAW. I~ FOR EXAMPLE, AS A RESULT OF A JUDICIAL DECISION GIVEN WHILE THE APPEAL IS PENDING BEFORE THE TRIBUNAL, IT IS FOUND THAT A NON - TAXABLE ITEM IS TAXED OR A PERMISSIBLE DEDUCTION IS DEN IED, WE DO NOT SEE ANY REASON WHY THE ASSESSEE SHOULD BE PREVENTED FROM RAISING THAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST TIME, SO LONG AS THE RELEVANT FACTS ARE ON RECORD IN RESPECT OF THAT ITEM WE DO NOT SEE ANY REASON TO RESTRICT THE POWER OF THE TRIBUNAL UNDER SECTION 254 ONLY .TO DECIDE THE GROUNDS WHICH ARISE FROM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). BOTH THE ASSESSEE AS WELL AS THE DEPARTMENT HAS A RIGHT TO FILE AN APPEAL/CROSS - OBJECTIONS BEFORE THE TRIBUNAL. WE FAIL TO SEE WHY THE TRIBUNAL SHOULD BE PREVENTED FROM CONSIDERING QUESTIONS OF LAW ARISING IN ASSESSMENT PROCEEDINGS ALTHOUGH NOT RAISED EARLIER.' 14 . IN GOET ZE (INDIA) LIMITED V. COMMISSIONER OF INCOME TAX (2006) 284 ITR 323 (SC) WHEREIN DEDUCTION CLAIMED BY W AY OF A LETTER BEFORE ASSESSING OFFICER , WAS DISALLOWED ON THE GROUND THAT THERE WAS NO PROVISION UNDER THE ACT TO MAKE AMENDMENT IN THE RETURN WITHOUT F ILING A REVISED RETURN. APPEAL TO THE SUPREME COURT, AS THE DECISION WAS UPHELD BY THE TRIBUNAL AND THE HIGH COURT, WAS DISMISSED MAKING CLEAR THAT THE DECISION WAS LIMITED TO THE POWER OF ASSESSING AUTHORITY TO ENTERTAIN CLAIM FOR DEDUCTION OTHERWISE THAN BY REVISED RETURN, AND DID NOT IMPINGE ON THE POWER OF TRIBUNA L. 15 . THE APEX COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX, KOLKATA V. SMIFS SECURITIES LTD., [2012] 24 TAXMANN.COM 222 (SC), HELD THAT EXCESS CONSIDERATION PAID BY THE ASSESSEE OVER THE VALUE OF NET ASSETS SHOULD BE PAGE NO. 7 CONSIDERED AS GOODWILL OF BUSINESS. IT FURTHER OBSERVED THAT, THE WORDS 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' IN CLAUSE (B) OF EXPLANATION 3 WOULD INCLUDE GOODWILL IN TERMS OF THE PRINCIPLE OF EJUSDEM GEN ERIS . 16 . WE FIND THAT, IT WAS ONLY IN PURSUANCE TO THE ABOVE RULING BY THE APEX COURT IN THE CASE OF SMIFS SECURITIES (SUPRA) THE ASSESSEE BECAME AWARE OF ITS RIGHTS TO CLAIM DEPRECIATION IN TERMS OF SEC. 32 ON GOODWILL OF BUSINESS ( WHICH WAS SEPARATELY INDICATED IN THE AUDITED BALANCE SHEETS OF THE ASSESSEE FOR THE YEAR ENDING 31.03.2003 AS PUT FORTH BY THE ASSESSEE ) AND MOVED AN APPLI CATION FOR ADMISSION OF ADDITIONAL GROUNDS BEFORE US FOR THE FIRST TIME . FURTHER, WE AGREE WITH THE SUBMISSION OF THE LD. AR IN THIS CONTEXT INASMUCH AS THAT , THIS GROUND COULD NOT HAVE BEEN RAISED BY THE ASSESSEE AT ANY OF THE EARLIER STAGES OF FILING OF RETURN OF INCOME / ASSESSMENT AN D MUCH LESS DURING ADJUDICATION PROCEEDINGS BEFORE AO OR CIT(A) SINCE , THE LAW ON THE POINT UNDER CONSIDERATION WAS NOT CRYSTALLIZED AND WAS OPEN TO DIFFERENT INTERPRETATIONS. 17 . FURTHER , WE OBSERVE THAT THE VALUE ASCRIBED TO GOODWILL WAS ALWAYS PART OF THE ACCOUNTS OF THE A SSESSEE IN TERMS OF AUDITED BALANCE SHEETS OF THE ASSESSEE FOR THE YEAR ENDING 31.03.2003 AND THE SAME WERE PART OF THE PURCHASE CONSIDERATION AS COULD BE SEEN FROM ARTICLE 3.1 OF THE SAID AGREEMENT . THEREFORE , FOR REASONS STATED ABOVE, WE ARE INCLINED TO ALLOW THE APPLICATION FOR ADDITIONAL GROUND AS NO N - ALLOW ANCE COULD RESULT IN DENIAL OF JUSTICE , AS WAS ARGUED BY THE LD. AR BEFORE US . HENCE, THIS ISSUE UNDER CONSIDERATION IS ANSWERED IN THE AFFIRMATIVE AND DECIDED I N FAVOUR OF THE ASSESSEE. IN THE RESULT, T HE APPLICATION FOR ADDITIONAL GROUNDS AS RAISED BY THE ASSESSEE/ APPELLANT IS ADMITTED . 18 . ON MERITS , THE KEY ISSUES FOR OUR CONSIDERATION ARE OUTLINED BELOW : (A) WHETHER CLAIM FOR DEPRECIATION OF RS. 2,29,34,250/ - ON INTANGIBLE ASSETS I.E. MAINTENANCE PORTFOLIO IN THE PRESENT CASE AS DISALLOWED BY AO AND UPHELD BY CIT(A), IS ALLOWABLE UNDER SECTION 32(1)(II) OF THE ACT; (B) WHETHER DEPRECIATION U/S 32(1)(II) MAY BE AL LOWED ON THE AMOUNT OF RS. 1,85,44,612/ - ALLOCATED BY THE APPELLANT IN ITS ACCOUNTS TOWARDS GOODWILL AS PART OF CONSIDERATION TO M/S ECE INDUSTRIES LTD. TOGETHER WITH PAGE NO. 8 THE LATTERS - BUSINESS AND COMMERCIAL RIGHTS UNDER THE AGREEMENT DATED OCTOBER 16, 2 002 19 . DURING THE RELEVANT YEAR AS STATED ABOVE , THE ASSESSEE ACQUIRED THE RUNNING BUSINESS, IN TERMS OF UNDERTAKING SALE AGREEMENT DATED 16 TH OCTOBER 2002 (HEREINAFTER REFERRED TO AS THE AGREEMENT). THE ASSESSEE HAD ACQUIRED THE ELEVATOR DIVISION BUSINESS OF ECE INDUSTRIES LIMITED WHICH COMPRISED OF MARKETING, SELLING, ERECTION, INSTALLATION, COMMISSIONING, SERVICE, REPAIR, MAINTENANCE AND MODERNIZATION INCLUDING MAJOR REPAIRS OF PRODUCTS. 20 . THE BUSINESS AS ACQUIRED BY THE ASSESSEE WAS DEFINED UNDER ARTICLE 1.1.3 OF THE AGREEMENT IS AS UNDER: BUSINESS MEANS THE BUSINESS OF MARKETING, SELLING, ERECTION, INSTALLATION, COMMISSIONING, SERVI CE, REPAIR, MAINTENANCE AND MODERNIZATION INCLUDING MAJOR REPAIRS OF PRODUCTS EXCLUDING EXCLUDED CONTRACTS 21 . FURTHER, THE DETAILS OF BUSINESS, ASSETS REFERRED TO AS UNDERTAKING WERE DEFINED UNDER ARTICLE 2.1 OF THE AGREEMENT IS AS UNDER: (I) FIXED AS SETS; (II) ALL PROPERTY AND INTERESTS THEREIN INCLUDING MACHINERY, EQUIPMENT, PENDING CONTRACTS INCLUDING REPAIR, SERVICE AND MAINTENANCE CONTACTS, TOOLS, FURNITURE, FIXTURE, OFFICE EQUIPMENT, COMMUNICATIONS EQUIPMENT, VEHICLES, SPARES AND REPLACEMENT PART S, FUEL AND OTHER TANGIBLE PROPERTY PERTAINING TO THE UNDERTAKING OR USED IN CONNECTION WITH BUSINESS, AND ALL TOOLS WITH SUPPLIERS AND SUB - CONTRACTORS; (III) ALL INTELLECTUAL PROPERTY RIGHTS; (IV) ALL STORES, SPARES, COMPONENTS, MATERIALS, SUPPLIES AND OTHER INVENTORIES OF BUSINESS; (V) ALL STORES, SPARES, COMPONENTS, MATERIALS, SUPPLIES AND OTHER INVENTORIES OF BUSINESS; (VI) ALL PERMITS, LICENSES, CONSENTS, APPROVALS, QUOTAS, BENEFITS AND AUTHORIZAT IONS INCLUDING QUOTAS TO BE ISSUED PERTAINING TO OR IN ANY WAY RELATING TO THE UNDERTAKING INCLUDING THE BUSINESS; AND (VII) ALL PREPAYMENTS, CURRENT ASSETS AND OTHER RECEIVABLES OF THE UNDERTAKING. 22 . IN TERMS OF THE AGREEMENT SINCE ONLY THE ELEVATOR D IVISION WERE TRANSFERRED TO THE ASSESSEE, ECE CONTINUED TO DO OTHER BUSINESS IN ITS OWN NAME AND STYLE, INCLUDING IN RESPECT OF CERTAIN PORTION OF THE ELEVATOR BUSINESS. PAGE NO. 9 23 . THE BASIS OF CONSIDERATION, SUBJECT TO ADJUSTMENTS AS PAYABLE FOR THE TRANSFER OF BUSINESS WAS PROVIDED IN ARTICLE 3.1 OF THE AGREEMENT IS AS UNDER: S. NO. PARTICULARS AMOUNT (IN RS.) 1. NET CURRENT ASSETS 3,72,90,000 2. FIXED ASSETS 39,91,388 3. MAINTENANCE PORTFOLIO 18,34,74,000 4. GOODWILL 1,85,44,612 TOTAL 24,33,00,000 24 THUS IT IS EVIDENT THAT IN TERMS OF THE ACCOUNTING POLICIES OF THE ASSESSEE, FOR THE PURPOSES OF CAPITALIZATION OF AMOUNT PAID FOR ACQUISITION OF INTANGIBLES BEING RS.20,20,18,612/ - , ALLOCATION WAS MADE AS SHOWN IN THE BALANCE SHEET TO TH E FOLLOWING CATEGORIES: 1. MAINTENANCE PORTFOLIO - RS. 18,34,74,000 2. GOODWILL - RS. 1,85,44,612 25 . IN TERMS OF SECTION 3 OF THE SAID AGREEMENT, THE FINAL BREAK - UP OF THE CONSIDERATION WAS AS UNDER: - S. NO. PARTICULARS AMOUNT (IN RS.) 1. NET CURRENT ASSETS 3,72,90,000 2. FIXED ASSETS 39,91,388 3. MAINTENANCE PORTFOLIO 18,34,74,000 4. GOODWILL 1,85,44,612 TOTAL 24,33,00,000 26 . AS REGARDS THE FIRST ISSUE REGARDING THE CLAIM FOR DEPRECIATION OF RS. 2,29,34,250/ - ON INTANGIBLE ASSETS I.E. MAINTENANCE PORTFOLIO IN THE PRESENT CASE IS CONCERNED, T HE LD. AR CONTENDS THAT THE MAINTENANCE PORTFOLIO HAS BEEN VALUED BY THE ASSESSEE ON THE BASIS OF ITS GRO UPS POLICY AT RS. 18,34,74,000/ - (REFER PAGE NO. 162 PAPER BOOK, ASSESSMENT YEAR 2003 - 04). 27 . FURTHER, THE AR SUBMITS THAT, IT WAS UNABLE TO FILE THE PROFORMA FINANCIAL STATEMENTS AS ON 31.03.2002 WHICH IS THE EXHIBIT 1.1.31 BEFORE THE AO/ CIT ( A) PAGE NO. 10 SINCE , THE SAME WERE USED BY TWO UNRELATED PARTIES TO THE CONTRACT IN ORDER TO ARRIVE AT A FAIR PURCHASE CONSIDERATION ACCEPTABLE TO BOTH. THE VALUE OF VARIOUS ASSETS AS MENTIONED IN THE SAID STATEMENT CANNOT BE RECONCILED WITH THE AMOUNT ALLOCATED IN THE AGREE MENT ITSELF WAS PRIMARILY DUE TO THE DIFFERENCE IN VALUATION COMPUTED ON 31.03.2002 AND THE AGREEMENT WAS AFTER 7 MONTHS I.E. 16.10.2002, AND OTHER FACTORS WHICH ARE NOT APPARENT FROM READING THE AGREEMENT. 28 . ON THE OTHER HAND T HE LD . DR CONTENDS THAT, MOST SIGNIFICANT YEAR IS ASSESSMENT YEAR 2003 - 04, WHICH IS RELEVANT TO FINANCIAL YEAR 2002 - 03, THE YEAR IN WHICH THE A GREEMENT WAS ENTERED BY THE ASSESSEE WITH ECE INDUSTRIES LTD, AS A RESULT OF WHICH TANGIBLE AND INTANGIBLE ASSETS ARE SAID TO HAVE CHANGED HANDS. 29 . ACCORDING TO THE LD . DR AS PER THE BALANCE - SHEET OF THE ASSESSEE ON 31.03.2003, THE MAINTENANCE PORTFOLIO STOOD AT RS. 18,34,74,000/ - WHICH WAS STATED TO BE BASED UPON THE VALUATION BY THE AUDITORS OF THE PARENT C OMPANY. AS AGAINST THIS, THE FI GURE OF RS. 20,32,10,000/ - APPEARING IN THE A GREEMENT WAS STATED TO BE BASED ON THE BALANCE SHEET OF THE MARKETING DIVISION OF ECE INDUSTRIES LTD. AS ON 31.03.2002 AND MODIFICATION AND ADJUSTMENT BY THE ASSESSEES AUDITORS. THE VARIATION IN THE FIGURE OF M AINTENANCE PORTFOLIO RAISES OBVIOUS QUESTIONS ON THE INTEGRITY OF THE FIGURES REPORTED IN THE A GREEMENT AND THE FINANCIAL STATEMENTS OF THE ASSESSEE. THE LD . DR ALSO POINTED OUT THAT THE ASSESSEE AMORTIZED THE EXPENSES ALLOCATED TO MAINTENANCE PORTFOLIO IN ITS BOOKS OF ACCOUNTS OVER A PERIOD OF 10 YEARS. HOWEVER IT CAN BE NOTED FOR INCOME TAX PURPOSE IT CLAIMED DEPRECIATION AT THE RATE OF 25% ON MAINTENANCE PORTFOLIO ONLY ON THE BASIS OF A LEGAL OPINION OBTAINED BY IT FROM THEIR LEGAL ADVISOR. 30 . THEREFORE THE LD . DR VEHEMENTLY SUPPORTS THE DECISION OF THE LD . CIT ( A) AND WANTS US NOT TO INTERFERE IN THE IMPUGNED ORDER. 31 . NOW, I T WOULD BE RELEVANT TO TURN TO THE OBSERVATIONS MADE BY THE LD. AO WHILE, DISALLOW ING THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON MAINTENANCE PORTFOLIO UNDER SECTION 32(1) OF THE ACT AND OBSERVE D AS UNDER: - PAGE NO. 11 (A) THE ASSESSEE DURING THE RELEVANT YEAR EARNED REVENUES AMOUNTING TO RS. 5.10 CRORES WHICH WAS SHOWN IN THE PROFIT AND LOSS ACCOUNT ON THE BASIS OF AFORESAID ACQUISITION OF THE MAINTENANCE PORTFOLIO. FURTHER, WHEN THE AO SOUGHT A REPLY FROM THE ASSESSEE ON THE REASON FOR CLAIMING DEPRECIATION ON MAINTENANCE PORTFOLIO, THE ASSESSEE RESPONDED BY STATING THAT, THE ASSESSEE HAD NOT ACQUIRED THE MANUFACTURING DI VISION OF ECE ELEVATORS AND HAD ONLY ACQUIRED THE MAINTENANCE DIVISION WHICH SHALL YIELD REVENUE ONCE THE WARRANTY PERIOD COMES TO AN END. (B) ON THE BASIS OF THE REPLY PROVIDED BY THE ASSESSEE, THE AO OBSERVED THAT, THE ASSESSEE WAS FOLLOWING THE COM PLETE CONTRACT METHOD HENCE, THE ASSESSEE WAS NOT ELIGIBLE FOR CLAIMING DEPRECIATION AS THERE WAS NO INCOME FROM THE SAID CONTRACTS WHICH WAS OFFERED TO TAXATION. ACCORDINGLY, THE DEPRECIATION CLAIM OF THE ASSESSEE WAS REJECTED . 32 . AGGRIEVED BY THE SAID DISALLOWANCES OF THE DEPRECIATION AND CONSEQUENT ADDITION OF THE INCOME, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT ( A). THE LD. CIT ( A) AGAIN DISALLOWED THE APPEAL FILED BY THE ASSESSEE AND OBSERVED AS UNDER: (A) THE ISSUE WHICH MERITED CONSIDERATION BY THE LD. CIT(A) WAS WHETHER THE TOTAL PAYMENT OF RS. 18,34,74,000/ - CLAIMED TO BE FOR ACQUIRING MAINTENANCE PORTFOLIO WILL FALL UNDER THE HEAD INTANGIBLE ASSETS AND DEPRECIATION COULD BE ALLOWED ON IT NOT AS PER THE ACT. (B ) THE AO, IN HIS ORDER, HAS HELD THAT THE ASSESSEE DID NOT DERIVE ANY INCOME IN RESPECT OF CONTRACTS ACQUIRED FROM ECE. HOWEVER, FROM THE DETAILS FILED, IT IS FOUND THAT THE ASSESSEE HAS EARNED AN AMOUNT OF RS. 5.10 CRORES IN RELATION TO THE BUSINESS ACQUI RED BY THE ASSESSEE FROM ECE INDUSTRIES LTD. IN FACT, REVENUE OF RS. 4.26 CRORES FROM SUCH CONTRACTS HAS BEEN BOOKED ON TIME BASIS AS PER THE COMPANYS ACCOUNTING POLICY. FURTHER, THE AO HAS EMPHASIZED THAT THE ASSESSEE HAS AMORTIZED MAINTENANCE PORTFOLIO FOR A PERIOD OF 10 YEARS IN ITS BOOKS OF ACCOUNTS. THEREFORE, HE HAS NOT ALLOWED THE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE. HOWEVER, AS PER SECTION 32 OF THE IT ACT, DEPRECIATION IS TO BE ALLOWED IN RESPECT OF SUCH ASSETS INCLUDING INTANGIBLE ASSETS, IF ANY, AT THE RATE PRESCRIBED UNDER THE INCOME TAX ACT IF THE CLAIM IS FOUND TO BE CORRECT. IN VIEW OF THE ABOVE FINDINGS AND FACTS AND CIRCUMSTANCES OF THE CASE, THOUGH THE APPELLANT IS TO BE ALLOWED THE CLAIM OF DEPRECIATION AS PER THE PRESCRIBED RATES UNDER THE INCOME TAX ACT READ WITH RELEVANT RULES IT IS TO BE SEEN ON WHAT ASSETS DEPRECIATION IS TO BE ALLOWED IN THIS CASE. (C) THE APPELLANT HAS CLAIMED DEPRECATION ON AN AMOUNT OF RS.18,34,74,000 / - BEING TOTAL CONSIDERATION PAID FOR ACQUIRING THE MAINTENANCE PORTFOLIO @ 12.5% BEING IN USE FOR LESS THAN 180 DAYS DURING THE YEAR UNDER CONSIDERATION. THE TOTAL PURCHASE CONSIDERATION PAGE NO. 12 IS 243.3 MILLION WHICH INCLUDES ISSUE OF SHARES AT THE FACE VALUE OF RS. 10/ - EACH FOR A CONSIDERATION OF RS. 9 MILLION TO THE VENDOR COMPANY. IT WILL NOT BE OUT OF PLACE TO MENTION THAT THE APPELLANT COMPANY HAS CLAIMED THAT ECE INDUSTRIES LTD ON ACQUIRING SHARES WORTH RS. 9 MILLION OF THE APPELLANT COMPANY BECAME A JOINT VENTURE PARTNER IN THE COMPANY AND THEREFORE, NO NON - COMPETE FEE WAS PAID TO ECE INDUSTRIES. THE TOTAL PAYMENT OF RS. 18,34,74,000/ - CLAIM TO BE FOR ACQUIRING THE MAINTENANCE PORTFOLIO BY THE APPELLANT IS NOTHING BUT THE PAYMENT FOR TAKING OVER THE EXCLUS IVE BUSINESS OF A COMPANY . IN A CASE OF TAKING OVER OF A BUSINESS, THE TOTAL PAYMENT IS INCLUSIVE OF ACQUIRING ASSETS AND RIGHTS TO RUN TO EXISTING BUSINESS OF THE VENDOR. AS THE AO HAS ALREADY ALLOWED DEPRECIATION ON FIXED ASSETS AS PER INCOME TAX LAW, TH AT ISSUE IS NOT IN DISPUTE. (D) THE ONLY ISSUE FOR CONSIDERATION IN THIS APPEAL ON THIS GROUND IS WHETHER THE TOTAL PAYMENT OF RS. 18,34,74,000/ - CLAIMED TO BE FOR ACQUIRING THE MAINTENANCE BUSINESS WILL FALL UNDER THE HEAD INTANGIBLE ASSETS AND DEPRECIAT ION COULD BE ALLOWED ON IT OR NOT AS PER INCOME TAX ACT. THE LD. CIT(A) FURTHER OBSERVED THAT, IN FACT, THERE IS NO TRANSFER OF BRAND INVOLVED IN THIS TRANSACTION. IT IS ONLY FOR A PERIOD OF 3 YEARS THAT THE VENDOR HAS AGREED TO RESIST FROM CARRYING ON THE SERVICE CONTRACT WORK WITH SOME EXCEPTIONS. THE VENDOR IS OBLIGED TO CARRY SERVICE CONTRACT WORK FOR GOVT/ SEMI - GOVT AND SOME PRIVATE CUSTOMERS (LEFT BY THE PURCHASER/ APPELLANT COMPANY). HENCE, IT IS NOT A COMPLETE TRANSFER OR SALE OF SERVICE CONTRACT S. THE APPELLANT WOULD GET THE BENEFIT OF DEPRECIATION ONLY ON DEPRECIABLE ASSETS. THE AO HAS ALREADY ALLOWED THIS BENEFIT TO THE COMPANY ON FIXED ASSETS WHERE DEPRECIATION IS ALLOWABLE AS PER IT ACT AND RULES. NO FURTHER DEPRECIATION CAN BE CLAIMED ON TH E PURCHASE CONSIDERATION UNLESS AND UNTIL THE SAME IS DIRECTLY LINKED TO ANY DEPRECIABLE ASSETS. IT NOT A COMPLETE LOCK, STOCK AND BARREL SALE. THE TRANSACTION IS SUBJECT TO MANY CONDITIONS ATTACHED TO IT AS PER THE AGREEMENT. AT BEST, THE CONSIDERATION CAN BE EQUATED AS AN AMOUNT/ CONSIDERATION PAID TO ACQUIRE INCOME YIELDING APPARATUS WHICH IN TURN IS NOTING BUT CAPITAL IN NATURE. BY ANY STRETCH OF IMAGINATION OR LOGIC, IT CANNOT BE INFERRED THAT IT RESULTED IN DEPRECIABLE INTANGIBLE ASSETS. ON THE CONT RARY, ADVANTAGE HAS ACCRUED TO THE PURCHASER (APPELLANT COMPANY) ON SUCH ACQUISITION. IN FACT, THE SAID ADVANTAGE WOULD FURTHER ENHANCE WITH PASSAGE OF TIME WITH ITS STANDING AND REPUTATION IN THE MARKET. THE VENDOR CONTINUES TO CARRY ON ITS BUSINESS OF M ANUFACTURING WITH THE SAME BRAND NAME AND ONLY TEMPORARILY RESISTS/ STOPS THE SERVICE AND REPAIR WORK WITH THE MAJORITY OF ITS CUSTOMERS WIT H THE EXCEPTION TO GOVT./ SEMI - GOVT AND OTHER RELATED AGENCIES ETC. IT IS NOT THE CASE THAT THE VENDOR IS COMPLETE LY AND ABSOLUTELY OUT OF CIRCULATION IN THE SAID B USINESS IN THE EXISTING MARKET. PAGE NO. 13 33 . AS A RESULT, LD CIT(A) WAS PLEASED TO DISMISS THE APPEAL OF THE ASSESSEE AND DISALLOWED THE CLAIM FOR DEPRECIATION TO THE TUNE OF RS. 2,29,34,250/ - A S IT WAS HELD TO BE NON - DEPRECIABLE ASSET. 34 . FROM A PERUSAL OF THE TERMS OF THE AGREEMENT BETWEEN ASSESSEE AND ECE LTD., W E FIND THAT THE ASSESSEE HAS ACQUIRED MAINTENANCE CONTRACTS FOR 3578 ELEVATORS WHICH IS THE MAIN SOURCE OF REVENUE FOR THE ASSESSEE, AND MAINTENANCE CONTRACTS FOR 1001 ELEVATORS WHICH ARE UNDER WARRANTY PERIOD AND WHICH WILL START YIELDING REVENUE ONCE THE WARRANTY PERIOD EXPIRES . 35 . THE EXISTING MAINTENANCE CONTRACTS AS WELL AS NEW CONTRACTS ARE LIKELY TO YIELD REVENUE TO THE ASSESSEE CO MPANY FOR THE ENTIRE ECONOMIC LIFE OF THE ELEVATORS. WE FIND THAT, T HE ASSESSEE THUS HAS ACQUIRED EXCLUSIVE RIGHT TO EXECUTE THE AFORESAID MAINTENANCE CONTRACTS AS IT CONSTITUTE S THE VERY BACKBONE OF THE BUSINESS AS PER THE U NDERTAKING AND SALE AGREEMENT BETWEEN THE PARTIES . THE REVENUE YIELDING RIGHTS UNDER THE MAINTENANCE CONTRACTS ARE COMMERCIAL/ BUSINESS RIGHTS FOR WHICH BULK OF THE CONSIDERATION WAS PAID BY THE ASSESSEE. APART FROM THE MAINTENANCE CONTRACTS, WE FIND THAT THE ASSESSEE HAS OBTAINED ALL INTELLECTUAL PROPERTY RIGHTS IN THE FORM OF KNOW - HOW RELATING TO THE COMPLETE BUSINESS OF THE MAINTENANCE DIVISION OF ECE LTD . WE ALSO NOTE THAT A PART FROM AFORESAID IPRS , THE ASSESSEE HAS ALSO RECEIVED LEASES, LICENSES, OFFERS AND PURCHASE ORDERS ETC. RELATING TO THE SAID MAINTENANCE DIVISION OF ECE LTD . LIKEWISE, THE ASSESSEE HAS ALSO OBTAINED VARIOUS RIGHTS, PERMITS, AUTHORIZATIONS ETC. RELATING TO THE BUSINESS OF MAINTENANCE DIVISION OF ECE LTD. INCLUDING THE BENEFITS ACCRUING FROM EXISTING AND PROSPECTIVE SERVICE CONTRACTS WITH THIRD PARTIES IN WHOSE PREMISES THE PRODUCTS OF THE VENDOR HAVE BEEN INSTALLED . 36 . SECTION 32 OF THE ACT DEALS WITH DEPRECIATION AND THE EXPRESSION INTANGIBLE ASSETS IS DEFINED IN SECTION 32(1)(II) AS UNDER: IN RESPECT OF DEPRECIATION OF KNOW - HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENSES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE , BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER 1 ST DAY OF APRIL 1998 PAGE NO. 14 37 . ON A PERUSAL OF THE MEANING OF THE CATEGORIES OF SPECIFIC INTANGIBLE ASSETS REFERRED TO UNDER SECTION 32(1)(II) OF THE ACT PRECEDING THE TERM 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE', IT IS SEEN THAT THE AFORESAID INTANGI BLE ASSETS ARE NOT OF THE SAME KIND AND ARE CLEARLY DISTINCT FROM ONE ANOTHER. THE FACT THAT AFTER THE SPECIFIED INTANGIBLE ASSETS THE WORDS 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' HAVE BEEN ADDITIONALLY USED, CLEARLY DEMONSTRATES THAT THE LEGISL ATURE DID NOT INTEND TO PROVIDE FOR DEPRECIATION ONLY IN RESPECT OF SPECIFIED INTANGIBLE ASSETS BUT ALSO TO OTHER CATEGORIES OF INTANGIBLE ASSETS, WHICH WERE NEITHER FEASIBLE NOR POSSIBLE TO EXHAUSTIVELY ENUMERATE. IN THE CIRCUMSTANCES, THE NATURE OF 'BUSI NESS OR COMMERCIAL RIGHTS' CANNOT BE RESTRICTED TO ONLY THE AFORESAID SIX CATEGORIES OF ASSETS, VIZ., KNOWHOW, PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES OR FRANCHISES. THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS' CAN BE OF THE SAME GENUS IN WHICH ALL OF T HE AFORESAID SIX ASSETS FALL. ALL THE ABOVE FALL IN THE GENUS OF INTANGIBLE ASSETS THAT FORM PART OF THE TOOL OF TRADE OF AN ASSESSEE FACILITATING SMOOTH CARRYING ON OF BUSINESS. IN THE CIRCUMSTANCES, IT IS OBSERVED THAT IN CASE OF THE ASSESSEE, CERTAIN AN NUAL MAINTENANCE CONTRACTS (AMCS) , WHICH CONSTITUTE D THE WHOLE AN D SOLE OF THE MAINTENANCE DIVISION BUSINESS OF THE TRANSFEROR AND WHICH WAS HITHERTO BEING CARRIED OUT BY THE TRANSFEROR, WITHOUT ANY INTERRUPTION WERE TRANSFERRED UNDER THE SAID UNDERTAKING AND SALE AGREEMENT . THE AFORESAID INTANGIBLE ASSETS ARE, THEREFORE, COMPARABLE TO A LICENSE TO CARRY OUT THE EXISTING TRANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANSFEROR. IN THE ABSENCE OF THE AFORESAID INTANGIBLE ASSETS, THE ASSESSEE WOUL D HAVE HAD TO COMMENCE BUSINESS FROM SCRATCH AND GO THROUGH THE GESTATION PERIOD WHEREAS BY CREATE NEW/ FRESH BUSINESS RIGHTS ; THE ASSESSEE GOT AN UP AND RUNNING BUSINESS. THIS VIEW WAS FORTIFIED BY THE RATIO OF THE DECISION OF SUPREME COURT IN TECHNO SHAR ES & STOCKS LTD. , [2010] 327 ITR 323/ 193 TAXMAN 248 (SC) WHEREIN IT WAS HELD THAT INTANGIBLE ASSETS OWNED BY THE ASSESSEE AND USED FOR THE BUSINESS PURPOSE WHICH ENABLES THE ASSESSEE TO ACCESS THE MARKET AND HAS AN ECONOMIC AND MONEY VALUE IS A 'LICENSE' OR 'AKIN TO A LICENSE' . SINCE IN THE PRESENT CASE AMCS CONSTITUTES THE VERY BASIC INCOME PAGE NO. 15 EARNING APPARATUS FOR THE ASSESSEE, THE SAME SHOULD FALL WITHIN THE PURVIEW OF SECTION 32(1)(II) OF THE ACT. 38 . FURTHER , AS REGARDS MAINTENANCE PORTFOLIO PURCHASE D BY THE ASSESSEE/ APPELLANT BY WAY OF SLUMP - SALE ARRANGEMENT , IT IS PERTINENT TO NOTE THAT THE SAME CONSTITUTE S THE BASIC INCOME EARNING APPARATUS OF THE ASSESSEE AND CANNOT BE VITIATED OR WATERED DOWN BY CERTAIN RESIDUAL CONDITIONALITIES INASMUCH AS CONTINUANCE OF CERTAIN GOVT. CONTRACTS WITH THE ECE DIVISION ETC. IN THE SLUMP - SALE ARRANGEMENT SINCE , THE SAME WOULD LAPSE ONCE THE CONTRACT TERM UNDER RESPECTIVE MAINTENANCE CONTRACTS ARE CONCLUDED . SECONDLY, IT WOULD BE PRUDENT TO STATE THAT THESE AMCS IN TERMS OF VALUE ONLY COMES NEXT TO THE VALUE OF FIXED ASSETS. 39 . THUS , ON THE BASIS OF ABOVE DISCUSSION S , WE ARE OF THE VIEW THAT AMCS WOULD NOT FALL UNDER ANY OF THE SPECIFIED INTANGIBLE ASSETS SUCH AS KNOW - HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENSES AND FRANCHISES LISTED UNDER SECTI ON 32(1)(II) OF THE ACT . IN THIS REGARD, THE LD. AR HA D ARGUED BEFORE US THAT, SUCH AMCS FORM THE VERY ESSENCE OF THE TRANSACTION OF SLUMP - SALE I.E. PURCHASE OF THE MAINTENANCE PORTFOLIO BUSINESS IN THE INSTANT CASE AND ANY TRANSFER OF SUCH AMCS COULD ONLY BE EFFECTED IN THE FORM OF INTANGIBLE COMMERCIAL RIGHTS ALONE AND NO OTHER FORM. MOREOVER, IT IS UNAMBIGUOUSLY CLEAR FROM VARIOUS CLAUSES UNDER THE SAID AGREEMENT AS WELL AS DOCUMENTS AVAILABLE ON RECORD, THE PRESENT AGREEMENT REPRESENT A BUNDLE OF RIGHTS IN THE FORM OF COMMERCIAL RIGHTS WHICH EVENTUALLY CONSTITUTE THE BASIC INCOME EARNING APPARATUS OF THE ASSESSEE. 40. IN THE SAID CIRCUM STANCES, W E FIND FORCE IN THE ARGUMENT OF THE LD AR THAT SINCE SAID AMCS ARE COMMERCIAL RIGHTS AND THE SAME SHOULD RIGHTLY BE CATEGORIZED AS BUSINESS OR COMMERCIAL RIGHTS FOR THE PURPOSES OF SECTI ON 32(1)(II) OF THE ACT. THUS, BY APPLYING THE PRINCIPLE OF EJUSDEM GENERIS WE HOLD THAT IN THE FACTS AND CIRCUMSTANCE S OF THIS CASE, SUCH AMCS SHOULD GET COVERED WITHIN THE EXPRESSION 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' SPECIFIED UNDER SECTI ON 32(1)(II) OF THE ACT AND ACCOR DINGLY ELIGIBLE FOR DEPRECIATION . IN PAGE NO. 16 THE RESULT, THIS ISSUE IS ANSWERED IN THE AFFIRMATIVE AND DECIDED IN FAVOUR OF THE ASSESSEE. 41 . NOW, TURNING OUR ATTENTION TO THE SECOND ISSUE UNDER CONSIDERATION I.E. DEPRECIATION O F RS. 1,85,44,612/ - AS ALLOCATED BY THE APPELLANT IN ITS ACCOUNTS TOWARDS GOODWILL AS PART OF CONSIDERATION TO M/S ECE INDUSTRIES LTD U/S 32(1)(II) OF THE ACT . IN THIS REGARD, IT IS IMPORTANT TO UNDERSTAND AS TO WHAT CONSTITUTES GOODWILL . 42 . I T IS BEING HELD BY THE SUPREME COURT IN THE CASE OF SRINIVASA SHETTY 128 ITR 294 , BECAUSE OF ITS INTANGIBLE NATURE IT (GOODWILL) REMAINS INSUBSTANTIAL IN FORM AND NEBULOUS IN CHARACTER. ITS VALUE MAY FLUCTUATE FROM ONE MOMENT TO ANOTHER DEPENDING ON THE CHANGES IN THE REPUTATION OF BUSINESS. 43 . FURTHER, A CLASSIC DEFINITION OF GOODWILL HAS BEEN GIVEN BY THE CONSTITUTIONAL BENCH OF THE SUPREME COURT IN THE CASE OF RUSTOMS CAVAS JEE COOPER V. UOI, [1970] 40 COMP CASES 325(SC) : THE GOODWILL OF A BUSINESS IS AN INTANGIBLE ASSET; IT IS THE WHOLE ADVANTAGE OF THE REPUTATION AND CONNECTIONS FORMED WITH THE CUSTOMERS TOGETHER WITH THE CIRCUMSTANCES MAKING THE CONNECTION DURABLE. IT IS THAT COMPONENT OF THE TOTAL VALUE OF THE UNDERTAKING WHICH IS ATTRIBUTABLE TO THE ABILITY OF THE CONCERN TO EARN PROF ITS OVER A COURSE OF YEARS OR IN EXCESS OF NORMAL AMOUNTS BECAUSE OF ITS REPUTATION, LOCATION AND OTHER FEATURES . 44 . HOWEVER, A QUESTION WHICH HAS TO BE ADDRESSED IS WHETHER GOODWILL, THOUGH AN INTANGIBLE ASSET, IS ELIGIBLE FOR DEPRECIATION UNDER SEC. 32 (1)(II) OF THE ACT. SECTION 32 OF THE ACT DEALS WITH DEPRECIATION AND THE EXPRESSION INTANGIBLE ASSETS IS DEFINED IN SECTION 32(1)(II) AS UNDER: IN RESPECT OF DEPRECIATION OF KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENSES, FRANCHISES OR ANY OTHER B USINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER 1 ST DAY OF APRIL 1998 45 . IT HAS TO BE NOTED THAT GOODWILL DOES NOT FIND ANY MENTION IN THE SAID SECTION EXTRACTED ABOVE HOWEVER, PURSUANT TO THE APEX COURT RUL ING IN THE CASE OF COMMISSIONER OF INCOME - TAX, KOLKATA V. SMIFS SECURITIES LTD., [2012] 24 PAGE NO. 17 TAXMANN.COM 222 (SC), IT WAS HELD THAT EXCESS CONSIDERATION PAID BY THE ASSESSEE OVER THE VALUE OF NET ASSETS SHOULD BE CONSIDERED AS GOODWILL OF BUSINESS. THE APEX COURT WENT ON TO FURTHER OBSERVE THAT, A READING THE WORDS 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' IN CLAUSE (B) OF EXPLANATION 3 WOULD INCLUDE GOODWILL IN TERMS OF THE PRINCIPLE O F EJUSDEM GENERIS . 46 . I N LIGHT OF THE APEX COURT RULING IN SMIFS SECURITIES (SUPRA) , WE OBSERVE THAT IN THE PRESENT CASE THE AUDITED BALANCE - SHEET OF THE ASSESSEE FOR THE YEAR ENDING 31.03.2003 PEG THE VALUE S OF MAINTENANCE PORTFOLIO AT RS. 18,34,74,000/ - AND GOODWILL AT RS. 1,85,44,612/ - RESPECTIVELY . IN THIS REGARD, IT NEED S TO BE POINTED OUT THAT, THE VALUATION OF ASSETS (BOTH TANGIBLE AND INTANGIBLE) HAS N EVER BEEN CHALLENGED BY THE DEPARTMENT AT ANY STAGE OF THE PROCEEDINGS I.E . BEFORE THE AO OR CIT (A) AND EVEN BEFORE THIS TRIBUNAL . THE TOTAL CONSIDERATION PAID AS PER CL.3.1 OF THE SAID AGREEMENT FOR PURCHASE OF MAINTENANCE PORTFOLIO STOOD AT RS. 20,32,10,000/ - . 47 . FROM THE ABOVE, IT GOES WITHOUT SAYING THAT THE CUMULATIVE AMOUNT OF RS. 20,32,10,000/ - AS SHOWN IN THE UNDERTAKING AND SALE AGREEMENT IS INCLUSIVE OF GOODWILL OF RS. 1,85,44,612/ - THOUGH THIS IS NOT SPECIFICALLY THE SUBJECT MATTER OF SLUMP - SALE IN THE SAID UNDERTAKING SALE AGREEMENT. THEREFORE, IT IS EVIDENT FROM THE SAID ARRANGEMENT THAT ON THE ONE END THE AMOUNT OF GOODWILL IS NOT REFLECTED IN THE SAID UNDERTAKING AND SALE AGREEMENT BUT A C UMULATIVE AMOUNT INCLUSIVE OF THE VALUE OF GOODWILL IS MENTIONED WHILE, ON THE OTHER END THE BALANCE SHEET S OF THE ASSESSEE DISCLOSE RS. 1,85,44,612/ - AS GOODWILL AND RS. 18,34,74,000/ - AS VALUE FOR MAINTENANCE PORTFOLIO. 48 . IN VIEW OF THE ABOVE DISCUSSION , WE CANNOT HELP BUT OBSERVE THAT EVENTHOUGH THE AMOUNT OF GOODWILL IS NOT A SUBJECT - MATTER IN THE SAID AGREEMENT, THE SAME IS DULY REFLECTED FOR IN THE AUDITED ACCOUNT BOOKS OF THE ASSESSEE FOR PERIOD ENDING 31.03.2003 AND HENCE, SHOULD QUALIFY AS EXCESS CONSIDERATION WHICH IS OVER AND ABOVE THE VALUE OF NET ASSETS . HE NCE, IN TERMS OF THE RULING BY THE APEX COURT IN THE CASE OF SMIFS SECURITIES (SUPRA), WE HAVE NO HESITATION IN HOLDING THAT, EXCESS CONSIDERATION PAID BY THE ASSESSEE OVER PAGE NO. 18 AND ABOVE THE VALUE OF NET ASSETS SHOULD BE CONSIDERED AS GOODWILL OF BUSINESS AN D IN LIGHT OF FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, SINCE GOODWILL IS DULY ACCOUNTED FOR IN THE AUDITED ACCOUNT S OF THE ASSESSEE FOR PERIOD ENDING 31.03.2003 AND THE VALUATION MADE DURING SLUMP - SALE OF BUSINESS HAS FACTORED THE VALUE OF GOODWILL IN THE COMPOSITE VALUE OF MAINTENANCE PORTFOLIO , THE RULING IN THE CASE OF SMIFS SECURITIES (SUPRA) WOULD SQUARELY APPLY TO THE PRESENT CASE. THUS, WE HOLD THAT IN THE FACTS AND CIRCUMSTANCES OF THIS CASE, GOODWILL A BEING IN THE NATURE OF EXC ESS CONSIDERATION SHOULD GET COVERED WITHIN THE EXPRESSION 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' AS SPECIFIED UNDER SECTI ON 32(1)(II) OF THE ACT AND ACCORDINGLY BE ELIGIBLE FOR DEPRECIATION . 49 . THUS , THIS ISSUE IS ANSWERED IN THE AFFIRMATIVE AND DECIDED IN FAVOUR OF THE ASSESSEE. 50 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 . 0 8 .2014. - SD/ - - SD/ - ( J. S REDDY) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :29 / 0 8 /2014 COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI